By Mohammed Abbas
BAGHDAD, June 18 (Reuters) - Iraq's Oil Ministry is in "disarray" as oil officials revolt against its plan to hold the country's first major auction of oil field contracts since the fall of Saddam Hussein, a Kurdish official said on Thursday.
Ashti Hawrami, natural resource minister for Iraq's oil-producing Kurdish region, said firms taking part in the auction this month will find it difficult or impossible to actually work in Iraq because of the dispute.
The Kurdish Regional Government (KRG) and the Shi'ite Arab-led Baghdad government have long feuded over how best to exploit Iraq's vast oil reserves, the world's third largest.
"The oil industry seems to be falling apart. We have the Oil Ministry in disarray, we have the national oil companies coming out and saying loudly this is not right," Hawrami said of the oil contracts to be offered over two days at the end of June.
On Sunday the head of Iraq's South Oil Co., which produces most of the country's crude, said he opposed the auction of contracts to develop Iraq's six largest oil producing fields -- and engineers said they had started a petition against the move.
Two undeveloped gas fields are also on offer.
Iraqi Oil Minister Hussain al-Shahristani was also under fire from parliament, which has reservations about the contracts and summoned him to answer questions on Tuesday.
South Oil Co. chief Fayad al-Nema on Thursday renewed his criticism of the contracts.
"The first bidding round is useless and won't serve the Iraqi economy. It will harm the South Oil Company," he said.
The strong criticism has raised concerns that the auction -- for which 32 of the world's biggest energy companies have qualified and paid to take part -- would be cancelled, but the government has repeatedly said they would take place as planned.
"The cabinet discussed the preparations which are ongoing for the first bidding round to develop the gas and oil fields and confirms its importance ... and the commitment to move on the dates specified, the 29th and 30th of June," government spokesman Ali al-Dabbagh said in a statement on Thursday.
FOREIGN FIRMS HAMSTRUNG?
Nema and other critics say they do not oppose a planned second round of tenders for service contracts in undeveloped oil fields, the results of which are due to be announced at the end of the year.
One of the contracts on offer in the first round is for oil fields close to the northern city of Kirkuk, disputed by Kurds, Arabs and ethnic Turkmen.
Hawrami said the KRG had not been consulted about the tender, and therefore foreign firms would not have the KRG support he said was required before developers could start work.
"They will be on shaky ground. Speaking about fields in the disputed territories, the contractors will not actually have a chance to work on the ground. I cannot see how they will have the security and support they need in these disputed territories without the KRG being party in providing that help."
Iraq produces 2.3-2.4 million barrels per day of crude, slightly lower than the rate under Saddam Hussein, stoking criticism of Shahristani. A fall in oil prices since last year's record highs has depleted Iraq's budget, adding to pressure on the Oil Minister to boost production.
(Additional reporting by Aref Mohammed in Nassiriya and Aseel Kami in Baghdad: Editing by Michael Christie)