Page 7 - MEOG Week 36

MEOG COMMENTARY MEOG

The oil ministry predicted last year that the plant of oil to China.
would be ready in 2021, but the launch has since However, the government is yet to form a
been pushed back to 2023. It now says the refin- council to manage the fund. And local media
ery is nearing 90% completion. reports suggest that Iraq faces pressure from the
Iraq has a raft of other greenfield refining pro- US to suspend the deal with China.
jects in the pipeline, including plants in Kirkuk What next
(70,000 bpd), Wasit (140,000 bpd), Nasiriyah At this stage, the many planned greenfield refin-
(140,000 bpd), Basrah (140,000 bpd) and al-Faw eries seem more like a wish-list than a concrete
(300,000 bpd). These units would add a total of development programme. Furthermore, the
790,000 bpd, almost doubling Iraq’s nameplate choice of locations for some of them seems
capacity from the current 800,000 bpd. questionable.
Cash-strapped Iraq has a clear incentive Given the planned output expansion at
for expanding its refining capacity as soon as Shuaiba, for example, it seems unnecessary to
possible, given the $2.5bn it spends annually build the Basrah and al-Faw plants nearby as
on importing oil products. But even before the well.
coronavirus (COVID-19) crisis struck, these The considerable time it took to get the Kar-
projects were languishing. bala project moving is testimony to the diffi-
There are several reasons to think that pro- culties in advancing such investments in Iraq.
gress now will be difficult. One factor is political The recent contract award to JGC is encourag-
indecision. Iraq’s parliament was finally able to ing, given that it is backed by financing from
agree on a new government in early May after a the Japan International Cooperation Agency
six-month deadlock. (JICA). But the fate of other less advanced pro-
New Prime Minister Mustafa al-Kadhimi jects still seems up in the air.
then took time to form a new cabinet amid As Simm notes, plans to build out Iraq’s refin-
continued political wrangling. Ismail was only ing sector have been on the drawing board for
appointed Oil Minister in early June. almost 15 years.
However, the new government has its atten- Part of the problem is the government’s
tion stretched, to say the least. The pandemic, desire to use build-own-operate (BOO) and
the oil price crash and OPEC+ cuts have pushed build-own-operate transfer (BOOT) models to
Iraq’s economy into a severe recession. The implement schemes, given its precarious finan-
government is unable to cover state spending, cial position.
including civil servants’ salaries and pension “This model has largely proven unsuccessful
payments. through Baghdad’s decade-long efforts to enlist
Iraq also has other priorities in the energy the private sector to improve downstream provi-
sector, including rolling blackouts over the sum- sion,” Simm said.
mer that have further fuelled mass protests on Furthermore, some announcements about
the streets. projects have provided more confusion than
The next key obvious challenge is funding clarity.
for these projects. Financing has grown even “Following an update on the oil ministry’s
scarcer as a result of the pandemic, and investors downstream plans in 2019, ministry undersec-
are more reluctant to back ventures in Iraq given retary Hamid Al-Zawbaei said that the construc-
the political instability and security risks. tion costs for the refineries would be $3bn, with
Authorities had hoped to tap a $10bn joint rehabilitation costs being much lower,” Simm
fund with China to finance some of its refining explained. “Clearly these figures were unrealis-
projects. Under this so-called oil-for-projects tic, and served to add fuel to concerns about the
scheme, Iraq has agreed to deliver 100,000 bpd future of the projects.”™

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