ERBIL, Kurdistan Region - New laws allowing for greater scrutiny of the Kurdish oil sector could lead to renegotiation of contracts with foreign companies and probes into Kurdish corruption, Sherko Jawdat, head of the Kurdish Regional parliament’s natural resources committee, told Rudaw on Thursday.
“There are opportunities now for renegotiation [of oil contracts] but it’s not easy because of corruption and we have big battles ahead,” he said. “Just as the Peshmerga are fighting Daesh [Islamic State] on the borders, we are fighting corruption. We have the same role - to create a better Kurdistan.”
Analysts believe any renegotiation of contracts is a distant possibility because powerful figures in the government recognise it could scare off investors when the region still needed foreign companies to develop the Kurdish oil sector.
But Jawdat’s remarks reflect a growing desire among the Kurds for greater government transparency and clarity regarding the autonomous region’s finances and politics.
He was speaking a day after the cabinet approved two laws to strengthen oversight and to manage the region’s oil wealth. Parliament was expected to approve them by the end of the month.
Jawdat said Kurdish oil sales would allow the Kurdistan Regional Government (KRG) to pay the salaries of its more than a million-strong public sector workforce even if the international oil price continued its plunge to around $70 per barrel next year, as some analysts expect. Brent crude fell below $80 a barrel for the first time in four years on Thursday.
Independent Kurdish oil exports via a pipeline to Turkey started this year and this has provoked a bitter row with Baghdad, which has stopped paying the KRG its 17 per cent share of the federal budget of about $1 billion a month.
Kurdish officials say the region is close to economic independence, with exports currently at 300,000 barrels a day expected to rise to 500,000 barrels a day by next March. But analysts question whether the Kurdish region could generate and sustain enough revenue to stand on its own.
“If, as we expect, oil falls to around $70, we would need to sell 600,000 barrels just to cover the salaries,” Jawdat said.
The KRG is planning to set up a company, which might merge the activities of four existing government bodies. It would have the power to sign contracts for exploration, production, development, marketing and export.
The new company, to be sold to the public, would operate for 18 months until it was commercially viable and then shares would be floated. Government sources suggested this would be a way for the public to benefit from the region’s oil wealth other than through current subsidies at the pump.
The four state-owned entities that could be merged or reorganised are: the Kurdistan Exploration and Production Company (KEPCO), the Kurdistan Oil Marketing Organisation (KOMO), the Kurdistan Organisation for Downstream Operations (KODO), and the Kurdistan Oil Trust Organisation (KOTO).
The second law would create a “wealth fund” or special account consolidating the region’s various sources of oil revenue to provide transparency.
The oil sector is dominated by Ashti Hawrami, minister of natural resources, who works closely with Nechirvan Barzani, the KRG prime minister. Oil deals are negotiated in great secrecy because of political and commercial sensitivities. But a scarcity of public information has led some Kurds to distrust the government, analysts say.
Kurdish officials say production sharing contracts on terms favourable to foreign oil companies were necessary to attract the vast sums of capital needed for investment in a new territory replete with political risk.
The new Kurdish company and oversight mechanisms would introduce greater transparency, Jawdat said.
“It’s a matter of getting a systematic flow of information, trusted information that can be checked and verified,” he said. “The minister is very open with me but it’s not easy relying on one man. Renegotiation [of contracts] shouldn’t be done by one person but by the nation.”
Jawdat said parliament was also planning to closely scrutinise a bill to allow the KRG to seek funds through borrowing. The KRG has said it will use any loan for investment on strategic projects, not for government salaries.
“The government has said it would not borrow more than $5 billion and we will study the law’s weaknesses and strong points,” he said. “We need to know what would be the conditions of any loan.”
Systems were also being created to allow for the publication of the government’s expenditure and budget and these would also be ready by the end of 2016, he said.
Government revenues and spending in the Kurdistan Region are presently opaque, with ministers having high levels of discretionary power to utilise what would be public funds elsewhere.
“We’ve had no public finance system,” Jawdat said. “The Minister of Finance simply gets the revenues and pays them out in salaries, just like a bank.”
The KRG had earned about $2 billion from internal sources such as customs revenue as well as almost $2 billion from oil exports this year, he said.
He believed confederation, in which the KRG had even greater autonomy from Baghdad, was a better option than independence for the Iraqi Kurds.
“We’re not ready for independence yet because we haven’t created the institutions or systems of government,” he said. “It’s not easy governing yourself and we need time.”
“There are opportunities now for renegotiation [of oil contracts] but it’s not easy because of corruption and we have big battles ahead,” he said. “Just as the Peshmerga are fighting Daesh [Islamic State] on the borders, we are fighting corruption. We have the same role - to create a better Kurdistan.”
Analysts believe any renegotiation of contracts is a distant possibility because powerful figures in the government recognise it could scare off investors when the region still needed foreign companies to develop the Kurdish oil sector.
But Jawdat’s remarks reflect a growing desire among the Kurds for greater government transparency and clarity regarding the autonomous region’s finances and politics.
He was speaking a day after the cabinet approved two laws to strengthen oversight and to manage the region’s oil wealth. Parliament was expected to approve them by the end of the month.
Jawdat said Kurdish oil sales would allow the Kurdistan Regional Government (KRG) to pay the salaries of its more than a million-strong public sector workforce even if the international oil price continued its plunge to around $70 per barrel next year, as some analysts expect. Brent crude fell below $80 a barrel for the first time in four years on Thursday.
Independent Kurdish oil exports via a pipeline to Turkey started this year and this has provoked a bitter row with Baghdad, which has stopped paying the KRG its 17 per cent share of the federal budget of about $1 billion a month.
Kurdish officials say the region is close to economic independence, with exports currently at 300,000 barrels a day expected to rise to 500,000 barrels a day by next March. But analysts question whether the Kurdish region could generate and sustain enough revenue to stand on its own.
“If, as we expect, oil falls to around $70, we would need to sell 600,000 barrels just to cover the salaries,” Jawdat said.
The KRG is planning to set up a company, which might merge the activities of four existing government bodies. It would have the power to sign contracts for exploration, production, development, marketing and export.
The new company, to be sold to the public, would operate for 18 months until it was commercially viable and then shares would be floated. Government sources suggested this would be a way for the public to benefit from the region’s oil wealth other than through current subsidies at the pump.
The four state-owned entities that could be merged or reorganised are: the Kurdistan Exploration and Production Company (KEPCO), the Kurdistan Oil Marketing Organisation (KOMO), the Kurdistan Organisation for Downstream Operations (KODO), and the Kurdistan Oil Trust Organisation (KOTO).
The second law would create a “wealth fund” or special account consolidating the region’s various sources of oil revenue to provide transparency.
The oil sector is dominated by Ashti Hawrami, minister of natural resources, who works closely with Nechirvan Barzani, the KRG prime minister. Oil deals are negotiated in great secrecy because of political and commercial sensitivities. But a scarcity of public information has led some Kurds to distrust the government, analysts say.
Kurdish officials say production sharing contracts on terms favourable to foreign oil companies were necessary to attract the vast sums of capital needed for investment in a new territory replete with political risk.
The new Kurdish company and oversight mechanisms would introduce greater transparency, Jawdat said.
“It’s a matter of getting a systematic flow of information, trusted information that can be checked and verified,” he said. “The minister is very open with me but it’s not easy relying on one man. Renegotiation [of contracts] shouldn’t be done by one person but by the nation.”
Jawdat said parliament was also planning to closely scrutinise a bill to allow the KRG to seek funds through borrowing. The KRG has said it will use any loan for investment on strategic projects, not for government salaries.
“The government has said it would not borrow more than $5 billion and we will study the law’s weaknesses and strong points,” he said. “We need to know what would be the conditions of any loan.”
Systems were also being created to allow for the publication of the government’s expenditure and budget and these would also be ready by the end of 2016, he said.
Government revenues and spending in the Kurdistan Region are presently opaque, with ministers having high levels of discretionary power to utilise what would be public funds elsewhere.
“We’ve had no public finance system,” Jawdat said. “The Minister of Finance simply gets the revenues and pays them out in salaries, just like a bank.”
The KRG had earned about $2 billion from internal sources such as customs revenue as well as almost $2 billion from oil exports this year, he said.
He believed confederation, in which the KRG had even greater autonomy from Baghdad, was a better option than independence for the Iraqi Kurds.
“We’re not ready for independence yet because we haven’t created the institutions or systems of government,” he said. “It’s not easy governing yourself and we need time.”
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