SPECIAL REPORT: Kurdistan’s ‘natural resources’ and reputation damaged by corruption

A number of reporters have worked on this special report for KT but wanted to remain anonymous for fear of their lives.

Ashty Howrami, KRG oil minister

Ashty Howrami, heads the MNR

Multiple reliable sources have informed KT about a plethora of irregularities in the Ministry of Natural Resources that are creating a fertile ground for creating corrupt officials and paving the way for many corrupt practices to take place in the oil industry.

New revelations have emerged concerning the Ministry of Natural Resources in Iraq’s Kurdistan Region, amid the continuing dispute between the Kurdistan Regional Government (KRG) and the central government in Baghdad over the country’s hydrocarbon and revenue sharing laws. In recent weeks, Baghdad has increased the pressure on the Kurds by withdrawing the Kurds’ share of the national budget.

Described as ‘the other Iraq’ because of its relative stability, friendly relations with the West and its blossoming economy, the Kurdistan Region of Iraq has escaped much of the troubles plaguing the rest of Iraq. It has attracted a series of major oil and gas companies, including the likes of Exxon, Total and Chevron. The region is estimated to hold at least 40 billion barrels of oil and has used its energy potential as a means of developing its economic and territorial autonomy from the rest of Baghdad.

Amid increasing tensions with Baghdad and Kurdistan’s ongoing government-formation process, five months after elections first took place, Kurdistan Tribune has received details of  “shadowy deals in the region’s energy sector and the Ministry of Natural Resources” (also known as the MNR). One source, an influential Kurdish journalist, describes how bribes, money laundering and the monopoly of the energy market by the region’s most powerful political forces, the Kurdistan Democratic Party (KDP) led by Masoud Barzani and the Patriotic Union of Kurdistan (PUK), headed by President Talabani, “stand to undermine the region’s efforts to pursue an effective energy policy and capitalise on its reserves.”

Speaking to us on the condition of anonymity for fear of retaliation, the Kurdish journalist, described the process from beginning to end, describing how a select group of individuals determine to which companies lucrative contracts are awarded, including anything ranging from service contracts related to the logistical, infrastructure and organisational needs of the oil and gas company, and the distribution of refined products like fuel oil and diesel.

The MNR is structured in a delicate fashion and includes a complex web of politically-appointed officials led by Minister Ashty Howrami, who leads the Ministry with a firm grip, turning the MNR into what the source calls a “fortress” so that it is impossible for the general public to inquire about the Ministry’s activities and which has prompted opposition figures to accuse the Minister and his “fortress” of undermining transparency.

Howrami has a team of officials who conduct the business of contract awards and the appointment of sub-contractors. This team acts as a buffer between Howrami and any untoward dealings that could compromise the Minister’s legal and political standing.

This “buffer” is led by his deputy, Taha Zangana, appointed to replace the former deputy who resigned in protest of the “lack of transparency within the ministry”.

A former international oil company (IOC) country manager, who has just left his post in the region, explained the specifics of the process. After the MNR awards a Production Sharing Contract (PSC), the IOC in collaboration with the MNR forms a Management Committee (MC) chaired by MNR officials and with 2-3 MNR employees in addition to the IOC officials, usually the country manager and procurement manager.

The IOC invites service companies to submit their bids under a tendering system. Contracts awarded relate to a wide range of services, including establishing employee camps, fuel supplies, transportation, vehicle hire, security, and the provision of specialist services such as seismic surveys, and drilling services.

The first stage of the “shadowy process” comes from the registration of service companies with the MNR. IOCs cannot deal with any company that is not registered in the Approved Vendor List (AVL) and getting on the AVL is a big challenge in itself for most companies, who will be given the run around unless they are partnered with an influential local partner “who can make some phone calls then registration happens”, according to the former country manager.

Once registered on the AVL, service companies then start receiving invitations to tender for the service contracts with IOCs. The IOC then collects the bids received from the service companies and analyses them.

The bids are divided into two categories or stages: technical bids and commercial bids. The service company must pass the technical analysis stage before they are able to pass to commercial bidding. This is another black spot in the MC practices. The service companies complain constantly that they are deliberately failed by the MCs when favouritism is deployed.

The country manager of one of the service companies told Kurdistan Tribune that, “they have been failing and succeeding in the technical analysis like a yo-yo” referring to the arbitrary nature of the MC’s selection criteria. “Certain MCs praise their technical ability and give them top marks, and others fail them altogether”.

The MCs that govern each contract are divided among the top ministry officials; there are certain officials who are chairing 12-16 committees and have complete power over them. The allocation of MC members and their chairmen is also political. The blocks that are based in the KDP-controlled zones are chaired by members of the KDP, while the blocks based in PUK-controlled zones are chaired by MNR officials belonging to the PUK.

Given that the official posts are politically based, the MNR official owes his loyalty to powerful and influential politicians who could therefore have a decisive say in the awarding of a service contract. According to industry insiders, there are few service companies in both areas that are not linked to one or more politicians.

These politicians exert pressure in getting the contract awarded to their favoured company.

The former IOC country manager gave an example of a logistics company in the PUK-controlled area that was imposed on the IOC, claiming that this was despite the fact that the company lacked the necessary qualifications and resources for the contract.

Typically, the contracts for non-skilled services such as camp setup, fuel supplies, security and catering are mostly influenced by straightforward political pressure, while more specialist services such as seismic, drilling, waste management are subject to bigger manoeuvring and political pressure.

Some of the service companies have local shareholders affiliated with powerful political figures who exert pressure on MNR officials to award service contracts to specific companies.

The disqualification of companies on the technical assessment is a common practice to beat competition and to award contracts that carry much higher price tags.

A source inside the MNR claimed another common practice among MNR officials is the recommendation of employees for the IOCs, by which they implant their eyes and ears into the operation of the IOCs and through which information is relayed back to the MNR officials and their political sponsors. According to the source, this was most recently achieved through the creation of a substantive recruitment company that has extensive ties to the political establishment. The recruitment company was established over a year ago and is the only one that the IOCs have to recruit from.

It seems that the current setup of MCs is key to all the wrongdoings. The chairman of the MC is chairman of tens of MCs and can bestow favours on a wide range of people who in turn can return the favours by providing political protection to keep the person in his position.

“Sometimes it is demeaning when you see an MNR official as high as Deputy Minister telling an IOC to appoint an employee or award certain small contract to a catering company or certain logistics company” said the MNR source. The source added: “If the MNR wants to get out of such mess, then it needs to rethink its tendering process and the appointment of high ranking officials in such committees.”

Copyright © 2014 Kurdistantribune.com

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