By:Shwan Zulal
KurdistanRegion has been in the spotlights ever since the Saddam Regime wastoppled from power by the US led invasion. The Region mainly attractedsmaller oil exploration companies to tap in to the largely unexploredoil rich region. Ever since the exploration companies have arrived, manyof them have described the region as an oilman's dream.
KRG(Kurdistan Regional Government) has took it upon itself to grant PSCcontracts for oil and gas exploration and now there are over 40companies operating in the region. Many companies like Gulf Keystone andNorwegian DNO have had good fortune of discovering large reserves ofoil and some have not been so lucky. Only this week Western Zagros WZRhas struck oil in Sargala 1 and secured a new rig on site to carry outmore exploration.
Thedisputes between the Iraqi central government and KRG have turned awaysome investors meanwhile many are undeterred and have invested billionsof US dollars looking for oil. The dispute has been over the legality ofthe contracts and technical details.
Mostcontracts awarded to operators in Kurdistan Region are PSC's with alevy for local infrastructure. The Iraqi deputy Prime minister for oil,Husain Shahristani, believes that KRG contract should be converted intoservice contracts in order to comply with the Iraqi constitution and theillusive oil and gas Legislation that is not yet in force.
Theinfrastructure and development tax applied to the oil contracts inKurdistan Region varies from zero to 40 per cent of profit. The localtax is the main sticking point between Erbil and Baghdad, because Iraqigovernment argues that the rest of Iraq would not benefit from the extrataxes paid for locally. Nevertheless, the Kurdish Authorities arguethat Kurdistan has been underdeveloped for decades and it needs theextra investment to build-up its basic infrastructure.
Comparingthe difference between PSC and service contracts if applied toKurdistan, one cannot see a very large difference in its profitabilityfor the government in the short or medium term. The difficulties manyoperators facing in Kurdistan due to lack of basic infrastructure andother challenges, would surly offset the argument for converting thecontracts to Baghdad's liking, because the cost involved in drilling foroil in Kurdistan and can be claimed would be very high. If KRG contractwith oil explorers were converted to service and all parties to thecontract agree-which is very unlikely- the gains for Iraq's cofferswould be minimal and in some cases, it may be more expensive.
Seeingthe facts and observing the political struggle between Baghdad andErbil, it is becoming clear that Shahristani's opposition to the Kurdishoil contracts is not for getting the best deal for Iraq as he claims,but in order to take full control of oil and gas industry and leave KRGcompletely dependent on Baghdad for its income. The policy pursued byShahristani is also designed to strip as much power as he can from KRGand try to centralise power in Baghdad.
Meanwhile,Kurdistan Region sees granting oil contracts and controlling itsnatural resources as its prerogative, therefore it would not easily giveup control to Baghdad. All matters considered, It is very unlikely thatKRG will back down and accept Shahristani proposals, however acompromise must be found otherwise the sorry state of Iraq wouldcontinue while Iraqis and investors grow more frustrated.
https://kurdishviews.blogspot.com/2011/06/kurdish-oil-contracts-and-shahristanis.html