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Iraq ability to sustain oil output questioned
Wednesday April 28, 2004 12:26 pm ET

By Khaled Yacoub Oweis

BAGHDAD, April 28 (Reuters) - Iraq is struggling to sustain oil output as funding shortages and security problems delay repair and field development projects, according to contractors familiar with the sector.

While the oil ministry forecast that crude exports will rise 20 percent to 2.3 million barrels per day (bpd) by the end of 2004, private engineers say day-to-day production problems are mounting.

"This is an industry that has not been serviced since 1990. Critical problems keep showing, ranging from lack of power to pump water into wells to spare parts shortages," said one.

"Not a single ministry project has been implemented so far," he added.

Iraq's oil industry fell into disrepair during the 1990-2003 crippling economic embargo and was then hit by looting and sabotage following last year's Iraq war.

Iraqi crude exports have only just recovered to pre-war levels of 1.8 million-1.9 million bpd and last weekend's foiled attacks against the Basra oil terminal underlined the threat to the country's oil infrastructure.

Oil officials privately say the post-war oil ministry lacks funds for crucial projects, such as pumps to raise exports from southern fields and generators to pump water into oil wells.

An export pipeline to Iran was forecast to become operational before the end of the year. But Oil Minister Mohammad Bahr al-Uloum said earlier this week the project, which Iran had been expected to build, was still being studied.

The ministry's finances have recently improved, officials say, adding that Uloum abandoned a project to borrow $1 billion from international banks as the finance ministry, which controls discretionary funding, began releasing money.

Uloum ordered his staff to issue tenders only for projects whose funding was fully available, such as a $100 million, 70-kilometre crude oil pipeline and 14 storage tanks in Kirkuk with a 140,000-barrel capacity.

An international oil services company executive said previous tenders, such as gas separation stations and new wells, failed to attract significant bidders because they were concerned over whether they would be ultimately paid.

"We did not want to commission studies and reveal our price for nothing. Funding looks secure for the new projects, but international companies will think twice before bidding in this security situation," the executive said.

Anti-U.S. insurgents have stepped up operations in the last few weeks to include kidnapping and more attacks on foreign civilian convoys.

The violence has spread to areas once seen as secure, such as the Shi'ite Muslim south, which accounts for most of Iraq's 2.5 million bpd output.

Oil ministry tenders are separate from U.S.-funded projects awarded to U.S. companies such as Halliburton. Officials say rising attacks against foreign contractors has hampered work on these projects, especially in northern Iraq.