The Iraqi parliamentary oil committee decided to interrogate Oil Minister Hussein Al-Shahrestani on the following charges: the ministry’s failure to increase production capacity, mismanagement and rampant corruption in the oil sector.
The time has indeed come for a public interrogation centred on the performance of the Iraqi oil sector since the 2003 occupation of the country. While the constitutional responsibility lies with the parliamentary oil committee, conducting the interrogation at this particular time seems to be more of a process of settling political accounts than it is a professional attempt to improve the status of the oil sector.
This begets the following questions: Why didn’t the Ministry of Oil increase production capacity with the recent spike in prices, which would have allowed it to cash more revenues? Why didn’t the ministry increase production capacity even when prices dropped to offset diminishing oil revenues, especially that Iraq is not bound by OPEC’s production-related decisions in light of the special circumstances prevailing in the country?
Apparently, officials give priority to increasing spending regardless of future commitments, as if oil is the magic wand that can cover the mistakes in drafting the budget.
The truth of the matter is that obligations strained the state’s budget when oil prices were high, only to end in a huge deficit when prices dropped. Of course, the oil sector is not the one to be blamed. The responsibility lies here with the Council of Ministers. It expected oil prices to remain at their high levels overlooking their potential fluctuation and drop – as was the case in the summer of 2008 when prices rose to $147 and the winter of 2009, when prices fell to $35.
Iraq has failed to increase its productive capacity. Indeed, production rate still stands at 2.50 million barrels per day, with the oil production capacity of the South dropping by 200 thousand barrels a day to 1.73 million barrels a day in the spring of 2009.
But why this drop in the first place? First, there are the non-stop wars, then the embargo, occupation, terrorism and sabotage that have rocked the country since 1980. There is also the exodus of Iraqi oil experts and the shortage of qualified cadres. For the oil sector to recover, these experts must return to Iraq, where any classification based on ethnicity, religion, and confession must be ruled out so that the experts can lead, along with their families, a safe and decent life. This tragedy goes beyond the Iraqi Oil Ministry to encompass all other economic sectors as well.
There is also the problem of rampant corruption unprecedented in Iraq’s modern history. As proof, numerous multi-billion scandals surfaced at the ministries of defence, electricity and trade. As far as we know, no direct charge was levelled at the minister; there is only talk of corruption in the oil sector in general. In addition, there are the smuggling operations which earned the smuggling gangs millions of dollars. The members of these gangs are not ordinary smugglers, but are the followers of major political parties which provide them with protection, not to mention the gangs linked to terrorist groups.
Al-Shahrestani is also criticized because he was not as quick as the Kurdistan government in signing agreements with international oil companies. Kurdish leaders criticized his position, along with the government’s, over the powers of the Kurdistan government in negotiating and signing agreements with international oil companies. This begets the following question: What kind of agreements was the minister supposed to reach and sign? Production-sharing agreements like those implemented in Kurdistan? Why did these agreements cover discovered, even productive fields, for at least a quarter of a century, without any talk of geological risk?
As a matter of fact, the minister is negotiating technical service contracts, in the sense that international companies would operate as contractors under the oil ministry and not as its partner.
Of course, the international companies are not satisfied with this position and do not prefer this type of contracts. But their interest is not as crucial as Iraq’s.
Moreover, another criticism directed at the oil minister has to do with the bureaucratic and impractical relationship between the ministry and the national oil companies. This is true. But unfortunately, this is governed by the nature of the inherited Iraqi regulations, which provide for a strong effective centralized government, rather than a barely functioning one. In the absence of a new oil law (the draft new law is still shelved in parliament since February 2007; its ratification does not apparently suit the influential political blocs), it is difficult to attract international oil companies to operate in Iraq, despite the country’s vast oil reserves. It is also difficult to institute a new system for coordination between the ministry and the national oil company, no matter how lucrative Iraq’s oil reserves are for these companies.
What’s really required is political stability, a new social contract, clear ideas for a new policy and a transparent system for the reconstruction of a modern oil sector, following the dismantling of the country's institutions. These are the foundations of a modern oil sector. The minister staying in office is but a temporary matter subject likely to change at any moment.
http://www.daralhayat.com/portalarticlendah/27907
The time has indeed come for a public interrogation centred on the performance of the Iraqi oil sector since the 2003 occupation of the country. While the constitutional responsibility lies with the parliamentary oil committee, conducting the interrogation at this particular time seems to be more of a process of settling political accounts than it is a professional attempt to improve the status of the oil sector.
This begets the following questions: Why didn’t the Ministry of Oil increase production capacity with the recent spike in prices, which would have allowed it to cash more revenues? Why didn’t the ministry increase production capacity even when prices dropped to offset diminishing oil revenues, especially that Iraq is not bound by OPEC’s production-related decisions in light of the special circumstances prevailing in the country?
Apparently, officials give priority to increasing spending regardless of future commitments, as if oil is the magic wand that can cover the mistakes in drafting the budget.
The truth of the matter is that obligations strained the state’s budget when oil prices were high, only to end in a huge deficit when prices dropped. Of course, the oil sector is not the one to be blamed. The responsibility lies here with the Council of Ministers. It expected oil prices to remain at their high levels overlooking their potential fluctuation and drop – as was the case in the summer of 2008 when prices rose to $147 and the winter of 2009, when prices fell to $35.
Iraq has failed to increase its productive capacity. Indeed, production rate still stands at 2.50 million barrels per day, with the oil production capacity of the South dropping by 200 thousand barrels a day to 1.73 million barrels a day in the spring of 2009.
But why this drop in the first place? First, there are the non-stop wars, then the embargo, occupation, terrorism and sabotage that have rocked the country since 1980. There is also the exodus of Iraqi oil experts and the shortage of qualified cadres. For the oil sector to recover, these experts must return to Iraq, where any classification based on ethnicity, religion, and confession must be ruled out so that the experts can lead, along with their families, a safe and decent life. This tragedy goes beyond the Iraqi Oil Ministry to encompass all other economic sectors as well.
There is also the problem of rampant corruption unprecedented in Iraq’s modern history. As proof, numerous multi-billion scandals surfaced at the ministries of defence, electricity and trade. As far as we know, no direct charge was levelled at the minister; there is only talk of corruption in the oil sector in general. In addition, there are the smuggling operations which earned the smuggling gangs millions of dollars. The members of these gangs are not ordinary smugglers, but are the followers of major political parties which provide them with protection, not to mention the gangs linked to terrorist groups.
Al-Shahrestani is also criticized because he was not as quick as the Kurdistan government in signing agreements with international oil companies. Kurdish leaders criticized his position, along with the government’s, over the powers of the Kurdistan government in negotiating and signing agreements with international oil companies. This begets the following question: What kind of agreements was the minister supposed to reach and sign? Production-sharing agreements like those implemented in Kurdistan? Why did these agreements cover discovered, even productive fields, for at least a quarter of a century, without any talk of geological risk?
As a matter of fact, the minister is negotiating technical service contracts, in the sense that international companies would operate as contractors under the oil ministry and not as its partner.
Of course, the international companies are not satisfied with this position and do not prefer this type of contracts. But their interest is not as crucial as Iraq’s.
Moreover, another criticism directed at the oil minister has to do with the bureaucratic and impractical relationship between the ministry and the national oil companies. This is true. But unfortunately, this is governed by the nature of the inherited Iraqi regulations, which provide for a strong effective centralized government, rather than a barely functioning one. In the absence of a new oil law (the draft new law is still shelved in parliament since February 2007; its ratification does not apparently suit the influential political blocs), it is difficult to attract international oil companies to operate in Iraq, despite the country’s vast oil reserves. It is also difficult to institute a new system for coordination between the ministry and the national oil company, no matter how lucrative Iraq’s oil reserves are for these companies.
What’s really required is political stability, a new social contract, clear ideas for a new policy and a transparent system for the reconstruction of a modern oil sector, following the dismantling of the country's institutions. These are the foundations of a modern oil sector. The minister staying in office is but a temporary matter subject likely to change at any moment.
http://www.daralhayat.com/portalarticlendah/27907