Investment still a risk with Iraq oil law
Investment still a risk with Iraq oil law
Posted on : 2007-02-27 | Author : Energy News Editor
News Category : Energy
WASHINGTON, Feb. 27 (UPI) Iraq oil investment requires proof of contract legitimacy, a business risk analyst says, and large projects could give companies very favorable terms.
Iraq's Cabinet Monday approved a draft of a hydrocarbons law that will govern all oil and gas development in the country. The move came after nearly a year of tense negotiations between the Kurdish Regional Government and the central Iraqi government over the authority to sign oil deals and revenue sharing. A compromise was reached over the weekend.
Iraq has 115 billion barrels of proven reserves but is only producing about 1.7 million barrels a day due to ongoing violence and the more than $20 billion of investment needed.
It bears remembering that the security situation is not the sole factor preventing additional development of Iraq's reserves from moving forward, Greg Priddy, global energy analyst for the Washington-based Eurasia Group, wrote Tuesday in the business risk firm ' s Energy Trendwatch. The law, as well as other accompanying legislation which has yet to make it to the Cabinet, must be approved by the Parliament. The law allows for contracts referred to as production sharing agreements, or PSAs, commonly issued in areas where oil is hard to reach or expensive to pump, unlike Iraq's. (The wording of the current draft was changed to Exploration and Risk Contracts, which are very similar to PSAs.)
Many groups, including the powerful oil workers unions, oppose PSAs and, Priddy noted, public perception in Iraq is that they will rob Iraq of its rightful revenues.
The perceived lack of legitimacy of PSAs entered into under the Hydrocarbons Law will remain a significant risk in the long term, Priddy wrote, adding the first projects will likely be small to develop a track record of contract compliance.Conversely, if the largest projects are included in the first round of bidding under the new law, the proposals received are likely to be disappointing to the Iraqi side, Priddy wrote. And in a country where violence is the norm and the political landscape is nowhere near set, the risk of completing, let alone signing contracts for such projects would be large.
Copyright 2007 by United Press International
The Iraqi debt burden has become little
The Iraqi debt burden has become little
27 February 2007 (Iraq Directory)
The efforts of creative Financial minds, the fine Iraqi diplomacy and the support of friends had a great role in reaching the Paris Club agreement to drop 80% of Iraq's debts to the (19) States of the Club, in addition to (56) States outside the Club.
The problem of Iraq's foreign debts, was one of the most serious dilemmas faced by Iraqi economy after security at the present stage; it was not expected that the day may come when economic analysts and experts in the world would predict that Iraq, whose economy was one of the largest economies in the Arab world and after it was one of the most important petroleum exporting countries, would borrow money, request others’ help and be tied by foreign debt of more than $125 billion in addition to the compensations which were adopted after 1991 and amounted to $ 35 billion of which Iraq paid more than $ 17 billion.
The mechanism of debt reduction is 30% directly at the beginning of 2005, and this reduction program was based on emergency aid, just like the post-conflict with the IMF which is a reduced international program in terms of conditions.
There are 30% we obtained after the (Stand by) agreement was signed with the International Monetary Fund, and at the second half of 2005 we will get the remaining (20%).
In fact, when we reach the year (2008) the debts will be reduced to (80%); this means that we will pay back only (20%) of the debt, and the payment will be over (23) years beginning of the year (2011); this means we have (6) years of permit from (2005 till 2011); however, we may be able to get rid of the remaining (20%) or change them into bonds and investments by agreement with some of the creditor States, which means that we may be able to restructure the debt before (2011), especially that there are some countries which cancelled their debt on Iraq by 100% like the United States, Australia and Malta.
It can be said now that the burden of the debt has become little upon the coming years’ budget.
There are a number of options that could ease the burden of the remaining debt depending on our negotiation strength, through convincing the debtors to change their debt into contracts and investments; we could also buy the debt from the market if Iraq's financial capabilities are developed in future. Debts are bought and sold; they are sometimes sold at 10 or 20% of their nominal value or according to the buyer’s capacity to pay.
There is also another method, we have managed to follow but achieved an unsteady success, when the government converted its debts into bonds; these are all good economic issues that Iraq has not entered before; however we achieved some steps ahead in ending the subject of commercial creditors, big and small.
Because of these bold steps, Iraq occupied a status among the nations entering the international market after it has settled its commercial debt; a solution which guarantees Iraq good relations with the world and with the international economic community, as well as create a proper investment environment.
To modernize the Iraqi Central Bank
To modernize the Iraqi Central Bank
27 February 2007 (Iraq Directory)
An expert in the Iraqi Central Bank expected that positive effects, in the long perspective, will result from the monetary policy of the Bank in fighting inflation through raising the exchange rate of the Iraqi dinar. The Director-General of the Statistics and Research Center in the Iraqi Central Bank, Madhar Muhammad Salih, said that the Bank seeks within its reforms to establish a modern and developed infrastructure for the central banking in Iraq through strengthening the payment systems that link the Central Bank to the banks working with automatic systems. He pointed out that this mechanism will enable the Central Bank to lend banks daily, when they are exposed to some of problems in the availability of liquidity, as well as reducing the risk of manipulation and fraud since this mechanism contains a high level of secrecy and confidentiality.
Salih revealed that there are procedures related to the development of bonds’ auction and remittances of the Central Bank, as well as encouraging open market operations; stressing its deep impact on liquidity ratios and growth of cash blocs. He explained that the sales rates in an auction increased from 200 billion dinars, after being 100 billion dinars each auction previously.
Salih called on following a coordinated financial policy with the Central Bank monetary policy to reach an economic stability based on the promotion of investment expenditure and reduce consumer spending in a way that helps in operating unemployed energies in economy, whether materialistic or human, as well as fighting against poverty and achieve the welfare of the poor within the social protection systems, stressing the need to focus the consumer expenditure upon these sectors, which requires reconsidering the support activities that must be given to the production sector as a priority, but not at the expense of the health, service and educational sectors.
Iraqi spokesman says Al-Sadr statement on security "misinterpreted"
Iraqi spokesman says Al-Sadr statement on security "misinterpreted"
27 February 2007 (BBC Monitoring)
Text of report by Dubai-based Iraqi private Al-Sharqiyah TV on 27 February
An aide to Iraqi clergyman Al-Sayyid Muqtada al-Sadr has stressed that Al-Sadr has not withdrawn his support for the security plan implemented by the Iraqi Government and the US forces in Baghdad. Al-Ajili accused the media of misinterpreting the statement because Al-Sadr trend continues to strongly support the plan.
[The above announcer-read report is followed by a video report citing Salih Al-Ajili, spokesman for Al-Sadr's political movement, as saying: "The statement Al-Sadr made on Sunday was intended to encourage the Iraqi forces to act independently from the US Army in Baghdad, adding that the media misinterpreted the statement since Al-Sadr trend continues to strongly support the plan. He added that what was mentioned in the statement was an advice to the Iraqi security forces which are capable of achieving better results without US assistance."]
Source: Al-Sharqiyah TV, Dubai