Niqash - Sa’ad Salloum (Baghdad) – 28 May 2008:

In today’s Iraq, a country floating over a river of “black goldâ€‌, complaints of fuel shortages are always heard. Officials at the ministry of oil are incapable of convincing citizens that this river is locked under the ground waiting for investment to pay the costs of digging, extraction, transportation and refining, not to mention inadequate security conditions preventing progress.

At this stage, there is a dire need for oil refineries. Economic studies indicate the importance of establishing at least 15 refineries within the next three years to meet the increasing demand for oil, much of which Iraq now imports. As a result of the fully-utilized refinery infrastructure, continued military operations targeting crude oil pipelines and the location of some refineries in the midst of military operation areas, Iraq today produces only 20% of the local gasoline demand, 35% of kerosene demand and 42% of cooking fuel demand.

In December 2007 the Iraqi parliament approved the investment law in oil refineries and the government intends to sign agreements for the creation of new refineries with a number of companies (35 companies of different nationalities) who have submitted bids according to the law which allows foreign companies to establish refineries on lands leased for 40 renewable years. The implementation of this law promises a qualitative transformation in the oil sector compared to the period since 1972 when the oil sector was nationalized.

Omar al-Jibouri, a member of parliament, says that “the privatization of the refineries’ sector, after the huge open investment operation in the extraction and trading in crude oil is currently unavoidable given the increase in oil demand in Iraq.â€‌ He stressed the importance of “transparency in selecting companies seeking concession to establish refineries.â€‌

The law stipulates that bidding companies’ labour force must be at least 75% Iraqi. This condition in the law is considered significant by economic observers as it provides a social dimension of reducing unemployment especially among university degrees holders and specialists. Critics say the law does not specify the quality of local labor meaning that Iraqi employees may not work in advanced production operations which would improve their capacities and expertise.

Hama Amin, a member of the economic committee of the Iraqi parliament places great hope on development saying that it “may put an end to the importation of oil products and Iraq may become an exporter of these products.â€‌ Amin stresses that “importation of such products in a country considered as having the world’s second oil reserves and which ranks third in terms of production, is absolutely unacceptable.â€‌

Iraqi government refineries responsible for refining oil and supplying oil products are currently spread across the country. They are old refineries and their capacities have not been upgraded since the 1980s.

Among these is the Baiji Refinery Company (in Sallahuddin province) established in 1980 which owns four giant refineries considered the biggest in the Middle East. In addition, there is the North Refineries Company created in 1977, which includes a number of refineries such as al-Siniyah, Haditha, Kirkuk, al-Qayarah in Ninawah province and al-Sikak and al-Jazeera refineries. The Midland Refineries Company supervises a number of refineries including al-Dawrah, the biggest Iraqi refinery and the pivot of the company’s activities with a production capacity of 110,000 barrels a day. The company also supervises al-Samawa refinery. In Diyala province there is the al-Wand, the oldest Iraqi refinery which was created in 1931 with a production capacity of only 12,000 barrels a day. Additionally, there is the South Refineries Company which supervises the al-Muftiyeh refinery in Basra established in 1953 and al-Sha’ibah refinery also in Basra which was established in 1974.

None of these government refineries are mentioned in the law. The law only mentions that state refineries are in disrepair without any reference to the possibility of developing them. Instead, the law focuses on the establishment of new refineries by private companies operating in return for certain privileges including tax exemptions and the right to purchase crude oil at a preferential price, one percent below the international oil price.

According to the law, the Iraqi government will allow investing companies to install new oil pipelines. However, it does not specify who will be responsible for protecting these pipelines despite the huge losses the government incurs as a result of sabotage.

Government statements indicate that development has already begun with Indian and Iranian companies to build a refinery in Karbala which will eventually have a capacity of 160,000 barrels a day. The completion of the first phase of this project will help provide Karbala, Najaf and Babil provinces with their oil needs. It is expected that new contracts will be signed with international companies to establish al-Shinafiyah refinery which was planned to be established in 1985 in al-Qadisiyah province and another refinery in Dhi Qar province with a production capacity of 200,000 barrels a day.