Time for KRG-Baghdad revenue handover deal running out: Iraq oil minister

Speaking to Rudaw on the sidelines of the Abu Dhabi International Petroleum Exhibition & Conference, Iraq Oil Minister Thamir Ghadhban warned on Wednesday that with 2020 budget allocation legislation imminent, time is running out for Erbil and Baghdad to hammer out their differences. 

Relations between Erbil and Baghdad plunged in 2014 when the Kurdistan Regional Government began exporting oil directly to Turkey. Baghdad responded by cutting the KRG’s budget share – one of the main reasons for a four year slash of KRG employee salaries.

Iraq’s 2019 budget bill stipulates Iraqi federal government will pay KRG salaries regardless of whether other terms are honored. For other budget allocations, Baghdad requires the KRG to export 250,000 barrels of oil per day through Iraq’s state oil-marketing company SOMO and hand over all federal revenues to the central treasury - which the KRG has yet to do. 

Ghadhban said that in order increase the level of oil exported from Kirkuk to Turkey’s Ceyhan port, Baghdad is planning to build a new pipeline from Kirkuk to Peshkhabur, to replace an old pipeline which was severely damaged by Islamic State (ISIS). However, export increases to Western markets are not an immediate term priority, he said.

 
Rudaw: How is the situation regarding relations between the KRG and Iraqi federal government?

Thamir Ghadhban: They have generally been good since the election of Mr. Nechirvan Barzani [as Kurdistan Region president]. He came to Baghdad, and there was a fruitful meeting with His Excellency the Prime Minister of Iraq Mr. Adil Abdul Mahdi, which was followed by another meeting after the election and appointment of Mr. Masrour Barzani [as PM]. I attended the two meetings. There was an agreement between the two sides that...we are a unified country with sovereignty and that both sides should work together... to serve the people of Iraq, all over the country, whether in Basra or Erbil, and issues like the payment of salaries, like oil and gas, should be solved amicably between the two parties. Both sides agreed that our reference is the constitution. 

This was also followed by a meeting in Erbil. I was leading a delegation that met with his Excellency Mr. Masrour Barzani, and later we met the President of the Region of KRG Mr. Nechirvan Barzani. Of course, relations are better. Both sides are [determined] to solve issues between the two sides through dialogue to serve the country, to serve the people of Iraq and serve the people of Kurdistan. We agreed to further dialogues, and to forming sub-committees to look into oil and gas issues, to revenue-sharing issues and issues of security.

Concerning oil and gas, how are the negotiations going? Which stage of talks are you now at? Is there a level of understanding between the two governments?

First of all, I would like to say that there have previously been a lot of problems regarding solving these issues, how to agree on a common policy, how to market oil produced in the region of Kurdistan, the role of SOMO and how to deal with revenue generated from the sale of Kurdistan Region oil. 

We have agreed we should really prepare a list of a number of principles that should guide us, those who are going to engage in dialogue.I would not call it negotiations, because the federal budget law of 2019 is very clear. It [contains] rights and obligations. We in the federal government are now paying salaries of all the employees of the federal region of Kurdistan, and similarly for the Peshmerga within the budget of the Ministry of Defense [of Iraq]. But the law also states very clearly that the KRG should commit to the handover of at least 250,000 produced barrels of oil to the federal government so that SOMO, the marketing company of the federal government, can sell it on the international market and the money generated be deposited into the federal government treasury. Unfortunately, this has yet to be done.

Of course there is a lot of dismay and disagreement, especially within the special committees and parliamentarians in Baghdad, about the KRG not adhering to and respecting the [budget] law, passed by the whole parliament and agreed to and voted on by Kurdish parliament blocs. Now, there is an exchange of papers between the two sides, and I hope those issues will be solved in meetings in the coming days, and that we both respect the implementation of the federal budget law – otherwise, there will be immense difficulties in the coming budget law of the year 2020.

In your opinion, how long it will take for negotiations to bear fruit with the KRG to reach an agreement? Do you think Baghdad and the KRG will be done with these disagreements before passing the 2020 budget?

I think it is in the interest of the KRG that we move forward swiftly. We should not [waste] time. We are now in September and it has been … almost seven months since the approval of the budget law. There are now detailed discussions taking place about the 2020 budget law within the federal government. I think we should not be taking our time. We should not talk about negotiation anymore; we should talk about working together and implementing the federal budget law, and also agree on the principles that will guide us both for the year 2020.

Does the Iraqi government have any plans to increase the export of oil via the Kurdistan-Ceyhan oil pipeline? How much oil is now going through Ceyhan oil pipeline?

We are currently exporting about 100,000 barrels of oil per day. Currently, we do not have a plan to increase export levels. This is simply because of the limitations of North Oil Company [Kirkuk-based state oil company] production capacity. Also a lot of oil [is] being processed at refineries inside KRG - the KAR refinery and Qaiwan refinery.  We provide approximately 140-150,000 barrels of oil per day [to those refineries]. The main export route from the south, where we have ample capacity, because the biggest market for Iraqi oil is South-East Asian markets, rather than European Union or American markets. So, we will keep that level for next year. 

At the same time, we are now in the process of going ahead with the construction of a new pipeline from Kirkuk to Peshkhabur to replace the old pipeline which was severely damaged by the terrorist organization of Daesh [Islamic State]. Once we have that, and we have more connections with networks from the south, then we will be able to export more than the current 100,000 barrels of oil per day at some point in the future.

In 2014, the Ministry of Oil in Baghdad filed a complaint against KRG officials [due to independent oil sales]. What is your view on this case and how it should be resolved?

Well, it is within the federal court and has taken some time, of course. We are not really putting pressure [on case proceedings], but at the same time, [we want] the issues solved amicably for the good interests of the whole people of Iraq, and a sound and sustainable agreement detailing that we have common policy. 

I am now facing difficulties with OPEC, as the KRG is producing increasing amounts without coordination with the federal government - a serious matter, of course. Our accord with OPEC is for the whole country, not the federal government alone. Therefore, whatever production is happening within the federal region of Kurdistan is accounted for as part of Iraqi produced oil. Thus, as I earlier said, once we have a common agreement, and we have a common policy to regulate the production and exportation of oil, I think all pending issues will be solved for the people of Iraq.

Baghdad took legal action against Turkey with the International Chamber of Commerce (ICC) in 2014 in Paris, after Ankara announced that oil from the KRG was being exported to international markets. What is your viewpoint now?

Well, there is now dialogue between the two sides. We hope that we come to an agreement. The most important point, which is really a valid point, is that we have a bilateral state-to-state agreement [with Turkey], and that any use of the system by a third party should be done with the consent of the two parties. But what has been done in the past has been unilateral action, without the consent of the federal government. That is why the previous government complained, and I think they were right to do so.

Transcribed by Zhelwan Z. Wali

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