MERI Forum 2014 | S8: Baghdad – KRG relations (Part 3)


Session 8: Baghdad-KRG relations, between interdependence and independence
Date: 06/11/2014

Part 1: Intervention of Qubad Talabani (Deputy PM, KRG)
Part 2: Intervention of Bayan Jabr al-Zubaidi (M. Transport, Iraq)
Part 3: Intervention of Ashty Hawrami (Minister NR, KRG)


Transcription of Ashty Hawrami (Minister of Natural Resources, KRG)

Dear respected guests,

You must forgive me, I am going to speak in oil language -which is English- since my topic is on economy and oil. So I hope to be precise with the facts, contribute to the debate and stimulate in a humble way the problems facing us. I also would like to suggest some, hopefully practical, solutions to resolve the differences between Baghdad and Erbil.

To start from the beginning, in 2006 when I became minister and returned to my country in thirty years for the first time, I was shocked by what I saw. The legacy of Saddam Hussein in Iraq was plain to see.

There was lack of security, a political vacuum, damaged infrastructure and hardly any services. Kurdistan was safer but it was an isolated economic backwater. There was hardly any economic activity. The airport indeed was like a port cabin when I landed. We had jerry cans in street corners instead of petrol stations. We had hardly one and a half hours of electricity, only in the night often. And the sky was yellow with generator’s fuels. There were three goals set for me by the Prime Minister when I landed.

He asked me to look at Kurdistan, to look at Iraq, to look at these resources and to look how people live. There are three things that I had, as a minister, to work on:

  1. Self-sufficiency in power generation. We cannot rely on Baghdad and we have to become self-sufficient. Nobody else will do it for us. We have to do it ourselves.
  2. Self-sufficiency in supply of fuel, diesel, benzene, kerosene to our public within the region to be self-sufficient for internal consumption and not to rely on and complain to Baghdad for sending too little too late.
  3. To lay the foundations for the region’s economic viability and indeed its self-respect and financial independence. Not an independent country, but financial independence.

I am glad to say the first two are close to being achieved. For the electricity generation, together with the private sector, we built power plants, fuel generation of electricity with diesel and increasingly with the national gas, now we have near 23/24 hours power generation.

On the second goal, for the self-sufficiency in fuel for distribution to our public, again we started from scratch; we built two medium refineries, and a number of topping plants but a few of them are in reasonable shape to provide us sufficient products for our people. The two refineries handle the capacity of 200 000 barrels and some 60 000 capacity is available in the smaller refinery that we can, from time to time, rely on.

Indeed when ISIS came in everybody expected the planes would not be able to land because we do not have jet fuel. It took one week for our refinery to adjust this process to produce jet fuel. Thanks to the techniques and technology that were embedded in the original plan, nobody has noticed shortage of even jet fuel.

So, ladies and gentlemen, the two achievements alone have brought our goals closer.

And now to the economic self-sufficiency. So how did we get to that point? Our policy initially focused on a pro-investment / pro-business approach. Our ability to cut through red tape and regulate to prevent the state from mismanaged economic activity had a big contribution to the economic revival of Kurdistan.

Further, in 2006 and 2007, we tried our best -and my dear friend Bayan Jabr was an active member of the committee- to reach an agreement on oil and gas law. However, it was sad to see everyone, or most of them, pushing for a re-centralization of the sector. At the end, we abandoned the process and in 2007 we passed Kurdistan’s first investment law in the energy sector. In September 2007 this became the law of the region and has abolished all the laws applicable in Iraq that acted under the regime of Saddam Hussain. So in Kurdistan there is only one law applicable and that is the Oil and Gas Law for the Kurdistan Region. It does not apply to the rest of Iraq unfortunately.

Today oil companies have invested some 20 billion USD in exploration for oil and the success rate has been around 70%. And I recall back to the discussions we used to have in the committee meetings in Baghdad on the draft oil law. I remember a number of colleagues telling me: “Ashti, there is no oil in these mountains; why don’t you sit down and take your share and abandon this process?”. We persevered, and we managed to find oil. We managed to prove that the resources in Iraq are in abundance. Not just in the south, but indeed actually in the middle as well, in Mosul and around Diyala as well. Thank God we have evenly distributed oil throughout the country.

There are some 50 companies despite threats and blacklists in the old days from the Ministry of Oil in Baghdad. We have now three major producing fields, and three more will come on stream during the next couple of two/three months from now.

We produced some 180 000 barrels per day for domestic consumption, which is within our 17% budget entitlement, when you look at Iraq’s processing of 700 000 barrels of oil per day. And we are now close to exporting 300 000 barrels per day. Probably this week it will be ther first with this volume through Ceyhan in Turkey. It gains significance if considering that, at the beginning of this year, we only produced 50 000 barrels per day.

By December 2014, we expect to export 400 000 barrels per day, and by January/February [2015] we will rise to 500 000 barrels per day.

Now, why are these figures significant? I would like to take a pause here to say what its value is.

Its value is actually to achieve the biggest budgetary equilibrium with our entitlement with Baghdad. For a country, this should be highly respected. A big region as Kurdistan is no longer a burden. It is actually self-sufficient, therefore more prosperity for the rest of Iraq.

Kurdistan has always acted within its constitutional rights, and Iraq’s constitution is a safeguard for the unity of the country, as we all know Article 1. And here again I want to remind this to my dear friend Bayan Jabr, who was very supportive on the revenue sharing framework that was discussed.

But then, hesitation always came back: “if we do this for Kurdistan, tomorrow Basra will ask, Diyala will ask, etcetera”.

The fear to deregulation and decentralization is a sickness we have in Iraq, it is a disease. We fear the next guy, the next province. We should actually actively promote decentralization. Decentralization doesn’t mean fragmenting the country. It means that the right people make the right decisions at the right time, just as I described the solutions for the power generation and refineries. We all work together for the benefit of this country called Iraq. I believe decentralization will be the guarantor of unity, as opposed to the break-up of the country.

And as some of you probably heard the Prime Minister yesterday mention that federalism in Iraq indeed has failed so far. Federalism is what is required in Iraq, the true federalism, which means that the pillars are power sharing, economic welfare, and equal distribution.

Deregulation means decentralization, it does not mean centralization which was an era of 90 years before. For Iraq to maintain its unity it requires federalism.

So I am not here to talk about changing Iraq’s borders or separation, although this might be desirable by some of our people. I am here talking about strengthening unity through power sharing. Strengthening unity through sharing the political wisdom, through all the pillars that bring this country together as Iraq.

Baghdad will always remain an important economic partner of Kurdistan, but it must be a real partnership. And not a relation based on centralized control or red cards every time we do not agree, cutting our budget or sending less money or delaying it, or closing the borders, shutting the airspace and so on.

This is not what it means to be one country. Being one country means finding solutions by dialogue and agreement.

So, that system of centralization has not worked and is not about to start to work. So we have to be fast on our feet and think about true federalism to bind us together.

We are and we are still open to talks and that is why we joined the government. And we aim to continue our discussion until we reach an agreement. We want to create dialogue that what we do will be beneficial to us all and we want other people to hear us out, that we are not damaging Iraq, we are building Iraq here.

I believe if our counterparts actually believe in federalism, then our talks will have a great chance. We can build together a new relationship on a new page, and we will agree on moving forward as partners, economic partners. One-country partners, but with self-respect.

This is not just between Kurds and Baghdad. I believe Iraq needs this for all the provinces in order to actually have unity. So with that, what I would like to say, and which perhaps also has been said elsewhere, I believe we have three principle requirements when we are negotiating with Baghdad:

  1. KRG expects its true 17%. Not a diluted 17%. 17% does not mean 10,5%. We also have costs for defense, security, presidency and parliament just like Baghdad. All these expenses are sovereign costs, so we could either pull them together, or we have the real 17% and we pay for our services ourselves as we are expected to pay from the 10%. This is one thing everyone within Kurdistan perceives as injustice. We must readdress and correct this.
  2. We must decide to a genuine revenue sharing. When the oil is sold, distribute the revenue. That is required under the constitution and my friend Bayan Jabr referred to the article which we all believe in. But the revenue sharing has not happened. Budget is an expenditure mechanism, sharing revenue is a partnership. They are two separate things. Even if you go to a corporation; stakeholders take dividends, they don’t just take wages. We are just wage earners here; we are not true partners in the revenue of the country.
  3. We want to maintain our right -we believe it is our right- to sell our oil. Yes, to the highest price possible. Yes, transparently and accountably. Yes, our federal partners can come and watch and observe everything, make sure we are actually transparent. But why should this be centralized and why should there be one company that was created by Saddam Hussein for his own defense and for his own pocket? Why should not this suddenly be available for other pockets now?

We should deregulate. If you go around the globe, countries do not get involved with the market. They set the regulations, the highest price possible and the criteria. Companies will eventually go and sell. Certainly in the Kurdistan Region, we have the intention not to leave to the Ministry of Natural Resources to sell the oil. We want to actually get the companies to meet their obligations to sell the oil at the highest price and return the revenue to the state. We all benefit from that because their expertise collectively is by far better than mine, and for sure better than SOMO’s.

Let me address some of the remarks made in the previous sessions by my good friend Bayan Jabr. You have to look at the three components of Iraq, or even the individual provinces.  A study has apparently been done. They say: if you become separate, therefore everyone one day shuts their borders and you become landlocked. You will have no friends. What will you do? Today you have Turkey, tomorrow you have Iran, two days later neither.

In reality, we are not endorsing separation. But even if it happens, we expect Iraq to be our friend anyway. We expect separation by mutual agreement –not by war. So you actually set down a mechanism for coexistence. Do we coexist through centralization? No. Can we implement federalism? Maybe, but nobody is happy with it. If you want to go to economic independence, well, that might exist but without separation. If nobody is happy with that and it leads to separation, we still have to do that by agreement. Therefore all your borders are all open. My borders are open to Iraq. That day is far away, but I am saying we should be looking at things not by creating new tension. We should be looking at solving the problems in the best way possible and do so by agreement.

Now, I want to address the relationship with Turkey, because a lot of people talk about it and it is a country that has open doors to us, to all of Iraq. Our energy relationship with Turkey is strategic. I want to repeat this. I believe in that. Recently I have heard criticism that it is only skin-deep as far as Turkey is concerned. There are some doubters, and they have the right to raise that.

Let me tell you – Turkey needs Kurdistan, perhaps at least as much as we need Turkey. That is a strategic relationship we both recognized. We are working as partners on economic cooperation and on oil exports and that is important to us. Indeed, Turkey is a big market. Not just Kurdistan, all of Iraq. Turkey spends 60/70 billion on energy supplies, almost the entire budget of Iraq. It is a big market for us.

During recent events of ISIS, coming to the region, everybody expected the deterioration of a lot of things and certain things have happened. But I am glad to say that oil export remained resilient. We have some 60% increase in exports actually, since the first bullets were fired in Kurdistan. And this is significant in order to increase the production and export throughout.

So, in summary, we are approaching our third goal: economic independence. And that does not mean political independence. There are ways to address that. What does it mean? It means transparency; it means we only take our 17%. We could start talking about sharing the barrels of oil. We do not even talk about the money. How much oil did Iraq produce in barrels, Kurdistan included? We would like them to say: “You are entitled to so many barrels, do whatever you want to do with it, Kurdistan, export it, consume it, sell it give it to Turkey for no return, give it to Iran for no return, it is up to you; these are you barrels do what you want to do with it, but you cannot take more than 17% of Iraq”. Transparency through Iraq and solutions to the domestic disputes is what we need, so that we all coexist and live together, forever if you like.

What I want to say is that I have been in this business for 40 years. Oil has traditionally been in nasty places. When you look at Africa and everywhere else, there is always some political problem but I do not remember ever seeing stranded oil for long. When there is oil, it will flow. Even, look at the current position of ISIS -every country is against it. I had Americans, everyone, coming to us asking help to stop their smuggling of oil. We have friends and I don’t think our oil will be stranded for long. So I do not think we should fear Iran, Turkey or anybody else, but indeed neither our friends in Iraq.

I hope we coexist. If federalism doesn’t work, then confederation. This is not a problem. We have to solve the problem by dialogue, not by increasing the tension.

Ladies and gentlemen, thank you very much.

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