.China Faces Iraq Oil Strife
BAGHDAD -- During a ribbon cutting in March, China National Petroleum Co. began work to develop the Ahdeb oil field in southeastern Iraq, marking the first significant foreign investment in the country's vast but creaky oil industry.
Company officials expected logistical and security challenges in the war-torn country. But two months later, their investment is running into an unexpected obstacle: angry, local farmers.
CNPC's hassles could offer important lessons for other big international oil companies jockeying for a role in Iraq's oil industry. Next month, Iraq is set to award a series of drilling contracts to major international companies. Royal Dutch Shell Group PLC, BP PLC and Exxon Mobil Corp. are all vying for deals.
But Iraqis near the country's oil fields may not be ready for them. Local Iraqi officials and residents have little experience living and working alongside big, private investors from outside the country. And a petroleum law intended to spell out legal rights and responsibilities of foreign investors in Iraq has yet to be approved by Iraq's parliament.
Just a few weeks after CNPC started work in the field in Wasit Province, local farmers came to the site to complain that the company's oil drilling had damaged property. They asked for compensation, and they also asked for security jobs for relatives.
Local Iraqi officials allege farmers have looted the oil site. Late last month and early this month, oil officials noticed that some exposed electrical cables, running near farmland and powering their operation, had been severed. Farmers later came forward to take responsibility but said the damage was accidental.
Investing in Iraq was never expected to be easy. For decades, Saddam Hussein, the country's former dictator, neglected the oil fields. Iraqi oil officials say they need billions of dollars in investment to bring them back to international standards.
At the same time, security remains a big challenge. While violence across Iraq is down considerably from the worst days of the country's sectarian strife, attacks have started to rise again, just as U.S. forces prepare to accelerate their drawdown.
CNPC first reached a deal to develop the field in 1996, but sanctions against Iraq kept any real work from being done. After the U.S.-led invasion in 2003, the deal was scrapped, but Chinese and Iraqi officials more recently started talks over how to resurrect the deal.
In November 2008, Baghdad and Beijing announced a revised agreement, with Chinese investment pegged at $3 billion. In March, Chinese Ambassador Chang Yi, Iraqi Oil Minister Hussein al-Shahristani, company officials and other guests attended the lavish ribbon cutting. At the event, officials said the project would be a model for Chinese-Iraqi cooperation for the future.
Just a few weeks later, though, things started to go awry. In late April, three farmers who visited the local-government office overseeing the field claimed drilling from the project had damaged their homes, causing cracks in their roofs and walls.
Officials told the farmers they would be taken care of but weren't specific. The farmers also wanted some of their relatives to be hired as local security guards for the oil project. Iraqi officials said they didn't have a budget to hire anyone else.
Then, in late April and early May, several power lines feeding the project were cut. CNPC and local officials alleged vandalism. Farmers claimed they accidentally ran over the cables with their tractors.
Wasit Provincial Council Chairman Mahmoud Abdul al-Retha downplays the dispute. He said farmers now are satisfied, after being told they would be compensated for any damage done to their land.
However, one farmer in Wasit, who asked not to be identified by name, said he and others had agreed to take compensation but are still waiting to get it. The farmer said there should have been more cooperation with them before the project started to avoid these problems.
Oil Ministry spokesman Assem Jihad said problems with the farmers have been exaggerated. He said if they prove that their land has been damaged, they will be compensated.
A Chinese company official declined to talk about the problems the company has been facing in Wasit in detail. But he said Chinese officials knew that working in Iraq would have its challenges. He said that despite the obstacles, the project is progressing relatively smoothly.
"We selected this country and want to work here, so we have to deal with any situation that arises in a practical manner," he said.
Iraqi officials, meanwhile, say they have been embarrassed by the problems. Lawmaker Bassem al-Sharif, who is from Wasit, plans to go to the field soon to investigate allegations by local officials that farmers looted property of the oil company. "We need to take care of our oil industry and make sure investors are encouraged to come here," he said.
WSJ
Company officials expected logistical and security challenges in the war-torn country. But two months later, their investment is running into an unexpected obstacle: angry, local farmers.
CNPC's hassles could offer important lessons for other big international oil companies jockeying for a role in Iraq's oil industry. Next month, Iraq is set to award a series of drilling contracts to major international companies. Royal Dutch Shell Group PLC, BP PLC and Exxon Mobil Corp. are all vying for deals.
But Iraqis near the country's oil fields may not be ready for them. Local Iraqi officials and residents have little experience living and working alongside big, private investors from outside the country. And a petroleum law intended to spell out legal rights and responsibilities of foreign investors in Iraq has yet to be approved by Iraq's parliament.
Just a few weeks after CNPC started work in the field in Wasit Province, local farmers came to the site to complain that the company's oil drilling had damaged property. They asked for compensation, and they also asked for security jobs for relatives.
Local Iraqi officials allege farmers have looted the oil site. Late last month and early this month, oil officials noticed that some exposed electrical cables, running near farmland and powering their operation, had been severed. Farmers later came forward to take responsibility but said the damage was accidental.
Investing in Iraq was never expected to be easy. For decades, Saddam Hussein, the country's former dictator, neglected the oil fields. Iraqi oil officials say they need billions of dollars in investment to bring them back to international standards.
At the same time, security remains a big challenge. While violence across Iraq is down considerably from the worst days of the country's sectarian strife, attacks have started to rise again, just as U.S. forces prepare to accelerate their drawdown.
CNPC first reached a deal to develop the field in 1996, but sanctions against Iraq kept any real work from being done. After the U.S.-led invasion in 2003, the deal was scrapped, but Chinese and Iraqi officials more recently started talks over how to resurrect the deal.
In November 2008, Baghdad and Beijing announced a revised agreement, with Chinese investment pegged at $3 billion. In March, Chinese Ambassador Chang Yi, Iraqi Oil Minister Hussein al-Shahristani, company officials and other guests attended the lavish ribbon cutting. At the event, officials said the project would be a model for Chinese-Iraqi cooperation for the future.
Just a few weeks later, though, things started to go awry. In late April, three farmers who visited the local-government office overseeing the field claimed drilling from the project had damaged their homes, causing cracks in their roofs and walls.
Officials told the farmers they would be taken care of but weren't specific. The farmers also wanted some of their relatives to be hired as local security guards for the oil project. Iraqi officials said they didn't have a budget to hire anyone else.
Then, in late April and early May, several power lines feeding the project were cut. CNPC and local officials alleged vandalism. Farmers claimed they accidentally ran over the cables with their tractors.
Wasit Provincial Council Chairman Mahmoud Abdul al-Retha downplays the dispute. He said farmers now are satisfied, after being told they would be compensated for any damage done to their land.
However, one farmer in Wasit, who asked not to be identified by name, said he and others had agreed to take compensation but are still waiting to get it. The farmer said there should have been more cooperation with them before the project started to avoid these problems.
Oil Ministry spokesman Assem Jihad said problems with the farmers have been exaggerated. He said if they prove that their land has been damaged, they will be compensated.
A Chinese company official declined to talk about the problems the company has been facing in Wasit in detail. But he said Chinese officials knew that working in Iraq would have its challenges. He said that despite the obstacles, the project is progressing relatively smoothly.
"We selected this country and want to work here, so we have to deal with any situation that arises in a practical manner," he said.
Iraqi officials, meanwhile, say they have been embarrassed by the problems. Lawmaker Bassem al-Sharif, who is from Wasit, plans to go to the field soon to investigate allegations by local officials that farmers looted property of the oil company. "We need to take care of our oil industry and make sure investors are encouraged to come here," he said.
WSJ
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