2008 Press Releases
Transcript from Media Roundtable with Ambassador Charles Ries, U.S. Embassy Baghdad and Ambassador Adam Ereli, U.S. Embassy Baghdad
Friends of Iraq Conference
Abu Dhabi
June 18, 2008
Ambassador Ries: Let me make just a couple of opening scene-setting remarks and I will be glad to handle all the questions that I can and Adam can handle the really hard ones.
As was mentioned, I am the Head of Economic Policy and Assistance for US Embassy Baghdad. We are oriented towards helping the Iraqi economy recover, become a successful economy that can provide jobs and essential services for the Iraqi people to underpin the development of a democratic, peaceful, stable and secure Iraq in the neighborhood where it lives in peace and stability.
In the last year we have seen a substantial increase in security in Iraq; numbers of attacks coming down, peace in particular regions that have been particularly troubled like Anbar, neighborhoods of Baghdad and so forth. The security improvements that are the subject of other people's responsibility but have allowed us to make really dramatic improvements in the economic situation. We have seen markets recover and reopen in Baghdad, in Ramadi, in Fallujah and in Baqoubah, markets that were closed, markets that had been subject to horrific bombings from various factions. We are seeing the beginning of new investment by foreign companies. We are seeing a lot of more interest. Iraqi, as the UAE, has benefited significantly from the increased oil prices, which has given the government the revenue to undertake the infrastructure improvements the country needs.
Two years ago most of the infrastructure investment was coming from the United States and other donor nations. Now the Iraqi budget, helped along by these new revenues, is spending ten times more than the U.S. budget on reconstruction. There is construction throughout Iraq. There are new housing estates being planned and developed; oil and gas infrastructure has taken important new leaps forward; the export pipeline through Turkey has been up more or less continuously since September for the first time since 2004 and that new export capacity has allowed Iraq to interim goal of 1.9 million barrels a day and the revenues expected this year are well in excess of 70 million dollars.
Iraq has a 2008 budget of about 49 billion dollars including 9 billion for its own security, for its police and army forces. The Ministry of Finance recognizes that revenues are over expectations and has begun a process to develop a supplemental budget. We expect the supplemental budget to be presented to Council of Ministers and afterwards to the Parliament. In June or early July, that supplemental budget should be well in excess of the 5 billion dollars they first anticipated and should be dedicated to more capital investment and some urgent operating needs including salaries, expenses and food imports.
All in all, the IMF expects the Iraqi economy to grow by 7% or perhaps better this year. We are hopeful that Iraq can complete the suite of economic legislation. They already have a foreign investment law, it has a foreign investment commission that has been appointed [inaudible]. A significant piece of remaining economic legislation is the hydrocarbons, three or four bills that together would result in a modernized hydrocarbons investment regime. But even before those laws have been adopted, the Iraqis have been sharing equitably their oil revenues with the regions and also the Ministry of Oil is exploring a series of technical service contracts with international major oil companies to enhance and expand the production of existing fields. So with that, I will stop and take questions.
[Martin Yousuf, Gulf News]
I am just curious how the conference 'Friends of Iraq' is going. What are some of the issues that are being discussed that think you are going to come up with and will be able to take back to Iraq?
Ambassador Ereli: I think I'll maybe just share with you some of the topics. You know it is interesting, this conference used to be called the Coalition Conference, and it was done every year with the members of the Coalition in Iraq to talk about the state of security affairs. But as the situation has improved and as the issue of Iraq's role in the region has come to be more and more relevant, the scope of the conference has expanded and so now it is not just the Coalition members, but it is significant members of the Government of Iraq [inaudible] the Chief Justice of Iraq is there and many of the neighbors. So the scope of the conference is not just what is going on security-wise in Iraq, but developments in all areas of Iraq: social, economic, political. Sharing experiences and most importantly looking to engage with the countries of the region to support what's happening, to support the Iraqi's vision for their future.
And Ambassador Crocker said it very well in his opening statement. He said, "The leaders of Iraq know what they want, and they are making the decisions for the future of Iraq." Not the United States, not the Coalition, the leaders of Iraq. And our role and the purpose of this conference is to hear their vision and to support it.
So that's in general the scope of the conference, and let me just give you some of the titles of the panels, and I think many of you know that Ambassador Larry Benedict [Embassy Baghdad’s Anti-Corruption Coordinator] will be here this afternoon to talk to you.
[Rundown of schedule]
Ambassador Ries: Can I just add a footnote to that? The last time a meeting like this was held; economic issues were just one 45-minute session at the end of the day. We are now effectively dedicating an entire second day and involving businessmen and economic officials from around the region in that second day to talk about reviving Iraqi economy, what it means for opportunities and I think that this is symptomatic of how much the security situation has improved and how there are important opportunities in Iraq.
[Ibrahim Al-Satari, Al-Bayan newspaper]
Security situation of Iraq is to date out of American and Iraqi control causing the destruction of infrastructure daily, killing individuals. How can one strike a balance between reconstructing Iraq and demanding international aid to reconstruct Iraq in light of absence of no security to the Iraqi people?
Ambassador Ries: Actually the attacks are down. The attacks on infrastructure are down. The attacks of all sorts are down. And as a result, we are able to rebuild the infrastructure. We maintain very close track of, for example electricity infrastructure, and there are eight major 400Kv transmission lines in Iraq and on any one day, six months or a year ago, four or five of those 400Kv lines were out of commission. We are now working on the last 400kv line. And the Iraqi grid is working more as a grid and moving power to where demand is.
This year, despite the fact that Iraq has basically lost about 20% of its power that it normally gets from hydro because of the lack of rain, the electricity production is up 10% each month of 2008 over 2007. This is as a result of the improved security situation and reduced attacks on the electricity infrastructure. Similarly, in oil, the main pipeline corridor between the Kirkuk field and the Beiji refinery and from there out to Turkey, was largely interdicted for most of the year between 2006 and 2007. All five or six pipelines in that corridor now are working. They are protected by an infrastructure security program: wires and berms and watch towers and so forth, so that Iraqi oil production of 600 thousand barrels a day in the north is making it to the refinery and making it to export markets. Those are two very important indications of actually the improving security situation helping with the infrastructure and as a result, Iraq has more resources and that's why investors and businessmen are taking a new look at opportunities in Iraq.
[Martin Yousuf, Gulf News]
Many conferences have been held over the years after the war for helping rebuild Iraq, yet are all the millions and billions of dollars have been pledged by donor countries, many say that no money has been received. How can you explain that?
Ambassador Ries: We have spent well over 20 billion dollars on economic reconstruction and we can show you where it has been spent. We have spent money in sectors like water, sectors like power, sectors like education. Our biggest single assistance project in Iraq is a 325 million dollar water treatment plan in Nasiriyah. I signed over the completed plant in September, and the plant is operating. There are many, many other reconstruction projects that are successfully in operation. We are building 140 primary healthcare clinics around the country, and I believe around 80 of them are already open providing primary health care services to Iraqis, and I have visited one of them.
Iraq is a big country, has many problems and many problems yet to be solved. As I mentioned in my opening comments, Iraq is now taking leadership itself. The Iraqi capital reconstruction budget in 2008 is 13 billion dollars and that's before supplemental budget is approved. Our own assistance for reconstruction is a tenth of that now. If you drive around Baghdad, there are construction crews everywhere rebuilding curbs, rebuilding sidewalks, rebuilding parks. Things are happening. It is a big country, though. There are people and corners of the country who can say, "Oh I haven't seen any impact." But that is changing and with the kind of money that is being spent, it is actually hard to find a good contractor to undertake a new business and that is just the kind of problem we would like to see happen for Iraq.
[Rasha Elass, The National newspaper]
How exactly do you see, what kind of role do you see the UAE play in the near future, over the next 12 months, and what is the latest on the law that would allow Kurdistan to go ahead with deals to sign with oil companies?
Ambassador Ereli: They're all in the UAE. First if all, it is already taken a leadership role by being the first visit [to Iraq] by a foreign minister. But I think over the next twelve months, obviously what we'd like to see, and it is less of a question to the United States than it is to Iraq, but what those who support Iraq would like to see is an ambassador there. And I think that's going to happen. And then secondly, what are the ripple effects of this decision? I think other countries in the region are going to look and say, well, if the UAE did it, we should too. And that will lead to other countries taking similar steps which are very positive and would be, if they happen, a direct result of what the UAE has done.
Finally, more broadly over the course of the year, I think one has to ask oneself not only what is going to be the impact of not only this diplomatic presence, not only from the UAE, from Bahrain, which has said it is going to send an ambassador, from Jordan, which has said it is going to send an ambassador, but from the other countries that we know will also follow suit. What is going to be the broader impact on Iraq? And this is the point that the United States has already made. It is that, if you're concerned about Iraq's neighbors exploiting the situation in Iraq to its advantage and Iraq's detriment, as many people here are, the best answer to that problem is not turning your back on Iraq, which is an Arab country, but is embracing Iraq and bringing Iraq back into the Arab family where it belongs. And so we would hope that as the Arab family embraces Iraq, Iraq's greatness, and strengthens its ties and relations and involvement and closeness to that Arab family for the good of Iraq, Iraqis and the Arab region.
Ambassador Ries: Let me handle the hydrocarbons question. First of all, it is important to remember that the basic control of hydrocarbons was established in the Iraqi Constitution of 2005. The most important principle of the Iraqi Constitution is, as commonly the case with the oil exporting countries, that oil and gas resources of the country are the property of the people of Iraq.
The Constitution set up that the management of those resources would be a shared competence between the regions and the federal government. That is actually emblematic of the federal constitution. I think it is article 115 that is the critical article setting up the federal system, for oil, a system of shared competences.
But the Constitution alone does not give you enough basis to implement these principles and in particular to bring in foreign operating companies to invest in the sector. As a result, in 2006-2007 and thus far this year, the political parties in regions and groupings in Iraq have been working on a package of bills that would set up the framework and set up the principles under which the sector would be managed. There are actually 4 bills: there is one that is called hydrocarbons framework law, there is another one on revenue sharing, there is a third on the reorganization of the Ministry of Oil to be a regulatory body and the fourth one is essentially the framework of legislation for the Iraqi national oil company.
A very important step forward was made in February 2007 when a basic compromise was set up to mediate between regional and national interests in the formulation of strategy for the development of the sector. And this was a compromise accepted by all political groupings, Sunni, Shiia and the Kurdish block as well. It has been more difficult than anyone anticipated in terms of bringing that through to final legislative language, and discussions are still underway.
In the meantime, in the summer of 2007, the Kurdish Regional Government adopted its own regulatory legislation for oil and gas investment, in advance of the national law. And pursuant to that law, they have agreed to some 25 production sharing contracts with foreign firms. The national government maintains that this law, the regional government law, is premature and issued prior to adoption of the national framework law. Both the Kurdish Regional Government authorities and the national government, the Prime Minister and Minister of Oil and other involved ministers are committed to working out a compromise on the national level. And it looks very likely that that compromise would involve a federal oil and gas committee, or commission, that will make the basic strategic decisions and then allow the various entities to actually do the contracting.
We join with the rest of the international community in looking forward to the adoption of that law in the near future. We understand that these decisions are very difficult and that's why it's taken so long. It may take several months more, but a good piece of legislation that gives the international community the confidence needed to invest is very much in Iraq's interest.
[Martin Yousuf, Gulf News]
[Inaudible] that the Arab world needs to embrace Iraq back into the family. I guess it sounds like the Arab world doesn't really step up to the challenge of being there for Iraq. Why do you think that is so?
Ambassador Ereli: I'm just trying to think do I agree with you that they haven't stepped up. And I think that at the outset, there was a bit of a cold shoulder. And I think there was doubt, concern and just a want to see how things would play out in Iraq. Let's be frank: what's been happening in Iraq for the last couple of years has been a big shock to the system. In the end, we think it is going to be a positive development, but it is a big shock to the system, and I think people in the region wanted to make their assessments of what was the best way to react to that shock. It is our view, and I think this is what this conference is about, it is what a lot of the previous conferences were about, is to get the message across to those who are sitting on the fence that there is a good reason for jumping in with both feet on the side of Iraq. So they've been just deciding whether they want to do that. We can talk about those reasons later. And I think what you're beginning to see, as I said with the position of the UAE, and Jordan and soon we can expect others, that they have made that calculation and they have made that faithful decision to go in with both feet. And I think that's a good thing for them, it is a good thing for Iraq and it is a good thing for the region. Why? I would pick up on something Ambassador Ries said. There's the political dimension, there's the security dimension, there's the economic dimension. Let's be clear: Iraq is going to be a powerhouse. In the next 5 or 10 years, you're going to see Iraq take off and make Dubai look like a small construction site. You think there are a lot of cranes in Dubai now? 10-15 years, all of Iraq is going to be a construction site. All of Iraq is going to look like Dubai. There's going to be money, they're producing 2.4 million barrels a day with an oil infrastructure that is held together by Band-Aids and rubber bands. When they upgrade their production capability, when they upgrade their refining capability, they're going to be producing a heck of a lot more than that. When there's exploration, their going to find a lot more oil. So they already have revenue of 70 billion, and that's exporting 1.9 barrels a day. They're going to have so much money and they'll move forward so fast and with such momentum that it doesn't make sense not to get in on the ground floor now as opposed to wait.
The other point is Iraq is going to be a power. This is what we say to countries like Syria. Sooner or later, it may have been on the ropes a couple of years, but in a couple of years it is going to drop the ropes and it is going to be a strong, dynamic power. It is better to be a friend of Iraq. And they're going to remember who was helping them and who was hurting them. So if you're fighting Iraq or you're not supporting Iraq, just remember that in 5 or 10 years, you may regret that policy.
Why did it take so long? I think there was a lot of dust to be dug, and to see what the lay of the land looked like. I think that now that they've made that assessment, they're comfortable with the basic security and political trend lines, and now they are, as we say in the United States, they're voting with their feet. And that means you can tell what they think by where they stand, and they're standing on the side of Iraq and that's good news.
Ambassador Ries: Can I just add another footnote on the economic situation? Iraq, while a major oil exporting country and a country with significant additional potential in the eyes of most geologists, it is not just about oil. Iraq is a country of 28 million people and Iraq has tremendous agricultural potential. Iraq has two great rivers – natural water in a sense – particularly when it is not a drought year. This year is a difficult year, there is drought in northern Iraq and eastern Turkey as well. In normal water flow years, this is a country with extraordinary agricultural potential to produce fruits and vegetables and grains and dates for the entire region if not a broader global market. And one of our priorities, in addition to helping revive the industrial sector and basic infrastructure services, is to help revive the agricultural sector. The agricultural sector has been decimated by decades of central planning and Saddam's authoritarianism in the farm sector. But with the proper incentives and with capital, agriculture can be a very successful source of growth and employment without regard to oil.
[Rasha Elass, The National newspaper]
Syria seems to be starting to vote with its feet, as you put it, and slowly moving toward maybe considering choosing Iraq over its neighbor. When do you think Syria might reap the benefits of these decisions in terms of its relationship with the U.S.?
Ambassador Ereli: Well.. [laughing].. Our list of issues with Syria is a long-term. Iraq is one of them but is not the only one so that's point one. Point two is I would say the jury is still very much out on whether and to what degree Syria has taken steps to become a good neighbor to Iraq. I mean there are some things that there is maybe some areas where you might see progress, but I think there are some still serious reservations. But you know the final arbiter of that is not us; it is Iraq and like I said, it is not the United States to say who is a good neighbor or not to Iraq. It is for Iraqis to decide. They are in the best position to know who is helping them and who is hurting them.
[Ibrahim Al-Satari, Al-Bayan newspaper]
Now oil is 140 dollars per barrel and Iraq is not benefiting from its oil. Who is benefiting now are mostly the American companies in contrast to the people of Iraq. In light of what you said earlier, security situation in Iraq is very bad, it is still very difficult [inaudible]
Ambassador Ries: First of all, let me clarify a couple of things. Iraqis get full benefit of the 140 dollars per barrel of oil. Iraq sells its oil, the state sells the oil, on a determined contract basis to major oil companies based on an index of current prices. As the current prices have gone up, the index has gone up and Iraq has had full benefit from the rise in the price of oil. All oil export revenues deposited in what is called the Development Fund for Iraq which is under the sole control of the Iraqi Ministry of Finance and is used to support Iraqi budget expenditure. As I mentioned in my opening comments, Iraq has passed the 2008 budget of 49 billion dollars and is now talking about a quite substantial supplemental budget, perhaps 10 billion dollars or more, in light of the extraordinary revenue that it has received.
Iraq is spending its 49 billion plus dollars domestically; they are importing capital goods where they need them and they have signed a contract to purchase aircraft from Boeing. Although those aircrafts won't be delivered for several more years and payments won't be made until the aircrafts are delivered. Most of the money has been spent domestically with domestic Iraqi contractors.
Now to our money: We have spent 24 billion dollars of U.S. taxpayer money on reconstructing Iraq. When we first started in 2003 and 2004, there was very little Iraqi capacity to do anything immediately after the invasion and in the ensuing months. In those months, we did employ U.S. contractors to start reconstruction. When the violence increased in 2005-2006, a lot of those contractors, even big companies like Bechtel and General Electric, left Iraq. The U.S. Army took over the management of almost all of those reconstruction contracts. Contracts to build hospitals, contracts to build schools, contracts to build roads are being given now to Iraqi contractors or subcontractors from the region, architects and engineers from the Gulf States and from Turkey and from Jordan. There aren't great numbers of American companies working for, or receiving these funds except the extent that they sell vehicles or generators or bulldozers or something like that in accordance to the international tenders. Now Iraqi officials are making their own decisions about how to spend their money and they are very clear that they are going to run, and Ambassador Benedict will be back this afternoon, and they are running tenders and they are buying equipment from the cheapest sources that they can get internationally. That is how it should be. Our hope is to develop a strong, prosperous, democratic Iraq that makes its own decisions about its own resources because we think that that is a country that will be a stable contributor to this region and to the world.
[Martin Yousuf, Gulf News newspaper]
How can you use a conference like 'Friends of Iraq' to encourage investors from the region, especially UAE who are very eager to invest in Iraq, to come in and start investing there?
Ambassador Ries: Well, there are a number of conferences, someone said earlier about Iraq. There was a conference in Cairo in May, and there was a conference in Dubai I think in April hosted by the Ministry of Industry and Minerals to talk about investment opportunities in 45 specific investment opportunities.
I think, as Ambassador Ereli has said out the outset, this conference evolved from the regular meeting of the countries involved in the coalition to what we are now calling 'Friends of Iraq' conference. The core international participation in this conference are countries that have in many ways helped Iraq since 2003, helped rebuild Iraq, helped rebuild Iraq's security forces, helped with commitment of their own forces to maintain that security in the interim. So we periodically have talked as the coalition about the issues that we face in Iraq with the involvement of Iraqis. This is now a partnership.
What has happened is that the members of this particular group of countries have become more and more interested in economic development. And so this one is a third or half on economic development because that is the concern and this is the future of Iraq. The future challenge is to take advantage of the security gains that we have made to build a vibrant economy and to support political reconciliation. That is why this particular conference has evolved from one focused on security to one on economics.
It is not the only conference on economics and economic opportunity in Iraq because, as we have been talking this morning, there is tremendous economic activity in Iraq and potential, and so there are variety of other business-oriented, pure business, conferences about Iraq that don't have the history and the security focus of this particular one.
[Martin Yousuf, Gulf News newspaper]
The reality of U.S. elections is [inaudible] can really effect what your plans are, and you can't really plan too far can you?
Ambassador Ries: I think we are developing a system that can take advantage of opportunities and, yes, economic development is long-term, but we expect that the United States will be engaged in Iraq no matter the outcome of the U.S. elections. We are civil servants; we do not participate in partisan political activities.
Ambassador Ereli: You know it is interesting because I think, and this is one of the reasons why we are having this session today, when we talk about the political campaign in the United States, a lot of the discussion that gets the headlines in the United States is about the U.S. troops, how many troops, and everybody is focused on the security side. The security side is important obviously; I don't mean to minimize it, but long-term.- again I keep talking about 5 to 10 year perspective, in five or ten years, the U.S. military is going to be a minimal presence in Iraq. One presumes there will be a minimal dependence in Iraq presuming that Iraqis and Americans both desire that presence. But what's important 5 to 10 years from now is not the U.S. military presence but is the economic, political and social relationship between the United States and Iraq. And as we are negotiating a status of forces agreements, we are also negotiating now strategic framework agreement which puts in place the underlying principles of that relationship. Because the United States recognizes again that in 5 to 10 years, Iraq is, and even now Iraq is and it will only be more so, a major regional power. It is in our interest and it is in the region's interest to have strong, normal, productive relation with their country economically and politically. And so that's where our focus is. And all the political rhetoric is kind of focused on a narrow, temporary issue and not a long-term strategic issue. And a long-term strategic issue, I don't think any politician in the United States would argue with the notion that we, it is in both of our interests, the United States, Iraq and the region's, to have close and fruitful relations in all those fields. And that's why a lot of our discussions today has been about what are the underlying issues that relate to Iraq's growth and prosperity and not the security; because that will take care of itself.