VZCZCXRO3708
PP RUEHBC RUEHDA RUEHDE RUEHDH RUEHIHL RUEHKUK
DE RUEHC #5571/01 3131917
ZNR UUUUU ZZH
P 091912Z NOV 09
FM SECSTATE WASHDC
TO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 9500
INFO IRAQ COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 STATE 115571 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENRG EPET EINV PGOV IZ
SUBJECT: MINISTERS SHAHRISTANI AND KAREEM DISCUSS IRAQ 
ENERGY ISSUES IN WASHINGTON 
 
¶1. (SBU) SUMMARY:  On the margins of the Dialogue on Economic 
Cooperation (DEC) and the U.S.-Iraq Business and Investment 
Conference (BIC), the Iraqi Minister of Oil, Dr. Hussain 
al-Shahristani, and the Iraqi Minister of Electricity, Dr. 
Kareem Wahid al-Hasan, met with USG officials.  Minister 
Shahristani met with the Secretary's Coordinator on 
International Energy Affairs (S/CIEA), David Goldwyn, and the 
Special Envoy for Eurasian Energy (S/EEE), Ambassador Richard 
Morningstar.  Minister Shahristani also met U.S. Department 
of the Interior (DOI) officials to review the DOI technical 
assistance program with the Ministry of Oil.  Minister Kareem 
met with Secretary of Energy Steven Chu, and asked the 
Secretary for assistance in securing financing for projects 
to expand electricity generation. END SUMMARY 
 
---------------------------- 
MinOil with S/CIEA and S/EEE 
---------------------------- 
 
¶2. (SBU) In Shahristani's meetings with Goldwyn and 
Morningstar the day after the DEC, Goldwyn asked about the 
status of the national energy strategy.  Minister Shahristani 
stated that once the Ministry of Oil (MoO) awarded oil and 
gas fields, the Government of Iraq (GOI) would know how much 
oil and gas would be produced, would determine if such 
production was enough to satisfy demand, and would determine 
if there was any excess gas for export. 
 
¶3. (SBU) Regarding electricity tariffs, Shahristani felt it 
would be a while before it would be realistic to implement a 
reduction in electricity subsidies.  He noted that a 
reduction in fuel subsidies would only be possible when fuel 
supplies were sufficient to meet domestic consumption needs. 
He then redirected the conversation to payments from 
state-owned entities (SOEs).  He said SOEs needed to start 
paying for power and fuel rather than have the Ministry of 
Finance do paper transactions that did not result in 
financial transactions.  For example, he expected the 
Ministry of Electricity would pay the Ministry of Oil for any 
gas provided for electricity generation. 
 
¶4. (SBU) Morningstar asked about the potential of two 
Kurdish-controlled gas fields to export to Turkey.  (NEA/I 
Note:  Chamchamal and Kormor are the two fields. End Note.) 
Shahristani admitted that his last exchange with Kurdish 
officials was almost one year ago.  He explained that the 
federal government's position remained the same:  the State 
Oil Marketing Organization would responsible for all export 
sales, all revenues would be collected and deposited into the 
national treasury, and revenues would be distributed to 
regional and provincial governments through the annual 
budget.  According to Shahristani, the Kurdistan Regional 
Government (KRG) did not dispute these points. 
 
¶5. (SBU) Shahristani explained that the main points of 
contention with the KRG were related to the KRG's awarding of 
 contracts (i.e., direct negotiations rather than bid 
rounds), the type of contract the KRG was using, and the 
approval process of the contract.  He stated that the federal 
government had the legal right to review the contracts and 
potentially renegotiate with the companies as the Ministry of 
Oil had done with the China National Petroleum Company for 
the Ahdab field.  The KRG was being unreasonable because it 
wanted Baghdad to pay the contracts, but did not want Baghdad 
to see the details (thereby asking Baghdad to blindly accept 
the terms of the contracts).  Shahristani added that as long 
as the KRG refused to budge on this point, then it was up to 
Erbil to pay the contracts.  He reiterated what he said at 
the DEC that there was "nothing we can do" on the Kurdish 
issues with respect to oil and gas until after the elections. 
 However, he did say that Iraq would be open to USG 
assistance on technical issues surrounding potential revenue 
sharing arrangements. 
 
¶6. (SBU) Goldwyn asked whether first round contracts allowed 
for payments of oil in kind and what impact such a provision 
would have on the requirements of the Development Fund for 
Iraq (DFI).  Shahristani said with a smile that he hoped the 
DFI would not exist in a year but.  In any case, he 
continued, any payment in kind would be priced at the 
appropriate benchmark, and accounted for and paid in cash in 
the equivalent amount. 
 
¶7. (SBU) S/CIEA Goldwyn told the Minister that the USG would 
help the GOI with four things: 
 
 
STATE 00115571  002 OF 002 
 
 
- financing models in the power sector (Trade and Development 
Agency) 
- financing models for pipelines and terminals (Trade and 
Development Agency) 
- an increase in U.S. Department of the Interior assistance 
to the Ministry of Oil 
- the implementation of the Extractive Industries 
Transparency Initiative (State) 
 
------------------------------------------- 
MinOil with U.S. Department of the Interior 
------------------------------------------- 
 
¶8. (SBU) Shahristani met with DOI officials, including the 
Deputy Assistant Secretary for Land and Minerals Management 
(DASLM), Ned Farquhar, and the Deputy Director of the 
Minerals Management Service (MMS), Walter Cruickshank, on the 
margins of the BIC.  Shahristani seemed aware but not highly 
knowledgeable about the specifics of the program that DOI has 
with the Ministry of Oil (MOO). 
 
¶9. (SBU) After listening to a description of the DOI program, 
Shahristani asked DOI to provide technical assistance to 
review the adequacy of bid determinations (part of planned 
MMS on-the job training for MOO in early 2010); to conduct as 
much training as possible in Baghdad to minimize the absence 
of MOO employees; and to provide MMS staff short-term to help 
with the implementation of MMS's technical assistance.  The 
DASLM stated that he would consult with MMS to provide staff, 
but noted that DOI personnel would be sent to Iraq on a 
limited basis for assistance and training.  He explained that 
DOI, like the MOO, needed to minimize the absence of its 
employees; the trainers were DOI employees. 
 
¶10. (SBU) The Deputy Director of MMS noted that whatever 
revenue sharing mechanism was adopted by the Council of 
Representatives, MMS could work with the Ministries of Oil 
and Finance on collection, disbursement, and auditing of oil 
and gas revenues.  Shahristani appreciated this input and 
stated that the GOI would need MMS assistance on those issues 
as well. 
 
--------------------------------------------- -- 
Department of Energy Hosts Electricity Minister 
--------------------------------------------- -- 
 
¶11. (SBU) During DOE Secretary Chu's meeting with Electricity 
Minister Kareem, Kareem highlighted recent progress, but 
emphasized the need for greater assistance.  He mentioned 
that Iraq's most urgent priority was to expand generating 
capacity to provide 24 hours of reliable grid power.  Kareem 
implored Secretary Chu to assist the GOI in securing 
financing to expand electricity generation, including by 
pressuring the Export-Import Bank (Ex-Im) to approve an 
exemption allowing it to work with the GOI.  Secretary Chu 
agreed to look into the GOI's status with Ex-Im and whether 
DOE avenues exist to encourage greater engagement on project 
financing in the electricity sector. 
 
¶12. (SBU) Kareem noted the GOI needed about $3 to $5 billion 
in soft loans, aid, or investments to finance electricity 
sector projects, including funding future payments for Iraq's 
December 2008 deal with GE.  The Minister explained that he 
had approached the U.S. Embassy and the Department of Defense 
to propose USG funding for electricity projects as an 
investment in security.  However, he was told that the 
congressional appropriations process made this unfeasible. 
 
¶13. (SBU) Secretary Chu and Minister Kareem agreed that 
Iraq's large quantities of flared gas (produced in 
conjunction with oil) should be used for Iraq's domestic 
electricity sector.  With respect to non-associated gas 
fields, Kareem was disappointed with the number of companies 
that participated in the first bid round to develop the two 
non-associated gas fields on tender (NEA/I Note: About 22 of 
35 pre-qualified companies participated in the first bid 
round, which is respectable.  No company submitted a bid on 
developing the Mansuriya gas field.  One consortium, led by 
the Italian firm Edison, submitted a bid on the Akkas gas 
field, but did not win the tender. End Note.) 
 
¶14. (SBU) Kareem stated that, despite substantial increases 
in power generation, the Ministry of Electricity was unable 
to meet Iraq's rapidly growing demand for electric power. 
The growth in demand was driven primarily by high subsidies 
and an improving standard of living, Kareem explained. 
Despite recent tariff increases, Iraqis still enjoyed 80 
percent subsidies on electric power from the national grid. 
Secretary Chu conceded the political difficulty of increasing 
tariffs, but argued that steps in that direction were 
nevertheless necessary. 
CLINTON