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Wed 25 Apr 2007 11:56 AM

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No future in Iraq's refineries, says advisor

Iraq needs substantial investment and a new image to revitalise its refining sector.

Lack of fresh investment and irreparable war damage could spell the end for Iraq's refining sector, says Saadalla Al Fathi, an advisor for Dome Petroleum International.

"When I am asked what is the future of Iraq's refineries, there is an easy answer - there is none," he said.

The country has been ravaged by three wars, four years of occupation and thirteen years of sanctions, and needs extensive rehabilitation and modernisation to bring the industry back on track. Efforts to repair war-damaged facilities have been modest because of the lack of resources.

"Iraq's refineries have seen virtually no new investment since 1988, and have suffered because of the unsteady power supply in the country," said Al Fathi.

Logistical problems imposed by the current security situation have hindered oil exports - a problem Al Fathi says has been made worse by poor utilisation of refineries, which are currently operating at between 50% and 60% capacity.

"There is the continuation of old fashion controls on refineries," added Al Fathi. "The governing quality is very low. "Government ministries in Iraq are no longer as strong and authoritative as they used to be. They have begun importing more oil, instead of building new airports and salvaging existing plants."

In 2002, Iraq's refineries were producing 544 000 barrels per day (bpd), of which 159 000 bdp was exported. But today Iraq's oil comes largely from imports, reducing domestic demand almost tenfold.

"Iraq must develop a masterplan to increase conversion, utilise available natural gas and embark on construction of new refineries expediently," said Al Fathi. There must be a review of energy needs and available resources. The only way forward is to build complex new refineries and adhere to strict environmental regulations."

There is talk of building three new refineries in Nasiriyah, but plans have been dogged by speculation and controversy, with the proposed location of one having changed three times in the last four years. Refineries in the north of the country have become isolated due to poorly maintained roads. Human resources are scarce, as is the provision of adequate training facilities.

"Based on some estimates, the total investment in Iraq's refining sector could be as high as US $8 billion," said Al Fathi. "But to take advantage of this investment, refineries need to be fast tracked, and to get away from government bureaucracy. Investment from Iraq's oil ministry has been ineffective in the last four years.

"Money allocated initially seemed impressive, but only 10% was actually spent. It's not just a question of availability of money, but of its management as well. Refineries must be planned with economic considerations at the fore, and not the wishes of political groups, as is currently the case," said Al Fathi.

There are opportunities for engineering and licensing companies to be involved with the planned expansion of Iraq's refineries, but private investment incentives must be stepped up before any real interest is provoked.

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