Iraq Oil Ministry: Foreign Cos Stay Away, Pipe Network At 35%

BAGHDAD, April 29, 2008 (Dow Jones Newswires)

Iraq has failed to attract foreign companies due to violence and around 70% of the oil pipeline network remained idle due to sabotage and lack of repairs last year, the Oil Ministry said Tuesday.

Inspector General Abdul-Karim Elaibi, in an annual report, blamed frequent sabotage and lack of maintenance for a reduction to around 35% of the carrying capacity of the 7,500 kilometer pipeline network.

The report also said the country was also facing a decline in the output of refineries.

Since 2003, U.S. Congress has approved $46 billion to rebuild Iraq's devastated infrastructure, including oil production plants and pipelines. The expectation after the U.S. invasion had been it would take up to 18 months for Iraq to assume responsibility for reconstruction efforts, using its oil revenues.

But the Iraqi government has failed to lure international companies or even local companies to improve the ailing industry despite repeatedly launching tenders, sometimes more than 10 times for one project, Elaibi said.

No one "showed interest due to the security situation," the inspector said in his 152-page report.

"The difficult security situation has affected the oil workers and their performance," and had negative effects on production levels and development plans, Elaibi said.

In the latest act of sabotage, a bomb struck a pipeline carrying oil to refineries in southern Iraq on Friday, wounding eight oil guards and disrupting the flow of crude. Oil pipelines have frequently been targeted by insurgents or saboteurs trying to pilfer oil in the war-torn country.

Concern about the situation led Grand Ayatollah Mohammed Hussein Fadlallah, an Iraqi-born Shiite Muslim cleric in Lebanon, to issue a religious edict, or fatwa, banning attacks on public utilities in Iraq -- mainly the oil industry -- on March 31.

Sunni insurgents are also blamed for sabotage, especially in the north of the country.

Iraq sits on the world's third-largest oil reserves, totaling more than 115 billion barrels. But the industry lacks modern equipment and training after decades of U.N. sanctions, war and Saddam Hussein's ruinous rule.

The country has announced plans to increase its oil output to 3 million barrels a day by the end of 2008 by bringing in foreign companies, and is targeting production of 4.5 million barrels a day by end of 2013.

Meanwhile, Elaibi's report cited corruption and bureaucracy among other barriers before developing the country's oil industry.

The report said workers and employees at some oil installations were in "collaboration" with militiamen to commit "organized theft operations either by tankers or jerrycans in daylight."

Earlier this month, the Iraqi government announced plans to crack down on militiamen controlling gasoline stations and oil distribution in a new move to curb the resources of armed groups.

It is widely believed gasoline stations and distribution centers, especially in eastern Baghdad and some Iraqi southern provinces, are covertly controlled by Shiite militiamen dominated by radical cleric Muqtada al-Sadr's Mahdi Army. They in turn make large sums of money by selling smuggled gasoline and kerosene on the black market.

BAGHDAD, April 29, 2008 (Dow Jones Newswires)