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RR RUEHBC RUEHDA RUEHDE RUEHDH RUEHIHL RUEHKUK
DE RUEHGB #1447/01 1531357
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R 021357Z JUN 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 3306
INFO RUCNRAQ/IRAQ COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
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UNCLAS SECTION 01 OF 03 BAGHDAD 001447 
 
SIPDIS 
 
DOE FOR GEORGE PERSON; STATE ALSO FOR EEB AND NEA/I 
 
E.O. 12958: N/A 
TAGS: EPET ENRG EINV PREL PGOV CA TU NO IZ
SUBJECT: RRT ERBIL: KRG OIL LINKS TO IRAQI PIPELINE 
 
REF: BAGHDAD 1446 
 
This is an Erbil Regional Reconstruction Team (RRT) cable 
 
¶1. (SBU) Summary: At a June 1 gala event, Presidents Talabani 
and Barzani officially "turned on" pipelines from Tawke and 
Taq Taq fields in the Kurdistan Region, which will together 
add 100,000 barrels a day (bbl/d) through the Iraq-Turkey 
Pipeline to the Turkish Mediterranean port of Ceyhan. 
President Talabani also pronounced the Kurdistan Regional 
Government's (KRG) Production Sharing Contracts (PSCs) 
"constitutional and legal."  CEOS from PSC holders DNO 
(Norway), Addax (Canada) and Genel Enerji( Turkey) praised 
the KRG's cooperation and expressed their commitment to 
expanding work in the region - "the last remaining true oil 
frontier," according to Addax CEO Jean Claude Gandur. 
Pressed by the media on how the companies will actually be 
paid (given the Government of Iraq's continued insistence 
that these contracts are illegal), KRG officials reiterated 
that the oil was for the benefit of the Iraqi population, and 
that the issue would be resolved eventually.  Behind the 
heady mix of self-congratulation and noble-minded 
pronouncements (and despite the many unresolved issues 
between the KRG and the GoI), the event was a significant 
moment for the Kurdistan Region in its coming of age as an 
oil producing region.  End Summary. 
 
"A New Source of Oil for the West" 
---------------------------------- 
 
¶2. (U) Proclaiming Kurdistan Region petroleum "a new source 
of oil for the West," Kurdistan Regional Government (KRG) 
Ministry of Natural Resources Senior Adviser Khaled Saleh 
kicked off a gala event on June 1 to mark the addition of 
Kurdistan Region oil to the Iraq Turkey Pipeline.  Presidents 
Talabani and Barzani, in a rare joint public appearance, 
officially "turned on" the pipelines together.  Oil will flow 
from two sources:  60,000 barrels a day (bbl/d) from a trunk 
line connecting DNO's Tawke field directly to the Iraqi 
pipeline, and 40,000 bbl/d by truck from Taq Taq field to the 
K-1 pumping station in Kirkuk.  (Note: A few weeks could be 
required for these levels to be reached.  End note.) 
 
¶3. (U) The event, complete with razzle-dazzle light shows, a 
levitating stand-in oil pump, Star-Wars sound systems, 
multiple-screen video feeds and bespangled Kurdish folk 
dancers, took place in the state-of-the art Sami Abdelrahman 
Conference Center in Erbil.  Genel Enerji (which reportedly 
bankrolled the roll-out) presented a small sample of 
Kurdistan Region oil encased in lucite to the guests, drawn 
from a who's who of the Kurdistan Region, the local 
diplomatic corps, and including visiting Norwegians, 
Canadians and Turks (representing companies DNO, Addax and 
Genel Enerji). 
 
From Victim to Victor 
--------------------- 
 
¶4. (U) The carefully choreographed presentations and speeches 
started on a somber note, with a short video recalling the 
horrors of the Anfal campaign and showing victims of chemical 
attacks.  Oil was described as a "weapon" which had once been 
used by Saddam Hussein to buy arms to use against the Kurds. 
The video then charted the rapid succession of events from 
the Kurdistan Region's 2007 passage of oil and gas 
legislation to the conclusion of PSCs with thirty companies 
from fifteen countries and concluding with the 100,000 bbl/d 
ready to flow into the national coffers.  Other than a brief 
clip of Oil Minister Shahristani denouncing the KRG PSCs as 
illegal, the video did not dwell on disagreements with 
Baghdad over hydrocarbons management or revenue sharing. 
QBaghdad over hydrocarbons management or revenue sharing. 
 
CEOS looking happy -- are my stocks rising yet? 
--------------------------------------------- -- 
 
¶5. (U) DNO (Norway) CEO Helge Eide pointed out that only five 
years had passed since the signing of the PSC - "not a long 
time in the oil business."  He recalled that DNO had been 
ready to start exporting two years ago, and had "patiently 
waited for the KRG to make its decision."  DNO had no 
intention of resting on its laurels, and would continue with 
a goal of reaching 100,000 bbl/d at Tawke and continuing work 
at new fields in the Erbil license area where early stage 
production was expected to start in 2010.  Addax (Canada) CEO 
Jean Claude Gandur reported that the "KRG's legal and 
regulatory systems had fashioned a vibrant upstream oil 
industry"; four years ago he would have been hard pressed to 
anticipate how fast and efficiently work would proceed.  The 
45,000 bbl/d at Taq Taq was described as "a stunning result 
 
BAGHDAD 00001447  002 OF 003 
 
 
to anyone in the oil world."  He called the Kurdistan Region 
"the last remaining true oil frontier" and one that would 
attract serious players from the global oil industry. 
 
Genel Enerji Lauds Turkish/Kurdistan Region Ties 
--------------------------------------------- --- 
 
¶6. (U) Genel Enerji CEO Mehmet Sepil praised the "original 
vision of Mam Jalal Talabani and Barham Saleh" (who had 
signed the original Taq Taq agreement for the PUK Government 
in Sulaimaniyah before it was renegotiated by the KRG 
government 2004) and the full "confidence of the KRG in 
Turkish entrepreneurship."  He noted that Genel Enerji's work 
in the Kurdistan Region was the first time a Turkish 
independent producer had worked on a reservoir of this size. 
Like his Norwegian counterpart, Sepil lamented the fact that 
it had taken so long to export the oil; "if we had been able 
to export two years ago, we could have sent out billions of 
dollars of oil."  Sepil explained that Genel Enerji was 
expanding its activities in the region in what he termed a 
"life-long partnership" which would also "strengthen 
political cooperation in the region" and "add value to the 
Turkish economy."  He noted that Genel Enerji would also be 
investing $1.1 billion in new infrastructure projects to 
benefit the Kurdistan region, projects that would be 
"transparent" and consistent with Genel Enerji's good 
corporate citizenship standards. 
 
KRG Speakers Stress Benefits to All Iraqis 
------------------------------------------ 
 
¶7. (U) KRG Minister of Natural Resources Ashti Hawrami opened 
his statement by praising the Federal Constitution which had 
"laid the foundation for achievements of today" and 
"witnessed the end of decades of discrimination."  Events had 
shown that oil was not a curse - rather, it could be a source 
of prosperity and stability.  More importantly, today the KR 
showed the world that "competition and market driven policies 
could revive the economy of Iraq."  He called on "friends in 
Baghdad" to engage in a fair and strategic policy for 
hydrocarbons.  He committed to continuing to work 
transparently and efficiently.  Exports would increase by 
100,000 bbl/d after June 1.  Within a year he promised that 
KR's total crude oil exports would rise to 250,000 bbl/d 
within a year, to 450,000 bbl/d by 2010 and to a million 
bbl/d by 2013.  This would eventually increase Iraq's overall 
exports by 50 percent and, at today's oil prices, increase 
the Iraqi budget by $2 billion in one year, by $5 billion by 
2010, and by $20 billion within four years.  Stressing that 
"our intention is to maximize the benefits for all Iraqis" 
Minister Hawrami mentioned that the KRG was also planning a 
strategic gas pipeline (reftel) which would generate even 
more revenue. 
 
...But Policies Need to Change 
------------------------------ 
 
¶8. (U) Minister Hawrami cautioned, however, that that "if 
Federal oil policies did not change to increase production 
and if fair and transparent revenue sharing law is not passed 
soon, the consequences will be very serious."  Lack of 
cooperation, according to him, had thus far cost Iraqis $10 
billion.  "This must not be repeated."  Policies that 
maximized revenues needed to be put in place.  By example, he 
stated that the cost of Taq Taq - a field with an 180,000 b/d 
potential - had been under $500 million.  Investors had the 
incentive to move fast and efficiently.  In the rest of Iraq, 
by comparison, investors were rewarded for having higher 
costs, rather than for stepping up production.  Minister 
Qcosts, rather than for stepping up production.  Minister 
Hawrami reiterated that the KRG was committed to the 
principle that revenues were for all of the Iraqi people, and 
that Article 115 of the Constitution empowered the region to 
manage all new oil and gas resources.  (Note: Inter alia, 
Article 115 states: "All powers not stipulated in the 
exclusive powers of the federal government belong to the 
authorities of the regions and governorates that are not 
organized in a region."  End note.) 
 
¶9. (U) Minister Hawrami also observed that there had been 
doubts that investors would come; doubts that oil could be 
exported; and doubts that the companies would get paid.  So 
far two of those had been accomplished.  As for the third, 
(turning away from his prepared statement) Hawrami simply 
stated (with a grin) "oil talks money.  We will get paid." 
In closing, the Minister highlighted the relationship with 
Turkey, "with whom the KR was entering a new era of 
friendship." 
 
¶10.  (U) Prime Minister Barzani stated that the KRG was 
 
BAGHDAD 00001447  003 OF 003 
 
 
contributing to a better and more stable Iraq.  Oil investors 
must be rewarded according to their entitlements.  He also 
stated "we want justice for the people of Kirkuk and the 
disputed territories" and the "right of return" as promised 
in the Constitution.  The Prime Minister regretted the fact 
that the KRG's budget allocation was stalled in Baghdad, and 
noted that if a revenue sharing law was in place, this would 
not be the case.  So long as it was a "budget allocation," it 
would be subject to delays and political pressures. 
 
President Talabani Declares PSCs Constitutional 
--------------------------------------------- -- 
 
¶11. (U) President Talabani took the floor to "reaffirm the 
constitutionality and legality of the KRG contracts according 
to Article 112 (d) of the Constitution."  Furthermore, he 
stated, these contracts were in the best interests of the 
Iraqi people.  (Note: Applause greeted both of these 
statements.  End note.)  The last speaker, KRG President 
Masoud Barzani, summed up the event by stating that the 
Region was showing "by deeds, not words" that revenues belong 
to all the people of Iraq.  "We will continue with this 
policy."  He also took the opportunity to congratulate the 
PUK on its 31st anniversary, and reaffirm the KDP/PUK 
coalition. 
 
But the Press is Skeptical 
--------------------------- 
 
¶12. (U) At a press conference before the opening, foreign 
media pressed hard on the question of how the companies would 
actually be paid.  Senior Adviser Khaled Saleh fielded the 
questions, and reiterated that a mechanism would be found and 
the issue would be resolved soon, but left reporters with 
more questions than answers. 
 
Comment 
------- 
 
¶13. (SBU) Behind the heady mix of self-congratulation and 
noble-minded pronouncements, the event did indeed mark a 
significant moment for the Kurdistan Region.  Exploitation of 
the region's impressive natural resource endowment and 
shaking off the mantle of victimization and poverty will be 
part of a new discourse and sense of identity in the region. 
This will, in turn, create new expectations on the part of 
citizens - expectations for higher standards of living, but 
also expectations that their leadership will move to resolve 
the many outstanding issues with Baghdad.  The KRG leadership 
is banking that its concrete achievement and contribution to 
central government coffers will encourage an equal degree of 
flexibility on the part of the GOI. 
HILL