Energy – Oil and Gas
Great possibilities ... huge challenges
The Iraq energy sector has an abundance of oil and gas reserves.
There is a huge resource that is already a major producer and future
potential that might exceed any other country including Saudi Arabia.
The way in which this energy wealth is managed will determine the
future of Iraq more than anything else. Whether Iraq will be able to
do this depends a lot on the manner in which both the economic
sectors and the governance sectors evolve.
It must be expected that everything to do with the oil and gas sector is
going to be “hard ball” and that Iraq is going to have to work very
hard to ensure that its interests are fairly treated.
Within Iraq different communities are going to have an interest not
only in the outcome of international agreements regarding oil and gas,
but also what sort of arrangements are made internally so that oil and
gas benefits are fairly allocated to different groups.
From an international perspective, the energy arena is not getting
easier, but a lot more difficult. The oil and gas industry is not just big
“western” companies, but also companies from Russia and China. In
addition, companies from other countries like Venezuela, Mexico and
India are going to change the energy sector landscape even more.
Whether this will make the sector more beneficial to people at the
“bottom of the pyramid” is not at all clear ... but there are interesting
possibilities.
There is an opportunity for wealthy oil and gas enterprises to embrace
the moral high ground and start doing a lot more for communities in
places where they operate. Though politics is often controlled by the
gun, people power can have an enormous impact. Guns did not get
the British out of India, but people power with Mohatma Ghandi in
the vanguard. Martin Luther King did not catalyze progress in racial
relation with the gun, but by mobilizing people peacefully.
Energy - Electricity
Electricity generation
The electricity generating infrastructure is inadequate. Major upgrading is
needed and there has been some work done on it since the end of the Saddam
Hussein regime, but it is not at all clear how much work has been done and at
what cost. This is essential management information that should be easily
accessible to the public.
A major program to create adequate electric generating capacity should be a
priority and done efficiently to the highest of standards.
Electric grid
The expansion of a nationwide electric grid is clearly desirable. This requires
substantial capital funds, but the advantages are huge and long term.
The lack of electricity in poor places is a chronic problem. The
technology exists to have adequate electricity supplies, and to
distribute electricity to where it is needed. It takes investment, and it
takes a reasonable approach to profit expectations. The key
requirement is that electricity investment and electricity management
and operations are done efficiently, ethically and without being
dominated by greed and corruption from any quarter.
Rural distribution
The cost of rural distribution is high, but the value is substantial. Iraq should
make an investment in rural distribution so that its remote communities have a
chance to move forward without being constrained unduly by the lack of
electricity.
Energy - Non-Petroleum Fuels
Overview
Iraq is in a good position. It has abundant fossil fuel resources,
especially oil and gas, and also coal.
But, on the other end of the scale, there is a dramatic shortage of
fuelwood and charcoal for household cooking in remote rural areas.
These energy sources are contributing to an environmental crisis caused by the
loss of trees and the production of carbon dioxide.
Fuelwood is in very short supply and increased production of wood for
household use should be a priority. Trees need to be planted and existing trees
cut in a way that does not destroy their capacity to grow again. The
manufacturing of charcoal should be considered to be an anti-social act.
Coal ... natural gas
The possibility of using the coal deposits as an alternative to wood and charcoal
should be explored. This may not be a viable option if the coal is not suitable for
use in the household environment. Bottled natural gas would probably be a
better intermediate step forward.
Windmills
The use of windmills to drive pumps and produce limited amounts of electricity
may be an option. Windmills have been an important source of energy in the
past and modern windmills are well suited to use in pumping water in remote
areas.
Solar
Solar technology has reached the stage where it is a viable option for driving
remote electrical equipment.
Minerals and Mining
Overview
Mining and the exploitation of minerals in the “south” ought to be generating a
lot of wealth for the “south”. It will do so when the agreements are fully
understood by all parties, especially the signers for the “south” and there is a
solid framework for value analysis.
It is not clear what role bribery and corruption plays in the sector, but it is
probably significant. It is likely that substantial fund flows do not benefit the
country but only benefit individuals. This is difficult to address, because the
amounts involved are huge. Without addressing this, however, the wealth
creation that is possible will never materialize.
The international mining companies are at an interesting stage, and they are
likely to have some advantage when they are seen to be of benefit to the local
communities where they operate. This is not an easy balance to achieve, because
large scale mining causes a lot of change ... but it is possible, and could result in
mining being pulled to communities rather than having to be pushed into the
communities by the mining companies and a small elite.
There is every reason to expect that Iraq has mineral deposits that could be
exploited on a more commercial basis. The knowledge about the mineral
deposits in Iraq is not well substantiated. Much of the information is old and not
supported by verifiable geological reports. There has been little exploitation of
the mineral resources in Iraq.
Iraq has little capacity to do the work needed to provide a basis for a rational
exploitation of the mineral wealth of the country.
The administration in Iraq should be supported so that better knowledge about
the mineral resources in the area can be obtained. The knowledge gap should be
closed as soon as possible with thorough geological analysis of the main mineral
deposits.
Policy about mineral resource exploitation
The administration should be supported in work to establish a policy framework
so that the exploitation of mineral resources is fair to all concerned and
contributes to peace, security and economic development rather than having a
destabilizing influence.
Training in mining skills
In order for the minerals and mining sector to succeed there needs to be basic
skills training on a substantial scale. If there are exploitable minerals then there
should be skills training to complement the other resources needs for successful
industry development.
Manufacturing
Overview - The State of Manufacturing
Iraq is not known for its modern manufacturing, with the exception of its
production and export of crude oil.
There are parts of Iraq that have a history of handcraft ... but this is small scale
and artisanal, of historic value but not of great economic value as a driver of
modern Iraq.
Jobs ... employment
The manufacturing sector is usually an important area for job creation
... but in Iraq more of the jobs are in the services sector.
Many things need to be brought together in order for manufacturing
to be successful: (1) availability of materials; (2) availability of
productive low cost labor; (3) a reasonable enabling environment ...
that is laws, regulations, culture, etc.; (4) working infrastructure
including transport and energy; and, (5) markets and profit potential.
Of these it is the markets and profit potential that are missing. Most
of the market needs can be satisfied by products from other places at
lower cost and more profit than from local manufacturing in Iraq.
My Experience in Madagascar
For some years I was a consultant to a manufacturing group in Madagascar. I have
described this group as one of the best managed companies that I had ever seen, in
large part because of their commitment to training their staff.
Even though Madagascar had tremendous socio-economic problems, and was faced with terrible
foreign exchange shortages, this company still put its staff training as a top priority.
As a result, the company was able to produce world standard quality and was able
to participate in the global market on an equal basis with other world class
producers.
The company invested in good production equipment, and the staff were able to use
this equipment to make the very best quality product at very competitive costs.
But all of this took time.
What might be possible?
It is not easy to identify manufacturing that would be profitable in Iraq ... a lot
depends on the willingness of an entrepreneur to take on a challenge and go
into business in competition with the world.
There might be possibilities in the agro-production area using processing animal
products ... processed meats and skins.
There might be possibilities in the petro-chemical area using the feedstocks that
are available from the oil and gas sector. This could be very big business and
profitable if done in cooperation with organizations that have access or control
international markets.
Construction
Overview
Almost all the construction work in Iraq should be undertaken by
local organizations and using local professionals. Performance may
be enhanced in some cases with external technical input, but it should
be limited and relevant to the issues at hand. Almost all of the
infrastructure building that is needed can be done by local
organizations with rather modest amounts of external technical
assistance. The goal should be to construct infrastructure of an
adequate quality at the lowest possible cost so that the economy can
be more productive.
Rebuilding ... housing
The local construction industry should be funded to do the essential rebuilding
needed as a result of war damage. All the essential utility services should be
brought up to a level of service that should be normal in a country of Iraq's
wealth.
Road construction
Road construction should be advanced where it is needed. Efforts should be
made to ensure that the road network not only serves the main urban areas but
also reaches remote communities. Not all the roads need to be built to
international standards, but should be all weather roads.
Employment
The construction sector should be an important source of jobs in Iraq.
Rebuilding should help increase paid employment in the economy of the area.
The economy will be strengthened in lots and lots of little construction projects
can be undertaken. Well planned development will not only provide jobs for
laborers but to all levels of supervision, management and administration.
Training
In some areas training may be needed. Training should be available to the
construction industry through a range of modalities. There should be skills
training available through vocational training centers and “on the job” provided
by cooperating contractors.
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