The Kurdistan Regional Government (KRG) last year pocketed a net of almost four billion dollars in selling oil, its most valuable resource, but with the net being less than half of the total revenue due to debt repayment and operation costs, civil servants in the Kurdistan Region have been overwhelmed with financial uncertainty as their salaries continue to be delayed.
According to the KRG’s annual report audited by Deloitte, over 152 million barrels of oil were exported throughout 2021 via the Kurdistan Export Pipeline. Sold at an average $59.459 per barrel, the Region’s oil made a revenue of nine billion dollars.
However, following repayment of debts to oil companies, operation costs, and pipeline costs, the KRG only retained a net income of $3.965 billion from crude sales, which is only an average 44 percent of the initial revenue gained.
This comes as Kurdistan Region Prime Minister Masrour Barzani earlier this month said that 43 percent of oil revenues go to production companies, seven percent to debts, and nine percent for transportation, leaving only 41 percent of the total revenue for the government.
The KRG’s revenue in the second half of the year was higher as oil prices increased towards the end of the year, but the spike in oil prices has not been enough for the KRG to escape the economic crisis it has been engulfed in for years given that the Region continues to sell oil at a cheaper price.
The KRG exported a total of nearly 80 million barrels of crude oil in the first half of 2021, collecting a net $1.7 billion.
There are 52 oil blocks in the Kurdistan Region, 16 of them are in production, and 15 are in exploration phases. Over 30 international and local companies are working in the sector. The Region produces around 450,000 barrels per day.
Many of the contracts with international oil companies signed in the early stages of the KRG’s independent oil sales were signed with prepayment schemes, and the Kurdistan Region owes a large amount of money to those companies. This has made the region unable to pocket over 50 percent of its oil revenues at any point throughout the past eight years.
The Secretary of the Council of Ministers Amanj Raheem in late June told the Kurdistan parliament that the KRG owes around $4.3 billion to oil companies. The government has also said it inherited $28 billion in debt from the previous administration. However KRG’s Minister of Natural Resources Kamal Atroshi in October told Rudaw English that the debts owed to oil companies were significantly less than $4 billion.
Rudaw understands that the KRG currently owes between 1.5 to 2 billion dollars to the international oil companies operating in the Region.
Following the war against Islamic State (ISIS) in 2014 and disputes with Baghdad over the KRG’s oil sales, with a shortage of cash, the government took temporary austerity measures to reduce the salaries of higher-earning employees in June 2020. Those earning more than 300,000 Iraqi dinars per month were hit with a 21 percent pay cut.
Eight years later, and despite Erbil reaching an agreement with Baghdad in 2021, civil servants in the Region continue to suffer from delayed salaries.
The Kurdistan Region receiving its share of the federal budget is conditional on Erbil fulfilling certain commitments, which include handing over 250,000 barrels of oil per day, paying back money it borrowed from the Iraqi Trade Bank, sending non-oil revenues, and prioritizing paying the salaries of its civil servants and Peshmerga before any other spending.
According to data provided to Rudaw English by the head of the Kurdistan parliament’s finance committee, the local administrations in Sulaimani, Erbil, and Duhok have been told by the KRG to allocate a portion of the border crossing and customs revenues for fulfilling salary deficits.
“The deficit in the salary budget is supposed to be filled by the local administrations, in a way that Sulaimani administration would allocate 47 percent of the border crossing and customs revenues to fulfill the gap in their province,” Ali Hama Salih said on Thursday, adding that Erbil and Duhok administrations are supposed to add 53 percent of their revenues combined to the salary budget as well.
According to Salih, the Sulaimani administration has on several occasions said they are not able to allocate the required 47 percent, therefore resulting in salary distribution delays.
Rudaw English reached out to Samir Hawramy, the spokesperson to the Region’s Deputy Prime Minister Qubad Talabani, whose party, the Patriotic Union of Kurdistan (PUK), is the main power in Sulaimani province, but he was not available for comment.
The Kurdistan Region may have suffered for the first part of 2021 as oil prices were still recovering from the effects of the covid-19 pandemic however, Rudaw understands that the Region’s oil sales have increased in the first two months of 2022 as prices have hit years high.
Despite record high oil prices kicking off the new year, salaries of civil servants have continued to be delayed, and retirees have been among the main victims of such delays.
In March alone, at least four retirees died while waiting in front of Sulaimani’s banks overnight and in the cold to receive their pensions.
This was caused partially due to Baghdad delaying the delivery of the Kurdistan Region’s share of the federal budget, but also due to the Region’s outdated banking system.
The prime minister’s Deputy Chief of Staff Aziz Ahmad addressed the issue and claimed that their teams are working on digitalizing the process earlier this month.
The PM/DPM have already empowered an agile team at the centre of govt focused expressly on fixing this and other priority services.
— Aziz Ahmad (@azizkahmad) March 29, 2022
This will be over soon as we digitalise the public payroll (done), treasuries (in progress), and interface with private banks (early stage). 1/2 https://t.co/DsTOzygMSH
As the debts the KRG owes to companies have decreased over the past months, and oil prices increased incredibly, the Region seems to head towards more financial security, with the exception of the challenges its oil industry is facing from Baghdad.
The Iraqi Federal Supreme Court ruled against the Kurdistan Region’s oil and gas law in mid-February, claiming that it was “unconstitutional”, hence striking down the independence of the Kurdistan Region’s oil and gas sector and putting its industry in jeopardy.
The KRG slammed the decision soon after, deeming it “unjust” and “unconstitutional”, but has also expressed their will to negotiate with Baghdad and solve the issue through dialogue.
Despite the Region extending an offer for dialogue, a recent official letter from the Iraqi oil ministry to the KRG on March 24 stated that the KRG would have to hand over all oil contracts to the Iraqi oil company, and suggested the establishment of a national oil company under the name of Kurdistan Region Oil Company (KROC) with direct supervision from the Iraqi government.
It is uncertain whether the KRG will be able to preserve its oil and gas industry and not hand it over to Baghdad, but what is clear is their stance to resist.
“We have sensed that the federal oil ministry has been emboldened by the court ruling, signaling intent to go far beyond its stated intent to undermine Kurdistan’s federal status,” PM Barzani said early this month, slamming the court’s decision as a “blatant political move by an unconstitutional court”.
“This will not change our position. We will aggressively defend our constitutional rights,” PM Barzani added.
