VZCZCXRO6974
RR RUEHDA RUEHDE RUEHDH RUEHKUK
DE RUEHBC #0065/01 3630908
ZNR UUUUU ZZH
R 290908Z DEC 09
FM REO BASRAH
TO RUEHC/SECSTATE WASHDC 0952
INFO RUEHGB/AMEMBASSY BAGHDAD 0530
RUCNRAQ/IRAQ COLLECTIVE
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHBC/REO BASRAH 0990

UNCLAS SECTION 01 OF 03 BASRAH 000065 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO TREASURY AND TRANSPORTATION 
 
E.O. 12958: N/A 
TAGS: EPET ECON EINV PGOV SENV EAID IZ EWWT KCOR BTIO
OPEC, BEXP 
SUBJECT: BASRAH BLACK GOLD RUSH BEGINS: OIL COMPANIES FACE "DOING 
BUSINESS" PROBLEMS WITH PRT ASSISTANCE 
 
REF: A. BAGHDAD 3257 
     ¶B. BASRAH 63 
     ¶C. BAGHDAD 3196 
     ¶D. BASRAH 59 
     ¶E. BASRAH 36 
     ¶F. STATE 115235 
 
BASRAH 00000065  001.2 OF 003 
 
 
¶1. (U) This is a Basrah PRT reporting cable. 
 
Summary 
------- 
 
¶2. (SBU) With the conclusion of Iraq's second oil bid round, 
successful bidders and oil-service firms are now increasing 
their presence in Basrah.  Four super giant fields recently 
awarded at auction lie in Basrah Province - Rumaila, West Qurna 
(phase I and II), Az Zubair, and Majnoon - and could see tens of 
billions of dollars in investment in the coming years.  While 
most still need final GOI approval, this has not stopped 
international oil companies (IOCs) from gearing up for the 
expected work ahead.  IOCs' concerns have shifted from solely 
security to more "everyday" issues of office/housing shortages, 
visa and immigration problems, limited air transport options, 
possible bottlenecks at the Port of Umm Qasr, banking system 
inadequacies, and difficulties obtaining land.  Other major 
challenges include cleaning up environmental hazards at the oil 
fields, training thousands of workers, and beginning corporate 
social responsibility (CSR) partnerships.  The Basrah Provincial 
Reconstruction Team (PRT) has been working with these companies 
to navigate these and other complex commercial, bureaucratic, 
and cultural hurdles.  Many challenges lie ahead, but climate 
for business in Basrah has come a long way in just the last 
several months.  End summary. 
 
Oil/service companies converging on Basrah 
------------------------------------------ 
 
¶3. (SBU) A who's who of IOCs have reinforced their presence in 
Basrah in recent weeks including ExxonMobil, BP, China National 
Petroleum Corporation (CNPC), Royal Dutch Shell, Eni, and 
Occidental Petroleum (Oxy).  Service firms such as Halliburton, 
Schlumberger, Foster Wheeler, and Dubai-based Terra Seis, and 
security and consulting firms are arriving or strengthening 
their presence.  With the second oil bid round complete (refs A, 
C), companies' plans are beginning to take shape.  The BP-CNPC 
partnership has already begun work at the nearby super giant 
Rumaila field.  Other awarded projects are still awaiting final 
GOI Council of Ministers (cabinet) approval or initialing of the 
contracts so they can be submitted to the cabinet for final 
approval.  However, these issues are not preventing any of them 
from surveying fields, seeking land for compounds, ordering 
equipment, exploring available legal help, checking on interim 
housing options, and exploring CSR ideas. 
 
Security and other risks remain . . . 
-------------------------------------- 
 
¶4. (SBU) While not discounting the always-present security 
threat, local observers note a remarkable shift from just a few 
months ago.  Traditional security concerns are slowly being 
eclipsed by everyday "doing business" problems.  Companies 
appear to possess a guarded confidence about the future. 
Regarding the security issue, IOC reps are quick to point out 
that such threats are in the nature of the global oil business. 
They often point out that they face as challenging or worse 
security problems in many other oil-producing countries such as 
Venezuela, Nigeria, Russia, and Saudi Arabia. 
 
¶5. (SBU) Companies reps are also well aware of the significant 
political, legal, and economic risks that could hamper their 
ambitious plans.  These risks include uncertainty surrounding 
the elections and a new GOI, the demand by some members of the 
Council of Representatives (parliament) that the parliament 
approve the contracts, possible export infrastructure capacity 
limits, a global drop in demand, and a potential OPEC quota. 
 
But the biggest challenges now are "doing business" problems 
--------------------------------------------- --------------- 
 
¶6. (SBU) Oil and oil-service companies uniformly cite to PRTOffs 
a list of "doing business" concerns in Basrah.  They contend 
that bureaucratic and infrastructure-related problems could 
hamper their ambitious plans.  The Halliburton Iraq president 
might have said it best, "It is really Halliburton [to whom] all 
the oil majors are turning to extract, process, and deliver the 
oil.  We are on the line to provide these services, and we need 
 
BASRAH 00000065  002.2 OF 003 
 
 
help with our imports, flights, visas, permits, and importing 
stuff like heavy vehicles, seismic equipment, tubing, and 
housing equipment."  He said, "While South Oil Company (SOC), 
the Ministry of Oil, and Basrah Investment Commission (BIC) may 
welcome us with open arms, they are not talking to other [GOI] 
agencies like Customs, Ministry of Interior, etc."  He said that 
Halliburton is set to invest some $250 million during the next 
two years in Basrah.  It will invest $56 million alone for a 
planned 500-person oil field compound. 
 
¶7. (SBU) The following is a list of common "doing business" 
problems cited by oil companies: 
 
-- SHORTAGE OF ACCOMODATIONS, OFFICE SPACE:  Oil firms complain 
of a squeeze for secure accommodations and office space, at 
least until some of them complete planned housing/office 
compounds.  Most visitors stay at one of two very basic "hotels" 
(containerized units) within the Consolidated Operating Base 
(COB) at the Basrah Air Base.  The COB is also home to the PRT 
and 34th Infantry Division.  Some oil companies also have very 
limited office space on the COB.  Hotel managers report that 
these are increasingly fully booked and office space is 
insufficient.  Some oil firms are staying at the new three-star 
Mnawi Basha hotel downtown, but other companies report that 
their corporate boards still do not allow employees to stay in 
downtown Basrah. 
 
-- VISAS, AIRPORT IN-PROCESSING PROBLEMS: Company reps widely 
complain about long delays obtaining Iraqi visas and long 
in-processing times at the airport.  Sometimes visas - usually 
single-entry - can take several weeks to get.  This delay 
severely affects those who need to frequently visit Iraq. 
 
-- DELAYS AT THE PORT OF UMM QASR: While improved in recent 
months, many IOC reps still complain of the port's slow 
processing time and corruption.  BP Iraq president said, "I'm 
less worried about physical or even legal certainty here, and 
more concerned about our supply chain." 
 
-- LIMITED AIR TRANSPORT OPTIONS: Presently, of the major 
regional airlines only Royal Jordanian and Iraqi Airways provide 
weekly connecting flights to Amman, Baghdad, and Dubai.  Several 
charters and small carriers also fly to regional cities, but oil 
company reps assess the present volume to be inadequate for 
future demand.  The Basrah International Airport (BIA) manager 
recently told PRT EconOff that these and other carriers are 
already discussing new and more frequent flights.  It is unclear 
when and whether these services will meet the expected increase 
in demand. 
 
-- ANTIQUATED BANKING SYSTEM: Some firms, including Halliburton 
and Schlumberger, have reported that the Iraqi banking system's 
payment, Letter of Credit, check issuance, and other services 
are "totally inadequate."  Firms have reported difficulty 
finding an Iraqi bank capable of efficiently handling 
transactions for the anticipated millions of dollars of 
equipment, computers, and salaries. 
 
-- OBTAINING LAND:  Many firms are seeking land for sizable 
housing/office compounds.  While the BIC helps with general 
information and investment licenses, this is not sufficient, as 
the central government approval is usually required on land 
transactions. 
 
. . . and cleaning up environmental hazards 
------------------------------------------- 
 
¶8. (SBU) Several oil firms have shared a sobering assessment of 
what they say will be another major challenge: cleaning up the 
oil fields that have been neglected for decades.  In the course 
of initial survey work, companies are confronting a "shocking 
situation" of oil leaks and pools, flared gas, and abandoned 
rigs.  According to U.K.-based Mott McDonald engineers, oil 
companies will be obliged to clean this up, not only because of 
their own corporate environmental standards, but because they 
expect that Iraq and the world will be sensitive to charges that 
IOCs will "exploit Iraq" and leave environmental hazards in 
their wake (ref E). 
 
Training a lost generation of workers 
------------------------------------- 
 
¶9. (SBU) One visiting oil manager said that observing current 
oil operations and labor and operational practices is like 
"watching a movie from the 1950s."  The Terra Seis company 
 
BASRAH 00000065  003.2 OF 003 
 
 
manager said that SOC has not done a seismic survey in at least 
30 years.  Companies are also beginning to grapple with the task 
of training and certifying potentially thousands of current and 
future welders, electricians, carpenters, managers, and 
executives up to international standards.  (Note: Oil firms will 
largely incorporate existing SOC workers into joint ventures and 
thus have no explicit plans to hire large numbers of new 
workers.  They could eventually hire many more due to demand. 
End note.) 
 
Companies also looking to win hearts and minds 
--------------------------------------------- - 
 
¶10. (SBU) All of these firms are exploring how and where they 
can focus their CSR efforts.  According to company reps, CSR is 
a top headquarters priority.  Working with local stakeholders 
will have a significant impact on their overall success, and 
they realize that Iraqis are suspicious of their motives. 
Several IOCs have sought PRTOffs' and USAID representatives' 
ideas on CSR, including partnering with local NGOs, vocational 
schools, and Basrah University. 
 
Basrah business climate shows signs of improvement 
--------------------------------------------- ----- 
 
¶11. (SBU) Despite complaints about the Basrah business climate, 
local officials and the private sector show increased 
competence.  Several oil company reps are unexpectedly pleased 
by what they say is an improved reception from the Governor, 
Provincial Council, and the BIC (with whom the PRT works 
closely) for their "professionalism and assistance."  The new 
SOC Director General (ref D) openly welcomes U.S. and other 
firms' investment in Basrah.  The Terra Seis country manager 
expressed "pleasant surprise" at how welcoming SOC was to its 
plan to build an oilfield compound.  He signed an MOU at their 
initial meeting, "something which would not have been possible 
six months ago."  Basrah University, with a dynamic new 
president, is poised to create entirely new partnerships with 
oil firms (ref B).  The November 2009 Business and Investment 
Conference in Washington and the PRT's own steady outreach with 
the local business community and government may have contributed 
to this apparent improvement (ref F). 
 
PRT Basrah at your service 
-------------------------- 
 
¶12. (SBU) Many IOCs seek PRT assistance in navigating these 
myriad commercial, bureaucratic, and cultural hurdles.  PRTOffs 
regularly assist in dealing with the local government and 
businesses, securing appointments, and providing suggestions on 
potential CSR projects.  The PRT works in conjunction with the 
Embassy Baghdad Economics section, the Foreign Commercial 
Service, the Transportation Attache's team, the Basrah-based 
34th Infantry Division Civil Affairs team, and the Port of Umm 
Qasr-based Joint Inter-agency Task Force (JIATF).  (Note: While 
we favor U.S. oil and oil-service firms, for those fields or 
services not represented by U.S. firms, we assist as part of our 
overall strategy to see Iraq succeed.  End note.) 
 
Comment: Despite the risk, a new optimism is palpable 
--------------------------------------------- -------- 
 
¶13. (SBU) The PRT detects a growing if guarded optimism among 
the Basrah business community, government, and most importantly, 
the populace.  Most Basrawis are tired of war and just want to 
make some money.  Despite the ever-present threat of violence, 
oil companies appear increasingly ready to do business in 
Basrah.  And while the next set of challenges to 
business-as-usual can at times appear daunting, there is 
progress.  Eighteen months ago Basrah was besieged with militia 
warfare.  Today, business firms and the local government are 
engaged in heated arguments over land leases and business visas. 
 These are the sorts of conflicts that reflect normalization. 
End comment. 
NALAND