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Economics and energy interests ease old cross-border tensions 10 décembre 2012

Posted by Acturca in Economy / Economie, Energy / Energie, Middle East / Moyen Orient, Turkey / Turquie.
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Financial Times (UK) Monday, December 10, 2012, p. 4
FT Special Report: Kurdistan: Oil & Gas 2012

By Simeon Kerr in Erbil

Turkey. Secessionist worries remain but trade ties grow stronger, writes Simeon Kerr

The ballroom of Erbil’s top hotel was packed last month as the great and the good of Kurdish society came to celebrate Turkey’s national day. Ministers swapped gossip with oil barons over kebabs as they relished Ankara’s hospitality.

The congratulatory speeches, made in the presence of the prime minister of the autonomous Kurdish regional government (KRG) and the Turkish consul-general, highlighted the sea change in relations between Ankara and Erbil.

Since 2007, economic and energy security ties have combined to redefine what was once a frosty, at times combustible, relationship.

Turkey’s historic concerns about the self-determination of Iraqi Kurds, which has led to secessionist tendencies among its own Kurdish minority, have been supplanted by a new economic and energy partnership.

« The Turkish relationship in Iraq is evolving, » says one Turkish official. « We are here now. This is not a tactical move on our side – it is a durable strategy. »

Only four years ago, the Turks invaded northern Iraq to hunt down Kurdish insurgents, who base themselves in the mountains near the Turkish border.

If Ankara used to regard Erbil as part of its Kurdish problem, the KRG is now viewed as part of the solution. Past tensions are glossed over by Turkish officials, who say Ankara and Erbil have found common cause in confronting what they regard as the increasing authoritarianism of Nouri al-Maliki, the Iraqi prime minister.

Turkey, the booming economy of which depends heavily on energy imports from Russia and Iran, is also looking for alternative sources of supply, officials say.

Turkish companies are reportedly in talks to take oil acreage in the KRG-controlled area after their compatriots lost exploration rights in southern Iraq in apparent political retaliation for Ankara’s tough approach. Firms drilling for Kurdish gas hope to export to Turkey, and beyond to Europe.

« But Ankara faces a dilemma, » says Hugh Pope, Turkey analyst at International Crisis Group. « It has two objectives: one is to ensure territorial integrity of states to make sure Kurds do not gain critical mass, but if it is also pursuing a track that leads to a separate oil and gas story for the Kurds, that is a major development.

« This contradiction in Turkish policy has not been clarified, so where does this end up? »

The immediate result has been an expansion of the region’s already strong trade ties. Sinan Celebi, the KRG’s minister of trade and industry, says the volume of trade with Turkey has grown threefold in recent years. Of the $10bn-$12bn in trade between Turkey and Iraq, three-quarters is with the KRG. Turkey is the dominant partner, with around 80 per cent of trade consisting of Turkish imports to Kurdish regions.

The deeper trade relationship has led to a sharp rise in Turkish companies operating in Kurdistan: up threefold to 1,100 in the past three years alone.

There are now 30,000 Turks in Iraq’s Kurdish region. Hundreds of trucks cross the land border each day, while bus services and frequent flights linking Kurdish regions to Turkish airports are increasingly busy. Indeed, the Turkish consulate in Erbil – unthinkable a few years ago – is thronged every day with hundreds of visa applicants.

Mr Celebi, who hails from Erbil’s historic Turkmen community and holds Turkish nationality, says the KRG will continue to develop closer ties with Ankara. « We want zero problems with our neighbours, » he says.

Like other Kurdish officials, Mr Celebi concedes tensions with Baghdad are growing but he also believes they can be handled.

In the meantime, most Kurds are willing to take the financial benefits of Turkey’s pragmatic business-first approach, as well as Ankara’s geopolitical support in the stand-off with Baghdad, which occasionally threatens to spill over into border violence.

Some Kurdish officials still harbour suspicions about Turkish intentions. « This is all about money, and exploiting us here in Kurdistan, » says one official. « Once they have what they want, it will change. »

Turkey may be the KRG’s biggest trade partner but it lags behind states such as Egypt in the more productive area of direct investment. But most officials and businessmen believe binding Turkey into a partnership, even if it is defined by trade and, eventually, energy exports, can only enhance the KRG’s options in the longer term.

The political and economic love-in with Turkey is upsetting the Kurds’ other neighbour, Iran.

« The Iranians are always complaining that we give all the good contracts to the Turks, » the Kurdish official says. « I tell them, well, send us companies, not spies. »

p. 3

Plans develop to raise foreign sales

By Simeon Kerr

Gas. Prospect of contracts with Turkey and Europe attracts investors, writes Simeon Kerr

In 1958, Majid Jafar’s grandfather, then the Iraqi development minister, opened two hydroelectric dams in the mountains of Iraqi Kurdistan.

Until a joint venture between the Jafar family’s Crescent Petroleum and its affiliate Dana Gas started to produce Kurdish gas in 2008, there had been no new power-generation facility in the northern region of Iraq for 50 years.

« Baghdad made Kurdistan dependent on the rest of Iraq for its power – it could soon be the other way round, » says Mr Jafar, chief executive of Crescent and a director of Abu Dhabi-listed Dana Gas, in which Crescent holds a 22 per cent stake.

Power produced in Kurdistan has risen from zero to 2,000MW, led by private sector investment, and is expected to reach 6,000MW over the next few years, which would be enough to supply other regions of Iraq.

The rest of Iraq has a basic electricity shortfall of 5,000-6,000MW. « The irony is that flared gas alone in Iraq could produce that, » says Mr Jafar, who is critical of the statist approach of Baghdad, which has spent $18bn over the past decade without managing to deliver a steady supply of electricity.

Iraq’s loss is a win for the Kurdish regional government. Exporting electricity to the rest of Iraq is one of the KRG’s main goals for diversification of the economy, according to Qubad Talabani, head of the KRG’s department of co-ordination and follow-up.

Dana Gas controls the Khor Mor field, which produces gas and condensates. The gas is used to fuel power stations in nearby Suleimaniya and the capital, Erbil.

Another United Arab Emirates-based firm, Abu Dhabi National Energy, or Taqa, recently bought a 50 per cent stake in the Suleimaniya power plant, one of two facilities operated by Mass Global Investment.

The promotion of gas as a feedstock for industry is, for now, stymied by a national gas pricing policy, a function of federal lawmaking at the national level made trickier by on-the-ground tensions between Baghdad and Erbil.

Beyond power, however, it is the prospect of exporting gas to neighbouring markets that is stimulating the interest of other oil companies.

If Kurdish oil contracts have boosted the region’s autonomy, the development of its gas reserves promises to consolidate financial self-sustainability.

The region’s gas plans could prove even more decisive as it considers building long-term gas pipelines into Turkey. This could tie northern Iraq into long-term sales contracts with Turkey and even Europe.

The KRG oil minister has said he expects the region to export around 10bn cubic metres of gas a year to Turkey, and potentially much more to theEU. Theregioncouldholdas much as 5.7tn cubic metres (tcm) of gas. Iraq as a whole is believed to have the world’s10th-largestreserves,at3.2tcm.

Dana Gas, which produces 10.2mcm of gas a day, plans to double output. Northern Iraq as a whole could raise production to a few billion cubic metres a day, says Mr Jafar – « easily enough to supply Turkey and Europe ».

The gas story has attracted Anglo-Turkish Genel Energy, which this year took control of Heritage Oil’s Maran acreage. The investment vehicle, run by Tony Hayward, former BP chief executive, is placing gas at the centre of its Kurdish strategy, even though markets are keener on the more fungible commodity of oil.

Mr Hayward says he is in talks with state and private Turkish companies. « [The acreage] is 180km from the biggest gas short in the world, » he says, referring to Turkey’s large gas demands. « Turkey is a market that pays international prices [for gas]. » The pipeline, however, is perhaps the easiest element of the equation.

The overarching political concerns amid rising military tensions will continue to mar confidence.

« There has to be some settlement with Baghdad to really move things forward, » says Stuart Joyner, an analyst at Investec Securities.

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