Basrah Governor Dr Shiltagh Aboud lays down his expectations from international oil companies in an interview with Ruba Husari in his office in Basrah Feb. 4th, 2010.
Q: Five of the oil fields development contracts awarded recently concern fields in the Basrah province, how do you see the benefits beyond the oil sector?
A: I personally consider that the organization of the bid rounds and the participation of companies from different nationalities is a big victory for Iraq and for the political will that was behind it. There were too many obstacles and difficulties created internally by political figures and parties who risked derailing the whole initiative because they did not wish to see Iraq develop quickly, particularly during this period. They wanted to prevent the current government of Nouri al- Maliki from taking credit for it. I also see the entry of those companies to Iraq and to Basrah as a huge support for us, in the same way they have been a great help to other oil producing countries such as Saudi Arabia, Kuwait or Libya. This is not just about extracting oil, it’s about an interaction, both economic and political. At the political level, Iraq will open up to all those countries where the companies come from: China, Russia, the US, the UK, Italy, Norway and others. It’s an important development because it will enhance our diplomatic relations with all these countries. There will be a social and cultural interaction between the staff of these companies who will arrive in Basrah and the local people. We also expect them to participate in building our area by taking part in the building of hospitals, schools, parks, cultural centers. These are all great services to the community which will create a bonding between those people and the Iraqi people.
Q: Those services you mention are not part of the contracts oil companies signed. Why do you expect them to spend on such services?
A: We had an old experience with the British company (Basrah Oil Co) of 50 years ago which people here still remember. At the time it built housing for the staff, as well as social clubs and cultural centers and all these still exist. The contracts do not make it compulsory for those companies to provide such projects. But as I have already told some of those who came to visit me, the key to get accepted among the local people is through offering help to the local communities. The oil projects will all use a lot of labor, whether specialized or non-specialized, which will also create sympathy between the people and the companies. For example, I advised those who will work in the West Qurna fields to start hiring from the areas and towns close to the fields before they expand their searches to the center of Basrah. People will defend the companies and protect them when they realize they are dependent on them for their living. They will not be considered as a burden or outsiders to the society, but rather as a source of goodness.
Q: What are the services the Basrah local council can provide to those companies?
A: It’s a difficult situation because we are still suffering from decades of neglect and we need to provide basic services to ourselves before the others. Basrah is in total disarray and in need of everything. But we are a hospitable province because Basrah is a coastal city which has been open to foreigners for hundreds of years. We will do our best to provide security for the companies and our police and security forces will look after them. We will provide them with land to build their housing and their offices, whether in the town center or in the fields’ areas. We will also help with the issuing of visas and facilitating their entry at Basrah airport and border crossings. We do not have a system yet to provide this on a systematic basis, but we do consider that our prosperity, our stability and our exposure to the world passes through these companies and that’s why we will do our utmost to help. Personally as the governor of Basrah I will gladly use every authority I have to help.
Q: Some of the first international oil companies to arrive are making the Basrah airport base as their headquarters for the moment. Do you consider this as a vote of no confidence in the Iraqi security forces?
A: I think they are a bit too cautious. If the Czeck ambassador came to Basrah eight times and travelled around on his own without any trouble, and so do other companies with projects in Basrah, including Irish and Turkish companies, then I don’t see why the oil companies couldn’t do the same. I invite all of them to travel around Basrah and they will see how secure it is. Some construction companies working in Basrah have told me they wouldn’t withdraw to the airport base because this will send a message that they are retreating leaving the scene to those who don’t want to see the place prosper. It takes a lot of courage from all of us; government, population and foreigners to make the place safe because Basrah is the number one city in Iraq for business.
Q: How do you expect the life of the average Basrawi to change as a result of the entry of oil companies into Basrah?
A: Initially there’s a big positive psychological impact as a result of the presence of the oil companies. The average man will be comparing the difference the old companies did for Basrah with the new ones. The companies will also make profit and I expect some of the profit to be recycled within the society here. But before anything else, it’s employment that will have the biggest effect on average Basrawis and I expect thousands of jobs to be filled from the area. We have a huge problem because Basrah University is 45 years old and 30,000 graduates enter the labor market every year. This is a big opportunity for our graduates. And they will be comparing their living conditions with that of their neighbors in Kuwait, Saudi Arabia and Abu Dhabi.
Q: The 2010 federal budget included the allocation of $1 to the local council for every barrel produced or refined and the same for every 150 cubic meter of gas produced. How will this additional source of revenue be spent and what are your priorities?
A: Well, this is going to be one of the windfalls we will get as a result of having international oil companies here because the more oil they produce, the higher allocations for us to spend. So we expect big sums to be allocated in the next few years. We have huge problems in Basrah and my priority is the infrastructure starting with sewage projects which requires billions of dollars and then electricity. We need to build 700 new schools in the Basrah province. We need to spend on these as well as on social services, namely taking care of orphans and widows as well as treating cancer infected people as a result of three wars we suffered. So I expect any allocations over the next 2-3 years will not be enough to fulfill these priorities but it will help partially together with the local provinces development budget in the federal budget. But as the oil production goes up, so will the state budget and our share in it. At the moment, we get a very reduced investment budget which in 2010 is about $220 million, compared to $350 million in 2009. So the new allocations linked to oil produced and refined in the province will definitely multiply our resources.
I believe the governor’s views are quite right, very positive and give assurances to the IOCs who signed contracts to develop oil fields in the Basrah governorate. The message is clear to the IOCs to engage with the local community and make an effort to reach out. It’s true that, and in spite of the monopolistic and concessionary nature of the old contracts IOCs had with Iraq, Basrah people did benefit from work opportunities, housing and other initiatives such as social and sports clubs …etc. One has to admit here that the priority is employment with Basrah population exceeding two million and high unemployment rate. The city has been deprived of work opportunities for decades though there are skilled and semi-skilled people. The example cited by the governor of the University of Basrah, and I may add the several institutes of technology including the Oil Training Institute, graduate several thousand of young people every year. The private sector is gearing up to cater for the demands of the international oil companies and a number of service companies have been established, on top of the already existing ones. New hotels have been and are being built. The construction of an oil or energy base is underway. Numerous contactors who are ready to pick subcontracts for civil works, transports, catering, …, etc. The port of Khor Al-Zubair is being rehabilitated to increase its offloading capacity.
An ongoing and widespread problem in the city of Basrah in general, and in the country side in particular, is the shortage of potable water due to the rising salinity of river waters and the delay in the construction of water treatment and desalination projects. I believe IOCs could help a lot in this regard, in particular for villages in the vicinity of the oil fields where they are going to work. They can also assist in improving medical and health centers, recreation parks in historical spots such as Qurna and the Marshes and of course they can sponsor sports clubs, which Basrah is well known, SOC Football Club being in the top first division in Iraq!
In my humble opinion-all what has been said by the Governor and the comment by Mr.Ghadhban are very nice and good talk; but remains wishful thinking. I do not think with a profit margin of less than one US$ for every barrel of oil produced the IOCs will be making, one can expect much from them to recycle some of their profit within the society to provide services to the communities in different parts of Iraq, unless it’s specifically defined in the contracts. The services badly needed in every aspect of life are the duty of the subsequent governments of Iraq and one can not rely on others to do the job for them (God help those who help themselves!).It is good that the services contracts signed by the MoO with various IOCs require that oil companies’ provide employment for at least 85% Iraqis and if not available within Iraq then they have to provide training. No doubt there will be indirect benefits to the people at large and some social and cultural interaction between the parties. But that is not enough and the provinces of Iraq are in dire need of a lot of services and that is the duty of the federal government and can not be achieved with out the proper management, peace and stability.
My comment was not intended to be “nice and good talk” as Mr Abdulzahra described it, nor was it the outcome of a misplaced conviction that we should rely on others to do our job. I think there is a mix up between contractual obligations and what IOCs can freely do in social outreach. In recent years, IOCs have been proudly presenting in conferences and meetings their contributions to the local communities in host countries around the world, by implementing projects such as the ones I and the Governor mentioned. They can of course refrain from doing so in Iraq and stick to the contracts. Some could even say why should we spend on anything outside our contractual obligations and nobody would force them to do otherwise. However, this isn’t what is being heard so far, contrary to the conclusions of Mr Abdulzahra.
I would like to make two points here in relation to the comment. The first point is regarding the IOCs profitability in the 1st and 2nd bid round contracts, on which I tend to differ with Mr Abdulzahra. Cash flow and profitability calculations showed that those projects are profitable indeed, with early positive cash flow in the case of the 1st bid round contracts, with an IRR in the range of 15%to 20% as stated by BP’s chief Tony Hayward, in the case of the Rumaila contract. He said: “We believe that this will be an opportunity that yields similar returns to those which we can get from other areas of our portfolio. The number that I have talked about is between 15 and 20 percent.” Similarly, Eni’s Chief Executive Mr. Paolo Scaroni said in the course of talking about the Zubair contract that “this contract is meeting our requirements in terms of return on investment.” As to the second point regarding the responsibility of the subsequent governments of Iraq in providing better services to the community all over the country, I think Mr Abdulzahra is quite right in saying so.