Rampant Corruption In The World’s Last Oil Frontier
It seems that as fast as any positive news appears about the massive and under-developed oil and gas resources of the semi-autonomous region of Kurdistan in northern Iraq, more negative manifestations of its endemic corruption quickly follow. OilPrice.com can exclusively reveal that a lawsuit has been brought against the government of Kurdistan (the KRG) – and also personally against the former Minister of Natural Resources, Abdullah Abdul Rahman Abdullah (commonly known as Ashti Hawrami) - alleging a range of illegal practices.
This lawsuit was filed on 14 August at the U.K. Royal Courts of Justice (specifically, The High Court of Justice, Queen’s Bench Division, Commercial Court) by the Dynasty Company for Oil & Gas Trading Limited (Dynasty Petroleum). It alleges, among others: ‘Conspiracy to injure Dynasty by unlawful means’, ‘Unlawful interference’, ‘Unlawful intimidation’, and ‘Inducement to breach contract’.
Although the case unusually seeks to indict Hawrami personally, OilPrice.com understands from a separate anonymous source that the allegations made by Dynasty Petroleum are entirely in line with the standard modus operandi Hawrami has employed since he first became the Minister of Natural Resources in 2006. Dynasty Petroleum’s problems began when it refused to pay any illegal payments.
Such practices of seeking to secure such illegal payments, OilPrice.com understands, occurredwith the full knowledge of the ruling political parties. Indeed, following the appointment of Masrour Barzani on 10 July as prime minister of the KRG - his cousin, Nechirvan is president, and the former president (and father of Masrour) Masoud Barzani remains the driving power behind the throne – Hawrami was appointed as the top official for energy affairs in the KRI, being widely regarded as the architect of the region’s entire oil and gas sector.
The Dynasty claim itself centres on alleged illegal practices in what should have been a run-of-the-mill piece of administrative business in a country looking to build-out its key oil and gas sector, as the Kurdistan Region of Iraq (KRI) supposedly is. Around a year or so ago, Dynasty Petroleum – a Sulaymaniyah-based company established by the Kurdish owners of two Kurdish conglomerates (South Kurdistan Group, and Tigris Holding) and already active in oil and gas trading and refining - began negotiations with Spanish super-major Repsol to acquire some of its KRI assets.
Specifically, Dynasty Petroleum agreed to purchase the entire outstanding share capital of Talisman (Block K39) B.V. and Talisman (Block K44) B.V. through a standard sales and purchase agreement (SPA). These entities are, respectively, the contractor entity and operators of the production sharing contracts (PSCs) of the Topkhana oil and gas site (Block K39) and the Kurdamir oil and gas site (Block K44).
According to various independent studies, the Topkhana and Kurdamir sites together have estimated contingent (2C) initially in place resources of 2.6 billion barrels of light, low sulphur oil and a condensate rich gas cap of 7.2 trillion cubic feet of low CO2 and H2S gas. Significant further upside potential exists within the shallower Miocene, deeper Eocene, Cretaceous and Oligocene footwall formations, in which well tests have indicated additional liquid resources. Once the planned development phases have been completed, expectations from the previous and would-be developers are that the combined crude oil and condensate production from Topkhana and Kurdamir will be at least 25,000 barrels per day and up to 600 million standard cubic feet per day of gas as well.
“After extensive due diligence had been done, and all of the legal aspects agreed, both the purchaser [Dynasty Petroleum] and the seller [Repsol] were absolutely happy to proceed with this deal, which involved many millions of dollars in payment being agreed from purchaser to seller, and all it required was for the relevant administrative powers in the KRG to sign off a standard change of control consent transaction form but it was at this point that the trouble started,” an anonymous source told OilPrice.com last week. “There should have been no problems at all, in theory, as, according to the KRG’s PSC’s Article 39.7 a change of control consent cannot unreasonably be withheld or delayed by the government,” he added.
It is in the tiny detail at the end of ‘The Change of Control’ clause 39.7 that the devil lurks, as the last line reads: “...request the consent of Government, which consent shall not be unreasonably delayed or withheld.” In this context, a source close to the KRG’s Ministry of Natural Resources (MNR) told OilPrice.com, what factors and/or length of time a straight-up businessman might think is unreasonable is not what an MNR official might think is unreasonable if he is not being offered either cash or a free share in the project - or both, depending on how senior he is. “Once he gets what’s he wants then the official will agree that the previous objection was unreasonable and that the length of delay was unreasonable and now everything’s fine and can go ahead,” the MNR source underlined.
According to the MNR source, in the case of Dynasty Petroleum it was made extremely clear that for the consent to the change of control to be granted by the KRG, a number of payments would have to be made. “Hawrami’s usual cut is between 20 to 30 per cent of the overall value of the deal up front, with extra payments along the way as various milestones on production are passed, and lesser payments were to be made to other senior figures in the administration,” an anonymous source told OilPrice.com. “Originally when he was appointed [as Minister of Natural Resources in 2006], this 20 to 30 per cent was passed off as ‘going to an account that would be used for the benefit of the Kurdish people’ but this pretence seems to have been dropped now,” he added.
When Dynasty Petroleum refused to pay, not only was the change of control of consent not waved through as would be the norm but – according to the ‘Particulars of Claim’ report on outlining this case to the Royal Courts of Justice and obtained by OilPrice.com – a systematic campaign of harassment and intimidation against key figures in Dynasty Petroleum began.
As detailed in the legal claim, this harassment began with Qubad Talabani, the Deputy Prime Minister of the KRG since June 2014, and member of the Regional Council for Oil and Gas Affairs of the Kurdistan Region – apparently acting as an agent for Hawrami – making a WhatsApp call to Hiwa Awat Ali, executive chairman of Dynasty Petroleum, demanding that he cancel the SPA with Repsol.
When Ali declined to do so, Talabani responded that they (implying the KRG and Hawrami) would not let Ali set foot in Kurdistan again if he did not cancel the SPA. Just prior to this, Hawrami and other senior KRG figures had agreed to meet senior executives from Repsol in London on 7 May 2019, at which the KRG personnel repeated the same demand to cancel the SPA, an offer again that was declined.
Upping the ante even further, and detailed in the legal claim, Ali was then called to see the Head of Intelligence Operations of the Patriotic Union of Kurdistan (PUK) political party and KRG in Sulaymaniyah – Lahur Shex Jangi. Lahur then included Hawrami into the discussion on a conference call, and Hawrami requested that Lahur use force to make Ali cancel the SPA, a request that Lahur refused.
Such a request that Lahur use force to coerce Ali into cancelling the SPA was again made by Hawrami a few days later, at the end of May. At both of these meetings (on 4 May and 29 May), Hawrami specifically and expressly stated that he wanted to “take the contracts [PSCs] back from Repsol” so that he could to re-sell them, according to the court documents exclusively seen by OilPrice.com.
As it stands for the Dynasty Petroleum case, the KRG and Hawrami have 21 days from the date on which the legal submission is stamped and marked for consideration to respond. Dynasty Petroleum is suing for ‘”not less than US$1.5 billion” according to the Court documents, as this figure represents the loss of value to Dynasty Petroleum of the project not going ahead as agreed and as planned.
The evidence as presented in the court papers appears compelling and, given that the same U.K. court granted UAE-based Crescent Petroleum and Dana Gas a landmark verdict against the KRG, it is expected that a similarly positive result will be awarded but in a much quicker timeframe, given that the legal precedents are now fully and clearly laid out in that jurisdiction and court.
By Simon Watkins for Oilprice.com
Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. He has written extensively on oil and gas, Forex, equities, bonds, economics and geopolitics for many leading publications, and has worked as a geopolitical risk consultant for a number of major hedge funds in London, Moscow, and Dubai. In addition, he has authored five books on finance, oil, and financial markets trading published by ADVFN and available on Amazon, Apple, and Kobo.
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