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Analysis: Petraeus Makes Iraq Energy Calls

Published: March 18, 2008 at 5:53 PM
By BEN LANDO
UPI Energy Editor
WASHINGTON, March 18 (UPI) -- Gen. David Petraeus is calling on "large Western corporations" to invest in Iraq's energy sector as Iraq looks outside to boost oil, gas and power production.

Petraeus, who as commander of Multi-National Force-Iraq overseas all coalition troops there, said Prime Minister Nouri al-Maliki asked him to convey the message to companies.

"The prime minister is very keen on getting large Western corporations re-engaged in the oil and electricity sectors," Petraeus said Monday at a news conference in Iraq with Vice President Dick Cheney and U.S. Ambassador to Iraq Ryan Crocker.

Petraeus' spokesman would not tell United Press International which companies the general had called.

"We have made some initial inquiries on (Iraq's) behalf," said U.S. Army Col. Steven Boylan. "Rest assured it would be companies that have the capability and reach to take on projects of the size and scope that Iraq needs to continue to progress forward."

Iraq is producing and exporting oil at post-2003 heights, an extra boon when you figure in today's oil price. But most natural gas produced is burned as waste instead of consumed or exported, Iraq's power plants lack the fuel to give Iraqis even a quarter of demand, and there is still a massive fuel shortage. The oil, gas, refining and electricity sectors need billions of investment dollars to repair and modernize after decades of Saddam Hussein's mismanagement, U.N. sanctions and wars.

Exactly how that investment will funnel to the respective sectors isn't clear. U.S. and international post-war demands are Iraq should privatize its economy. While in many aspects the government is making that transition, most Iraqis support a nationalized energy sector, especially oil and gas production.

The prospect that international oil companies will be allowed into Iraq's world-leading reserves is one reason a draft oil law is stalled in Parliament. The tens of thousands of workers that make up Iraq's oil and electricity unions -- who support limited foreign participation -- have criticized Baghdad for not investing more of its own funds instead of waiting for international companies to put in.

Those companies say the legal status of investment is still too shaky. The Oil Ministry, for example, is relying on Saddam-era directives to negotiate limited two-year deals with Big Oil firms and an upcoming bidding round. Sources tell UPI those talks keep running into hitches. Iraqi oil and gas is a hot ticket still, further evidenced by the more than 100 companies that have pre- registered for the bidding round.

And if deals were to be signed there's no guarantee the companies will send money, let alone people, to Iraq until the security situation improves.

"Sometimes to get the ball rolling it takes a senior leader to engage other senior leaders in the corporate world to have a discussion" on the realities of security in Iraq, Boylan said. Boylan added it's part of the U.S. effort to help Iraq's government build its capacity. He said the level of security for these companies depends on the area of the country.

A spokesman for Shell, which recently authored a master plan for Iraq's gas sector, wouldn't confirm whether Petraeus had contacted the company.

"Shell executives hold meetings with a range of Iraqi government and interested third parties," the spokesman said, "the details of which are commercially confidential."

UPI's calls to a number of "large Western corporations" were not returned.

At least Shell, BP, ExxonMobil, Chevron and Total are negotiating Technical Support Agreements with the ministry. Iraq would pay transfer technology, training and equipment transfer to increase production in at least five of the largest oil fields. The ministry said the deals would increase production by about 100,000 barrels per day in each field.

Iraq is producing 2.4 million barrels per day now and is exporting about 1.9 million bpd. Iraq has set aside $2.5 billion over two years for the TSAs, according to U.S. State Department Minister for Economic Affairs and Coordinator for Economic Transition in Iraq Charles Ries, and dedicated more than $3 billion of its $13 billion capital investment budget in fiscal year 2008 to the Oil Ministry. Iraq has been able to annually spend only a fraction of the capital budget, however, as it's plagued by real and perceived corruption and a lack of institutional capacity.

Iraq's Electricity Ministry has complained that it has billions of dollars to spend on contracts, but so far there have been no American and European takers. China and Iran have signed the only large electricity deals.

(e-mail: blando@upi.com)

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International_Security/Energy/Analysis/ 2008