Refining Iraq's Economy

Within five years, Iraq will turn from an importer of petroleum products into the world’s largest exporter, according to the Oil Ministry’s new investment map, unveiled in Nassiriyah this week.

To achieve this, Iraq has opened the door wide for international companies to build four new refineries and refurbish existing ones in order to boost production of oil products up to 1.5 m barrels a day.

The plan aims not only at transforming Iraq into an exporter of petroleum products but also to build the country’s ability to attract skilled scientific professionals.

"Iraq suffers from the absence of specialised cadre in petrochemical manufacturing," claims Hussein Shahrastani, the Oil Minister. He urged the Iraqi youth to join universities and colleges specialising in subjects relating to the petrochemicals industry, because “the oil industry will secure them good jobs in the future.”

Shahristani says Iraq currently produces 550,000 barrels per day (bpd) of oil products, including 12 million litres of gasoline, 15 million litres of Kerosene Oil, and about 9 million litres of white oil.

The bulk of new projects and the largest of all will be in Nassiriyah province, according to Ahmad al-Shammaa, the Ministry of Oil Undersecretary for Oil Refineries and Industries.

The new refinery will carry the name of the province and its production capacity will reach 300,000bpd, generating 600MW of electricity and having access to ports. The refinery is expected to cost US$8 billion.

Karbala is another major target of the map. Though its refinery will be the smallest built under the new plan, it will be the most important. Its production capacity will be 140,000 bpd, producing 400MW of electricity. Its importance lies in its central location, the centre of consumption and the place where all production will be stored.

Two refineries in Missan and Kirkuk, at a cost of US$500,000 each will produce 500MW and 400MW of electricity and supply Iraq’s northern and southern areas respectively.

With Iraq needing to encourage investors to the country, the Ministry of Oil and the Council of Ministers have decided, according to Thamer al-Ghadban, the chairman of the advisors' commission, to provide international companies with incentives.

These include a 5 percent rebate on world crude oil prices. Elsewhere in The Gulf, the discount is only 1 percent.

Investment companies will be allowed to own projects on their own or partner with local firms and their leases on land are expected to be extended from 40 to 50 renewable years.

"Many Asian countries, especially Korea and China, expressed interest in Iraqi refineries, because they need energy, they import crude oil and they want to improve their refining capacities," said al-Ghadban. “There is a mutual benefit for Iraqis and investors.”

Investment incentives will come also from the National Investment Commission.

“According to the law, the commission will be responsible for issuing investment licenses to companies,” said Sami al-Aaraji, the Commission’s Chairman. "The size of investment in refineries will reach some US $25 billion."

The Commission, says al-Aaraji, will guarantee “freedom to move capital in and out of the country, in addition to tax exemptions,” and make registration easier. Existing, off-putting, procedures have been streamlined under the ‘Single Door’ system.

"This procedure has been adopted because of the many complaints received from investors regarding the complicated procedures," said al-Aaraji.

Shahrastani says the refineries are already at the design stage. Investment proposals are expected by the end of the year, when the design of the Karbala refinery will be complete.

"It is then that international companies will be able to see the quality of facilities we want built, the amount of oil products we want to produce, and the time needed for the completion of the work."

US companies will design the Nassiriyah, Missan and Kirkuk refineries, with an Italian company in charge of Karbala’s design.

For Iraqis, the refineries will bring jobs, lower petroleum prices and better quality products, as well as providing fuel for home generators and wattage to help solve Iraq’s chronic energy shortage.

"Iraq needs a budget capable of improving the very weak infrastructure in the country," said Qasem Jaber, an economist.

“Investment must be increased and that is the Oil Ministry’s responsibility, because it provides about 85-90 percent of Iraq’s GDP. Other sectors are still inactive and they all need oil to start functioning.

"The developments will not take place overnight. The implementation will take up to five years,” Jaber explained.

He urged the government to invest in the country’s existing refineries.

"There is a gap between the production capacity of existing refineries, which is about 800,000 bpd and their actual production of 500,000  bpd.”

The Ministry of Electricity needs approximately 9 million litres of kerosene a day to run its plants. However, the Oil Ministry is only able to supply 4 million litres. The difference is being covered by imports from Kuwait and Iran.

“Any real improvements will only come if that gap is bridged. There is a chance now that the Oil Ministry has taken over energy production since the sacking of Iraq’s Electricity Minister, Kareem Wahid."

Hamza al-Jawahiri, an oil expert, described a change among oil-producing countries from exporting cheaper crude oil to exporting the pricier products of refining, bringing greater benefits to their economies, pointing to the example of Algeria.

"Now, the country is getting so close to exporting oil products instead of exporting crude oil," he said.

Not only does this mean more money coming in for refined petroleum products but it also means more jobs in refineries and service facilities for local workers.

However, al-Jawahiri warned that all the government’s ambitious plans for improving the oil sector must meet international environmental and safety standards.

“Failure to apply international standards in environmental protection and industrial safety are the most alarming risks. The Iraqi government must set strict public safety standards and rules and remain aware of all possible risks.”

(Source:  Niqash)

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