By John Lee.
The KRG’s Ministry of Natural Resources (MNR) has issued a statement which it claims will “set the record straight on oil export and revenue:” The full text of the statement is shown below:
In 2014, Dr. Maliki’s government cut the entire Kurdistan budget creating a financial crisis for the people of the Kurdistan Region.At that time, despite the limited capacity to export oil, the Ministry of Natural Resources (MNR), under the directive of the Kurdistan Region Oil and Gas Council, moved quickly to organize alternative financial support for the Kurdistan Region through a) increasing pipeline export capacity, b) boosting actual oil exports, and c) successfully securing from buyers pre-payments against future oil supplies.
Therefore, as a direct result of the above measures, the KRG had managed to survive financially during 2014, although payments of some government salaries were partially lagging behind. However other unexpected factors came to play that impacted hugely the financial situation such as the added costs ofthe war against IS terrorists and the economic burden on the Region from hosting 1.8 million refugees and internally displaced people.
Then at the end of 2014, following new budgetary discussions, the KRG and the entire political leadership in Kurdistan (including the 5 political parties in the coalition government) decided to give a chance to the new government in Baghdad under its new Prime Minister Dr. Al-Abadi.
This cooperation and coordination reached with Baghdad, was encouraged by all the Kurdistan political leaders which in general consisted of a plan to supply certain volumes of oil from the Kurdistan Region to SOMO in return for the KRG’s full federal budget entitlement during 2015, which was estimated at around $1bn per month, and this became an undertaking towards KRG in the federal budget law of 2015.
At the time of that agreement, although MNR was very pleased with the agreement with Baghdad, MNR internally registered its doubts based on experienced gained from all the past failed agreements whether Baghdad could or would in reality fulfil its financial obligations to Kurdistan under the agreed oil-for-budget plan. Nevertheless, MNR fully encouraged the KRG’s decision to proceed and actively did all that was possible to make the plan work for both sides.
Regrettably, as predicted by MNR, the KRG received only one third of its budget entitlement from Baghdad in the first five months of 2015. This led to a rapid deterioration of the financial crisis in Kurdistan Region and caused a significant backlog in the pay of government salaries, including those of the Peshmerga and security forces.
MNR predicting that the crisis will be deepened on the monthly basis, in the spring of 2015 it organized a series of meetings with the Regional Oil and Gas Council, the Council of Ministers, the political leadership of the five parties in Kurdistan, and our MPs from the Kurdistan parliament and the Kurdistan MPs from the parliament in Baghdad to explain and warn what lies ahead.
MNR explained the economic realities of the situation facing the Region and urged action to back reforms to cut government costs.
The Minister of Finance, supported by the Council of Ministers, took a lead on this and produced a credible reform plan to cut government costs and increase non-oil related revenues of the Region.
Unfortunately, the Minister of Finance did not receive the needed political support (particularly from some key decision makers in his own party) to implement that reform program. Thus, the budget shortfall from Baghdad, coupled with ever increasing KRG expenditure, led to more delays in government salaries and support for the Peshmerga and other vital security services.