Review of 2nd Report from Iraq Revenue Transparency

By Ahmed Mousa Jiyad.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The Iraqi Extractive Industries Transparency Initiative-IEITI (now called Iraq Revenue Transparency-IRT) issued its second report, entitled “Oil Export and Field Development Revenues in 2010”, on 27 December 2012.

The Report was released two weeks after EITI announced that Iraq is a compliant country.

I have good and regular contacts with many civil society organizations (CSOs) who are involved in the IEITI activities, and some asked for my opinion on the Report.

After thorough and careful reading, this review and assessment was done in responding to these requests, and as a contribution to the debate on the Report inside and outside Iraq.

My intention is to improve the quality and contents of the future IRT reports so that they would be able to present full, complete and verifiable transparency of revenues in the country.

After a brief background note, I will identify and highlight the main conclusions of the Report, then address specific problems and shortcomings of the Report and concluding with further overall remarks.

Please click here to read Ahmed Mousa Jiyad’s report.

Mr Jiyad is an independent development consultant, scholar and Associate with Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: [email protected]).

4 Responses to Review of 2nd Report from Iraq Revenue Transparency

  1. Ahmed Mousa Jiyad January 2, 2013 at 8:06 pm #

    As an update to my assessment I would add the following under item What is missing in the Report?

    The first missing item is related to a category involves many payment by IOCs to the MoO. The Bid Round-Related Payments (BRRPs) involves at least four known types of payments due in accordance with specific procedure announced by MoO:
    1- Process-fee. Each IOC pays specific amount to processes all documents and data it submits to MoO with regards to pre-qualification processes;
    2- Attendance fee. This fee is paid by the qualified IOCs to attend activities organized by MoO pertaining to each bid round, such as workshops and industry roadshows ect. These activities were convened in Amman or Istanbul;
    3- Purchase of data-package. For each bid round the MoO prepares data-package for the offered fields or exploration blocks. IOC pays specific amount to purchase each set of data for each field or block it is interested to bid for;
    4- Participation fee. Before attending the biding event interested IOCs have to pay participation fee.
    Total revenues generated from these BRRPs are modest compared with signature bonuses, but they could be in few million dollars occurred in 2009 (for bid round one) and in 2010 (for bid rounds two and three).
    However, the Report makes no reference to these payments. The MoO could (and should) present full statement covering the details of these payments, and such statement could be considered as addendum to the Report.

    Ahmed Mousa Jiyad
    Iraq/ Development Consultancy and Research
    Norway
    [email protected]

    2nd January 2013

  2. Ahmed Mousa Jiyad January 6, 2013 at 12:12 pm #

    Iraq Revenue Transparency issue new edition of its Report on 2010, after it received the text of new chapter seven only two hours after releasing the first edition. The below is a follow up and complementary to my earlier Review and Assessment dated
    After reviewing and assessing the new chapter seven on KRG, hereinafter referred to by “NC7”, I would like to make the following remarks:
    1- The “NC7” begins by stating, “The below data were not subject to reconciliation exercise due to limited time constraints, noting that the context below is exactly as received from KRG representatives.”
    This paragraph undermines further the quality and credibility of the entire IRT Report 2010 for three fundamental reasons: 1- it confirms the absence of reconciliation; 2- it confirms the contents represent “formal” views of the KRG, and this does not imply the approval of the Board of Trustees since no meeting was held to review and approve the text; and 3- accordingly, the “CN7” is very different from other chapters thus making the IRT Report 2010 of two-tier systems: one represent the rest of Iraq and the other for KRG.
    In my view this is wrong and could be damaging to Iraq standing within EITI.

    2- The contents of “NC7” fall in two parts: the first part is the longest and represents political statement of the declared views of the KRG. This part talks, among other things, about issues such as: «Erbil Agreement», (without «Kurdish leaders., one can only guess what unknown fate would have beset the country.»); “The passage of the Kurdistan Oil and Gas Law in 2007,., is in full harmony with Iraq’s federal Constitution,”. Also this part reflects the KRG own interpretation of the Constitutional principles pertaining to oil and gas, which contravenes other interpretations including the government of Iraq. Other contents of the “NC7” cover some provisions of Kurdistan Oil and Gas Law in 2007, other legislations; brief description about the production sharing contracts of the KRG, and highlighting the development in the region.
    The second part presents tables containing petroleum production by six active operating IOCs and their revenues mainly from domestic sales; export through SOMO.

    In my view the focus of IRT reports should exclusively be on the subject matter, which is reconciliation and verification of revenues and payments to ensure transparency and enable accountability. Such report should avoid indulging in political statements and counter statements by both the federal government and KRG. Finally the report in its entirety must comply with the rules of EITI on the qualitative, quantitative and procedural aspect of reporting.

    3- Total oil production in 2010 referred to in “NC7” is not consistent. In one place it refers to 27,483,775 barrels, while the tables give a total of 27,368,853 barrels. Moreover, these two totals are different from the total of 27,085,532 given earlier by KRG and mentioned in previous edition of IRT Report 2010.
    The “NC7” does not provide explanation for these disparities, so which one of these three totals is the correct one?
    4- “NC7” refers to three types of signature bonuses. But it provides no information on their values, when and by which IOCs, to which entity they were paid.
    5- Though “NC7” refute any “smuggling” it asserts export through Iran to the Gulf. Again it does not provide data on such export in quantity and value; who are the buyers; which entity received the related “export” revenues.
    6- All presented data represents KRG view with no “independent verification”, or confirmation from the related entities, IOCs, or banking source outside KRG;
    7- The NC7 mentions that Stock Tank Production in 2010 was 27,483,775 barrels out of that 2,176,791 barrels were exported via SOMO, and the remaining production was lifted to the main refineries (11,608,776), the Tawke refinery (1,430,692) and local topping plants (11,450,975).
    This means KRG allowed only 8% from its total production for export through SOMO while the rest 92% sold on local markets. However, the NC7 does not show confirmation from SOMO pertaining to the 8%, also no confirmation was presented from the involved parties in local sales.
    8- Total revenues created from local sales were $360,407,512 and if they are correct they give $14.24/barrel. But the 8% exported through SOMO were sold at $ 77.44/barrel (using the monthly weighted average price of Kirkuk crude in 2010). This represent significant loss, and thus one questions the justification for such policy and how this comply with “maximize revenues” which the “NC7” emphasizes!;
    9- The chapter gives no data on any taxes paid by IOCs on their received revenues, if they pay any taxes at all!
    10- The “NC7” provide no data or information on how much investment IOCs made in the petroleum sector in the Region.
    11- The “NC7” refers to “Stock Tank Production” without defining exactly what that means in relation to actual total production. There is information which says that IOCs tend to prolong “well testing period” for unreasonably long time (of many months) and sale the produced oil domestically. These quantities could be excluded from the “Stock Tank Production” and thus not accounted for. This matter needs further investigation and verification for better transparency.

    In addition to my earlier assessment of the Report I hope you find the above useful, relevant and could contribute to improving the quality and coverage of the report on revenue transparency in Iraq.

    Best wishes and kindest regards.

    Ahmed Mousa Jiyad,
    Iraq/ Development Consultancy and Research,
    Norway.

    6 January 2013

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