2007 Press Releases
Roundtable Discussion with Deputy Secretary of Treasury Robert Kimmitt
December 3, 2007
AMBASSADOR RIES: Ladies and gentlemen of The Fourth Estate, for those of you who we haven’t met directly, I'm Charlie Ries, Coordinator for Economic Transition. It’s the grandiloquent title that I have at the embassy. But I'm very delighted to introduce to you Deputy Secretary Robert Kimmitt, distinguished career in both private sector and in government, served at the State Department both as Under Secretary for Political Affairs and Ambassador to the Federal Republic of Germany, a frequent visitor here to Baghdad, and we’re very grateful for it. He has just completed his fourth -- what, fifth -- fourth, fifth, something like that, is it?
DEPUTY SECRETARY KIMMITT: Not that many here. Although, I've met with our Iraqi friends in many places in the region.
AMBASSADOR RIES: Indeed, very familiar to the economic aspects of our work here. So this is on the record. Deputy Secretary Kimmitt will make a few opening remarks and take your questions.
DEPUTY SECRETARY KIMMITT: Great. Charlie, thanks very much. And thank all of you for coming in.
As you know, the Iraqi Government strategy has three pillars, political, superior and economic, and the significant results of the security surge has created an opportunity including in the economic sphere. So my visit was intended to engage all of those in the Iraqi Government who are involved in economic affairs.
I've had a chance, over the last days, to meet with Prime Minister Maliki, Vice President Al Mahdi, Deputy Prime Minister Barham Saleh, Finance Minister Jabr, Oil Minister Shahristani, Central Bank Governor Shabibi, the Council of Representatives Finance Committee Chair Samari, the National Security Advisor Mr. Rabaie, and we met this morning with the UN Special Representative, Mr. De Mistura.
I also had a chance to spend time with General Petraeus and his team and also met in Iraq with most of the 18 members of the Treasury attaché office here in Baghdad which is by far the largest attaché office in any country in the world.
A central part of my discussions was implementation of the International Compact with Iraq that was launched in Sharm el-Sheikh last spring. You may recall that this compact, as the name implies, involved commitments on the side of Iraqis for economic reform in return for continued support by the international community.
The Iraqis have continued to take steps to implement their economic reform program. I think most significantly they are likely to receive approval from the IMF for their next standby agreement sometime in the next two weeks. They’ve been operating under a standby agreement with the IMF since 2005 that was due to expire, and it’s now due to be extended. A standby agreement is quite important because living up to the terms of the standby agreement is the precondition to debt relief under the Paris Club arrangements.
In return, the international community has continued to provide support in various forms. There have been recent announcements of new assistance programs, for example, on the part of the Italians a multi hundred million dollar program and also continued progress on debt relief, the most significant recent agreement was $3.8 billion of debt relief with Bulgaria signed last month. There has also been progress with China and Russia, again both multi hundred billion dollar debt holders from the Saddam era.
At the same time, much remains to be done. That was a good bit of our discussion with the Iraqi Government. First, they need to pass the 2008 budget, which has gone through the Council of Ministers, not yet approved by the Council of Representatives.
And secondly, their top legislative priority in the economic area has also laid out in the compact this passage of the hydrocarbons law. On the side of the international community there is still significant progress that needs to be made especially around debt relief and I would say particularly among Gulf-Arab creditor countries.
I might just say one last word. As I look at things from Washington, you're on the ground; you have a lot more day-to-day contact than I. And certainly Charlie and his team do too. But from a macroeconomic perspective, which is certainly the perspective at which the Treasury looks, we see a strong foundation having been laid by the Iraqi Government. They’ve got a strong, stable currency. Inflation is dropping significantly. Oil exports are increasing. And on the micro side, we see significant growth just in the numbers of cell phones, internet subscribers -- you may have seen they had an auction of cellular licenses that drew almost $4 billion including from external investors -- significant rise in business permits, some encouraged by the growing use of micro credits and programs sponsored by the U.S. Government but also by the Iraqi Government. One of the favorite statistics I know that Ambassador Ries uses or looks at is unplanned outages of electricity, which is down 30 percent over the course of the last year.
So we like to look at the macro and also the micro sides. But listen, we certainly well understand that challenges remain. One is encouraging investment into Iraq. They did pass their investment law but they still need regulations under the investment law, and they also need to get their investment commission up and running. I would say that particularly investments in the oil sector you need not just the investment law but the hydrocarbons law.
Unemployment remains a major problem. Housing presents a challenge for both -- but also not particularly as does investment in infrastructure, particularly water, electricity and sewer. And our effort is intended to help support, again not just the political security, a dimension of the Iraqi strategy, but also the economic, working closely with the embassy team.
Why don’t I stop there and open the floor to questions, and the more particular they get, the more I may turn to Ambassador Ries.
QUESTION: On the hydrocarbon law, what is it to the best of your knowledge that is holding this thing up? Is it domestic political jockeying between various parties? What is it that's --
DEPUTY SECRETARY KIMMITT: Well, it’s a piece of legislation. And in any democratically elected legislature or parliament, of course, politics come into play. I think there are legal issues; there are political issues. They are very much being discussed by the parties that matter. We are doing what we can do to help facilitate those discussions, but ultimately these are decisions that the Iraqis will reach on their own in the political process in the Council of Representatives.
QUESTION: Do you think they’re actually going to reach that anytime soon, in the next six months, a year or --
DEPUTY SECRETARY KIMMITT: What I would say is there was no doubt from the discussions I've had over the last two days that they recognize that this is their highest legislative priority in the economic area. And I had more than one senior official say that it would get done. I wouldn’t want to put a particular time prediction on it.
QUESTION: In oil, of course, companies are still going to Kurdistan trying to sign their own agreements, and Shahristani is not very happy about this. Are you planning to do anything to help stop American companies from signing agreements in Kurdistan without the permission of the Central Authority of Baghdad?
DEPUTY SECRETARY KIMMITT: Well, we have basically advised international oil companies not to invest in the oil sector until Iraq passes its national hydrocarbons framework legislation. We certainly want people to be prepared to invest in Iraq. I think that there are companies poised to invest, but they want to make sure that they understand the rules of the road both in the hydrocarbons sector and elsewhere. But at this particular point we think the real focus should be on the Iraqis moving as quickly as possible to pass this series of legislation involving the hydrocarbons sector.
QUESTION: Can you talk a little bit about any concerns you might have related to Iran’s investment in Iraq in a lot of sectors? Major investments are coming from Iran and some people expressed concern about (inaudible) change Iraq further towards reliance (inaudible) the U.S. have serious concerns about it?
DEPUTY SECRETARY KIMMITT: I guess I would speak really just from the Treasury perspective and say that the area where we would have concern would be any involvement of state-owned banks, particularly those that are designated either by the United Nations for the United States in activities whether it be in Iraq or elsewhere. When it comes to Iran, that is the part of the Iraqi economy that we follow most closely. As you probably know, Bank Sepah was designated UN Security Council Resolution 1747, and the recent designations that we the Treasury put out, Bank Melli -- another state-owned bank -- was designated. And therefore, we would have concerns about investment or activity by those entities in Iraq.
On the broader question, I think that I would probably just defer on that one because I just don’t have the facts and statistics about what investment is being done.
QUESTION: Are those -- is there activity by those banks here?
DEPUTY SECRETARY KIMMITT: I don’t know about the level of activity. I think that there is at least one of those banks that has a branch here.
QUESTION: How big a problem in your view is corruption in this country? I mean it seems to be operating on every level? Aside from billions of dollars on the Iraqi side (inaudible)? And what is being done -- is there enough being done to counter it on a government level?
DEPUTY SECRETARY KIMMITT: Well, I think corruption is a major concern. And importantly, I think the Iraqi Government recognizes that it’s a major concern. There are a number of steps that are being taken by the government of Iraq and, indeed, there are certain commitments that they made inside the Compact with regard to anti-corruption efforts.
We’ve been trying to support those, that is the U.S. Government led by the embassy team, but even members of our Treasury attaché office have been involved in that process particularly as we try to help set up payment systems, budgeting system, budget execution systems. I think this is an important part of what the PRTs are doing as we look at how money expended from the center is actually reaching the provinces. And we also try to keep an eye on this from a terrorist financing perspective because there’s reason to believe that corruption just doesn’t go to personal benefit but also funds groups who are striking at the goal of a united Iraq.
QUESTION: You spoke a little bit about your advice to American companies regarding signing deals (inaudible) now in the oil sector, but the Kurdish authorities are aggressively courting these and signed a slew recently. What are the risks, what are the effects that this could have particularly if the national government does at some point get its legislation going? Are these deals going to stand? Is that going to affect the future?
DEPUTY SECRETARY KIMMITT: Sure. I think, and I hope I was precise that we’ve actually called on international oil companies not just U.S. oil companies to not enter into investments in the sector until the hydrocarbons legislation has passed.
What I hear from the companies who talked to me, both U.S. and also international oil companies, is they come in and they want to know what the rules of the road are. A lot of times people think that they’re not investing because the security situation is difficult. Well, the security situation is improving. As the oil companies will tell you, they invest in many places in the world where security is a tough factor. But what they really want to know is, what are the rules of the road; with whom should I be contracting; is that party a qualified contracting party; if there is a dispute, what is the dispute resolution mechanism; what are the rules of the road?
Interestingly, and I sometimes don’t see this covered quite so often. Perhaps one of the reasons we’re pushing as hard as we are to support the Iraqi efforts on debt relief is that if you have tens of billions of dollars of sovereign debt on your balance sheet -- so in other words you owe tens of billions of dollars to sovereign creditors -- that discourages investors who fear that at the point of dispute they may fall behind sovereign creditors when it comes to addressing their claims. So the debt relief effort to clean up the balance sheet is also part of a broader effort to encourage investment.
But I think laying out the investment law and passing these investment laws is a significant step on their part, a very significant step. And to anyone who says the Iraqis have difficulty passing legislation in their political process, no, they can and they have passed tough pieces of legislation including the investment law. They need now, as I mentioned earlier, to get their investment commission up and running; they need to get the regulations out on investment; and on hydrocarbons and any other sector-specific legislation, they need to get that out. That's what I think is of greatest concerns to the companies and that is what are the rules of the road.
QUESTION: In the oil legislation, the hydrocarbon legislation, is this where we will be looking at there are four parts to that legislation, all of those having to be approved before the climate is good to come in as an oil company, or are you saying, you know, let’s get the framework approved and then companies are going to start coming in, or what -- how does this work?
DEPUTY SECRETARY KIMMITT: Well, I think right now the legislative complex, and I'll defer to Charlie on this for any detail, has four components. And I think we are looking to address this in a composite manner. I would say, having spent considerable time in the private sector, the private sector often focuses on what hasn’t been done in so much as what has been done when it comes to risk analysis and so forth. So I think the best way to encourage foreign investors including the energy sector would be to pass the entire complex of legislation. Of course, how that proceeds in their process is largely up to them.
AMBASSADOR RIES: Just for everybody else, the four pieces of legislation are the hydrocarbon framework law, the revenue sharing law, a law on organization of authorities in the Ministry of Oil, and a law on the national oil company or holding company for national oil companies, generally called INOC. Although what it would be called would be established by the legislation.
Most of the international companies that I've talked to are mostly concerned about hydrocarbon framework law because that is the law that provides for the basis upon which they would do contracts for acreage, exploration and development possibilities. All four are relevant, but one could envision the hydrocarbon framework law and the associated revenue sharing laws proceeding as being an adequate basis -- legal basis because those are the ones that directly affect foreign company’s rights and responsibilities. The others are more internal to Iraq. Whether they proceed all four as a package, or only two go as a package is an internal political decision of the government.
QUESTION: Right, but INOC or the Iraqi National Oil Company has to take part in the contracting and the awarding of the various contracts, correct? So would it need to have its -- one of those four laws concerns the --
AMBASSADOR RIES: There are two very large operating companies, the North Oil Company and the South Oil Company, SOMO, the State Oil Marketing Organization and other organizations that are actual legal entities and have the ability to sign contracts and make obligations. So it is not, unless lawyers correct me, I don’t think that the INOC organization bill itself has to be passed. I mean it likely would be in conjunction with a new hydrocarbon legislation. But as a legal matter, there are enterprises, state oil enterprises that have the legal personality they can contract with foreign companies.
QUESTION: Can you -- just looking at updated figures on unemployment both in Baghdad and nationally -- do you have the numbers there?
DEPUTY SECRETARY KIMMITT: I don’t have my book with me. I recall the most recent figures -- Charlie, and I may have to defer to you. The most recent figure that I saw was that unemployment was at about the 20 percent level.
AMBASSADOR RIES: Nineteen, I think, is the most recent.
DEPUTY SECRETARY KIMMITT: Let's say to 19 percent. Now, those statistics, if I recall, were a little bit dated, but I think that figure -- yeah, I've got 18 percent at the end of 2006, so let’s say 19 percent now. That would be an unemployment figure. My guess is that one would also have to look at under employment, that is someone who might technically be employed but not employed on a full-time basis, perhaps in some form of training. The fundamental fact is getting a populous nation to work and back to work is a major priority for the government. I think if you look inside the Compact, an awful lot of the priorities that they give to the near-term commitment of their capital investment budget goes into sectors like housing, construction and others that not only (inaudible) for those communities but would provide significant job opportunities.
QUESTION: You mentioned about a year ago about oil production and it’s still below pre-war levels. Can you expand on how many barrels a day the country is pumping out now?
DEPUTY SECRETARY KIMMITT: I don’t think I mentioned anything about a year ago or pre-war levels.
QUESTION: We asked this a year ago that it’s still significantly --
DEPUTY SECRETARY KIMMITT: Oh, I mentioned oil production and then you were talking about a year ago. Again, I'll defer to Charlie on the pre-war numbers. I'm not quite as good on those. I think now that what I look at a lot is exports because it’s exports that generate the revenue. And the exports have grown steadily during the course of this year. So I think now the new figures --
AMBASSADOR RIES: Close to two, closer to 2 million barrels.
DEPUTY SECRETARY KIMMITT: Yeah, over 1.9 million barrels per day.
QUESTION: From what at the beginning of the year?
DEPUTY SECRETARY KIMMITT: Say it again.
QUESTION: From what at the beginning of the year?
DEPUTY SECRETARY KIMMITT: I would say at the beginning of the year it was closer to about 1.5, right, 1.5. So it’s grown steadily during the course of the year to a point now that it’s over 1.9, not quite at 2. And (inaudible) of course, with oil prices the way they are right now, I think the Government of Iraq will likely exceed its revenue projection for calendar year 2007.
Now my guess is if exports are up close to or above 1.9, close to 2, that means probably total production would be in the neighborhood of 2.6, 2.7.
AMBASSADOR RIES: More like 2.5.
DEPUTY SECRETARY KIMMITT: And what was it, 3?
AMBASSADOR RIES: Pre-war production was about that.
DEPUTY SECRETARY KIMMITT: So we’re back to about pre-war levels. So it’s the same with the production.
AMBASSADOR RIES: One other comment I'd make is that the big change this year, really quite significant in terms of Iraq’s oil sector itself and for Iraq as a country is the sustained opening of the northern export line which has added two hundred to three hundred thousand barrels a day in exports to the world market. This line was brought up in the summer, effectively in late August and has stayed up more or less since then, and that's what -- if you would -- this is a chart of this year’s oil exports and you can see the bump up. This is the 300,000 barrels up, and it’s been -- it’s stayed up. Now it bounces around quite a bit because it -- you measure oil based on each day, and sometimes you have four tankers that day and sometimes you have none.
For example, today there are four tankers waiting to load down in the Persian Gulf but the weather is too bad and they can’t tie up. The oil is there; the tankers are there; but the weather prevents them from tying up. So when you see the day’s exports, it will be whatever is out of Ceyhan in the Mediterranean and nothing in the Persian Gulf. So you have to take at least a 30-day average to have any statistical significance on oil exports. Weekly is not good enough because of the variation is too much.
DEPUTY SECRETARY KIMMITT: So again 1.9 and the price per barrel has been averaging close to $60 during the course of this year. So again, I think you will see them meet and exceed the revenue estimate for this year. And it also then provides a foundation for, you know, a robust budget number next year that will allow them importantly to continue to put money into capital investment but also to pick up more of their security costs.
QUESTION: Like what kind of security costs do they pick up more of?
DEPUTY SECRETARY KIMMITT: Well, basically the MOD and the MOI and as both the Iraqi military and Iraqi police force grows in size, is better trained, better equipped, they will increasingly pick up the resource responsibility for that larger force.
QUESTION: I know, but have they released any of their budget figures yet?
DEPUTY SECRETARY KIMMITT: So basically the budget would be about $48 billion next year and the security figure will be at 9.3, which is up from 7.2 last year. Security numbers as we look at them include both the MOD and the MOI.
QUESTION: Up from 7.2?
DEPUTY SECRETARY KIMMITT: Up from 7.2.
QUESTION: And intelligence services?
DEPUTY SECRETARY KIMMITT: Right. It picks up some of the intelligence services costs also.
QUESTION: And that's mostly money that goes in the pot for (inaudible) Iraq for salaries for policemen and so forth?
DEPUTY SECRETARY KIMMITT: Well, I think a good part of that does go for salaries, but I think 80 percent has been a historical figure. I think on an increasing basis the plus up also goes to equipping the force which is a significant part particularly for the army and also for the police force.
QUESTION: The FMS (inaudible) buying equipment from the U.S.?
DEPUTY SECRETARY KIMMITT: Some. They have an FMS relationship with the United States but they do a lot of direct purchasing on their own.
QUESTION: For those of us who have been here for a while, we’ve been hearing sort of optimistic predictions that Iraq’s economic recovery is just around the corner since April 2003. Why can we believe you now?
DEPUTY SECRETARY KIMMITT: Well, I'm not one given to predictions and I don’t think I've made predictions, I've just tried to give you some facts. The facts are that I think they’ve laid a strong macroeconomic foundation, again looking at it from the perspective that the Treasury Department does. This is an unusual post-conflict situation where a country going through the transition also has considerable resources not just base resources but tremendous agricultural potential and a well-educated professional population.
We’re looking again at those macro points that I laid out, strong, stable currency, inflation moving down, oil exports increasing, therefore, greater revenue is available for commitment of resources to reconstruction. I might say a large part of the budget, that is the capital investment budget, is by virtue of transfers from the center out to the provinces for efforts on their part.
I mentioned the micro points, too, that we’re seeing. You know, again especially with a foreign investor who puts well over a billion dollars into buying a cellular phone network here, that person is making a bet on the future of Iraq, business permits, the micro credits. But again, this is a country and economy in transition. Challenges remain both on the macro side and the micro side.
Again, I pointed out that I thought for some of the concerns, that is they do have to take steps to encourage foreign investment. At the end of the day no government with its resources can provide for its people the kind of economic future they deserve without having a healthy foreign direct investment program.
And I think there are particular steps that need to be taken. If you look at the Compact provisions, I think they recognize that in the areas of employment, housing and basic services.
So I'm not sure what people have told you in the past, I'm just sort of a “just the facts man” kind of person. I'm laying them out and you guys are in a great position to make whatever judgment you care to. But I think the trends are positive.
QUESTION: (Inaudible.) Have you had interactions with the British authorities about these deals (inaudible) what have you been saying to them and what have they been saying to you? (Inaudible) historically the problem has just been bringing revenue in and (inaudible) spending it however (inaudible) -- relationships like (inaudible)? And finally on the (inaudible). We’ve also been discussing (inaudible) discussions?
DEPUTY SECRETARY KIMMITT: I have had discussions with some of the officials I mentioned about the operation (inaudible) in Iraq. Secondly, on the question of talking to the Kurds, I have not done that. My contact is generally with the central government. I'll let Ambassador Ries talk about any contacts being made by the embassy. I know Ambassador Negroponte was up talking with people in Kurdistan.
The second part of your question, though, I couldn’t pick up was?
QUESTION: Oh, budget execution.
DEPUTY SECRETARY KIMMITT: I'm sorry, budget execution. I would say budget execution is one of the reasons we have the large Treasury presence that we do in Iraq because they’re quite bright. It’s one thing to have the resources; it’s another thing to apply them to the benefit of the people. And we’re putting, as is the rest of the embassy team, a real emphasis on budget execution not only in the center but in the provinces. This is an important responsibility, including for people in the PRTs. And execution is not just a matter of getting the money out; it's producing results. And we want a very results-oriented budget execution capability both in the center and in the provinces. I think that Iraqis would agree with us that there is quite a bit of work to be done both in the center and in the provinces on this, but I think that the military success of the surge has created the space that people are now focusing on issues like executing budgets and using resources to the benefit of their people. I think that space has been created for that.
Charlie, do you want to say anything about the Kurds?
AMBASSADOR RIES: Well, let me just make a comment on budget execution. This is, of course, only the second year that provincial authorities have had any budget authority whatsoever. And they are -- at this point in the year, the numbers are still coming in and the latest numbers we have I think are through the end of August. But the execution rate in terms of awarding contracts and then disbursing on contracts is better than twice what it was last year at this same point. There is no more history than just those two years.
On the question of interaction with Kurdish Regional Government authorities, yes, of course, we do stay in close touch with them. As Deputy Secretary Kimmitt mentioned, Deputy Secretary Negroponte was up in Irbil, or actually Salah ad Din last Wednesday night. I was privileged to come with him. He gave a press conference there and at the press conference I recall that he said that he had emphasized the importance of getting a national hydrocarbons law with Prime Minister Barzani. And at the same time last week, the Minister of Natural Resources of the Kurdish Regional Government was in Washington and had intensive conversations in Washington with American officials in a number of agencies.
DEPUTY SECRETARY KIMMITT: By the way, just going back to the third point you raised about the Iranian state-owned banks that may be operating in Iraq, any conversations I had with the Iraqis are the exact same conversations I've had with the British, French, Germans, with others in the Gulf, with others in Asia. Bank Sepah is a bank designated by the United Nations in UN Security Council Resolution 1747; all member-states of the United Nations have obligations consistent with the resolution to restrict the activities of that particular bank. And with regard to Bank Melli, that was one of the banks, as I said, designated in recent Treasury actions. This is not anything that is mandated by the international community, but we wanted people to understand why we thought it was important to be quite careful in dealing with that particular state-owned bank. So although you're asking the question in the Iraqi context, this is a consistent message that we've been carrying around the world.
QUESTION: What kind of -- are they receptive to it?
DEPUTY SECRETARY KIMMITT: The reception that I got here on that point was very consistent with the reception I've gotten elsewhere, and that is people understand their obligations as members of the Security Council.
QUESTION: (Inaudible.)
DEPUTY SECRETARY KIMMITT: You're going to have to --
QUESTION: Well, I wanted to actually follow up on that. I mean, what happens if the Najaf governor wants to deposit money with Bank Melli or Bank Sepah, whichever bank is open?
DEPUTY SECRETARY KIMMITT: That's a level of detail that I don't get into with any country. Haven't had that level of discussion with the Iraqis.
QUESTION: And which bank -- which branch is open here, Melli or Sepah?
DEPUTY SECRETARY KIMMITT: I think that Bank Sepah has a branch that is open here.
QUESTION: In Baghdad?
AMBASSADOR RIES: (Inaudible.)
DEPUTY SECRETARY KIMMITT: Say again?
AMBASSADOR RIES: I believe it's one bank branch and it's Baghdad. Bank Sepah.
DEPUTY SECRETARY KIMMITT: Maybe two more?
QUESTION: Okay. Oil. Back to oil-related . They're at 1.9 million barrels a day export at this point. What is it that they could go to conceivably without this hydrocarbon law being passed and (inaudible) foreign investment? And what do you tell officials here and companies is the potential in the sort of near term? I mean, we're talking a couple of years or so.
AMBASSADOR RIES: Well, like Deputy Secretary Kimmitt, I'm not into predictions, particularly about the future, as Yogi Berra would say. The constraints in the near term on their production and export of oil are physical constraints. They have a lot of older fields that need serious workovers. They need to take advantage of higher technology, 3-D seismic, new techniques of producing from these. They have a number of super-giant fields that are very, very important to their own production and they need to be engineered. I believe that the Ministry of Oil and the operating companies are studying those fields and seeking foreign help, technical help, to do that. And technical help, hiring consultancies and developing relationships with foreign companies to do that does not need to wait until the hydrocarbon law. It's like buying compressors or buying any kind of services. You can -- they have the authority and they certainly have the funds to do that, and they are doing that.
They also need to work on their physical export capacity. Over the years, we've helped renovate some of the pipeline pumping stations and metering stations and so forth that are involved in taking crude from the ground, processing it, moving it out through a pipeline network, either to your domestic refineries or to your export platforms. I toured the ABOT, which is their Basra oil terminal facility, the one that's out at sea, a couple of months ago and we have actually with our own resources put $60 million into the renovation of the metering and other electronics on that platform. And so they need to invest in more export facilities to be able -- they are at capacity right now. Between the northern line and the ABOT terminal, they couldn't export physically on a sustained basis more than 2 million barrels a day. They need to invest in new loading capacity to do that. But they have to do that concomitant with making the changes in the development of their existing fields in order to produce more.
Longer term, they will only be able to sustain higher production levels with new investment: drilling new fields, drilling new wells in existing fields. And that's what the hydrocarbons law will provide a basis, particularly for the exploration of acreage which does not have any discoveries on it but is in the business called prospective. There is a lot of prospective acreage in Iraq and, you know, predictions about how much is there are just that because until you drill, you really don't know what there is. But the industry believes that there are substantial undiscovered reserves of petroleum in this country.
DEPUTY SECRETARY KIMMITT: And I think, too, Charlie -- we'll take one last one over here. I think, too, that they have passed a law allowing investments in refineries.
AMBASSADOR RIES: Yes.
DEPUTY SECRETARY KIMMITT: Right. And so although there's been the general investment law, that has been an investment law on refineries. That, too, is an important part of attracting that foreign investment that will help to bring the entire hydrocarbon sector up to its level of potential.
Last one.
QUESTION: There are two issues I wanted to ask about. One, Iraq is sort of a very heavily subsidized -- a lot of subsidies in various parts of the economy. National electricity is free. Is that something that you're particularly concerned about given the philosophy of the United States in general and in particular the administration? And if so, what sort of discussions do you have?
And second of all, you mentioned some of the Gulf region states. Are they doing enough to invest and support the Iraqi economy? And if so, how? And if not, why not?
DEPUTY SECRETARY KIMMITT: And which states?
QUESTION: The Gulf (inaudible).
DEPUTY SECRETARY KIMMITT: The Gulf region states.
QUESTION: That's right. The Gulf Arab states.
DEPUTY SECRETARY KIMMITT: Got it. On the -- sorry, (inaudible) the first one.
QUESTION: The subsidies and (inaudible).
DEPUTY SECRETARY KIMMITT: The subsidies, yeah. Essentially, there are subsidies across the economy. There was a decision made in 2005 to focus first on subsidies in the oil sector, particularly gasoline subsidies. That was the key component of the December 2005 standby agreement, and under that agreement the Iraqis have had to raise prices and therefore reduce subsidies progressively during the course of that agreement. They've done that. They've also passed a fuel import liberalization law. Again, there need to be some regulations passed underneath that. They've taken that on.
There are though, as you suggest, subsidies elsewhere , including in agriculture. Over time we think that weaning a sector off subsidies is one of the ways to bring that sector to life, and over time we think that that would be in their best interest. I would say looking next at how to do it in the important agricultural sector.
With the Gulf -- with regard to the Gulf Arab states, I was in Kuwait just before coming here and in the Kuwait Times right on page three was a big headline talking about the degree of interest being shown by Kuwaiti businessmen and Kuwaiti companies in opportunities here in Iraq. I think as the security situation improves, as the government takes steps, again, to lay this macroeconomic foundation, put in place some of the legislation that is required, you would expect neighboring states to have both interest and opportunity. I think that their private sectors particularly, and particularly in Kuwait, seem to be showing particular interest. And as I say, at least one of the successful bidders for the cellular licenses was a non-Iraqi, I think also from the Gulf.
QUESTION: (Inaudible) investment, though, in Iraq is Iran, for example. I mean, the government themselves, not the private investors in the countries.
DEPUTY SECRETARY KIMMITT: Well, again, I know you're going back to your first question you asked. I just don't have a lot of information regarding Iranian investment here, so it's hard for me -- on sort of non-banking investment. It's hard for me to make that comparative analysis.
Thanks very much.
QUESTION: Thank you.