View Full Version : $14.4bn Compensation to IOCs: How Accurate or Possible?

Investors Iraq News
04-05-2015, 01:57 PM
By Ahmed Mousa Jiyad.
The Minister of Oil, Mr. Adil Abdul Mahdi, made a recent statement through which he highlighted three interrelated important issues:

the first is that Iraq “lost $14,448,146,000” since 2011 up to the end of 2014 as “compensation” payment to IOCs;
the second he referred to article 12.5 of the long term service contracts; and
third he attributed this to “bad planning or due to obsolete instruction or measures”.

He then concluded by stating that “this is the real corruption.., and this is due to the real absence of planning and matured management” (http://www.alitthad.com/News_Details.php?ID=27986 (31 March 2015)
In my humble view the stated amount of paid compensation is so huge that neither legal premise nor actual production could justify it. Hence, there is something seriously wrong, suspicions and scandalous, as explained below.**
Let me take and address these three issues but in a reverse order.
Absence of sound planning and good follow-up
I fully agree with the Minister regarding the absence of good and sound planning, lacking of prudent resource management and prevalence of real corruption. I would even add further that the Ministry of Oil suffers from many serious and daunting skills and capacity gaps, especially with regards to development of upstream petroleum projects and their contracts.
There are ample examples and evidence in support of the above assertions especially post 2003 period. Moreover and without hesitation I could even argue that this unfortunate profile extends beyond the Ministry of Oil to the entire country on the macro-level whether that relates to the annual state budget, the four year national development plans or the Electricity Master Plan 2006-2015, or any other efforts at ministerial, sectoral and national levels.
In many of my documented contributions and interventions I had constantly criticized what I called the “Big-bush” strategy of the bid-rounds and highlighted the weaknesses or disadvantages (for Iraq) of the basic model of the long term service contracts-LTSC.
That said and based on a comparative analysis these LTSCs are better than PSCs and, thus, they do serve best “the highest interest of the Iraqi people” principle as enshrined in the Iraqi Constitution.
Therefore, the repeated recent attempts (by the Minsters of Oil and of Finance) to attributes all these shortcomings, malpractices and financial irregularities to the type of LTSC seems to be part of a concerted orchestrated campaign to advocates and lobby for PSCs contracts; and they (the two ministers) are only releasing testing balloons to measure the reaction to their calls for converting the federal ministry of oil LTSC to PSCs similar to those of the KRG; deliberately ignoring how disadvantageous those PSCs to KR economy.

Source: Iraq-BusinessNews.com. (http://www.iraq-businessnews.com/2015/04/05/14-4bn-compensation-to-iocs-how-accurate-or-possible/)

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