January 19, 2011 / 1:42 PM / 9 years ago

UPDATE 1-Iraq to pay expenses to oil firms in Kurdish region

* Iraq will not cover companies’ profits

* Kurdish oil exports held up since 2009

* Kurds to step up anti-fuel smuggling measures

(Adds details, background)

By Ahmed Rasheed

BAGHDAD, Jan 19 (Reuters) - Iraqi oil ministry has agreed with its Kurdish counterpart to pay the exploration costs and expenses to the foreign firms working in the northern Kurdish region, a spokesman for Iraq’s oil ministry said on Wednesday.

Under the agreement, the central government in Baghdad will not pay foreign companies their profits, Oil Ministry spokesman Asim Jihad told Reuters.

“The resumption of oil exports from the region at the start of next month will strengthen Iraqi crude exports and boost its oil revenue,” he said.

Baghdad deemed the production sharing agreements signed independently by the Kurdistan Regional Government (KRG) with foreign oil companies illegal.

The Arab-led government in Baghdad had said in the past the Kurds should pay the firms’ profits from the KRG’s share of the annual national budget, not by from the central government’s revenue.

It was not immediately clear how the companies will be paid for their profits going forward after this week’s deal.

State Oil Marketing Organisation (SOMO) will be responsible for payment due to the companies, which will be made through the Kurdish Natural Resources Ministry, Jihad said.

Iraq’s central government confirmed on Tuesday it reached an agreement with the Kurdish authorities to resume oil exports from the semi-autonomous region on Feb. 1, starting at a rate of 100,000 barrels per day. [ID:nLDE70H27G]

Kurdish exports from two fields — Taq Taq and Tawke — flowed briefly in 2009 but were halted when the Iraqi government refused to pay the oil companies working the fields, including Norway’s DNO (DNO.OL) and Turkey’s Genel Enerji.

If oil exports resume from the Kurdish region, flows would be about 100,000 bpd and could reach 250,000 bpd by the end of the year, Kurdish Natural Resources Minister Ashti Hawrami has said. [ID:nLDE65E2C8]

Iraq said last May it had approved a deal with the Kurds and expected Kurdish oil exports to resume quickly. Exports remained blocked, however, while negotiations over forming a new government after a March election continued.

The Kurdish authorities should also step up their efforts to combat fuel smuggling from the region, according to the deal reached with Baghdad this week, Jihad said.

In July, the cabinet of Kurdish Regional Government approved stricter measures including stepped up border surveillance to stop any illegal trade in crude across its borders after reports of long lines of tankers crossing into neighbouring Iran. [ID:nLDE66I1ZB] (Writing by Rania El Gamal; editing by James Jukwey)

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