Jiyad: Båtservice Dubious Contract with IOTC Revisited

By Ahmed Mousa Jiyad (and amended by IBN).

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

Båtservice Dubious Contract with IOTC Revisited

The Iraqi Oil Tanker Company (IOTC), an affiliate of the Ministry of Oil (MoO), had previously contracted, in 2020, with the Norwegian Båtservice (Boat Service) company to build two tankers for petroleum products.

At that time, many questions and some doubts arose. The contract was implemented after a delay equivalent to, at least, the duration of the contract itself, and it became clear that the Norwegian company was merely a "commercial intermediary", as the two tankers were built in China and by a Chinese company. Despite the arrival of the first tanker last September, the Norwegian company was, as in December, still the "beneficial owner"!!!

MoO and IOTC kept the details of the contract in complete secrecy despite my follow-up and numerous questions about the subject. Now, I am following up the implementation of the contract, diagnosing the implications and posing questions about its legality and legitimacy. I call for an investigation into the validity of what I stated, especially what relates to contracting on the "broker" base  and the "broker" continue holding and retains the rights of the "beneficial owner" even though the two tankers are anchored within the Iraqi sovereign borders.

The MoO website posted a brief news about the Minister of Oil's meeting with the Chairman of the Board of Directors of the Norwegian company and his accompanying delegation on 5 February.⁽¹⁾

It is worth recalling that MoO under the previous, Mustafa Al-Kadhimi, government had previously announced on August 20, 2020, that the Iraqi Oil Tanker Company (affiliated with the Ministry) had contracted with the aforementioned Norwegian company for building two oil tankers/petroleum products, to be delivered within 18 months.

The Al-Kadhimi government's announcement above mentioned prompted me to write a detailed memorandum on the subject, publish it widely, and mailed it directly to the Ministry of Oil, the General Secretariat of the Council of Ministers, and many of the highest official bodies in the three state authorities, on August 20-21, 2020, entitled "Very urgent, worrying doubts related to the Iraqi Oil Tanker Company contract with the Norwegian company"⁽²⁾

The Ministry of Oil did not respond to what was mentioned in my memorandum.

On September 28, 2023, the Ministry announced the arrival of the oil products tanker "Sumer", with a capacity of 200 thousand barrels (31 thousand tons).⁽³⁾

As for the second tanker, "Akkad", which has the same specifications, international information indicates it sailed towards Basra on December 1, 2023. Apparently, as the following image indicates, it arrived at Basra, but without any announcement on the Ministry website or IOTC.⁽⁴⁾

To date, neither MoO nor IOTC has revealed any information about the two tankers except for the name, cargo, and pictures of the tanker Sumer in Khor Al-Zubair port in Basra Governorate. No information is available on the cost of either tanker, the actual payment terms, the contractual conditions related to the construction of the two tankers, the timing of the transfer of ownership, and other important contractual conditions.

On the other hand, the available information, including from external sources, points to issues, some of which are very important, which can be summarized as follows:

First: The delivery of the first tanker, Sumer, was delayed by 18 months, equivalent to the entire contract period. As for the second tanker, Akkad, no date on it arrival was published, but it could be close to 20 months.

It is not clear from the formal announcements, in this regard, if the Iraqi side had invoked the "delay fine" clause, if any, in the "secret" contract of this dubious deal!!

Second: The two tankers were manufactured and built in China, not in Norway and not by the Norwegian company- Båtservice. This means the Norwegian company role was, in reality and effectively, the "middleman" and not manufacturing and building the two tankers.

If that was the case, I believe this contradicts the laws and regulation pertaining to government/ official contracts, which prohibit contracting through intermediaries in such contracts or cases.

It is vital to assert, in this juncture, the Ministry of Planning (MoP), which is formally in charge of insuring compliance with official contracting regulations, had drafted elaborated guidance "Instructions and controls" governing official contracting in 2008 and 2014; MoP, should have it say on this matter. ⁽⁵⁾

Apart from possible contravention with the above regulation, IOTC could have directly contracted the Chinese company.

Moreover, and based on this information, I have strong reasons to suspect this case akin to contracts of questionable legal legitimacy, if not a clear example of official, high-level corruption, which is increasing and spreading at a rapid intense damaging pace in Iraq.

If the role of the Norwegian company is an intermediary, what is the amount of its share (Commission) in the total value of the contract, and who is the contractual party that bears the consequences of violating contractual terms, especially those related to qualitative, technical and operational specifications and other matters related to guarantees in the post-delivery phase of the two tankers.

Third - What is even more surprising and unusual is that I did not find on the website of Båtservice Company ⁽⁶⁾ any mention of the two tankers, nor pictures of them, nor about the visit of the company delegation to Baghdad, nor about any established cooperation relations with Chinese company, which built the two tankers. Why!!!

Fourth - A specialist at Lloyd's List Intelligence ⁽⁷⁾ was quoted as saying that the Norwegian company, as of December 6, 2023, is the "beneficial owner" of the vessel Sumer, in light of the contractual practices recognized in transactions for leasing and operating tankers, including oil tankers, such as "bareboat charter and leaseback deal."

But the aforementioned tanker arrived at Khor Al-Zubair/ Basra on September 28, 2023, and thus its ownership, according to an established legal provisions and practices enshrined in all upstream petroleum contracts⁽⁸⁾ belongs to the Iraqi contracted entity, i.e., IOTC in this case.

Therefore, what are the legal or contractual premises that allow the Norwegian company to continue as the beneficial owner, and what are the real legal and fiscal implications!!!

This is a very disturbing unclear matter, if true, not only for the tanker Sumer, but also for the second tanker, Akkad. Due to the importance and seriousness of the issue, I find it necessary for both the MoO and IOTC explain the matter fully with complete transparency. Hence, if the matter is proven accurate, the concerned authorities, especially the Federal Board of Supreme Audit-FBSA must step in and investigate this matter and determine the extent of its legality, legitimacy, and compliance with the prevailing directives and preserving national interest; and take the necessary legal actions. ⁽⁹⁾

Fifth - In light of what was mentioned above, and especially when their validity is proven, the MoO and IOTC must stop these dubious irregular contracts that, apparently, surrounded by abhorrent secrecy on the one hand and prohibit dealing with this Norwegian company in the future as a commercial intermediary, after settling all matters relating to the two tankers, Sumer and Akkad, on the other hand.

The above was part of my follow-up detailed commentary, in Arabic, on this deal that was communicated to the high levels at the three authorities in the country, and widely circulated within my networking contacts and other websites. ⁽¹⁰⁾

Norway

18 February 2024

End notes

(1) https://www.oil.gov.iq/?article=1930

(2)     https://www.akhbaar.org/home/2020/8/274596.html ,

http://www.sahat-altahreer.com/?p=66155

(3) https://www.oil.gov.iq/?article=1700

(4) Thanks to my colleague engineer Adil Al-Ani for sending this photo which shows both Sumer and Akkad docking at Khor Al-Zubair, Basra province.

(5)  Instruction for the Implementation of General Government Contracts No. (1), 2008, Article 8- Four. Al-Waqaee Aliraqiya, No. 4075 dated 19 May 2008. Also, Ministry of Planning, General Government Contracts Department, Instructions for Implementing Government Contracts No. (2) of 2014 and the Amended Controls, Control (4), Article- Six, July 2017 https://mop.gov.iq/en/general-government-contracts-department

(6) https://www.batserviceyards.com/vessels.html

(7) https://amwaj.media/article/why-iraq-s-oil-tanker-ambitions-haven-t-made-it-to-deep-waters

(8) As outlined in the Common Article in all contracts, Article 22 - Title to Assets.

(9) I have repeatedly called for full prompt effective involvement of FBSA in all deals and contracts negotiating or concluded by the MoO or any of its Public Companies under its auspices when related contracts are kept in secrecy or lacked full transparency. I am encouraged with the recent, 13 February 2024, joint meeting with the Minister of Oil and high-ranking Ministry officials held at FBSA Office to address procedural quarterly reporting on combating corruption at the MoO. https://www.oil.gov.iq/?article=1941

(10)

http://www.tellskuf.com/index.php/mq/113292-gf110.html

https://www.sahat-altahreer.com/author/62/

Also, it is an extension of a comment posted on IBN recently. https://www.iraq-businessnews.com/2024/02/07/iraq-committed-to-building-fleet-of-oil-tankers/

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.