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Thu 26 Aug 2010 02:54 PM

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Power to the people

In a wide-ranging interview, oil and gas heir Badr Jafar talks deals, decision-making and saving the world one business at a time.

Power to the people
Power to the people
Badr Jafar’s clutch of corporate titles include executive director of Crescent Petroleum, chairman of Gas Cities and CEO of Crescent Investments.
Power to the people
Crescent Petroleum is the largest privately owned upstream petroleum company in the region.

At just 31-years-old, he’s one of the fastest rising stars in the energy industry today. In a wide-ranging interview, oil and gas heir Badr Jafar talks deals, decision-making and saving the world one business at a time.

Badr Jafar is on a hot streak. In a little over a year he’s brokered Russian oil giant Rosneft’s first deal in the Middle East with his family firm, Crescent Petroleum, lured two of central Europe’s largest energy firms into a project in Kurdistan and — as of last week — is in talks with Prime Minister Putin to fund projects in Russia, the UAE and Iraq. It would be fast work for a veteran dealmaker, let alone one that is just 31-years-old.

“Decisions have to be made quickly,” shrugs a crisply suited Jafar from his 20th floor office in Crescent Tower, Sharjah. “Opportunities are lost time and time again because of a lack of decision-making.”

Jafar has business in his blood. His father, Hamid Jafar, founded Crescent Petroleum in the early 1970s after snapping up the concessions of US firm Buttes Gas & Oil Co. Forty years on the firm has morphed into the sprawling multimillion-dollar Crescent Group, with tentacles stretching from oil and gas, to shipping, aviation and real estate.

Jafar formally joined the team in 2002, after a post-university stint in fashion, and in 2007 was named executive director of Crescent Petroleum. He played a role in the 2005 creation of Dana Gas, the largest publicly-listed gas company in the Middle East — its IPO attracted $78bn in less than two weeks — and in 2007 founded Gas Cities. The firm, a joint venture between Dana and Crescent, develops gas-based industrial clusters across the Middle East. If that wasn’t enough, he also oversees the group’s non-energy interests, as CEO of Crescent Investments. It is, he allows ruefully, “busy”.

In his eight years at the firm, Jafar has gained a taste for fast deals and new markets. The Crescent-Rosneft deal, for example, came on the heels of years of political niceties between Russia and the UAE that had failed to produce much in the way of business. Jafar, in contrast, closed the contract in three months.

“I think the speed of the process was harder for them than us; we’re more accustomed to it,” he grins. “Russians tend not to do things lightly, and when they do, there is quite intensive due diligence behind the scenes.”

The deal will see the pair develop an onshore concession in Sharjah; Rosneft is to invest $630m into the joint venture.

“Relations between Russia and the UAE are generally good but I think you’ll see a lot more business between the two now,” the Emirati businessman says.

If Jafar has a maxim, it’s that business can beat down borders faster then politics can.

“Something I believe in very strongly is the economic imperative,” he says. “You can’t dismiss good politics, but I think it’s putting the cart before the horse to use politics to develop good business.”

Take northern Iraq, he says, a region once at fully-fledged war with Turkey. In the wake of the US invasion, while many oil majors fluttered on the sidelines, Crescent hustled a deal with the Kurdistan government to develop two major gas fields.

“To put that in perspective, it entailed importing over 65,000 tons of equipment, installing two LPG [liquid petroleum gas] plants, and building 180km of pipeline through landmines. We must have uncovered more than 20,000 devices,” Jafar recalls. “We did a tender for the welding contract; we went out to 16 companies. Three bid; two of which had never done a welding job on a pipeline before, and one of them was a company that backed out at last minute. You’re talking about Iraq in early 2007 — it was a tough sell.”
It took the company just fifteen months to hit first gas. Today, it’s poised to pipe gas through Turkey to Europe, in the most important cross-border project to come out of Iraq since Saddam was ousted. Jafar is head of the venture, called Pearl Petroleum, which counts Austria’s OMV and Hungary’s MOL among its stakeholders. It is, he says, a lesson in how political will can accelerate once profit enters the equation.

“The Kurdish problem has been a problem for decades, since the First World War. But in the last year, we’ve seen a huge improvement —and not because both sides have woken up and thought; ‘You know, we should be friends,’” he says bluntly.

“It’s because the Turkish and Kurdish firms and investors on either side of the border suddenly realise that this region is extremely economically important for them.”

He spreads his hands wide. “Within the space of one year, you have the Kurdish president going to Turkey and you have a consulate being established in Kurdistan.”

If that sounds too rosy, Crescent doesn’t win them all. Its Iraq deals have been embroiled in a spat between the federal oil ministry in Baghdad and the Kurdistan government. Oil and gas contracts brokered independently by Kurdistan are deemed illegal by the Iraqi oil ministry, which has threatened to blacklist the foreign firms that signed them.

Jafar cuts in. “I’m absolutely confident in the legality of the deals. We are in Iraq for the long-term; you have to be. We’re proud of our investments there. We don’t get discouraged by short-term politics.”

As for the oil deals in the south, he shrugs. “There’s a lot of talk — I can talk too, but we prefer to do. My opinion is that a lot of companies today who have signed these service agreements in Iraq have done so to get their foot in the door with a hope to renegotiating further down the line when there is a new government in place.”

It’s a frenzy of red tape and politicking that threatens to suffocate Iraq’s crucial post-war reconstruction. While politicians bicker over the legality of oil deals, Iraqi residents — despite sitting on the world’s third largest oil reserves — continue to suffer frequent, nationwide blackouts.

“Baghdad today has 40 minutes of electricity every three to four hours. And that’s not guaranteed. Is this because Iraq doesn’t have natural resources? No — it has natural resources. It’s just bad management,” Jafar says impatiently. “In the south, apparently the Ministry of Electricity has spent more than $20bn on turbines and other things, but it has nothing to show for it. The Kurdistan government has spent zero, and got the private sector to implement the projects. Because of our project, the north has between 23 and 24 hours of electricity a day, for four million people.”

It’s this frustration, in part, that pushed Jafar to establish Gas Cities in 2007. The concept itself is simple — to build large-scale clusters that provide a one-stop shop for gas-intensive industries — but the payback is significant. Firstly, by clustering industries such as fertilizer, cement, methanol and steel, the byproducts and waste from one sector can be used as feedstock for another. Secondly, it allows developing countries with gas reserves to capitalise on their resources, rather than exporting them, to create local jobs and lure foreign direct investment.

The first cities are earmarked for northern Iraq, Yemen and Egypt. Each cluster requires several billion dollars worth of infrastructure, funded by Gas Cities, and has the potential to attract up to $40bn in investment.

Take Yemen, Jafar says. “We’re coming in with a value proposition that is of national value. There is a successful energy operation there, but all it’s doing is taking the gas and exporting it. Today you have power cuts, power shortages; you have lack of investment in local industry, an underdeveloped industry — yet they’re exporting loads of gas. I’m not saying it’s a bad project, but we want to fill that gap.”

Still, Jafar is keen to stress that better domestic use of gas doesn’t rule out export deals in cases where reserves are flush enough to support both.

“You can say; ‘Hey, it will take me 20 years for my industry to need 1bn cft of gas per day. In the interim, I can still produce 1bn. So I export what I don’t need today, but give priority to industry,’” he says. “Parallel development makes absolute sense, but what is ludicrous in my opinion is in Yemen today where you have blackouts, a huge amount of need, but the government is committed to sending all the gas abroad.”
In the future, Jafar is clearly keen to do more than just make money. If running a clutch of companies wasn’t enough, he is passionate about creating firms that turn a profit, but that also have a positive impact on society. Or, as he puts it, businesses that hit the triple bottom lines.

“It’s what I term social entrepreneurship. It’s defining the business model that you’re investing in as being one that deals with the three Ps — profit, planning and people. Not just the profit,” he says.

He’s quick to stress that this isn’t the newest form of ‘philanthro-capitalism’; a style he believes veers towards tackling the symptoms of poverty rather than the cause, nor is it anti-profit. Rather, the concept is more-than-profit — and underscored by the idea that putting others first doesn’t equal a business that is second-best.

“The beauty of social entrepreneurship is that it’s sustainable; businesses are still making money and are able to keep doing so,” he explains. “Sometimes that requires you to push out the investment horizon and your potential returns… [but] this is something that I genuinely believe can be accomplished in all industries.”

He pauses for a moment. “Bar weapons production, maybe.”

To this end, Jafar is in talks with Kevin Spacey, the Hollywood movie star and artistic director of the Old Vic Theatre, London, to create and fund a UAE-based drama academy. The two have been friends for several years.

“The idea is that I see a lack of appreciation for theatre here, when in fact in the Middle East culture, it has a history of great theatre,” he says. “It would be a drama academy to first bring drama productions here, with a Middle-East theme, and then to create and host some local productions. These might go on to be shown in London.”

A not-for-profit project, the Middle Eastern Theatre Academy will make money through ticket sales, and sponsorship. All profits will be ploughed back into the project, to support a string of workshops aimed at nurturing local talent and creating homegrown content.

Jafar also runs a joint project with Quincy Jones, the renowned American producer and composer, aimed at bringing local musicians to the West to help bridge cross-cultural divides.

It is quite a mix for an oil and gas heir; particularly one whose corporate responsibilities seem to grow by the minute.Jafar shrugs good-naturedly.

“It’s a matter of making sure that, on balance, you’re passionate about what you’re doing,” he says. “There are some things you have to do because you’re responsible for them. Others you do because you’re passionate about them.”