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Iraq fears budget crisis, urges oil export boost


04 Dec 2008
Iraq should raise its oil exports to 2.5 million barrels per day next year, 25 percent more than now planned, to cover a budget shortfall caused by tumbling crude prices, Finance Minister Bayan Jabor said on Wednesday. Iraq needs huge investment and a growing economy as it emerges from years of bloodshed, but it could find itself starved of cash if oil prices stay where they are. Jabor told Reuters that raising exports would be one way to ward off a budget crisis in 2010 if oil prices stay at current levels. Crude has fallen $100 a barrel from July's record high of $147.27. The ministry has several plans to increase revenue if oil prices do not rise, including the auction of a third-generation mobile telephone licence early next year, the minister said in an interview. Almost all Iraq's revenues are derived from sales of oil from its reserves, the world's third largest. It needs every cent to rebuild after the U.S.-led invasion of 2003 took the country to the brink of civil war. "Clearly we will face a great crisis in 2010. We started to make plans to face this, such as privatisation, widened taxes, mobile licences ... But the question is can we face these pressures in 2010 and 2011 through these measures?" Jabor said. "I say no. For that reason I say we need another way ... I think as Finance Minister that the fundamental element in facing this crisis is increasing oil exports," he added. Iraq currently exports about 1.7 billion barrels per day (bpd) and Jabor said exports of 2 million bpd are currently factored into the 2009 budget. "I call on the Oil Ministry to start thinking seriously about increasing exports in 2009 to 2.5 million barrels per day," Jabor said, adding that if Iraq is incapable of increasing exports international oil firms could help. Iraq is a member of OPEC but is not bound by the group's output quotas following the years of war, and its production is limited more by its infrastructure. The oil sector needs massive investment, but this has been delayed by political and contractual wrangling. Technical service contracts with international oil firms to boost output were scrapped earlier this year after delays in signing. Disputes between the central government and the Kurdish Regional Government in Iraq's oil-rich north have also delayed investment. 3G LICENCE Iraq has already revised its 2009 budget down to $67 billion from an expected $80 billion due to falling oil prices, with a new assumed oil price of $62 a barrel. U.S. crude was around $47 a barrel on Wednesday. Jabor said the 2009 budget would not be revised again, and that a $15 billion earlier budget surplus would cover any shortfall. However, Iraq faced problems in 2010, he said. "We face a challenge in 2010 and 2011 if the oil prices stay as this level. If it rises above $70, then we'll have no problem," he said. The ministry is planning to sell a third-generation mobile licence early next year. A 3G network enables subscribers to surf high-speed Internet and quickly download multimedia data. Iraq expects to net $1.5 billion from the sale, Jabor said. "There will be public bidding ... and then it will be given to the company which provides the best offer," he said. The Finance Ministry also expects new tax and customs laws to come into effect in early 2009, and plans to widen its basis for tax collection to boost revenues. Jabor gave no details. Iraq is saddled with Saddam Hussein-era debts, and Jabor disputed the amount owed to one of its biggest creditors, Saudi Arabia. Iraq says it owes Saudi Arabia about $15 billion, but has been told by Riyadh the debt has grown with interest to $40 billion. Iraq insists the deals signed under Saddam did not include the payment of interest. "For that reason we refuse to pay interest, and to work with any interest added in violation of the agreement," Jabor said. Iraq is also obliged to set aside 5 percent of its oil revenues as compensation to Kuwait for Saddam's 1990 invasion of the country. Talks with Kuwait and with the U.N. Security Council, whose resolution enforces the payments, to reduce the percentage were positive, Jabor said.
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