Three years of EITI in Iraq

International Secretariat's Eddie Rich takes us through the highs, the lows and the maybes of the EITI process in Iraq.

Iraq is by far the largest EITI implementing country in terms of oil and gas reserves. Iraq has about over 140 billion barrels of proven oil reserves and 3,158 BCM of gas reserves in 2011 (3.3% of OPEC total gas reserves), making the country the fourth-largest oil reserves in the world (9.6% of the world’s total reserves), and the country with the largest oil reserves to implement the EITI to date (Source: OPEC 2013 Annual Statistical Bulletin).

You don’t have to be a student of history to know that this oil wealth has hardly been a blessing. It funded an oppressive regime and several wars. Even today, it is a major point of contention, especially between Baghdad and the semi-autonomous region of Kurdistan which began exporting crude oil in 2012. The EITI won’t solve these issues, but having all parties agree the facts on the ground is an excellent basis for a constructive debate about how to manage the sector.

Given that, it was certainly encouraging that Iraq was declared EITI compliant on an auspicious date: the 12th day of the 12th month of 2012.

On 31st December 2013, Iraq published its third EITI report. This one covers 2011. It tells Iraqis how much oil was produced and how much of it was exported and how much that sold for. When this accounts for 97% of government revenue these are surely the first figures most Iraqi citizens would wish to know about the sector.

Like the first two reports, it covers the payments from the 34 accredited oil and gas buyers. Iraq is presently the only EITI country to reconcile its full export sales. Given that almost all of these companies are extra-territorial and not subject to Iraqi law, this is an impressive process and shows the way for other countries in which state oil sales make up a considerable amount of total income eg. Nigeria, Indonesia, perhaps in the future, Mexico. The reports also contain details about the signature bonuses from the technical service contracts. The report explains a great deal about the operations of the various state owned companies in the sector – operators and marketers. In 2011 for the first time, the report includes the amounts of crude oil used for internal consumption distributed to refineries, electricity generation directorates and national gas companies. Corporate taxes from extractive companies and signature bonuses from the International Oil Companies are also included.

The semi-autonomous Kurdish Regional Government (KRG) has a series of production sharing agreements directly with international companies. Due to disputes between the KRG and the central government over the legitimacy of these agreements, KRG revenues are not yet included.

 It will be important for both sides to try to work together to identify areas for improvement.

So there is much to celebrate, but no reason to be complacent. It is often said that EITI compliance is the beginning not the end of the process of better natural resource management. That is certainly true in the case of Iraq. Whilst the reports show openly and accurately what companies and Government have paid and have received, it obviously does not mean that the Iraq people are yet benefitting as they should from the country's resource wealth.

It is now for the Iraqis to decide what more they want to use the EITI for. All stakeholders - the government, the companies, the civil society organisations, media, academia, parliamentarians and international community - must do more to get useful information into the hands of the citizens and help generate more informed debate about how best to manage natural resource wealth. For example, there is the major question about how the $80 billion received from export sales in 2011 was used. Secondly, 100m barrels were given over to domestic sales – mainly to state-owned refineries. Given that the barrels sold for export at just over $100 each, that equates to more than a further $10bn potential revenue, or to put it another way, over $300 per Iraqi for their electricity and other needs. Again, that raises questions about how the domestically sold oil was used. These are questions for Iraqis and the EITI gives them a platform and the data to raise the debate.

With that in mind, the Iraqis are seeking to grapple with three challenges in making the EITI contribute to a more informed national dialogue about natural resource governance:

  1. How to make the data made more accessible and understandable to inform the public debate about oil governance in Iraq.
  2. How to integrate the EITI reporting into its own systems and ensure that EITI works in a complementary way alongside other reform efforts. It will be a mark of success when an EITI report simply acts as a commentary and a portal on the government’s own data about its extractive sector, and when the public debate is about the whole sector, not just the revenue.
  3. How to use the process to increase dialogue and understanding with Kurdistan which manages its oil resources separately from Baghdad.

The debate about Iraqi oil governance is getting more and more important. There was apparently a 60% increase in government revenue from 2011 to 2012 (following the 50% increase from 2010 to 2011). We congratulate Iraq on massive strides in becoming compliant with the EITI after just their first report and against considerable odds. Yet the Iraqis will only know that the process has been a success when this transparency leads to better understanding and debate about the sector, enabling the right decisions to be made.

 

This piece was first published in Publish What You Pay website.