KRG Ministry of Natural Resources

The Ministry of Natural Resources would like to correct some miscalculations about the price of benzene in the Kurdistan Region that were made by the head of the Finance, Economy and Investment Committee in the Kurdistan Parliament, Dr Izzat Sabir, in an open letter which was published on the website Xendan.org on September 12, 2014.

In his letter, the MP claims the KRG is making excessive profit by selling benzene for 900 Iraqi dinars (IQD) per liter (he claims it costs the KRG only IQD 400 per liter), while neighboring Kirkuk province sells at IQD 800 per liter.

The basic analyses made by the MP are inaccurate and misleading.

He calculates the cost per barrel of benzene to the KRG to be as follows: $30 paid to the producing company; $17 paid by the KRG to the refinery, and $3 for transport. ie 30 + 17 + 3 = $50. He then divides the $50 by 153 (the number of liters per barrel he assumes is obtained after the refining process), to arrive at $0.33 per liter. At an exchange rate of IQD 1200 to the dollar, that results in a figure of IQD 400 per liter.

First, the 153 liters he refers to are not all benzene; indeed only 20% of this amount becomes benzene, the rest becomes other products of lower value than benzene.

Second, it is a fact that the costs of the producing companies are substantially higher than the $30 per barrel of crude oil assumed in his calculations.

Even if we accept the MP’s figure for crude oil production costs, then one should also add $100 per barrel of oil as the market price that Baghdad demands from the KRG for using this oil and thus deducts from its budget. Hence, the total costs should be $150 per barrel and not $50 per barrel as claimed by the MP. This makes the price per liter to the KRG three times greater than that calculated by the MP: IQD 1200 and not IQD 400 as stated by the MP.

Perhaps another way to look at it is this:

The KRG pays the companies costs of $30 per barrel (taking the MP’s figure).

If the KRG exported the oil, it would get $100 per barrel for it, hence a profit of $70.

If there were no refining capability in Kurdistan, then the KRG would have to import refined products such as benzene from the international market at a price of $152 per barrel (based on the international price of $950 per ton and transportation costs of $200 per ton to Kurdistan).

Therefore, the basic net cost per barrel of benzene to the KRG would be as follows:

152+30-70=$112 (approximately IQD 900 per liter, assuming 159 liters in a barrel).

However, one should add to the above figure the $100 per barrel of oil that Baghdad claims from the KRG and deducts from its budget, which makes a cost of $212 per barrel of products, ie approximately IQD 1700 per liter and not IQD 400 as calculated by the MP.

As for Kirkuk selling benzene for IQD 800 dinar per liter, it is surprising that the MP failed to note that the Kirkuk fuel he referred to contains a low-grade compound known as naphtha, which is not benzene as it has a low octane number of around 80 and a dangerously high sulphur content of 300-500ppm. This is compared to a clean KRG benzene, which has a high octane of 88 to 89 and contains less than 50 ppm of sulphur, which is line with high international standards.

If the KRG compromises on quality and distributes benzene of similar spec to that in Kirkuk referred to by the MP, then the KRG may also be able to charge IQD 800 per liter, or even much lower. But as the MP should know, the public in the Kurdistan Region quite rightly would not accept any such compromise on quality.

The Media Department of the Ministry of Natural Resources