By Ahmed Mousa Jiyad.
Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
The Refining Industry - Continued Misalignment amid Investment Illusion
More than fifteen years ago a new refinery-specific law was promulgated and then the Ministry of Oil-MoO paid millions of dollars for commissioned international consulting firms to undertake Front End Engineering and Design (FEED) and feasibility studies for a number of new refineries configured to produce petroleum derivatives in compliance with Euro 4/5 standard.
Many tacit objectives stood behind the move: modernize the refining sector to address initially domestic supply-demand misalignment (import substitution) and then export the surplus (export promotion).
All that to introduce a vertical structural diversification along the value-chain of petroleum (desirable structural change) and the new refineries should, mostly, executed through private investment, national or foreign (privatizing the refining industry).
When the FEED and feasibility studies were done, MoO organized promotional events to attract private investors for these new modern refineries and throughout the years many of the refineries went for repeated offering.
At end 2020, none of those refineries materializes despite of the many and high valued incentives and exemptions offered by the related investment laws. Surprisingly, the Ministry keeps déjà vu; reoffering and offering even more other new refineries for investment without any FEED or feasibility studies.
Recently, I published two-part essay written in Arabic, circulated widely and posted on many websites; the essay undertakes, in part one, comparative Gap Analysis, uses formal data, adheres to evidence-based approach and presents six facts (with Infographic) featuring the reality of the refining sector.
In part two, the essay argues that lack of planning, mismanagement, wrong policy orientation captured by private investment illusion and, possible, formidable "pressure interests" had contributed to this very serious failure of Iraq' oil policy that keeps costing the country dearly, annually. The essay presents some suggestions to remedy the situation.
This article is premised on the findings of the said essay; it also demonstrates that refinery gap manifests chronic local production-demand misalignment as outcome of the technological configuration of the outdated refineries. It calls for careful important distinction between two types of refinery gap analysis: aggregate and product-specific to avoid misleading interpretation and wrong policy recommendations.
The article argues further that private investment illusion-PII causes the country dearly, through dual-capturing effects, due to delay in resolving refinery gap. All charts are based on formal monthly data retrieved from different credible sources and compiled tabulated and produced by this author.
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.