ERBIL – The Kurdistan Regional Government (KRG) has received its first 2015 budget payment from Iraq’s federal treasury. Ahmed Abdulrahman, spokesman for KRG Minister of Finance Rebaz Hamlan, confirmed that 250 billion Iraqi dinars ($208.3 million) was received on Thursday, and went toward making overdue payments to public sector employees. “We used the money to complete December payments of six ministries, the three presidencies and retired civil servants,” Abdulrahman said. Under Iraq’s 2015 budget law, the KRG is supposed to transfer an average 550,000 barrels per day (bpd) to state oil marketer SOMO – 250,000 bpd from KRG-controlled fields and 300,000 bpd of federal production from fields in Kirkuk – in return for a share of federal revenue worth roughly $1 billion per month. In January the KRG transferred 145,000 bpd to SOMO, slightly more than the 123,000 bpd that the federal North Oil Company (NOC) put into KRG-controlled pipelines from fields in Kirkuk. The size of the January payment roughly correlates with the value of the oil that SOMO received in Ceyhan.
Baghdad leaders have not articulated an official policy of using oil revenue from SOMO’s Ceyhan exports to determine the size of the KRG’s monthly budget transfers. However, Iraq’s federal government – like the KRG – is suffering from a severe liquidity crisis, making it both financially and politically difficult to authorize the transfer of any revenue that the KRG has not directly helped to generate.
The Oil Ministry said that federal exports from Ceyhan increased to an average of 304,000 bpd through February, raising the prospect that a second payment to the KRG could be higher.
The January payment and the increase in KRG transfers to SOMO demonstrate some willingness by leaders in both Baghdad and Erbil to make their oil agreement work despite shortfalls on both sides.
Although the payment from Baghdad signals some political appetite for ongoing cooperation, it still leaves the KRG well behind on its spending obligations. Every month, the KRG needs 850 billion dinars ($708 million) just to pay public sector salaries, Hamlan said in a recent interview with local media.
The KRG also needs to repay billions of dollars’ worth of debts it incurred in 2014, after Baghdad cut off regular budget payments amidst political disputes over Kurdistan’s independent oil exports.
Falling oil prices have increased the urgent need for economic reform in Kurdistan, but the prospect of reducing the government payroll is politically difficult to tackle.
In a televised interview on Feb. 24, Hamlan said that the KRG has a total of 1.4 million people on its payroll, including 682,000 civil servants and security force members, and an additional 718,000 pensioners – meaning that approximately one in three citizens depends on the government for a salary, in a region where female workforce participation is very low and most of the population is under 20 years old.
In Erbil on Sunday, Minister of Natural Resources Ashti Hawrami presented Kurdish MPs with a schedule of the KRG’s month-by-month production and export capacity until June. Iraqi Oil Report obtained a copy of the data.
The schedule shows that the KRG can, in March, send 435,000 bpd of oil for export, rising to 600,000 bpd by June – figures which include the Bai Hassan field and the Avana dome of the Kirkuk field.
[12:53:51 PM] Kimberly: The cooperative export deal could still be derailed by disputes over what the KRG will do with its spare export capacity and how to administer Bai Hassan and Avana, which have been appropriated by the KRG.
“There are some issues that we are not happy about, and also there are issues the KRG is not happy about. These issues are not solved at one time, but in stages,” Iraqi Oil Minister Adil Abd al-Mahdi said at a Sunday press conference in Baghdad.