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Iraq eyes oil firms funding for export projects

Iraq hopes IOCs can fund export infrastructure.

September 27, 2010 9:45 by

Iraq has asked international oil firms that won contracts to develop its vast oil reserves whether they are interested in financing the country’s huge crude export infrastructure projects.

Iraq’s Oil Ministry is exploring all options to finance its costly export infrastructure plans, including asking oil companies to either contribute funding or to offer the projects under build, operate and transfer (BOT) contracts, Deputy Oil Minister Abdul Kareem Luaibi said on Sunday.

“The big (export) projects and pipelines need several billions, so now we are studying the issue of financing, either to be through the BOT model, or that the oil companies take part in funding, or both ways,” he told Reuters.

The oil ministry has asked the companies if they were interested “to participate in the study, design, implementation and financing process as a common project to be shared by all relevant contracts,” according to a copy of a letter sent to oil firms in June.

The plan to transfer the crude oil received from the oilfields under the first and second bidding rounds last year consists of building pipelines towards the oil hub of Basra, to Turkey in the north and Syria in the west, the letter said.

“So far, there are four or five (oil) companies that have responded,” said Luaibi.

Participation of the oil companies in the crude export project would be similar to a multibillion-dollar water injection scheme in Iraq’s southern oilfields, Luaibi said.

U.S. oil major ExxonMobil is taking the lead among oil companies that won development contracts for southern oilfields to coordinate initial studies for the water injection project, which is expected to exceed $10 billion.

Companies would initially fund the project and Iraq will repay the cost from its oil revenue.

But Iraq, which forecasts a 2010 budget deficit of $19.6 billion, is short of funds. It is in desperate need of billions of dollars to rebuild its battered infrastructure after years of war, economic sanctions and underinvestment.

Failure to attract the huge investment it needs to overhaul its crumbling infrastructure and export pipelines would prevent Iraq from becoming one of the world’s top oil powers.

Baghdad signed a series of deals with oil firms after two in a bid to boost its crude output capacity to 12 million barrels per day in seven years from 2.5 million bpd now.

The success of oil majors such as Britain’s BP , ExxonMobil, Royal Dutch Shell and Italy’s Eni to boost output from some of the country’s largest oilfields depends on Iraq’s export plans and the speedy revamp of pipelines and storage capacity.

To generate the cash it needs to rebuild, Iraq should have a clear plan on how to export the extra millions of barrels of crude it will produce, and start implementing it soon.

“We don’t see a lot is being done to reach the 12 million bpd,” said a foreign oil executive working in Iraq. “There is a lot of talk about exports infrastructure but is there a clear plan on who will fund and do these investments? What are the arrangements? Honestly, I don’t think there is.”

Iraq aims to rehabilitate and expand pipelines, export and storage facilities and build new pipelines.

International oil companies are watching closely how Iraq is developing its export infrastructure and who will be financing all such mega projects, the oil executive said.

“Clearly they (Iraqis) have the problem on their radar screen, but seeing is believing.

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