Iraqi leader details oil output strategy

Iraq's best chance to boost its languishing oil output is by working with major international companies under production-sharing agreements, Iraq's deputy prime minister said on Sunday.

Barham Saleh said Iraqi leaders were nearing agreement on a long-awaited hydrocarbon law that would allow potentially huge investments by foreign companies in Iraq's oil sector. He was hopeful that oil would be a "unifying force," but conceded that wrangling continued over whether it would be controlled locally or by the central government.

Saleh said he expected the law setting ground rules for managing Iraq's huge petroleum reserves to be approved in parliament by year's end.

Foreign oil companies, with their huge investment clout and technology, were best placed to quickly modernize Iraq's oil sector and double the current crude production of 2.5 million barrels per day by 2010, the deputy prime minister said.

"We need to engage with the major oil companies who will bring in investment as well as technology," Saleh told reporters on the sidelines of U.N.- and U.S.-led International Compact for Iraq talks in the Emirates capital, Abu Dhabi. "We need to change the way we run the oil sector in Iraq."

The absence of a legal framework governing investments and ownership of the country's oil resources has hampered foreign investment in the sector.

Currently, Iraq's oil production is overseen by the country's Ministry of Petroleum and two state-run oil companies, a centralized management system left over from the regime of Saddam Hussein that Saleh said "has proven to be a disaster."

"Iraq needs investment. Iraq needs to send a strong signal to the international community about investment in oil," the deputy prime minister said. "We need to push liberalization and open our markets."

Asked about the most appropriate model of foreign investment for Iraq, Saleh advocated production-sharing agreements, known as PSAs. Under such arrangements, oil companies are typically granted a share of the crude they produce to offset their investments.

"I'm personally in favor of PSA agreements," Saleh said. "We need to make sure we maximize benefits and revenues for the Iraqi people."

Saleh, an ethnic Kurd who hails from an autonomous area in northern Iraq, acknowledged that "differences remain" among those negotiating a hydrocarbon law, particularly on determining whether the resource is controlled by regional governments or Baghdad.

Northern Kurds and some Shiite Muslims in southern Iraq — Iraq's two chief oil regions — want regional control over oil production and revenues. But Iraq's Sunni Muslims and much of the Baghdad government want to maintain national control over Iraq's petroleum resources.

Saleh said the national policy council negotiating the new hydrocarbon law would present a draft to parliament by year's end and predicted it would be voted into law before the end of the year.

"We want to turn oil into a unifying force for Iraqis rather than a resource to fight over," he said.

Iraq's proven oil reserves stand at about 115 billion barrels, the world's third largest after Saudi Arabia and Iran.

Sunday's Abu Dhabi meeting was in preparation for twin Sept. 18 summits on Iraq. In New York, Iraqi Prime Minister Nouri al-Maliki and U.N. Secretary-General Kofi Annan are expected to discuss Baghdad's political reforms, while global finance ministers discuss economic proposals in Singapore on the sidelines of a World Bank and International Monetary Fund meeting.

Among those in attendance were U.S. Ambassador to Iraq Zalmay Khalilzad and U.S. Deputy Treasury Secretary Robert Kimmitt, President Bush's special envoy on the Compact talks.

Participants are working to estimate the amount of financial support Iraq needs through 2012 to rebuild its economy. The estimate includes money that Iraq can be expected to raise, primarily through oil exports. Any deficit would be made up by international donors.

France and Germany, two countries that opposed the U.S.-led Iraq war, sent participants, as did Spain, Italy, Japan, Korea and several Arab states.