Iraq must scale back ambitions

18 April 2013

Baghdad should focus efforts on delivering a single project, such as the Nasiriyah refinery

After nearly five years of frustration in attracting international investment for its grand refinery schemes and with millions of dollars spent on studies and designs, Iraq is finally taking a new approach.

The government previously offered only a 5 per cent discount on crude feedstock supplies to lure investors for several major new refineries across the country, requiring an investment of as much as $30bn.

Now, Baghdad plans to launch a new bid round in December for the integrated development of the Nasiriyah oil field and a 300,000 barrel-a-day (b/d) refinery. The winning developer will be paid a fixed fee for each barrel of oil refined, based on international prices. The responsibility for marketing the refined products has also been taken from the investors, with the entire production bound for domestic consumption. For now, it looks like the only refining project in Iraq that will move ahead.

A better approach for Iraq could be to start off small. Instead of the ambitious and broad refinery expansion planned by the government, it may be better to focus its efforts on delivering a single project such as Nasiriyah, with the authorities shouldering the responsibility. Shortcomings in Iraq’s ability to deliver, since they have not built a refinery since the 1980s, means it has to seek a partner with a lot of experience and some capital to invest.

This will allow the Oil Ministry to build a track record with lenders and developers. Eventually, if successful, the ministry may find itself in a position where it can take a tougher line in negotiations with foreign oil firms.

For now though, the ministry will have to make concessions if it is to move ahead with its plans. It can then reap the benefits of greater employment and technology transfers. Nothing breeds success like success is a business school truism for a reason.

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