Iraq bans Chinese firm from oil and gas auctions

Iraq bans China's Sinopec from its upcoming oil licensing round as the company has failed to relinquish its contracts in Iraqi Kurdistan.

Iraq has banned Sinopec from its upcoming auction of oil and gas licences because the Chinese firm has failed to relinquish its oil contracts in Iraqi Kurdistan. The decision underscores Baghdad's determination to stick with a hardline approach in dealing with the government of the semiautonomous Kurdish region, with which it is at odds over territory and resources jurisdiction.

It also suggests there will be no quick solution to the impasse that has stalled the passage of a new federal oil law for Iraq, at least while Iraq's current political leaders remain in office. "Sinopec is blacklisted unless it changes its position and withdraws from these contracts," Abdul al Ameedi, the deputy head of the Iraqi oil ministry's petroleum contracts and licensing directorate, said yesterday. "We have cancelled Sinopec's pre-qualification."

It is the first time that Iraq's central government has made good on previous threats to exclude foreign oil companies doing business with the Kurds from bidding for oil and gas development in the rest of Iraq. But until recently, only relatively small firms had signed oil deals with the Kurdistan regional government, while the Iraqi oil ministry had exclusively invited large international and national oil companies to participate in its bidding rounds.

That changed in August, when Sinopec, which is one of several oil and petrochemicals companies controlled by Beijing, acquired Kurdish oil contracts as part of a US$7.2 billion (Dh26.42bn) takeover of Addax Petroleum. The Swiss-Canadian firm pumped most of its oil from Nigeria, but was also among a handful of foreign firms exporting crude from Kurdistan after finding oil there. Baghdad insists the Kurdish government's contracts are "illegal", as they have not been vetted by the central government. The Kurds argue that Iraq's constitution allows them to sign their own deals for oil and gas exploitation in their territory.

The two sides also disagree on the type of oil deal they are prepared to countenance, with Iraq's oil ministry offering only fee-based technical services agreements, while the Kurds, along with most foreign oil companies, prefer production-sharing contracts. Previously, Baghdad cut off oil exports to two Korean firms that had signed exploration and production deals with the Kurds. Although the central government agreed to allow Kurdish oil exports to begin in June on condition that a federal agency collected and distributed the revenues, there has been no matching agreement on payment to the foreign firms pumping the crude.

But the action against Sinopec takes the dispute to a new level, as Chinese government-controlled companies have figured prominently in Baghdad's recent moves to boost Iraq's oil exports, which provide nearly all the country's foreign revenue. Last year, Baghdad awarded a 20-year, $3bn services contract to China National Petroleum Corporation (CNPC) to develop Iraq's Al Adhab oilfield. In June, an alliance between BP and CNPC won a 20-year deal to raise output from the country's biggest oilfield, Rumaila. It was the only contract awarded in Iraq's first post-war oil and gas licensing round, after the other bidders baulked at the government's maximum payment terms.

Sinopec, CNPC and two other Chinese firms were members of teams that submitted unsuccessful bids on four other oilfields and a gasfield in the June auction. [e-mail]