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KRG’s defeating contiguous flanked by Rosneft agreement.


12/11/2017 1:31:00 PM

Mediterranean Institute for Regional Studies


Kurdistan Regional Government (KRG) and the Russian oil organization Rosneft agreed to a progression of arrangements on oil matters, unrefined petroleum supplies with an upfront cash payment sums on the side of an "open communication"; that was finished amid the period between February and June of this current year.

Despite the absence of data and the privacy on all sides of the agreement elements, what is accessible demonstrates, clearly, to their fiscal and money related significance for KRG; to the geopolitical reviews of the Russian government; to the benefit and the outside key situating observations of Rosneft; and, at long last, to the crucial results and effects of Iraq and the central government.

This shows the complication of the subject and the intertwinement of the issues identifying with it; the conflicts or likenesses of interests of the concerned gatherings; the vital consistency with established and power essentials and lawful methods, among other sides.

These are what this commitment tries to display, break down and examine. It giveaways first with the representing structures of the consent to arrangements; at that point tends to Russia key and geopolitical situating.

However, the agreement between KRG and Rosneft pledge as a last and final opportunity for KRG, its discusses as a possibility that these agreements could represent the last life-saving rope for KRG.


The managing and organizing insight between Rosneft and KRG

 In the light of the accessible data, three separate structures, as far as substance, goals, time skyline and different issues identified with each of them, have been settled upon and could be summarised as follows.


 Firstly: Oil Supply Contract with Forthright installment

As indicated by Rosneft' Data Office, both side agreed in February 2017, in London (UK), an agreement for the buy and offer of oil to Rosneft from 2017 to 2019. The agreement accommodates some progress/forthright installments. The purchaser is Rosneft's exchanging auxiliary Rosneft Exchanging. The unrefined Oil will be conveyed to Rosneft's refining system, in Germany and somewhere else.

Aside from the above, Rosneft’ Information Department-ID has not indicated any of the essential parts and terms and states of this agreement, for example, value setting system; amounts of oil included; issues identifying with prepayment, particularly if there is a base mandatory supply; fines if there should be an occurrence of resistance, loan fees, and so on.; Keeping money matters identifying with the store and withdrawal of continues; operational methods for the stacking and transportation of oil and other related issues.

Nevertheless, the shortage of data, their dissimilarity, the unknown encompassing this agreement and the absence of straightforwardness and transparent in the oil area in the KRG, it is possible to give the following insights:

1- KRG experiences an extreme monetary and financial crisis and is in desperate need of budgetary assets.

2- Rosneft has frequently underlined the primacy of "gainfulness" and more profitability in this agreement.

3- Rivalry with or substitution for or despite the present prepayment game plans. through the Ministry of Natural Resources-MNR, KRG initiates publishing information on the amounts it paid for the prepayment arrangements to the concerned companies as well as the amounts it received from those companies that would be paid in the future.

4- The Iraqi government commitments to respond a few primary observations make it basic for the central government to react viably and quickly to these arrangements.


 Secondly: Exploration Blocks and infrastructure projects

In the start of June 2017, Rosneft declared that it has signed an agreement with KRG, as a major aspect of the XXI St. Petersburg/Russia Worldwide Financial Discussion, "a progression of agreements on increase their collaboration in exploration and production of hydrocarbons, trade, and logistic." The declaration says further, "The Gatherings consented to a venture arrangement under which they resolved to create participation in exploration and production, approved to the adaptation of the export oil pipeline in Iraqi Kurdistan, and also went into various production sharing agreement." And "Likewise, the Gatherings resolved to go into the impact of the PSA signed as a component of the discussion concerning five blocks with large geographical potential and blueprints another point of view territories of collaboration in exploration and production, including the gas sphere. however, Rosneft declaration did not specify the groundwork of a few refineries.

In the light of the above statement can make the additional observations:

1-     Lake of Transparency and absence of essential information: Add up to Nonappearance of Straightforwardness. As because the prepaid oil buy contract said above, no arrangement has been distributed or any data made accessible in regard to the material of these declarations; their terms and conditions or timing or the legally binding arrangements and other imperative issues.

2-    There are no less than four sorts of agreement here:

The joint venture contract; the production sharing contract for the five exploration blocks in KRG; the allowance to the "establishing of the exporting oil pipeline", lastly (maybe) a gas deal additionally.

3-    The PSAs for the Exploration Blocks.

None of the five blocks has been named appropriately, and also their geographic area stays ambiguous.

due to the absence of straightforwardness, it is expected that these agreements work in favor of Rosneft at the expense of interests of both the KRG and the country- Iraq at large.

It is a confirmable reality that PSAs signed by KRG offer International oil companies lucrative points of interest and conditions from money related, financial, managerial and legal part, among others. These already signed PSAs constitute, for Rosneft, capable "Legal point of reference" that speaks to the base the organization hopes to have and would expand on them its arranging position for better terms.

Among the most essential money related, financial and legally binding components that Rosneft could negotiate to accomplish them are summarised as the following:

(A) Reducing KRG "royalties" and change the base for their calculation;

(B) Increase the rate and percentage of the "Cost Oil" to guarantee fast healing of the contributed capital and this essentially implies weakening the proportion of (Profit Oil);

 (C) Change the table and premises identified with the R-factor, which gives Rosneft a higher level of benefit oil;

(D) Reducing KRG' "Conveyed Interest", which viably lessening KRG's share in benefit oil;

(E) Reducing cash payment sums, for example, the signature reward, production reward (or alike), and additionally consider these as recoverable cost things (i.e., incorporate them into cost oil);

(F) If the exploration blocks are, all or some, among the resigned by IOCs, the financial assessment of all assets, data and information and activities shall be at its minimum financial value.

Conversely, KRG is in a truly powerless arranging position that, for all intents and purposes and hypothetically, makes it inadequate to having PSAs, with Rosneft or some other organizations, work for the KRG's advantage.

As it is a document and well-known matters among international oil organisations, since 2014, IOCs have given up (19) exploration blocks and terminated the related PSAs.

Furthermore, the investigation lately organized by McDaniel & Associates has reduced Taq Taq reserves from 172 million barrels estimated at the end of 2015 to 59 million barrels at the end of March this year. The company operating this field (Genel) had already reduced the reserve estimates by half in February last year.

Additional data points to the geographical resemblances amongst the Taq Taq field and Kurdamir field, which may mean the likelihood of dropping the reserves of the last field as well.


Thirdly: The Open Memorandum

The Kurdistan Regional Government has denoted an indication of fact with Russian oil company (Rosneft) in the field of energy" as apparently expressed by Buar Khansi, KRG, concentrating on that "this notice is at present an open refresh for 4 months to discuss assignments between the Rosneft and KRG in the field of work"; Rosneft did not state this Open Memorandum. Note that this refresh may address a provisional period during which all the formal and operational procedure relating to the agreement.


Russian tactical and geopolitical location

Rationally, the covenant and contracts conclude because the KRG share is extraordinary priceless and it’s an open door for Rosneft vital situating in the oil area of the KRG from one perspective and for Russia geopolitical favorable position and use in the KRG, in Iraq, and in the whole region on the other hand.

For Rosneft, these agreements are the definite entry into the area after earlier tries, particularly through ExxonMobil (which has with Rosneft exploration cooperation agreements in the Russian part of the Arctic), failed.

In February 2014, international oil companies base discovered data on thoughtful consultations between ExxonMobil and Rosneft on the sharing of the later in the contracts signed by the former oil company in the Region.

The agreement between ExxonMobil and Rosneft didn’t bear fruit for a few reasons, including:

1-Da’esh (ISIS/ISL) occupation of Iraqi and Syria’s Sunni territory in mid-June 2014 also rapidly other zones after constituting "political/security risks".

2-The consistent for starting about oil costs collapse, which constitutes "effective investment also fiscal risks".

3-The likelihood about Rosneft acquiring most of the data concerning ExxonMobil's yielded investigation blocks, which might have been consequently uncovered by WikiLeaks Concerning illustration specified above, what’s more, this speaks to finding of "business risks"/

 4- Rosneft's unwillingness will show up to be standing for ExxonMobil against the Iraqi central government. (It may be worth specifying that ExxonMobil needs as of now attempted on 2012 including Rosneft for West Qurna1 oilfield in the south of Iraq, but Rosneft didn't succeed Furthermore that opened the field for the Chinese company-CNPC).

5-The late choice Toward those United States government not with avoiding ExxonMobil from those monetary authorizes against Russia (effectively intending collaboration with Rosneft) need significantly decreased or wiped out any credibility of participation between the two major oil organizations in Kurdistan.

With respect to the Russian government, this Agreement will reinforce its geopolitical position and improve its power to Kurdistan and Iraq, also in the entire Middle East at the large, for the following considerations:

1.The entree of Russian specific oil companies (which that organization asserts the bigger part beforehand, its monetary structure) and the absolute scope for its relationship in the Kurdistan comes subsequently taking off or reducing that activities of broad Western oil companies for instance, with the end goal of Total and ExxonMobil.

2. There is another Russian organization in the area, Gasprom Neft. Gazprom Neft is the administrator of two blocks Shakal and Halabja with an 80% interest for each. In August 2012 Gazprom Neft took a non-administrator 40% stake in the Germain piece; at that point, it turned into the administrator toward the finish of February 2016.

3. Whatever is left of Iraq, where long-haul benefit contracts are the standard (not PSCs), Russian oil organizations are associated with two oil fields and two exploration blocks.

4. The presence of Rosneft in the KRG’s oil transporting pipeline (which has a limit of 700 thousand barrels for every day and intended to increment to one million barrels for every day) urges, by need (for legitimate, control and operational premises), the organization to arrange with and get the authorisation of both Iraqi and Turkish governments; as the two nations have a two-sided pipeline contract that is yet successful since mid-seventies of the most recent century. Shared pipeline agreement that is still successful since mid-seventies of the last century.



To put it plainly, as is notable, KRG is experiencing a serious monetary and financial calamity, which is generally of its own making, apart from the crumple of world oil costs since mid-2014. The absence of straightforwardness and transparent, wild debasement, and lower oil trade incomes because of the extent of markdown it bargains of the sharing cost because of the turned idea of the charge shipment process, the collection of outside obligation and the unpaid duty of oil organizations are on the whole calculates contributing extending the money related crisis.

Aside this, there is an evident disappointment in the administration and terrible governing of the oil area in the District, as showed obviously by the consequences of worldwide mediation concerning Dana Gas and Perl; these "genuine and considerable legal award", confronting KRG are a declaration of thoughtlessness in overseeing and management gets that are initially out of line.

At the point when KRG covertly signed PSCs for six oil exploration blocks with ExxonMobil, it gave these agreements a "military" measurement and significance. Parallel with that, the Minister of natural resource declared the start of a mind-boggling period of "merger and obtaining", indicating the predominance of extensive IOCs on the littler ones. In this manner, a "group out" arrangement may have been enhanced by MNR. However, now, ExxonMobil has given up and deserted three of its explorations blocks, and there is a question that it will hold the staying three. As said above, IOCs, altogether, had resigned 19 blocks regardless of the three-digit a great many dollars they did spend, and no organization has presented any merger or procurement of any of these 19 blocks!


Source and Bibliography