Page 10 - MEOG Week 13

MEOG PolICy MEOG
DNO said it was last paid in January, cover- ing September 2019 exports. As it faces delayed payments from the KRG, DNO said its opera- tions in the region were also being curtailed by the impact of the coronavirus (COVID-19), which will lead to a drop in production from several fields.
advance payments
The oil price crash and outbreak of the corona- virus, which has spread to Kurdistan and has led to limited movement of people and drill- ing activities for oil and gas companies, will exacerbate the regional government’s financial situation.
“[It is] hard to know what they will do now. Maybe more of the same advance payments for oil from traders like before,” said the source.
The KRG resorted to tapping advance pay- ments from oil traders during the last oil price crash in 2014-2015, when Brent plummeted from $115 per barrel in mid-2014 to less than $70 per barrel in the beginning of 2015.
“The KRG’s production-sharing contracts [PSCs] give a measure of burden-sharing between international oil companies [IOCs] and the KRG, and the advances it receives from oil traders prior to the [current oil] crash may be giving some temporary leeway,” said Osgood.
“But at sub-$40 prices – and now at sub-$20 due to the significant net discounts the KRG sells at – the region is effectively insolvent unless it radically cuts spending.”
The KRG has few options to shore up its finances and pay oil companies. It cannot bor- row or tap Iraq’s foreign currency reserves, which are expected to be depleted by the Bagh- dad government, which is already struggling
with low oil income.
“At $65 per barrel oil, the KRG was just man-
aging to pay its workforce with little or no cash for other services,” said Shwan Zulal, head of Carduchi Consulting. “At the current oil price, the region can no longer pay the oil companies nor the inflated public sector.”
2020 budget
To make matters worse, Iraq does not have a 2020 budget, which includes Kurdistan, because there has only been a caretaker govern- ment since December. Iraqi President Barham Saleh’s first choice for Prime Minister-designate Mohammad Allawi failed to win Parliament’s vote of confidence and withdrew his candidacy.
The new Prime Minister designate, Adnan al-Zurfi, has said he will expedite sending the new budget to Parliament for approval once he forms a government and gets Parliament’s vote of confidence.
The lack of leadership in Baghdad has made it difficult to implement an oil deal with the KRG that was reached in December last year.
The KRG agreed with the Baghdad govern- ment to deliver 250,000 barrels per day (bpd) of oil to state-oil marketer SOMO as part of a deal that includes payments of financial dues to KRG within the 2020 budget.
“The KRG is dependent on $384mn-$426mn a month from the federal government to pay wages and welfare payments, while declining to transfer any of the region’s oil to federal mar- keter SOMO,” said Osgood.
“At current prices this transfer makes up a majority of KRG revenue. As Baghdad faces dire fiscal and political crises of its own, the risk to that transfer increases significantly.”™
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w w w . N E W S B A S E . c o m Week 13 01•April•2020