Iraq has opened international bidding for eight enormous oil and gas fields, paving the way for major investments in a nation with one of the world’s largest petroleum reserves. At the same time, the Iraqi government sued dozens of companies, including oil giant Chevron Corp, for more than US$10 billion on Monday, saying they paid kickbacks to former Iraqi president Saddam Hussein’s government under the UN oil-for-food program.
If the international bidding contracts are approved, they could lead to the biggest foreign stake in Iraq since the industry was nationalized more than 30 years ago.
This could be good news with the price for a barrel of oil breaching US$143 for the first time ever on Monday. But there are concerns that a dominant role for Western firms could feed perceptions that US-led forces toppled Saddam Hussein to grab the country’s natural resources.
Those concerns were heightened recently by expectations that Iraq would announce short-term no-bid contracts with five Western oil firms on Monday for technical consulting. The New York Times reported about two weeks ago that the firms included Royal Dutch Shell PLC, BP PLC, Exxon Mobil Corp, Chevron and Total.
But Iraqi Oil Minister Hussain al-Shahristani told a news conference on Monday that the Iraqi government was still negotiating with the companies, which he did not identify. He said the firms wanted to participate in oil field production rather than simply provide consultancy services for cash.
The minister said the short-term contracts were meant as a stopgap measure to boost oil production until the government awards longer-term deals next June.
But some believe they could give the Western firms a bidding advantage in that process, which al-Shahristani said on Monday would include 35 foreign companies.
The firms he named included seven from the US, three from the UK and others from countries such as Russia and China.
Al-Shahristani said the companies would be invited to bid on the oil fields of Rumeila, Zubair, Qurna West, Maysan, Kirkuk and Bay Hassan; and the natural gas fields of Akkaz and Mansouriyah.
“These fields were chosen because their production can be raised in a short time and at a low cost,” al-Shahristani said.
But he made clear that even the longer-term contracts would include cash compensation rather than a share of oil production.
“We don’t see a need to allow anyone to share our oil with the people of Iraq,” al-Shahristani said.
All of the oil fields the minister mentioned on Monday are currently producing crude and al-Shahristani said the new contracts would raise Iraq’s production by 1.5 million barrels per day.
Iraq produces 2.5 million barrels per day and hopes to raise that to 4.5 million by 2013.
The introduction of an additional 1.5 million barrels of oil each day would likely be enough to move the price for a barrel downward.
Some analysts, however, were not convinced that it is realistic given the deterioration of Iraq’s infrastructure and potential instability.
“I’m pretty skeptical of that figure,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. “Amount is one thing, timing is another. They still need to upgrade their infrastructure and while things have stabilized, I think you’re assuming a best-case scenario on security and other issues.”
With fuel prices at record levels, foreign firms have been anxious to tap Iraq’s estimated 115 billion barrels of oil reserves and 112 trillion cubic feet of natural gas. The revenue would help the Iraqi government rebuild infrastructure and deliver services to its people.
The deadline for the oil and gas bids announced on Monday is the end of March and preliminary contracts will be signed next June. Every company involved in the bidding process must have an Iraqi partner and must give at least 25 percent of the value of the contract to Iraqi companies, al-Shahristani said.
The process of awarding contracts to help develop Iraq’s oil industry has been delayed by the inability to finalize a new a law on how to divide the country’s oil resources. Negotiations over the law have been stalled by political squabbles between the central government and the Kurds.
The Kurdish regional administration in northern Iraq has signed more than 20 oil deals with foreign firms to work in Kurdish-controlled fields since it drafted its own oil and gas law last August.
The Shiite-led Iraqi central government says the deals are invalid with no national oil law in place.
Several Democratic senators in the US recently asked the Bush administration to block the Iraqi government’s reported no-bid deals with Western firms until the country finalized the oil law, but the White House refused.
But Iraqi government spokesman Ali al-Dabbagh said on Monday that the country had never considered a no-bid process, saying “there was never any intention to award the contracts without a tender.”
He also denied US influence on the Iraqi government’s oil decisions, saying “politics does not come into this.”
Meanwhile, on Monday Baghdad sued dozens of companies for more than US$10 billion, saying they paid kickbacks to former Iraqi leader Saddam Hussein’s government under the UN oil-for-food program.
The civil lawsuit, filed in US federal court in Manhattan, seeks to recover damages from companies investigated by a UN-commissioned inquiry, claiming they cheated the Iraqi people out of benefits of the US$67 billion program.
The UN oil-for-food program, which ran from 1996 to 2003, was created to help Iraqis cope with UN sanctions after Iraq invaded Kuwait in 1990. The program allowed Baghdad to sell oil in order to buy humanitarian goods.
The lawsuit says billions of dollars were lost, “all of which were directly translatable into food, medicine and other humanitarian goods that were supposed to reach the Iraqi people.”
Among the individuals named in the lawsuit are Texas oilmen Oscar Wyatt and David Chalmers. Both admitted to paying millions of dollars in kickbacks to Saddam’s regime.
But a UN-commissioned inquiry headed by former US Federal Reserve chairman Paul Volcker found the program was corrupted by 2,200 companies from 66 countries that paid US$1.8 billion in kickbacks to Iraqi officials to win supply deals.
The lawsuit follows US criminal investigations into the program, which produced the convictions of individuals, including Wyatt and Chalmers, and oil companies named in the complaint, including Chevron, which agreed to pay US$30 million to resolve criminal and civil liabilities.
The lawsuit said the defendants had violated US racketeering laws and money laundering. Chevron and Swiss oil trading firm Vitol were also accused of breaching their fiduciary duties.
“The corruption of the ... program has been described as the largest financial fraud in human history, but its impact on the people of Iraq went far beyond financial loss,” the lawsuit said.
Other firms named include European bank BNP Paribas, drug makers GlaxoSmithKline and Roche Holding, units of drug company Schering-Plough, and several units of Switzerland’s ABB Group.
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