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OO RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3516/01 2631010
ZNY CCCCC ZZH
O 201010Z SEP 06
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6996
INFO RUCNRAQ/IRAQ COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 003516 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 09/14/2026 
TAGS: ENRG EPET PBIO PREL IZ
SUBJECT: MINISTER OF ELECTRICITY KARIM WAHID HASAN ON 
HYDROCARBON LAW, ELECTRICAL SECTOR, BUDGET AND ICI 
 
REF: BAGHDAD 3341 
 
Classified By: CDA DANIEL SPECKHARD, EO 12958, REASONS 1,5 (B) AND (D) 
 
1.(C) Summary: On September 13, Econ Mincouns met with 
Minister of Electricity Dr. Karim Wahid Hasan to discuss the 
hydrocarbon law, the state of the electrical sector in Iraq, 
Iraq's budget implementation difficulties and the 
International Compact for Iraq.  Hasan confirmed that the 
Energy Committee had agreed on four major elements of a 
hydrocarbon law, but was unable to agree on what government 
level should have final contract approval authority for 
development of new oil fields.  On this and several other 
issues he was critical of Minister of Oil Shahristani, 
characterizing him as ill-suited to lead GOI development of 
the law.  Hasan did not believe that agreement on the law 
would come unless there was a resolution of the Kurd's 
interpretation of their rights under the constitution. 
Ultimately the law will have to be settled by politicians - 
it cannot be resolved by oil experts.  Hasan, an electrical 
industry expert, quickly raised daily peak output from 3700 
megawatts (MW) to 5000 MW after taking office 4 months ago. 
He blames insurgent activity for preventing him from going 
further, and now estimates that it will take 3-4 more years 
to meet peak demand of 9,600 MW.  Hasan blames Iraq's budget 
problems on the reluctance of ministry managers to authorize 
expenditures for fear of being caught up in Iraq's 
anti-corruption machinery.  He characterized the Committee 
for Public Integrity (CPI, the principal anti-corruption 
organization in Iraq) as inexperienced and arbitrary.  He 
noted that officials are afraid to be interrogated by CPI's 
investigators, and inaction is the safest way to avoid such 
questioning. End Summary. 
 
--------------- 
Hydrocarbon Law 
--------------- 
 
2.(C) On September 13, Economic Minister-Counselor met with 
Dr. Karim Walid Hasan, Minister of Electricity.  Hasan is 
also a member of the Energy Committee, the group of 
ministerial level officials tasked with formulating a 
national hydrocarbon law.  Hasan confirmed what other 
interlocutors have told us, i.e. that the committee has 
reached consensus in four areas: national policy setting; 
central collection and sharing of revenue; management of 
fields by regional companies, and regional negotiation of 
contracts.  The group still disagreed on who would have final 
authority to sign contracts for exploitation of new oil 
fields (reftel). 
 
 
3.(C) Hasan believes that it is possible to reach consensus 
on a national oil law.  Nevertheless, he sees a number of 
difficulties that still must be resolved in addition to the 
contract approval issue.  The toughest problem is the 
fundamental mistrust among Shia, Kurd and Sunni that 
underlies all parts of the negotiation.  The Kurds adamantly 
assert that their positions on the hydrocarbon law are based 
on their constitutional rights, which they will not dilute 
via the new law.  Hasan said that the Kurds narrowly focus on 
2-3 constitutional articles (Articles 114 and 115).  In his 
opinion the hydrocarbon law needs to be developed in the 
context of the whole constitution (especially Article 111). 
 
4.(C) Despite the agreement in principle on central revenue 
collection, Hasan said the Kurds are being unreasonable. 
Kurdish insertion of regional rights into the revenue debate 
exacerbates the Sunnis' nervousness that they will somehow 
get nothing.  Hasan, a Shia (his wife is a Sunni), referred 
to the historical background underlying the constant mistrust 
among the ethnic/sectarian groups.  He said that a unified 
Iraq is the only solution, and added that before anyone could 
dismantle Iraq, civil war would occur.  In addition to ethnic 
mistrust, Hasan said that many employees of MoO, who have run 
the oil industry for the past 30 years as a centralized 
entity, are reluctant to see a shift to largely independent 
regional operating companies. 
 
5.(C) Hasan characterized Minister of Oil Dr. Husayn 
Shahristani as uncooperative, citing four instances over the 
past year when MoO raised fuel prices to the MoE without 
bothering to consult his ministry first.  Hasan clearly 
preferred oil advisor to the Prime Minister and former oil 
minister Thamir Ghadban.  Hasan said that Deputy Prime 
Minister and energy committee chairman Barham Salih was very 
clever, but not well organized. Dr. Ashti Hawrami, KRG 
Minister of Natural Resources, on the other hand, is part of 
a government that has been preparing for this hydrocarbon law 
for years.  (In a recent meeting, Ashti told emboff that 
Hasan was the minister who finally got tired of the sectarian 
bickering in the energy committee meeting and brought 
 
BAGHDAD 00003516  002 OF 003 
 
 
everyone back on track to start hammering out a compromise.) 
Hasan said that the ministry and government have the best 
people in Iraq to deal with the hydrocarbon law issue. 
Unfortunately, he said, they have never gotten together to 
undertake this task, leaving the door open to the better 
organized Kurds who prepared a road map for the GOI to follow 
for the Kurds benefit.  Hasan said that compromise with the 
Kurds will be necessary to get a law.  He emphasized that the 
ultimate solution will have to come from the politicians - 
this issue can not be solved by oil industry professionals. 
Hasan said that "if both sides stay hard," he is worried.  He 
said that the Shia have made some concessions, but that the 
contract signing authority impasse is fundamental. 
 
--------------------- 
Electric Power Sector 
--------------------- 
 
6.(C) Hasan gave a brief overview of the last 30 years in his 
industry.  The Iraqis implemented a master development plan 
in 1976, but it was interrupted by the Iraq-Iran war from 
1981-1988.  At the end of the war, the country was carrying a 
huge debt, and did not restart the development plan until 
¶1989.  The first Gulf War and the ensuing sanctions began a 
13 year period of deterioration, leading to the present 
"technically weak" power sector unable to deliver much more 
than half of daily demand.  Hasan described his distribution 
system as especially weak, and said MoE's control centers 
were destroyed in the war (for the second time). 
 
7.(C) Hasan has held his ministerial post for about 4 months. 
 In his first 45 days in office, Hasan raised daily peak 
power supply from 3,700 megawatts (MW) to 5,400MW.  His goal 
for August was 6,000MW, but he has been unable to reach that 
level because of insurgent attacks on MoE's infrastructure. 
He estimated that attacks on his plants and transmission 
lines were 80% political and 20% economic (e.g., destroying 
transmission lines to steal wire for sale as scrap metal). 
Hasan said the GOI needs to generate 9,600MW to meet daily 
peak demand.  He expects to reach that level by 2009-2010. 
To do so will require $2-3 billion annually in capital 
expenditures.  MoE has produced a 10-year master development 
plan covering training, economic and legal issues, as well as 
basic generation, transmission (high voltage, cross-country 
power lines) and distribution (low voltage neighborhood power 
lines) systems upgrades.  IRMO electrical consultants 
characterize the master plan as overly optimistic with 
respect to the time required to restore Iraq to 24hr/day 
power.  They estimate it will take 5-10 years. 
 
8.(C) Hasan said that he was one of only two ministers that 
is not affiliated with a party, a fact which, he implied, may 
have limited his influence with the prime minister.  He said 
that Maliki respects him and sometimes consults with him, but 
does not often follow his advice.  He has advised PM Maliki 
that the country really needs a joint master plan for oil and 
electricity. 
 
------------------ 
GOI Budget Problem 
------------------ 
 
9.(C) Hasan attributed the GOI's problem in spending its 
budget dollars on big projects to the fear that has 
accompanied the government's anti-corruption campaign.  He 
said the Commission on Public Integrity (CPI, the agency 
charged with investigating and prosecuting corruption) has no 
experience, takes actions that are "sometimes silly," and may 
be corrupt itself.  As a result workers are very reluctant to 
resume contracting activity for fear of being interrogated by 
CPI.  Hasan said that it is necessary to change the budget 
rules immediately to streamline the procurement process, and 
let the experts take charge.  He added that at this point too 
many dollars are being diverted to security.  Hasan also 
stated that the Letter of Credit system needs to be fixed. 
 
------- 
Comment 
------- 
 
10.(C) Hasan comes across as a candid technocrat, dedicated 
to doing his job of improving the power supply to the general 
public.  He also expressed some bitterness about the way he 
was treated under the CPA (no salaries for ministry employees 
for the first several months).  Nevertheless, given his 
background he is a good source on the politics of energy 
policy here as we enter the critical phase of hydrocarbon law 
development. 
 
 
----------------------- 
Biographical Information 
 
BAGHDAD 00003516  003 OF 003 
 
 
------------------------ 
 
11.(C) Hasan holds a Ph.D. in Electric Power Engineering from 
the University of Dundee in the U.K., and has worked in the 
electrical power sector for years.  Previously he was the 
Director General of Dura Power Station and Technical Director 
of the Iraq Electricity Commission. He never lived in exile, 
a fact which helps his public image in Iraq.  His family, 
however, lives in Jordan. 
SPECKHARD