OPEC’s second largest producer sees its revenues fall
OPEC’s second largest producer sees its revenues fall
As a new year of low commodity prices and likely domestic conflict begins, Iraq’s latest EITI report covering 2013 reflects some of the challenges that the government will have to tackle in the coming years. Even as production increased by 3% on the previous year to over 1.08 billion barrels, the total value of crude exports fell in 2013 by USD 13 billion to just under USD 81 billion. Meanwhile, over the same period, payments to international oil companies (IOCs) for extracting the oil increased by 40% while internal service payments (what national oil companies or NOCs receive in order to cover their production costs) increased by almost 25%.
Unlike in other countries where production sharing contracts (PSC) are common, in Iraq the oil remains the property of the government and companies are payed a fee for extracting it on their behalf. Under the current technical service contracts (TSC), this fee is fixed, meaning that low oil prices have a particularly damaging effect on the government’s income.
Low prices are undermining budget assumptions
Renegotiations of oil contracts are said to be under way,[1] but in the meantime the Ministry of Oil has asked IOCs to moderate their development plans in 2016. The Government of Iraq is expecting to offset this with a 550,000 bpd contribution from the Kurdish Regional Government (KRG), though compliance on this is tricky. With oil prices dipping below USD 30 per barrel, many observers are also questioning the government’s assumption in the 2016 budget that the price of oil will remain at USD 45 per barrel.
Legend: Total exports fell in 2013 while remuneration costs (cost recovery and remuneration to IOCs and internal service payments to NOCs) continued to increase.
Greater detail available to inform debate
In keeping with previous reports, Iraq’s national oil companies continued to break new ground in transparency. Amongst other things, this latest report includes information showing what percent of crude oil produced by each NOC went where each month (export, refineries, waste, storage), monthly export figures and average prices (by market and by company) as well as how much the state and companies got for selling oil to the local market.
The publication of the report coincided with the controversial passing of the 2016 Iraqi Budget. As EITI reports are produced by an independent administrator and jointly published by representatives from the government, civil society and industry, the data provided can help promote informed debate on the basis of facts, rather than conjectures.
Stakeholders in Iraq can use the wealth of information presented in their EITI reports to analyse the relationship between remuneration costs and total revenues, which went in opposite directions in 2013, and what implications this might have on the budget and upcoming production sharing contracts.
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