Iraqi Kurdish region appeals for Baghdad funds to meet financial commitments

Since pipeline for area's oil exports to Turkey was closed, provinces have struggled to pay civil servants' salaries

The historic Erbil citadel, in the capital of the semi-autonomous Kurdish Region of Iraq.

Iraq's semi-autonomous Kurdish region has called on the federal government to release more funds to meet its financial commitments, including employees’ salaries.

The three-province region in northern Iraq used to generate most of its revenue from oil exports through Turkey. This was supplemented by a share from the federal budget that stands at 12.67 per cent.

These federal budget transfers – which vary in size – have been intermittent over the years, due to disputes with Baghdad.

In March, an arbitration ruling by the International Chamber of Commerce global business organisation said Turkey had violated the 1973 joint agreement with Baghdad by allowing the Kurdistan regional government to export oil through a pipeline to the southern Turkish hub of Ceyhan.

The Iraq-Turkey pipeline agreement had stipulated that all oil exports through the infrastructure needed Baghdad's permission.

The immediate consequence of this ruling was that the pipeline was shut down to all northern exports.

This halted about 500,000 barrels of oil per day, some of which was diverted to local use.

Since then, Baghdad has been sending funds to the semi-autonomous Kurdish region on a monthly basis, but not enough to meet its financial commitments.

This week, the federal cabinet approved a 500 billion Iraqi dinar ($381.7 million) transfer for September, October and November.

But on Wednesday, the regional cabinet said that sum is less than the 906 billion dinar ($691 million) needed just for salaries each month.

It has asked for a monthly amount of 1.375 trillion dinar from its 16.498 trillion dinar total share in the federal budget this year.

The overall federal budget is 198.91 trillion dinar.

“Given these facts, the KRG Council urges the Iraqi Council of Ministers to disburse the funds allocated in the budget, especially the 906 billion dinars for salaries, ensuring equitable treatment as mandated by the constitution,” the KRG said.

It also called on the international community to support the region “in upholding its constitutional and financial rights, ensuring the Kurdish people's rights are protected from undue violation”.

On Tuesday, civil servants in the Kurdish province of Dohuk took to the streets, demanding their salaries for the past two months.

Complicated discussions

Developing and marketing natural resources in the semi-autonomous Kurdish region has been a thorny issue between Baghdad and Erbil since the 2003 US-led invasion that toppled Saddam Hussein.

The KRG says Iraq's 2005 constitution gives it the right to sign agreements with oil companies and states without consulting Baghdad.

But Baghdad argues the region has no right to sign deals, and that exports must go through state-run pipelines and be marketed by the federal government's State Organisation for Marketing of Oil.

The International Court of Arbitration ruling in March helped Baghdad strengthen its hand and forced the Kurds to give up oil to be marketed by Somo.

This year's budget stipulates that the semi-autonomous Kurdish region hands over 400,000 barrels per day to Somo.

Oil revenues will be deposited in one bank account and overseen by Baghdad but will be under the control of the KRG.

“Since this agreement is governed by a law, we have to stick to it,” a Finance Ministry official told The National.

“And the best way to deal with it is to put the funds in a form of loans to be settled later.”

“Increasing that amount is unlikely, given the government’s mounting financial commitments towards other provinces,” he said.

Meanwhile, an Oil Ministry official said oil exports from the region to Turkey are not expected to resume soon.

“Discussions are still going on with the Turkish side and they are complicated, so we don’t expect anything this month or may be next month,” he told The National.

In addition to asking Turkey to pay Iraq around $1.5 billion for violating the Iraq-Turkey pipeline agreement, the ICC has ruled that Iraq must pay Turkey around $500 million for its use of the pipeline over decades without fully contributing to maintainance costs.

According to Reuters, the KRG has lost roughly $4 billion since oil flows to Ceyhan were halted.