Oil Ministry’s “Odious Contract Trap” with ExxonMobil

By Ahmed Mousa Jiyad.

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

The Ministry of Oil and the “Odious Contract’ Trap” with ExxonMobil’ Consortium

Talks have intensified recently about the continuation of negotiations between the Ministry of Oil (MoO) and ExxonMobil/CNPC consortium that might lead to the signing of a contract for the “South Iraq Integrated Project (SIIP)” at an estimated cost of $53 billion and a duration of 30 years, but no official confirmation or indications on the fundamental contractual provisions that were agreed on and those still pending.

In the light of the available information, material evidence, actual examples, international geopolitical considerations and comparative analysis, a detailed evidence-based research and Report* was done on the project and related negotiation.

The report on SIIP’ possible contract comprises:

  • A necessary introduction and caveat;
  • Political and geopolitical implications of ExxonMobil behavior and its apparent link to the “deep state” based on many evidences that actually and factually had negative consequences on oil projects, for example, in Russia and in Iraq.

In Russia, ExxonMobil caused a delay of almost four years in the development of the Pobeda oil discovery in the Kara Sea when ExxonMobil withdrew, in late 2014, from its deal with Rosneft due to imposing US sanctions on Russia.

Iraq had three bad experiences with this company in recent years. The first, when ExxonMobil negotiated secretly and concluded, against declared government policy, deals with KRG in 2011 soon after the company secured West Qurna 1 contract through first bid round with the federal ministry.

That move led to excluding ExxonMobil from leading Common Seawater Supply Project (CSSP), reduce its Participating Interest in WQ1 and blacklisting it from any upstream project.

The second and third bad experience occurred this year when the company evacuated, unilaterally and without government consent, all its foreign staff from WQ1. All these three incidents caused tremendous damage to Iraqi economic interest.

  • Potential strategic risks, of an enormous scale, on SIIP that could be generate from the growing deterioration of the American-China relations as evidenced from the blacklisting of two major state oil companies, i.e. Zhuhai Zhenrong Corp and Sinopec. US escalating tension against Iran adds further geopolitical risks;
  • Analyses of what would be SIIP contract was premised on what was reported by national and international sources that are originally based on information given by unnamed Iraqi officials. That was due to the absence of clarity and lack of transparency of the ministry regarding essential contractual terms and conditions.

Based on the analyses and findings of the report, I am compelled to clearly alert and strongly, frankly and loudly warn both the Prime Minister and the Minister of Oil of the danger of pushing Iraq into a “trap of an odious contract” and by specifying ten of its most grave risks and disadvantages:

  1. ExxonMobil, as the consortium leader, is granted a monopoly position that allows the company directly controlling all vital oil projects in southern Iraq, and thus the entire national economy, for thirty years;
  2. It poses a multiplicity of major threats to national security and economic interest due to what can be called contractually-connected high strategic and geopolitical risks, since SIIP comprises many critical and vital projects such as Common Seawater Supply project-CSSP (for water injection), pipelines, storage tank-farms, export facilities, gas processing units and two oilfields;
  3. It contravenes the fundamental premises of the Iraqi Constitution because the contract requires “mortgaging/ reserving/ booking” two oilfields, with a combined plateau production of 500kbd, exclusively for the two foreign oil companies, i.e. ExxonMobil and CNPC, for the entire term of the contract- 30 years;
  4. It offers “Profit-Sharing Contract”, which, in reality, represents the monetary side of a “Production Sharing Contracts”, which, is impermissible by the Constitution;
  5. The announced astronomical cost (of $30bilion) increased already by $11billion in less than ten weeks while negotiating!;
  6. It offers all rent (windfall) resulting from oil price increases exclusively to the two foreign companies, nothing for Iraq!;
  7. It prevents SOMO (the only State Oil Marketing Company) from performing its role in marketing crude oil from the “mortgaged” two oilfields; this contravenes established policy, undermines annual state budget laws and weakens almost 50 years of SOMO’s function;
  8. It reduces the “national efforts” in the development of oilfields, thus, contradicting declared Ministry policy, weakens Iraq’s flexibility to comply with OPEC decisions through “swing fields”;
  9. Inconsistent with the regulations for tendering and contracting government projects;
  10. It lacks both transparency and competitiveness.

Therefore, I suggested to the Ministry of Oil not to continue on wasting time and causing further delays: it should officially declare that it is not in Iraq’s economic interest and national security to award SIIP to ExxonMobil-CNPC (and for this matter to any one consortium) and end, immediately, all and any related negotiations.

In the event that the Ministry of Oil and/or the Government insist on going ahead with this Odious Contract with ExxonMobil-CNPC, it becomes inevitable to refer the matter to the Federal Supreme Court to invalidate the contract on the bases of incompatibility with the Constitution; for eradicating the highest interest of the Iraqi people, including future generations (principle of inter-generational equity)  and for returning Iraq to what looks like abhorrent concessions of the, colonial, past.

*A brief of the original Arabic text of the entire report was circulated widely within many networks and was published by and posted on many websites, and accessible on the following links:

الحذر يا وزارة النفط من “فخ العقد البغيض” مع شركة اكسون موبل

https://www.akhbaar.org/home/2019/8/261291.html

http://www.tellskuf.com/index.php/mq/83987-as174.html

http://www.sahat-altahreer.com/?p=49115

Click here to download the full article in pdf format.

Mr Jiyad is an independent development consultant, scholar and Associate with the former 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: mou-jiya(at)online.no, Skype ID: Ahmed Mousa Jiyad). Read more of Mr Jiyad’s biography here.

6 Responses to Oil Ministry’s “Odious Contract Trap” with ExxonMobil

  1. Ibn Al Iraq 21st August 2019 at 10:34 #

    Sir,

    With all due respect to Mr. Jiyad’s comprehensive analysis report which is noted eagerly, though some facts are exaggerated to attract Iraqis anger! I would like to ask him the followings and would appreciate his response accordingly:

    1- Iraq needs these vital projects since the nineties and more delays will only affect Iraq’s prosperity.

    2- The Common Seawater Supply Project “CSSP” was taken away from ExxonMobil in 2011, which was “ping- ponged” between SCOP and BOC for few years, then a PMC was appointed by BOC and yet the tendering is not finalized! who is responsible for the loss since 2011?? some Int., companies have lost their interest to deal with BOC and MOO

    3- The Mega Oil Storage Facilities was supposed to be retendered since 2013, only Nasseryah facilities is still under construction by the chines.

    4- The Export Facilities in Basra are aged and overdue for modernization and expansion to cater for Iraq oil export increase.

    5- it has been proved that its the only way that Iraq can rebuild its infrastructure projects through companies like ExxonMobil, Siemens, GE, BP, Shell etc even if the cost is inflated by 15%-20% and avoid waiting GOI’s bureaucracy, frauds and negligence.

    6- By working with such organizations this will signal positivity, stability in Iraq and encourage other Int. Cos to follow suite or we are the loser! it had worked out in so many countries

    7- what about the local Iraqis in Basra who should see great benefits and improvements by having better schools, roads, hospitals, housings etc

    lastly, I recommend that Int. experts to come up with recommendations to better protect Iraq’s interest rather than only putting a stick in the wheel.

    Thank you

  2. Zeiad Al-Hachami 23rd August 2019 at 14:34 #

    With all due respect to Mr. Jiyad and his valuable experience the oil and gas field, interesting article but I do have some disagreement with his views and on the accuracy of some of the statements made which I will not elaborate on since my focus is on the project, not the other information. As an ordinary Iraqi citizen, I might be a bit pragmatist in my views, but all driven from a lesson learned from modern history with Iraq’s interest and only Iraq’s interest in mind.

    We have studied in history class how coal was important as an energy source more than a century ago and how colonial powers fought wars to secure its sources. Presently coal is still there but no one thinks of it, history will move on to give oil the same fate and gas at a later stage. To explain this, a few points to be made:

     From a humble knowledge on energy in general, we see the world is undergoing an unprecedented change with a very fast pace now and in the coming years with new technologies in oil exploration and production such as CTL, fracking, advancement in offshore technologies, oil sand, new injection technologies and more in to make this commodity abundantly available and cheaper than ever in most parts of the world to the point that the middle east in no longer important for the world. Natural depletion at a 10% rate is considered with discovery rate of more than double the depletion rate. Hence, as proof of this point, the US Middle East disengagement strategy started under the Obama administration and the Trump return was just to cash-in and eventually will continue the Obama path.

     Fuel cells, renewable energy, electric cars, and new known and un-disclosed power generation technologies have already made their way to the street with an expectation to take over conventional means in the coming ten years. It has been stated by energy experts that 60% – 70% of oil product been used as fuel for the transportation sector which leaves the rest for petrochemicals and other use. Since most of the transportation sector will switch to electric and since current power generation is mostly dependent of natural gas and nuclear energy in addition to renewable sources, oil would not be a viable fuel source when all these technologies evolve. The meaning here is that oil will have an expiry as a strategic commodity, and this may not take long to take place. The oil will have the same fate as coal

    Giving the above and thinking of Iraq proven and undiscovered oil reserve, hypothetically think of an average production rate of 6 M BPD, it will take more than 100 to deplete Iraq’s oil reserve which by that time oil will have the value of current coal. The question here is; will this be fair for future generation and for the country’s future? for not optimizing the value of its natural resource and keeping a blind eye to the driving change in the world. It would be economically ignorant to think of keeping it underground when there is value for it, we will regret this bitterly in no more than ten years.

    We do have a skyrocketing rate of unemployment and poverty, especially in the south, any project and investment from international corporations is a rescue to our poor people in the south and all Iraqis. A cost/benefit analysis to this matter would significantly be on the side of the project even if ExxonMobil takes half of the oil.

    ExxonMobil, despite the stigma of their association with American politics, it is the most ethical and reputable organization currently working in Iraq by far and by no comparison to Chines, Korean, Italian, Malaysian, Turkish, and others. This attribute is direly needed in any company to works in a county currently being shredded by corruption.

    I do not know if the terms of the contract mentioned by Mr. Jiyad are true or not, but any contract is always subject to negotiation and open room for amendments and changes. Everything is negotiable in business. Why don’t we have a panel of experts from an international and National staff including Mr. Jiyad to discuss the terms in further details and seek alternatives? Even ExxonMobil, we can suggest to them to change their negotiation team since there was a stalemate for more than five years on this project, the team could be part of the impasse.

    Instead of killing the contract and branding it ominous, we better call for renegotiation and look for alternatives since the presence of the largest oil and gas corporation in the world will give Iraq a competitive place in the oil market, will extract oil in a faster pace before it is too late, and it will help Iraq’s economical reputation in the world.

    The last point I wish to make is also with pragmatist thinking, we throughout history been victimized by our neighboring countries and not having international support. Having ExxonMobil means bringing an American interest into the country and the region in general which ultimately derive political force to stabilize the country and the region. It would be unwise to be against this contract and it would be the ultimate wisdom persuading larger corporations to do business in Iraq. We as Iraqis do need this contract more than ExxonMobil but in fair terms to both.

  3. Ahmed Mousa Jiyad 25th August 2019 at 09:31 #

    Issues raised and highlighted by “Ibn Al Iraq” are fair and legitimate. But had he time to read my full report in Arabic through the provided links, he could surely find answers to and explanation of what he writes; particularly the “recommendations”!!!
    By the way, it might be proper to give his true name instead of “son of Iraq”
    Many thanks, Akhi, for the feedback.
    Ahmed Mousa Jiyad,
    I/DC&R,
    Norway
    25 August 2019

  4. Ahmed Mousa Jiyad 25th August 2019 at 20:50 #

    I thank and respect Zeiad Al-Hachami for his feedback and surely he is entitled to his opinion. But I find myself compelled to make the following remarks on his feedback.
    First, I sincerely wish he find time to read my full report in Arabic; the links provided at the end of my brief note posted on IBN that he commented on;
    Second, he talks about “lesson learned from modern history”; but these are by definition not static or fixed, they are interpretational and debatable; one “historical event” could generate very different interpretations by different people or school of thoughts, particularly by historian and scholars;
    Third, there is apparent inconsistency in what he writes and in understanding what the real issues are:
    Example 1, he writes “Presently coal is still there but no one thinks of it”, then he refers to “CTL”. That is not correct and, moreover, the acronym he used proves that big industries are still “thinking” and using coal!!
    Example 2: he writes “we will regret this bitterly in no more than ten years”, while he talks about Iraqi oil reserves!! If this is the case then why ExxonMobil insists for 30 year contract, if oil loses its position in the global energy mix in 10 year time!!!
    Example 3: he writes “We do have a skyrocketing rate of unemployment and poverty, especially in the south, any project and investment from international corporations is a rescue to our poor people in the south and all Iraqis.” But many international companies and particularly in oil sector have been working in Iraq since 2004, so why there is a skyrocketing rate of unemployment and poverty!!!???

    Fourth, the most shocking of what he writes is, “A cost/benefit analysis to this matter would significantly be on the side of the project even if ExxonMobil takes half of the oil.”
    I doubt very much that giving “half of oil” in any oilfield to the IOC would be proven by even the simplest cost/benefit analysis. Moreover, this type of giving-away of national resources and wealth looks like system of extreme exploitation such as Slavery, Feudal, Colonial/ Imperial, Occupation, and Apartheid.

    Fifth, he writes “ExxonMobil, …., it is the most ethical and reputable organization currently working in Iraq by far and by no comparison to Chines, Korean, Italian, Malaysian, Turkish, and others.”
    Could you please enlighten me (and the readers) what is the objective criteria and research methodology that you used to make comparative ethical assessment based on which you arrived at this conclusion????????? Or provide independent credible objective reference!

    Sixth, he writes “Having ExxonMobil means bringing an American interest into the country and the region in general which ultimately derive political force to stabilize the country and the region.”
    Please read my full report; ExxonMobil is already in Iraq since 2004 (as he admitted that), and, when you read my report, you will find it was, contrary to what you think, a source destabilization!!

    I could make more and thorough empirical, analytical and methodological comments as the issues are very complex and multi-disciplinary by nature.
    Best regards
    Ahmed Mousa Jiyad,
    IDC&R,
    Norway
    25 August 2019

  5. Ibn Al Iraq 1st September 2019 at 07:30 #

    Thank you Mr. Jiyad for your feedback.

    I will read your full article ( Arabic version). its often that ordinary people do not get the full picture of any project/deal. The MOO should be more transparent and adequate in handling such mega deals.

    let us hope that the Minister & Mr. Mahdi Al Ameedi take notes and tackle these concerns for the benefit of Iraqis. Though time of essence!

    Iraq has no other alternatives considering the current political & working conditions in Iraq!!

    God Bless Iraq.

  6. Zeiad ALhachai 2nd September 2019 at 09:53 #

    It is great pleasure to have this healthy and constructive collaboration with one of the world notable experts in the oil and gas field, Mr. Jiyad. Pursuant to my comments and in response to Mr. Jiayd’s reply. I appreciate the response and the healthy collaboration on this subject, not in defense of any party but Iraq interest, its people, and the future of the country in general. Although I wish to have a face-to face discussion on the subject but back and forth commentary is good and it gives time to read and reflect.
    1- I only read the English version of Mr. Jiyad’s articles which I assumed the same as the Arabic translation. I have stated that coal is still in use, but no one thinks of it as a strategic commodity, its current value not of any economic significance, it was almost phased out by oil and gas. The same fate will face oil once technologies evolves into more eclectic and renewable, and what I noted as still undisclosed research on new sources of energy could bring the end of the oil eras as a strategic source of energy.
    2- Our biggest lesson from modern history in the Iraqi oil and gas sectro, as I believe is expelling the IOCs in 1972 and 1973 instead of forcing them to negotiate and get them to agree to better terms and gradual nationalization. If we compare our self to other countries for example; Russia with all its mighty national oil companies did not get current production level without utilizing Shell and ExxonMobil, KSA kept the presence of IOC and moved on to be the largest oil producer, Qatar did not get its Gas world stage without the help of ExxonMobil, Shell, and others. Why we have the sensitivity to foreigners when the world in becoming flat and the playing field being levelled. Others have out performed us and kept us behind
    3- It is true that coal still there, I did not deny this but look at its importance 100 year ago and now. Is it still as strategic commodity? Oil will have the same fate
    4- It is typical and expected that technical minded people always adopt positivists paradigm with quantitative approach to their knowledge production measuring through numbers only and discrediting unmeasurable huminitic elements. Looking at current conditions in Iraq and especially the south for the past century, one would leave beyond consumable rhetoric such as colonial and imperialist and be more realistic in focusing on tangible results to treat current, immediate, and urgent social and economical needs. We have poverty that leads to countless social problems. Past and current political establishment did not address and solve the basic needs, economical policies mostly were failure. Why don’t we learn from others and bring foreign investments to our country to benefit economically and to build the capacity of our technical staff. The half giveaway in my post was deliberately exaggerated to show the sense of urgency of an ordinary Iraqi and how desperate we are for solutions to our economical problems in Iraq. Off course there must be details and estimates for any cost benefit study but in general discourse you can establish what’s called rough order of magnitude (ROM). The sense of urgency of our economical and social problems dictate our need for foreign investors to bring better solutions than our local alternatives which have proven to be failure for decades
    5- For the fifth point. Yes, ExxonMobil is one of the most ethical and reputable organization currently working in Iraq by empirical evidence. My data source is two folds; one from personal observation, ethnography, and field notes. During the past years I worked as consultant and representative to Iraqi companies working with IOC in the south, in Basra, Mayson, and Thi Qar. I found without any bias I found the chines the most corrupt, then to less degree others and the least was ExxonMobil, their personnel and system was not crackable to even the most corrupt Iraqi contractors. My second source of empirical data was a study of IOCs in southern oilfield especially on the project execution that I am in my final report writing. The study still undergoing data triangulation prior to peer review and publication. I was utilizing constructions and interpretive paradigm with narrative approach through semi-structured interviews with Managers and executive of a diverse international and national personnel with service companies, IOCs, and Iraq contractors and local national employees working for IOCs. The findings were in support of my assertion.
    6- In terms of American presence in stability, ExxonMobil did not work in Iraq until 2010 although they were negotiating since 2005 and they were not in Iraq since 2004 as your reply stated. You are absolutely correct about American presence and instability but there is big difference between military presence since 2003 and economical presence. And last, let’s debate means and ways of having the contract with fair terms as I stated instead on being biased towards killing the contract.

    All the best

    Zeiad Alhachami
    Nassiriay, Iraq,
    August 29, 2019

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