Page 5 - DMEA Week 35

DMEA COMMENTARY DMEA

The Sumood refinery is
one of several refineries
due to increase its
output.

2021, but the launch has since been pushed back of oil to China.
to 2023. It now says the refinery is nearing 90% However, the government is yet to form a
completion. council to manage the fund. And local media
Iraq has a raft of other greenfield refining pro- reports suggest that Iraq faces pressure from the
jects in the pipeline, including plants in Kirkuk US to suspend the deal with China.
(70,000 bpd), Wasit (140,000 bpd), Nasiriyah
(140,000 bpd), Basrah (140,000 bpd) and al-Faw What next?
(300,000 bpd). These units would add a total of At this stage, the many planned greenfield refin-
790,000 bpd, almost doubling Iraq’s nameplate eries seem more like a wish-list than a concrete
capacity from the current 800,000 bpd. development programme. Furthermore, the
Cash-strapped Iraq has a clear incentive choice of locations for some of them seems ques-
for expanding its refining capacity as soon as tionable. Given the planned output expansion at
possible, given the $2.5bn it spends annually Shuaiba, for example, it seems unnecessary to
on importing oil products. But even before the build the Basrah and al-Faw plants nearby as
coronavirus (COVID-19) crisis struck, these well.
projects were languishing. The considerable time it took to get the Kar-
There are several reasons to think that pro- bala project moving is testimony to the diffi-
gress now will be difficult. One factor is political culties in advancing such investments in Iraq.
indecision. Iraq’s parliament was finally able to The recent contract award to JGC is encourag-
agree on a new government in early May after ing, given that it is backed by financing from
a six-month deadlock. New Prime Minister the Japan International Cooperation Agency
Mustafa al-Kadhimi then took time to form a (JICA). But the fate of other less advanced pro-
new cabinet amid continued political wrangling. jects still seems up in the air.
Ismail was only appointed Oil Minister in early As Simm notes, plans to build out Iraq’s
June. refining sector have been on the drawing board
However, the new government has its atten- for almost 15 years. Part of the problem is the
tion stretched, to say the least. The pandemic, government’s desire to use build-own-operate
the oil price crash and OPEC+ cuts have pushed (BOO) and build-own-operate transfer (BOOT)
Iraq’s economy into a severe recession. The models to implement schemes, given its precar-
government is unable to cover state spending, ious financial 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.” ™

Week 35 03•September•2020 www. NEWSBASE .com P5