Surging Basra exports obscure Leighton scandal
Iraq's Oil Ministry quietly drops Leighton Offshore graft probe
Away from the political fracas between Baghdad and Erbil over the destiny of the Kurdish region’s oil industry, South Iraq’s export infrastructure is expanding rapidly.
Iraqi Oil Minister Abdul Kareem Al-Luaibi said yesterday that the second single-point mooring system (SPM) offshore Fao in Basra would be competed in two weeks.
The Oil Ministry is spending $2 billion to construct five SPMs – each with a capacity of 850,000 bpd – before 2015. EPC giant Foster Wheeler is overseeing the project, together with Leighton Offshore and Saipem.
The SPM project is essential to Iraq’s ability to get rapidly increasing oil volumes from southern fields onto international markets. The first SPM has already allowed Iraq to export 300,000 barrels per day (bpd) more in March than in February.
The project is so important that serious concerns over corruption in the award and conduct of the contract for the construction of the SPMs appear to have been swept under the rug by the Oil Ministry.
As previously reported, in February Leighton Offshore’s parent company reported the unit to the Australian federal police over concerns of improper payments made in connection with the SPM project.
The Australian Financial Review reported that a bribe may have been made to an official in order to obtain details of rival bids for the project, enabling Leighton Offshore to low bid its competitors.
An unnamed department head at Iraq's South Oil Co fled Iraq after being encircled by allegations he accepted bribes from Leighton Offshore. Uday Awad, a leading member of the parliament's oil and energy committee, told The Australian that the department head could have been a front man for other senior officials who were also taking bribes.
A source familiar with Leighton Offshore’s conduct in Iraq at the time has intimated that other fraud was allegedly taking place involving the diversion of orders or cash for employees’ personal benefit, an accusation which has dogged previous Leighton Offshore projects in Abu Dhabi and Singapore. It is not known whether this allegation is part of the Australian investigation.
In contested proceedings against a former Leighton Offshore manager, Leighton Holdings is alleging is a scheme of corrupt payments and commissions involving its employees and third parties at a ship-building yard in Indonesia defrauded the company out of millions of dollars. A similar procurement scandal in Abu Dhabi has been reported in the Sydney Herald.
No charges or findings have been made against Leighton Offshore or its parent company.
In October 2010 Leighton Offshore was awarded a contract with SOC to install three single point moorings and 120km of 48-inch pipelines in the Arabian Gulf, offshore Iraq. In October 2011 the subsidiary received two further contracts with SOC worth $79m and $518m respectively.
The Iraqi Inspector General’s office, which reports to the Iraq Oil Minister Abdul Kareem Al-Luaibi, announced on 1 March that it was investigating Leighton and that the department head in question was under investigation. According to the oil ministry, his remit was to “review and audit the procedures of the assignment of the contract implementation, financial payments under the terms of the contract, meet with the concerned people, study and assess the situation in addition to the continuous coordination with (Leighton Australia) and the South Oil Company until the project finish.”
A little over three weeks later, Inspector General Hilal Ismaeel said he had found no evidence of corruption and was closing his file pending the continuing Australian investigation.
No report of the Iraqi investigation has been released and the independence of the investigation is dubious, given the reporting structures between the Inspector General’s office and the Oil Ministry of which it is a part.
Before Ismaeel announced the conclusion of his investigation, the Oil Ministry published a defensive statement published on its website.
“All the stages of the project are applied in a record time and cost in comparison to the international similar projects,” said the statement. “The project will change the oil exportation map for its importance and its expected achievements.”
The oil ministry also seems to trivialise the money at stake “The amount that was spent on the project will be recovered in less than one month depending on the achieved incomes,” the statement says.
The statement also said the ministry “has the legal and judicial rights against any abuse to its employees with no evidence.”
Iraq’s Oil Ministry has been taking steps to introduce transparency into its oil sector, including the publication of wellhead production and oil shipments, and is a candidate for recognition by the Extractive Industries Transparency Initiative. So far it is hard to reconcile the Oil Ministry’s handling of the Leighton Offshore case with its laudable goals.