VZCZCXRO8099
RR RUEHBC RUEHDA RUEHDE RUEHDH RUEHIHL RUEHKUK
DE RUEHGB #2021/01 2091131
ZNR UUUUU ZZH
R 281131Z JUL 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 4098
INFO RUCNRAQ/IRAQ COLLECTIVE
RHEBAAA/USDOE WASHDC

UNCLAS SECTION 01 OF 02 BAGHDAD 002021 
 
SENSITIVE 
SIPDIS 
 
DOE FOR GEORGE PERSON; STATE ALSO FOR EEB AND NEA/I 
 
E.O. 12958: N/A 
TAGS: ECON EPET ENRG EINV PGOV IZ
SUBJECT: RRT ERBIL: NEW REFINERY AND CRUDE PRODUCTION COMES 
ON LINE 
 
This is an Erbil Regional Reconstruction Team (RRT) cable. 
 
¶1. (U) Summary: At a July 18 ceremony, attended by KRG Prime 
Minister Nechirvan Barzani and former Ambassador to Iraq and 
the UN Zalmay Khalilzad, oil from the Khurmala Dome began 
flowing into the Erbil refinery, the only privately-owned 
refinery in Iraq.  The refinery's initial capacity is 20,000 
bbl/d, with plans to expand to 75,000 bbl/d by 2010.  The 
Kurdistan Regional Government (KRG) intervened and privatized 
the project after construction had stalled for two years, and 
it was completed soon thereafter.  Under an agreement between 
the KRG and the GOI, crude oil from the field will also flow 
to the pipeline from Kirkuk to Ceyhan in Turkey.  The 
refinery project also entailed a significant purchase of 
U.S.-origin equipment.  End Summary. 
 
¶2. (U) On July 18, after a ceremony attended by Kurdistan 
Regional Government (KRG) Prime Minister Nechirvan Barzani 
and the former US Ambassador to Iraq and the UN, Zalmay 
Khalilzad, oil from the Khurmala Dome began to flow to the 
brand new Erbil refinery.   This is the first large refinery 
in the Kurdistan Region, and the first privately-owned 
refinery in Iraq. 
 
¶3. (U) The refinery is operated by KAR Oil and Gas Ltd., a 
member of the Erbil-based KAR Group, a conglomerate that does 
engineering and construction projects all over Iraq (over 
3,000 to date) in addition to its work in the hydrocarbon 
sector.  KAR group grew quickly after 2003, mostly through 
its civil engineering contracting work for the U.S. 
Government around Iraq.  It also worked on the rehabilitation 
of the Kirkuk-Ceyhan pipeline, and claims to have a large 
proportion of its Iraqi staff outside the Kurdistan Region. 
 
¶4. (U) The refinery is connected to the Khurmala Dome by a 
40-kilometer, 20-inch buried pipeline.  The refinery has a 
current capacity of 20,000 bbl/d, and will produce diesel and 
kerosene, as well as fuel oil for cement and brick factories. 
 A project to expand capacity is already underway, with 
production expected to double to 40,000 bbl/d by the end of 
¶2009.  The additional expansion will consist of a 
distillation unit and process units capable of producing 
gasoline up to 95 octane.  Further plans exist to expand 
refinery production to 75,000 bbl/d in 2010. 
 
¶5. (SBU) KAR took over the refinery project in late 2008, 
when it was 60% complete.  According to Brad Camp (protect), 
an American and KAR executive who helped develop the project, 
the refinery project had actually begun in 2005 as a 
partnership between the Iraqi Ministry of Oil and the Iraqi 
Ministry of Industry and Minerals, and was scheduled to be 
completed in 18 months.  However, after the project bogged 
down due to budgetary and technical problems, the KRG 
intervened and privatized the project by selling the refinery 
to KAR, which completed the refinery using its own funds. 
The investment for all components of the project (see below) 
totaled $670 million. 
 
Processing Facility and Crude Production 
---------------------------------------- 
 
¶6. (SBU) KAR also took over the completion of the Khurmala 
Dome central processing facility.  The KRG awarded a $140 
million contract to KAR to complete the facility.  Camp said 
that the reason for the delay in the refinery project was 
that the GOI-owned Northern Oil Company (NOC) took no action 
during the two-year period to complete the Khurmala Dome 
central processing facility that feeds the refinery.  This 
was not because of a standoff in the field, but reportedly 
Qwas not because of a standoff in the field, but reportedly 
because of the NOC's ineffectiveness.  The equipment that had 
been purchased sat in storage for two years, and the 
warrantees were beginning to expire. 
 
¶7. (U) The Khurmala Dome is located in the northern part of 
the Kirkuk Structure and lies inside the Erbil Governorate. 
It is approximately 20 kilometers long and 8 kilometers wide. 
 KAR rehabilitated 40 older, capped wells, and built the 
necessary infrastructure to connect these wells to the 
central processing facility, which should be able to process 
150,000 bbl/d.  Any excess oil production beyond that which 
is needed to feed the Erbil refinery will be exported through 
the Strategic Pipeline (Kirkuk-Ceyhan) under an agreement 
reached between KRG Prime Minister Nechirvan Barzani and GOI 
Oil Minister Shahristani in November 2008. 
 
Significant U.S. Sales 
---------------------- 
 
 
BAGHDAD 00002021  002 OF 002 
 
 
¶8. (SBU) The refinery project reportedly entailed a large 
purchase from U.S. company Ventech Engineering, totaling over 
$125 million.  There may be additional follow-on purchases as 
the project progresses. 
 
¶9. (SBU) Comment: The completion of the Erbil refinery comes 
less than two months after oil began to flow from the 
privately-developed Tawke and Taq Taq fields to international 
markets.  The KRG - including PM Barzani in his speech at the 
event - points to these events as evidence that working in 
partnership with the private sector is the key to developing 
the hydrocarbon sector.  There are several elements to this 
project that would appear to be positive for U.S. objectives: 
development of hydrocarbon production, agreement between 
Baghdad and Erbil to do so, and promotion of U.S. exports. 
Thus far, the central government Ministry of Oil (MoO) has 
not commented on the fact that the refinery is obtaining its 
oil supply from the Khurmala Dome, which has been an object 
of contention.  The MoO argues that the KRG did not have the 
right to operate on the field, which is under the geographic 
responsibility of the North Oil Company but lies in Erbil 
Province.  Khurmala Dome is also geologically a part of the 
Kirkuk oil field, which straddles the KRG boundary.  End 
Comment. 
FORD