SOMO: An agreement to export oil with a pre-payment

INA - Baghdad - Muhammad al-Talibi

State Organization for Marketing of Oil announced that it had reached an agreement with a Chinese company to export oil by prepayment, and while noting that the OPEC agreement had a positive impact on revenues, it revealed the quantities of oil from Kurdistan region, exported through Turkish Ceyhan.

"SOMO is the only authorized company to export and import oil products and surplus crude oil, pointing out that Iraq is the second largest source of crude oil in OPEC," said the general manager of the company, Alaa Al-Yasiri, in an interview with the Iraqi News Agency (INA).

He added that the company imports and exports some petroleum products, as it exports black oil, jet and other surplus products. SOMO is not the owner of the oil nor the revenues, it works on exporting oil on behalf of the Ministry of Finance – MOF, “The oil is a sovereign product and it belongs to the Iraqis as the all the revenues goes to the MOF vis the Central Bank,”

OPEC agreement

On the agreement with OPEC, Al-Yasiri said: "The OPEC agreement has a positive impact in Iraq, as Iraq was exporting about 3 million and 400 thousand barrels per day at a price of 14 dollars per barrel in April last year, and the revenues generated amount reached to 1.5 billion dollars," indicating that "after the OPEC agreement, specifically in this month, the quantities of exported oil amounted to two million and 900.000 barrels per day and revenues reached to 4 billion and 200 million dollars, which means that the amount of exports decreased, but the rate of revenues increased.

Mechanism for selling oil

Al-Yasiri explained that the company “annually receives the export plan from the concerned authorities in the Ministry of Oil, and what is contained of the available export quantities for the next year, which is the goal,” as he asserted that “there are specialists in SOMO that make surveys to study the reports and then they are presented to the company's board of directors, then presented for discussion to a central committee headed by the Minister of Oil and specialists in the oil sector, and that the study includes expectations regarding better oil markets to export,"

He pointed out that "the current year and the previous year were for the Asian markets, because they are among the best markets in terms of revenue generation," stressing that "there are three markets in the world; the American, European and Asian."

"The American markets have the US; one of the largest producers in the world which can cover the market, while the European ones are looking for alternatives and clean energy sources. As for the Asian ones, they are among the promising markets in which there is an increasing demand, and this is the case for the rest of the countries competing in Iraq, such as Saudi Arabia, Kuwait, UAE and even Iran," he added.

"Iraq was able to contract with the largest government companies in the Indian, Chinese and Korean markets. Iraq exports its oil to Asian markets by more than 70%," commented.

KRG Oil

Al-Yasiri regarded to the oil of the Kurdistan region, "KRG is an essential partner in the country, and there is a problem in oil policy and management,"

"It is assumed that the oil is managed by the central government, specifically the Federal Ministry of Oil, and this is better for the KRG and the central," stressing that "this gives Iraq prestige in front of international companies as it is the only entity through which oil is exported, and it is better for the region so that oil is not exploited. Most of the contracts that have been viewed refer to the region's oil being sold at a price less than 6 to 9 dollars than that sold by SOMO, and this is a loss,"

He went on saying: "We asked the KRG to deliver the quantities of oil for export through SOMO," indicating that "the company has the ability to absorb the region’s oil for export,"

"The problem may be dealt with by framing laws mechanisms such as the oil and gas law legislation, as well as the draft budget law and the fiscal deficit law that was applied," noting that "according to the deficit law, the KRG is supposed to deliver 250,000 barrels or its value at a SOMO price,"

"The 2021 draft budget obliges the KRG government to deliver 250 thousand barrels or a SOMO company that estimates the value of the source at its prices and informs the Ministry of Finance of this, stressing that" any actual delivery of the region's oil has not been officially reported. "

"The exported quantities of oil from the KRG through the Turkish port of Ceyhan amount to 430.000 barrels per day, and we do not know about other ports and there may be export operations in basin tankers and others," noting that "the KRG's oil contracts are a participation and service where the quantities exported are estimated from participation contracts range from 180,000 to 150,000 barrels per day,”

National Oil Company

Al-Yasiri stated that "the national oil company is completely different from SOMO, because it will be concerned with all pre-export activities such as extraction, exploration and pipelines to the export area," stressing that it is assumed that "the company has a wide area of ​​authority and potentials that develop the work of exploration, extraction and export,”

Prepaid operations

Regarding prepaid operations, Al-Yasiri said: “These operations were an initiative of the Ministry of Oil which was based on directives from the previous and current governments,” pointing out that “the former oil minister informed the company of searching for a mechanism to receive the sums in advance,"

He explained that the payment mechanism is usually 30 days after loading the shipments, but according to the new mechanism, the values ​​of the shipments that will be charged for a full year are paid for a full year before loading within a certain period, noting that "Iraq got two billion dollars at zero interest with a premium over the price,"

"Marketing flexibility has been set up for companies with a mechanism that does not affect Iraq," noting that "several offers have been made by the companies and there was intense competition between two European and Chinese companies, and the Chinese company won,"

"The flexibility that Iraq has granted to companies is the freedom to determine the day of loading the shipments, the export destination, the possibility of resale and a set of marketing benefits in return. Iraq gets two billion dollars at a cost of zero," stressing that "the Council of Ministers approved this mechanism and so far we have not officially informed the direct implementation,"

Iraqi-Chinese agreement

Al-Yasiri went on explaining that "China is one of the most important buyers of crude oil in the world, and it is a great competitor to all oil-producing countries because it is a very important consumer industrially and fuel consuming wise,"

He pointed out that "the ministry's role, upon the entry into force of the agreement, represents the stage of paying ​​off the projects that are implemented in accordance with the agreement, as their payment with crude oil is according to the payment of certain accounts in China and the loading is done according to government bonds determined by the Chinese government,"

"It was agreed on selling 100,000 barrels and the money would go to the account in China, but until now it has not been implemented and the money goes to the central bank in the existing account of oil revenues,”

The Jordanian Agreement

Regarding the Jordanian agreement, Al-Yasiri said: “The Oil Marketing Company does not have differential prices, but rather fixed prices according to the market,” pointing out that “Jordan stipulated that, according to the Cabinet’s decision, the transportation cost was calculated at $ 11 from Baiji to Jordan, and this is among the items of bilateral agreements between the two countries, and the supreme interest is valued by the country and the government,"