VZCZCXRO0651
PP RUEHBC RUEHDE RUEHIHL RUEHMOS
DE RUEHKUK #0094/01 1111304
ZNY CCCCC ZZH
P R 211304Z APR 06
FM REO KIRKUK
TO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0587
RUEHC/SECSTATE WASHDC PRIORITY 0625
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEHKUK/REO KIRKUK 0653

C O N F I D E N T I A L SECTION 01 OF 02 KIRKUK 000094 
 
SIPDIS 
 
SIPDIS 
 
BAGHDAD FOR ECON, POL NCT, FCS, USAID, 
IRMO FOR BATES AND CAPLES 
 
E.O. 12958: DECL:  4/21/2016 
TAGS: ECON EPET PGOV ENRG PREL IZ NO
SUBJECT: KRG OIL REP SAYS DOORS ARE OPEN TO FOREIGN INVESTMENT 
 
REF: (A) KIRKUK 82; (B) KIRKUK 86 
 
KIRKUK 00000094  001.2 OF 002 
 
 
CLASSIFIED BY: JBIGUS, PRT LEADER, REO Kirkuk, DoS. 
REASON: 1.4 (b), (d) 
 
 
 
¶1. (C) Summary: KRG Erbil Oil & Gas Establishment General 
Director Serwan Aziz said that the Iraqi National Government and 
the Kurdistan Regional Government in Erbil were handling new oil 
contracts in accordance with the new constitution, as if it were 
already in place.  Aziz also said that when the two KRG 
governments merged, they would create a single regional Ministry 
of Oil in Erbil.  Because the central government "had never 
undertaken mineral exploration in the Kurdistan Region," Aziz 
concluded the KRG could develop mineral resources without 
involvement by the central government.  End Summary. 
 
Establishing an Oil Ministry in the KRG 
--------------------------------------- 
 
¶2. (SBU) KRG Erbil Oil & Gas Establishment (OGE) General 
Director Serwan Aziz met April 6 with USAID Representative and 
IPAO to discuss oil and mineral development in the Kurdistan 
Region.  Aziz said that the merged KRG government would include 
a new KDP-headed Ministry of Oil in Erbil. 
 
¶3. (SBU) Aziz said that, until the KRG created an oil ministry, 
OGE would manage petroleum and mineral development.  Aziz said 
the Norwegian government helped set up OGE by providing 
training, management counseling, and capacity building.  They 
were now negotiating an expanded relationship to include 
technical assistance. 
 
The Constitution is a Done Deal 
------------------------------- 
 
¶4. (SBU) Aziz said the Kurdistan National Assembly's creation of 
OGE enabled the KRG to develop its own resources in accordance 
with the Iraqi constitution.  Aziz interpreted Article 110 of 
the constitution as giving the national Ministry of Oil 
administration rights only over wells already producing oil at 
the time of Iraq's liberation.  Further, it said that the KRG 
administered any newly explored wells.  The national and 
regional governments would "consult" in each case, however. 
 
¶5. (C) Aziz said that the constitutional framework was easier to 
apply to the development of mineral resources.  To date, the 
central government had not undertaken any mineral exploration. 
Therefore, he concluded the KRG could develop mineral resources 
without interference from or the need to coordinate with the 
central government.  When pressed for specifics, he declined to 
elaborate, though he did say they had already completed surveys 
in some areas. 
 
The Baghdad - KRG Oil Relationship 
---------------------------------- 
 
¶6. (SBU) Aziz said coordination between the central and regional 
governments took place through a committee, which met to discuss 
pending Production Sharing Agreements (PSA's).  He said that, as 
a member of the committee, the Ministry of Oil in Baghdad 
provided counsel on strategic issues related to PSA's, including 
OPEC policies and oil exportation, but lacked standing on 
project details.  Aziz said there was no official liaison office 
between the federal and regional governments. (Comment:  This 
statement may be true in an official sense; in reality, however, 
Iraq's President Talibani is deeply engaged in both Kurdish and 
national discussions involving a wide range of issues. End 
Comment) 
 
Debate over Size, Scope of New Refineries 
----------------------------------------- 
 
¶7. (C) Aziz said that the national Ministry of Oil had agreed to 
build four small refineries in the Kurdistan Region, however, 
the KRG was not satisfied with the scope of the projects.  Each 
refinery (two units each in Erbil and Sulaymaniyah provinces) 
would only produce 20,000 bbl/d.  Further, they will not have 
units to separate the sulfur from the crude oil and gas.  Aziz 
said OGE was in negotiation with a company called Universal Oil 
Products (UOP) for refinery development.  Aziz said the region 
needed a much larger refinery and a better plan was to build a 
250,000 bbl/d refinery in Dahuk. 
 
PSA's And Foreign Investment 
---------------------------- 
 
¶8. (SBU) Aziz said OGE preferred using PSA's as the basis for 
partnering with foreign companies because the KRG was capital 
 
KIRKUK 00000094  002.2 OF 002 
 
 
challenged, and furthermore, PSA's helped control corruption in 
his view.  He said that based on geological surveys OGE had 
conducted, the area had been divided into several sectors for 
development.  A separate PSA would be negotiated for each 
section. 
 
¶9. (SBU) Aziz said that currently no Iraqi companies had the 
skilled workforce and experience to succeed in the international 
oil industry.  He said OGE employed over 80 geologists and 
petroleum scientists, enough to survey and assess the resource 
capabilities of the region.  The next stage of development, 
however, had to come from foreign investors and companies. 
 
Comment: 
------- 
 
¶10. (SBU) The KRGs in Erbil and Sulaymaniyah do not seem to be 
coordinating their plans for development of the Kurdistan Region 
with each other or, arguably, with Baghdad, though both are 
pushing for large refineries and massive foreign investment. End 
Comment. 
BIGUS