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Transcript by
Federal News Service
Washington, D.C.

ROSS WILSON:  Good morning and welcome to day three of the Atlantic Council’s Black Sea Energy and Economic Forum.  On days one and two, we looked at energy issues, regional political issues, economics, business and commerce.  This part of day three is focused on integration.  This is a region that, I think, continues to work its way through integration with the global economy.

Turkey, of course, has made great strides in that respect.  Parts of this region have integrated, or are integrating to varying degrees, with the European Union.  Bulgaria, Romania, Greece, of course, members of the European Union.  Turkey enjoys a customs union with the EU and, as everyone knows quite well, is seeking to become a member of the European Union.

Within the region itself, integration is not so well-developed.  Aside from energy, trade across the Black Sea is not particularly impressive, and the farther east one goes in the region, the more one is struck by the lack of trade among countries, the lack of economic integration.  To talk through these matters, we have, today, a keynote address by Turkish minister for EU affairs Egemen Bagis and a panel that will follow immediately thereafter.

Our keynote speaker, as I mentioned, minister for EU affairs and chief negotiator Egemen Bagis.  In welcoming Deputy Prime Minister Babacan a couple of nights ago, I described him as an important friend who helped, in many ways, to work through important issues in U.S.-Turkish relations, both as minister for economy and especially as foreign minister.

Egemen Bagis had even more to do with the progress that we made in restoring U.S.-Turkish relations in the period after the American invasion of Iraq.  Minister Bagis has been elected twice to the Turkish parliament, in 2002 and 2007.  During the ruling Justice and Development Party’s first term, he served as the party’s vice chair for foreign affairs and was a key aide, really, throughout the life of the present government, on foreign policy matters and other issues to Prime Minister Erdogan.

And in his current capacities, I think he has done a lot to rejuvenate Turkey’s bid to become a member of the European Union.  And although that effort has its ups and downs, people I talk with credit Minister Bagis for giving Turkey’s internal effort focus, drive and coherence, and for being a forceful and effective advocate of Turkey’s EU accession bid in European capitals.  Minister Bagis will make some remarks and has agreed to take a couple of questions.  Please join me in welcoming Minister Bagis.  (Applause.)

EGEMEN BAGIS:  Good morning.  Thank you for that introduction, Ross.  It’s always great to see you back in Turkey.  Welcome back to your home – second home.  Let me also welcome each and every one of our guests, not only to Turkey, not only to Istanbul, but probably most importantly to my election district.  (Laughter.)  As Tip O’Neill said, all politics is local, so please do all your shopping around – (laughter) – and tell the merchants you’re my friends.  (Laughter.)

It’s an honor for me to speak here at this Black Sea Energy and Economic Forum.  And in this interdependent world, we’re going through a very special era.  The global economic crisis is changing the world economic climate and our prejudices and the way we look at things.  And I think this is an important era.  We are faced with the challenge of reshaping our institutions, as well as perceptions in our minds regarding economic structures and balances.

Three decades ago, globalization was the key word to increased welfare around the globe, but today, it needs redefining and enriching.  Globalization should now be accompanied by other factors, such as balanced, fair and sustainable growth governed by international institutions and rules in all regions of the world.

And we have to talk about the lessons we have learned in this economic crisis.  Today, the good news is the recovery is on its way, although a little slow.  But we’re going through a phase.  The tripolar economic structure has changed completely.  Now the economic wealth is moving from West to East.  The wealth is changing, as well.

The economic gravity of the world is shifting from industrial states to large, emerging markets.  So in addition to the United States, Europe, Japan, we now have emerging markets, such as China, Indonesia, Brazil, South Africa and, of course, Turkey as important players.  Many economists in Europe and in the States think that the necessary stimulus for economic recovery will stem from those new actors.

According to OECD projections, by 2030, 60 percent of the world GDP will be represented by emerging and developing economies.  And one lesson that we have learned is, no country can deal with these challenges on its own, and no group of countries can deal with these challenges, either.  We need international cooperation.  We need to be integrated. 

On my way to here, I thought about integration, and I realized Istanbul is well-integrated both with the East and the West.  We have a bit of the Brussels traffic – I was in Brussels yesterday and there was a huge demonstration, which killed the traffic – but we are also integrated with the traffic of Cairo.  And it proved to me once again that Turkey is the most eastern part of the West and the most western part of the East in all matters – in geography, in economy, in our social attitudes.  And that’s what makes Turkey.

But throughout this crisis, I think the most important lesson we have learned is we have to keep our markets open and we have to let investments flow.  And that’s what, I think, is the most important solution.  No matter how much frustration or pressure countries feel, we cannot and we should avoid protectionist measures to crop up in the post-crisis world.  I think free trade is the solution. 

And integration, cooperation are the key words to ensure that we have this free trade.  Or else, trade volumes will shrink and we will have more unemployment and that’s going to create social unrest, and that is going to be something very hard to deal with.  So the key message is we have to work together.  And our motto should be “regionally integrated, globally connected, yet regulated.” 

In this context, I think Turkey has a very unique position.  As I said, we are situated in such a geography which places us in a point where I would say is the heartbeat of the world for the next several decades, at least.  And our, of course, geography is not only a blessing; it can also be a limitation, depending on issues. 

Sometimes we joke we would be ready to switch neighbors with some countries in Europe.  You don’t get to choose some of your neighbors; however, you have to deal with them and you have to understand, have to ensure peace.  And Turkey, therefore, has always supported and has been among the masterminds of economic cooperation in the Black Sea region.

And we have learned our lessons about crisis.  In 2001, my country went through evenings were, overnight, interest rates jumped to 8000 percent.  And we saw that as an opportunity – an opportunity to change our structures, to change our prejudices, to change our mindsets.  And today, thanks to those measures that we took at a time when the world was going through the worst economic crisis of the last century, the Turkish economy did fairly good.

Yesterday in Brussels, as I was talking to some of my colleagues in the commission and some representatives of the member states, when I told them we had an average growth of 11 percent in the first half of the year, some of them were asking, can we borrow a point?  Honestly, I think we have to make sure that world economy is also regulated.  Measures have to be taken because we all have responsibilities towards each other. 

Just to share a few numbers with you, asset growth in banking sector, in the first half of 2010, increased 18 percent, as compared to the same time period of last year.  Although capital requirement ratio is as high as 19 percent, bank profits continue to increase, representing a healthy financial sector.  Neither in 2008, nor ’09 or ’10, any Turkish financial institution had a loss.  All of our banks, public and private, profited.  And I think that’s an important issue.

In the second quarter of 2010, unemployment rate declined by 2.6 percent points and was realized at 11 percent.  But with its physical and human capital, Turkey will continue to be a source of solutions for economies around Turkey, and especially for Europe.  And I could feel in Brussels that I had more self-confidence with these economic numbers, talking to the commission. 

At a time when 70 percent of the energy resources that Europe needs are around Turkey, at a time when Turkey is the fastest-growing economy in Europe, at a time when we have a median age of 28 – one of the youngest nations in Europe – at a time when, within three hours of flying from Istanbul, European companies can reach 1.5 billion consumers, which can utilize their goods and services, I think Turkey is a shining solution for Europe’s challenges.

And we’re waiting for some of our allies to realize that.  In terms of energy issues, you heard directly from our prime minister our frustration, not being able to open the energy chapter in our negotiations with the European Union.  And he’s right:  It’s not fair.  But I can’t understand the logic of 490 million Europeans letting a peninsula state – a beautiful peninsula state – in the Mediterranean hijack their energy interests. 

This beautiful state in the Mediterranean, which has no energy problem of its own, enjoying beautiful sun, has blocked the opening of the energy chapter with a country that is at the most strategic geography for energy supply of Europe.  It just doesn’t make sense, but we’re waiting for them to smell the coffee.

But Turkey’s soft, but very crucial power, I would say, is its heritage and its vision.  Despite all the difficulties stemming from Europe, despite all the difficulties from the lack of understanding on the part of some of our allies in Europe, we are determined.  It took us 45 years, believe it or not, just to get a date to start accession negotiations.  The first application of Turkey was back in 1959, 51 years ago. 

There were so many attempts to push Turkey to give up, but we never did.  And I can assure you, we never will.  We will continue to fight for what we deserve – full membership to EU.  Because we believe it’s based on a win-win formula.  I see EU as Turkey’s dietician – it helps us put ourselves in shape, but it also helps Europe solve some of her problems. 

There are brochures outside, which give you numbers on how Turkey is a key country to Europe’s solutions, so I’m not going to repeat each and every one of them.  But I’m glad we are surrounded with friends, today, in this room, who believe in Turkey’s Europeanization aspirations and who support Turkey’s Europeanization aspirations.  And I would be remiss if I don’t mention Ambassador Wilson’s contributions. 

When he represented his country, he also ensured that Turkey progressed in her path towards full membership to EU.  And that has always been a strategic issue for Turkish-American relations, as well.  When President Clinton spoke in the Turkish parliament back in 1999, he spoke about the importance of Turkey’s integration with Europe.  He said the next century will be shaped by Turkey’s choices. 

Ten years after President Clinton, when President Obama came to Turkey and spoke on the same platform – the Turkish Grand National Assembly – he echoed the same sentiments, and I think that was important.  That shows sustainable, solid commitment to Turkey’s Westernization, to Turkey’s democratization, to increasing Turkey’s human rights standards and ensuring that Turkey has a strong economy.

To summarize, I think we have left behind the most severe part of the crisis, but now we have to concentrate on opportunities, through supporting each other, through solidarity, through integration and cooperation.  And we have to bear in mind that cooperation is the most important element.  And as a responsible member of the global economy, my country and my nation is ready to assume her share. 

Thank you for coming to Istanbul.  It’s been great to have you back to us.  Thank you for organizing this event, and my thanks go to Fred Kempe for supporting Ambassador Wilson’s efforts to put Istanbul on the map once again through this Atlantic Council event.  Thank you very much.  (Applause.)

FREDERICK KEMPE:  Minister Bagis, first of all, on behalf of all of us, thank you not only for speaking so eloquently this morning, characteristically, but also supporting us in establishing this forum.  You and your office have been hugely helpful.  Thank you so much.  Is Turkey losing interest in European Union membership?  By that I don’t mean you, but I mean Turks.  And is that going to have an impact on the ultimate outcome?

MR. BAGIS:  Well, as many other nations, I come from a very proud one, and our achievements, especially in the last 10 years, have been remarkable, as you all know.  At a time when Turkey is achieving so much, the treatment Turkey gets from the European Union as a whole would not be characterized as fair. 

So just to give you a number to respond to your question, when we have polls and ask people, if there was a referendum for Turkey’s full membership to the EU today, how would you vote, 60 percent of my nation claimed that they would vote in favor of Turkey’s membership to European Union.  But when we rephrased the question and asked people, do you think Turkey will be admitted as a member of the EU, less than 40 percent say yes.

And the gap is due to lack of confidence, trust toward Europe, or at least some European politicians, who exploit Turkey’s membership aspirations for their domestic political agenda.  Every time an extreme-right politician in Europe uses a statement, makes a speech insulting Turkey, insulting the Turkish people, my nation naturally feels, why do we have to put up with this? 

We were not a member of the EU when we achieved 11 percent economic growth; we were not a member of EU when we are achieving so much, both democratically and economically.  But we should not fall into this trap, and that’s my job – to keep Turkey committed on her EU path, and to keep Europe committed on its own interests.  As I said, the relationship is based on a win-win platform.  Neither can Europe afford to lose Turkey, nor can Turkey afford to lose Europe.  (Applause.)  There was also a question in the back.

Q:  Andy Prozes, LexisNexis.  Minister, you mentioned and emphasized the economic transformation and power of Turkey, and last night the minister of finance said that 25 percent of the population currently is engaged, in Turkey, in agriculture, and is going to move into the cities.  And he also mentioned that these people were going to help move Turkey up the value chain. 

And I’m wondering if you could comment on how it is you’re going to manage – this is obviously not a short transformation – but how this transformation is going to occur, how you’re going to manage the people and how you’re going to move Turkey up the value chain.

MR. BAGIS:  We’re hoping you’re going to help us with that.  The foreign direct investment coming to Turkey, on average, until 2004, was approximately $1 billion per year.  After Turkey got a date to start accession negotiations in December of 2004, the amount has increased by twentyfold.  Now we get, on average, $20 billion worth of foreign direct investment coming into Turkey.  And those investments are creating new jobs. 

And that’s how that shift of the population from the agricultural regions, from the rural regions into urban regions, is being dealt with.  I mean, despite this huge migration within the country from rural to urban parts, our unemployment rate is less than 11 percent, and that’s because there’s always new investment coming in, new job opportunities. 

And of course, some of the investments are domestic investments, but some are – and recently, there’s been a huge flow of foreign direct investment and they’re all welcome.  But I would tell our friends here that this is the right time to invest in Turkey.  As they say in the States, this is the time to buy low if you want to sell high later.  This is a great opportunity.  I think Turkey has a huge potential for investments, and there are still great opportunities to be utilized.

MR. WILSON:  And one last question, Ambassador Burt in the back.

Q:  I’m Richard Burt, a member of the executive committee of the Atlantic Council.  Thank you for your very clear and confident remarks this morning.  You’ve talked about and Fred Kempe asked about the question of Turkey’s accession, over time, into the EU.  Obviously, the two key decision-making capitals for that decision are Paris and Berlin.  What is your long-term strategy for changing French and German positions towards the idea of Turkey’s EU accession?

MR. BAGIS:  Well, when Chancellor Merkel was in Turkey a couple of months ago, I was asked to accompany her throughout her visit by my prime minister.  So I had an interesting time traveling with her in the same car and chatting.  And we agree that Turkey – you know, she had this thesis of privileged partnership.  And we agreed that there is a privileged partnership between Turkey and Germany.

We have almost 3 million Turks living in Germany.  Half of them are German citizens who vote, pay their taxes.  We get more tourists from Germany than many other nations around the region.  The economic cooperation and trade between Turkey and Germany is very impressive.  And she also understood that Turkey is changing.  I think the more some of the politicians of Europe visit Turkey, the chances of Turkey having a realistic membership aspiration increases. 

Now we are anxiously waiting for President Sarkozy to come to Turkey, end of November.  In both cases, it is the private sector of those countries that are pushing the politicians to do the right thing.  The French business group MEDEF, for example, has been a key, staunch supporter of Turkey’s integration with Europe because they don’t want to miss out on the opportunities.

Turkey, today, is the sixth-largest economy of Europe, and there are many opportunities.  And somehow, these opportunities flow to Italian companies, British companies, Swedish companies, American companies.  But French companies are having problems finding the right partners in Turkey.  Even Turkish companies are hesitating from working with them.  And they have seen how change is possible. 

In this very country, Ambassador Scowcroft would remember those days when we had problems with Italy because they were harboring terrorists, and people in Turkey were burning their Italian-made jackets in the streets to protest.  People were pouring Italian wines.  But things have changed.  Italy is no longer supporting PKK terrorism and we’re building attack helicopters in Turkey, along with our Italian allies, using American technology.

French companies also feel that they can change, and they’re working very hard.  If you realize, in the last two years, neither any French government representative, nor any German government representative have used or repeated that insulting, horrible phrase of “privileged partnership.” 

Only in our bilateral relations, we’ll talk about it.  But in Turkey’s relations with the European Union, we are discussing the legal structure, the acquis of the European Union, where there are candidate countries, negotiating countries and member countries.  We were a candidate country; we are now a negotiating country; and we will soon be a member country. 

MR. WILSON:  Mr. Minister, thank you very much.

MR. BAGIS:  I thank you.  Welcome back to Istanbul again.  (Applause.)  I have to fly back to Ankara for the opening ceremony of our parliament.  We will pass more reform laws, which will bring Turkey closer to Europe.  Thank you for coming and thank you for your support.  (Applause.)

MUSTAFA AYDIN:  Okay.  Ladies and gentlemen, this is the panel you all have been waiting, but it’s going to be short – much better, of course.  We have three speakers.  Unfortunately, not enough time, but I’m sure you will manage in five minutes each.  Yeah, what they were going to say in half an hour, you are going to summarize in five minutes.  I have confidence in the speakers.  Well, the first speaker I have is Mr. Selahattin Hakman, president, Sabanci Holding Energy Group.  Mr. Hakman?

SELAHATTIN HAKMAN:  Thank you very much for the introduction.  Now, the title of our panel is “Integration in Eurasia.”  And Eurasia is a term we mainly understand geographically, and Eurasia, I think, throughout history has never been integrated.  There have been many empires that came and fell, and there was the period of colonialism, which separated different countries, and so on and so forth.

But in today’s globalized world, I think Eurasia deserves special attention beyond the general globalization development worldwide, especially because of its energy resources.  And I think this fact will drive Eurasia to integrate its different countries, nations and so on and so forth, who partly do already have some economic ties, some cultural ties, some historical ties. 

But in its totality, Eurasia has also to develop to a more integrated region in the global arena because the Eurasian countries, most of them rich in natural resources, energy resources and so on and so forth, are also in the middle of developing their economies, which are not, at the moment – which cannot be counted, at the moment, in the developed economies. 

And for this development, and also satisfying the needs of the west of Eurasia, but also in an increasing manner, to the east of Eurasia – to satisfy the needs of the West and of the East, namely Europe and China, especially their needs on energy resources, Eurasia will play a major role. 

And this development also needs integration in Eurasia itself because the means to transport those energies will be common ones – pipelines, electricity grids.  And electricity grids, I think, will play also a major, increasing role in the future, considering the renewable energy resources Eurasia and its southern neighboring regions have to transport those into, especially, to Europe, which will be part of combating the climate change issues. 

And in order to have this, there are huge investments necessary, but on the other hand, also on the integration of legal and regulatory structures in those sectors.  And this will bring the Eurasian countries, the Eurasian nations closer to one another, and develop more interaction among them, and to their eastern and western neighbors. 

I think, as Minister Bagis just mentioned, Turkey can and will play a major role within this integration because in many aspects, be it – (audio break) – Minister Bagis has spoken of free markets.  In terms of free markets, in terms of democratic structures and so on and so forth, Turkey is a country which has adopted the globally accepted norms in those fields, but still has the ties and the understanding for the rest of the region. 

And therefore, I think Turkey will – also, with its own considerable-sized markets – will play a major role in the integration of Eurasia in itself and with its neighboring regions.  So I tried to make myself short.  (Chuckles.)

MR. AYDIN:  Great.  Thank you very much.  Thank you.  It’s a nice start, I think, describing where Turkey is in Eurasia – in the middle.  Good, we go a little bit west in Eurasia, but to my right, I have from Macedonia, minister of economy, Dr. Fatmir Besimi.  You have five minutes, sir.

FATMIR BESIMI:  Yeah, thank you.  I’ll try to make my discussion five minutes.  There is a saying:  When a son, student, was writing a letter to his father and he said – he started his letter off, 10 pages, by saying, sorry, my father, I didn’t have enough time to make it shorter.  (Chuckles.)  So actually, I will try to make it shorter, putting some just key points – what I think on this European integration, growth and opportunities, as it is in this session discussed. 

And definitely in your talking about the region – where our country, actually, Macedonia, is part of southeastern Europe – and mainly, this is ex-Yugoslavia without Slovenia, plus – (inaudible) – and a market of 23 million inhabitants, consumers, as you wish to say.  And we actually all are on our strategic view of looking at the European market, shifting from central, east-central part of Europe towards the western part. 

And actually, there are some challenges ahead, actually, on this topic.  In addition to opportunities, I also had some challenges that are in this track.  Then I just will, at the end, mention something about what it means on Turkish position in the region vis-à-vis southeastern Europe and Europe. 

And actually, if you consider our strategic orientation, shifting the market towards the open market economy and European market, there are three issues that we have to be focused on.  We cannot imagine joining the European market without regional integration.  This is the first one that we need.  Second, we need to develop our infrastructure, transportation and energy. 

And third, of course, without improving the investment climate, we cannot increase the competitiveness of our economies in order to be able to face the global economy and, in fact, also the European economy, for us.  So in these terms, the challenges ahead are that we have – as a region, I mean, we are only 4 to 5 percent of the European market, of population.  But our standards of living is around, say, on average, seven times less – for example, $7,000 per capita in the region. 

And we aim to reach the average – not the highest, but the average of the European region, which is about $40,000 per capita.  And also, in terms of trade, we have made some trade cooperation, EFTA, where we have increased our trade – doubled, compared to the previous time, and also in terms of harmonizing our legislation and investment parts. 

But also, we have done a lot of success and progress on energy, especially energy community, where southeastern Europe is there, and also Turkey as an observer.  And just last week, I signed, in Skopje, membership of Ukraine, which is also, for energy, from the European point of view, a very important member becoming part of the energy community. 

Now we are in negotiation with Turkey in joining the energy community as a part on the concept of European energy market.  And of course, the transportation and other infrastructures are there.  And finally, we are also doing a lot of work, of course, to improve investments.  We have a lot of investments from Turkey, especially last years. 

But on average, all investments in the region due to the crisis – from the annual $23 billion investments per year in the region, it came to $15 billion in 2009, and probably in 2010, will be lower than it was expected.  Actually, it was realized in 2008. 

So in this context, let me just highlight my discussion on the southeastern Europe, European and Turkey.  We see Turkey as a very relevant partner in how this process of transition toward Europe, and especially not only on the trade and investment point of view, but also on energy, as a region or as a bridge where we can diversify our energy sources, not only for the region, but also for Europe. 

So just in front of us are challenges, and that’s to leave behind us some prejudices, something that affects our politics without economic ground, focusing or redefining or reforming the politics on the basis of the economic grounds, which, at the end of the day, will improve the welfare of nations.  Thank you.

MR. AYDIN:  Thank you very much, especially also keeping in time.  So we are progressing successfully.  Our last speaker is, of course, between Macedonia and Turkey, from Greece, Mr. Dimitrios Plates, who is executive director of international business affairs as Mytilineos Holdings.  Sir?

DIMITRIOS PLATES:  Thank you.  Can I be heard?

MR. AYDIN:  I think it’s working. 

(Off-side conversation.)

MR. PLATES:  Thank you.  So listening to the minister speaking about integration and growth – actually, about today’s topic – I started realizing how the world evolved since day one – i.e., end of the Second World War.  If one takes the United Nations as the epitome of how the world should develop, just after the war, the epitome is encapsulated in two words:  international peace and security.  This is what the United Nations was and still is all about. 

Then in the ’70s – probably in the ’80s – with the good guidance of the United States, things started to change into more liberal economies, which, of course, led in the end of the ’80s to the collapse of the Soviet Union, to the collapse of the other system that was antagonistic – not competitive – to the Western system. 

Then, 25 years down the road, we are now talking about integration and growth – i.e., we have left, already, the concern of international peace and security because we do have it, and what we don’t have – integration, growth – is what we’re looking for, what we’re seeking.  In big chunks of the world, this is a reality, as well.  It is a reality in the Western world and it is about to become a reality in the Asian, or Eurasian – let’s put it this way:  area. 

Part of it feels the pinch, but the other part is already in the right track.  The first part is the Asian economies close to the European neighborhood and the other part, of course, is the European Union.  As we speak, growth and integration in the Eurasian area, we feel that can be reached through more contacts, more trade.  Mr. Kempe said so.  The minister said so.  And we all believe so.

More trade, more integration, which will bring growth.  But one has to have a blueprint, and this is precisely what I’d like to raise as an issue today.  What is this blueprint, and why?  I feel, coming from a country that is already, for 30 years now, a member of the European Union, we realize that without the European Commission’s directives that tend to streamline the legislative system of the country and to streamline it to something that all adhere to, it would have been impossible for Greece to reach a certain level better than it used to be before the ’80s.

Today is much better, as far as the legislative framework is concerned.  Crisis is crisis, but this is something temporary.  I’m talking about structural changes.  And my country underwent these changes for 30 years, not to its detriment, but to its benefit.  Should this happen to other areas that are about to either become full members of the European Union or enjoy the fruit of integration, then we’re talking about liberalized markets. 

And liberalized markets are the ones that bring in more investments, better infrastructure.  And finally, the ultimate beneficiary of the liberalization of the markets is the consumer himself because better competition, stiffer competition, if you like, brings in better prices.  Better prices bring in employment. 

Liberal markets mean that suppliers and producers, suppliers and consumers are in a happy marriage, altogether, to the benefit of all.  And this is precisely why we’re talking today about more integration, which will be bringing growth.  What’s going to happen maybe 15 to 20 years from now?  Probably more of the same, or hopefully more of the same. 

However, one thing needs to be done, or needs to be said:  Probably in the Eurasian economies as we know them, yes, energy will be a crucial factor of its development, but not only energy.  I would think that the service sector – i.e., tourism, banking, services – would also be enjoying its own share in the development of these areas. 

But let’s not forget one thing that has to be said and has to be remembered by all governments is that there has to be a healthy ratio between the three sectors of economy:  the agricultural, the industrial and services sectors.  For each economy, for each country, if this healthy ratio is unbalanced, then that economy is open to all bad things that might happen.  The healthy ratio is a bulletproof economy – makes an economy bulletproof against all odds.  Thank you.

MR.    :  Splendid.  This is the benefit of working with economists and businessmen; they know the value of time.  We still have some time for discussion, in fact, so if you have any questions you’re inclined to ask, we will be able to respond – one, two – going, going, gone.  So it’s better that we have a break now.  Thank you very much.  (Applause.)

(Audio break.)

MR. WILSON:  Many thanks to our panelists for a good discussion on integration issues in this region.  We are somewhat not so grateful to Istanbul traffic that, unfortunately, had delayed Minister Bagis, so we want to try to move on, now, quickly to the next sessions.  There are three breakout sessions on the schedule. 

Just to review, one on hydrocarbon development and risk management on the, sort of, post-Gulf-of-Mexico climate is in room M-32; a panel on innovation policy and growth in Eurasia in M-31; and a panel on Iraq, Turkey and Eurasia, which was to be in this room.  It will now be in M-30.  Those panels will last a little less than an hour and then we’ll reconvene here on schedule at 11:30 for a panel that we are reconfiguring to take advantage of the people who are here. 

Contrary to what’s in the schedule, it will focus on northern Iraq and on Turkish-Northern Iraq relations and trade.  The participants will include Taha Ozhan of SETA, Dr. Hawrami from the Kurdistan Regional Government of Iraq, Joost Hiltermann and me.  So we will look forward to doing that, and again, please join me in thanking our panelists.  (Applause.)

(Audio break.)

TAHA OZHAN:  Good morning, everybody.  My name’s Taha Ozhan, and the title of the current panel is, “Successful Development and Choosing the Future.”  Unfortunately, we’re still trying to arrange this panel.  Ross Wilson will be joining us, but today, we have His Excellency Dr. Ashti Hawrami.  Welcome.  And he is the minister of natural resources of KRG, Kurdistan Regional Government of Iraq.  And Joost Hiltermann has been talking – (chuckles) – the last three days, and I’m with him – this is the second time since Tuesday.  We are not going to wait on Ross Wilson.  The main –

MR.    :  Oh, he’s here.  He’s here.

MR. OZHAN:  He is here?  (Laughter.)  Okay.  Then I’ll wait.

Welcome, welcome.  I don’t need to introduce Ambassador Wilson.  He’s the former ambassador to Turkey.  I was just talking about you, that you were going to join us.  Today will be mainly covering northern Iraq, since His Excellency Dr. Ashti Hawrami is with us, and Joost Hiltermann.  Let’s start with you and let’s see what will come out and then we’ll continue with Ambassador Wilson and Dr. Hiltermann.

ASHTI HAWRAMI:  Good afternoon, or good morning, everyone.  And I must take this opportunity to thank the organizers for the invitation.  And it’s an honor for me, as a representative of KRG and, indeed, Iraq, to participate in this session.  I have a presentation.  I was under the impression we have some visual aids.  But I consult this one I have so I can see.  The reason I’m moving in this is because I’ve got some – (inaudible) – there is no translation going on, just in case you are wondering why.

Right, so energy and security is an important topic.  Maybe I should start with the opening remark of the minister of energy of the Republic of Turkey, when he says energy is a source of conflict and also a source of peace.  How true that is for Iraq.  It absolutely applies in every respect to Iraq.  What I mean by that is, for Iraq to be a contributor to the energy security of the international community, Iraq has to achieve its own internal security first.  Otherwise, it cannot be, really, a real partner to provide a secure energy supply to the world when it has its own internal conflicts.

And why that phrase is so true, if we look back at the past of Iraq and what oil and gas, and the revenue of oil and gas, has done for Iraq, I can summarize with two, three bullets.  First, it has been a source of – or a curse for all Iraqi people, actually.  What the revenue has brought to Iraq is misery, not development.  It’s been a source of conflict within Iraq itself, north and south. 

The revenue derived from the oil and gas resources in the past has been, also, a source of regional conflicts and wars against our neighbors.  That is the only thing we can remember what Iraq has done with its revenues.  And for a good measure, because this is a power, it has been also used as a political tool in the past against whoever receives our oil – i.e., blackmailing, and if you don’t do this for me, I cut your supply off. 

We are in the transition now.  What we need to do is actually put this past behind us and move on to the following:  One, the oil revenue we derive from our resources must be shared equitably among the Iraqi people.  It is a key requirement in the constitution, and that is the only way Iraqi people can be bound back together as one nation. 

We must adopt market-driven policies, for that, in order to attract investment into the country to boost our production – in order for our revenue-sharing to have a meaningful impact on the livelihood of all people.  Finally, of course, if Iraq achieves all of that, then it can be really a real contributor to the energy supply and security of its neighbors and the world.

 (Inaudible, audio break) – again, when it comes to Iraq – and if really what we mean by energy security is the security of the supply and security or safety of the transit routes to enable uninterrupted flow of oil and gas to the ultimate consumers, and without securing the needs of the people who are supplying that energy and transporting it, then I’m afraid that policy will not work.

It has to be a package deal.  Security begins at home, where the supplier is, the transitor mas well as the consumer.  It is a package; we are partners.  So if Iraq is unstable, I’m sorry, you will not have security of supply.  And we need to make sure that that is looked as a package.  Therefore, in my view, the responsibility of the beneficiaries – i.e., the ultimate consumers – is not just to secure the supply and help sign agreements. 

They must take their full responsibility to ensure that the revenue paid to the suppliers – i.e., people like Iraq, for example – is used fairly and justly for the benefit of their own people, and not to create new dictatorships or maintain unaccountable, oppressive regimes again.  Because you become responsible for your actions because you’re buying oil and turning blind eye what Iraq does with its own people. 

Thank you very much.  We’ve been there.  And it is therefore the responsibility of the partners to secure supply of Iraq’s oil and gas.  It doesn’t stop with the money you pay.  It also goes with accountability – that you have to make sure that Iraq fairly, justly uses that money.  So what are the sources of problems we have still, and we have not transitioned, yet, into the secure environment in Iraq?

Well, we had the war, and that’s been going on for, now, five years behind us.  But the impact of that war is still there.  We have not stabilized Iraq yet.  For the Kurdistan region – since I’ve been introduced as Kurdistan region speaker – Kurdistan, as you know, was not under the control of Baghdad for about 10, 11, 13 years, from ’91 to 2003.  Prior to the war, the opposition groups, when they agreed to actually participate and remove Saddam Hussein, it was agreed between all the parties, all the partners, that federalism would be the basis to rebuild Iraq if Saddam were to be removed.  That was a condition of many of the parties in order to participate so that we have a better Iraq. 

And to affirm that, after the initial liberation of Iraq, interim constitution was put in place based on federalism.  That is now known as TAL, which governed Iraq temporarily until 2005.  Then the permanent constitution came in, in 2005, which involves the principles of power sharing, revenue sharing, wealth sharing and federalism.  That is all in the constitution.  So what is the problem?  It’s not been implemented.  That is the problem.

Five years on, the constitution is still a package over there, but we are still operating with the old laws of the former regime.  Five years on, some people are still dreaming of recentralizing both power and wealth in Baghdad, where you cannot have any particular group in Iraq, as evident by the last six months of negotiation – no particular group can actually run Iraq on their own without power sharing or revenue sharing. 

Of course, despite the fact that we’re witnessing that, even at this very moment, when everybody is trying to put their effort together to participate and reconcile and form the government, we’re witnessing blackmailing, as well as embargo of fuel oil and kerosene to our region by some people in Baghdad.  Now, God help us, how can you form a government if you have people like that participating in it?

But we do need to be optimistic and create a win-win situation, partnership here.  You can have the free access to Iraq’s oil and gas supply, which is in abundance.  But please be mindful of our concerns and our bitter past and experience, and please don’t ask us for unconditional cooperation without protecting our constitutional rights – (inaudible, audio break) – the constitution to be implemented so that we can live in our country in peace and in harmony with each other.  But if security of supply means we give up our rights, that is a dream – will not happen. 

Now let us see, on the positive side, what we have been doing, at least in a small way within the region, over the last three or four years.  We have created an investment environment for oil and gas exploration and some downstream activities, consistent with the constitution of Iraq.  And we have managed to attract some 40, 45 companies into the region.

Between them, they actually invested $10 billion to find and explore more oil for the benefit of all Iraqi people.  These contracts come with significant social-responsibility programs, like building roads, hospitals and power generation, which, that is why Erbil and Sulaymaniyah, now, they have more power, for example.  As a result of our exploration program, we have discovered eight new gas and oil fields, adding precious additional reserves to Iraq’s reserves. 

Iraq is actually now firmly on the map for the gas supply, not because we had it before four years ago.  We had a very limited amount of gas.  It’s because what we have done in the region.  That is why Kurdistan and Iraq, particularly, now is mentioned as a potential supply of energy.  It’s what we have been doing the last four years.  If it hadn’t been for that activity, I’m afraid you would not look at and talk to the Nabucco partners. 

Only a year and a half ago, they started looking at Iraq as a potential supplier because we have now, through this exploration program, proven additional reserves.  In addition, to that, I’m pleased to say that we have solved, by and large, the problems of at least the Kurdistan region, in terms of the shortages of fuel supply by building two significant refineries.  And their potential is to go to 200,000 barrels a day. 

And we have commissioned, now, three power plants with 1750 megawatts of power, which has given us about, on average, 18 hours of power, while the rest of Iraq, unfortunately, is still four to five hours.  And so what’s the difference?  What’s special about us?  We started from ground zero.  If we were able to do that, why we are not doing the rest of Iraq?  We are still burning $10, $12 billion worth of gas without actually finding a home for power generation.  So we have taken the initiative now. 

We’re going to build two new power plants and supply the power to Mosul and Kirkuk – our immediate neighboring provinces – because we have access to the energy.  We have gas.  We’re saying we’ve done it for ourselves; come and benefit from it.  Iraq can do it, but it needs a policy; it needs a directive; it needs to actually move away from dogma and do the right thing for the people of Iraq. 

Of course, there was a lot of criticism when we started with the initial exploration program – why you don’t bring in major companies?  And these small companies cannot do this.  Those of you who are actually in the industry, and besides, I think you know very well that the risk takers are the smaller companies.  And that is why we divided the exploration blocks into much, much smaller types of packages – up to about 50 contracts. 

If I was waiting for a major company to come in, Kurdistan had to be divided into three, probably, contract areas.  And I would be still on the drawing map to negotiate which one will come in.  So I’m afraid I think we have done the right thing.  Yes, there is room for majors, and I’m quite sure they will come in, participate through the smaller companies.  The result of all this activity:  We’re confident that Iraq will benefit from our activity by taking the oil production to additional million barrels a day. 

Within a few years, by 2014, Kurdistan will be producing a million barrels of new oil, neither it had four years ago, nor it expected to have.  But that is a contribution we are making to Iraq’s revenue, and that is for all of Iraq.  It is not for Kurdistan region.  We do not aim to take one dollar further than our share in the revenue sharing required in the Article 112 of the constitution of Iraq. 

As I said, of course, as a result of that, we have also found a lot of gas, or the prospect for gas, and we are classed now as the number four potential provider in the region after Saudi Arabia, Iran and perhaps Algeria.  And Kurdistan is actually expected to have at least 100 to 200 tcf to provide to Nabucco pipeline. 

And of course, we start with our requirement at home first.  There’s already limited pipeline infrastructure to distribute the gas internally, and that very quickly can be expanded to arrive at the border with our neighbor in Turkey, initially for domestic need and then, hopefully, for Nabucco pipeline when that is established.  We are really not looking for other options for the supply route. 

Just to summarize, basically, in terms of these activities, we believe the revenue derived from Kurdistan region will be on the order of $50 to $60 billion by the time we should get to the peak production, and from the gas potential, it will be $8 to $10 billion a year.  And that is a significant amount. 

Now, when it comes to Nabucco, we believe Kurdistan can provide the entire supply of Nabucco requirement.  So our discussion with RWE and OMV has been – let us get on with it.  We can provide the full supply.  Now, if that is not possible, we’re quite happy to guarantee 15 tcf of that supply, and the rest we’ll – of course, we start at home.  But the fact is, midstream, downstream activities, I’m quite sure our big neighbor here needs gas and we will be cooperating with Turkey for the rest of the surplus gas. 

And I think to sum up – time is short, apparently – so as I said, what we need, really, to implement the constitution.  The revenue sharing, in particular, is very important for all of Iraqis to actually benefit directly from the wealth we’re creating.  And what is really needed by politicians in Baghdad is to recognize that the security of the country lies with our unity, and that unity can only come by recognizing our diversity. 

And that means wealth sharing and power sharing.  And I’m hopeful that, during the coming months – or this month, now; we are in October – all of those things will be behind as we have a more stable government to benefit all Iraqi people and become a potential partner to the supply of energy to the international community.  Sorry I took a bit longer time.  Thank you.

MR. OZHAN:  Thank you very much, really.  I appreciate it for that detailed picture of, especially – macro picture of Iraq, but detailed picture of KRG region and what’s happening on energy business.  And thank you also for the wishful concluding sentence.  Let’s continue with you, Mr. Ambassador.  The floor is yours.

MR. WILSON:  Thank you very much.  I’ll try not to be too long, but I wanted to make three points.  First, to just step back a little bit from the immediate topic, one of the cool things, when you’re brought into an organization like the Atlantic Council to help set up and really get going on a new center, like the Eurasia center, is you can kind of define what the Eurasia center actually does, including defining what Eurasia means.

One of the earliest decisions that we made was that we would include a very explicit focus on Iraq.  Iraq is not exactly a Black Sea country; debatable whether it’s a Eurasian country.  But I, at least, think it’s extremely important that Iraq – among the many directions that Iraq looks, it looks to the north and it looks to trade with Turkey, through Turkey into the Black Sea region, to develop political relationships to the north, to develop energy trade to the north, and that this is an important aspect. 

And of course, no part of Iraq benefits more from that focus than the region in the north that’s government by the Kurdistan Regional Government of Iraq.  The effort, I think, needs to include the whole country, but I’m pleased and happy that we have this session here today that can take a particular look at northern Iraq issues. 

Second, the transformation of Turkey’s relations with northern Iraq and of northern Iraq’s relations with Turkey over the course of the last two years, I think, has been remarkable.  Certainly, when I arrived here in 2005, it looked somewhat worse than impossible.  But a great transformation has taken place, I think, following the visit of Iraqi President Talabani to Turkey in March, 2008. 

That set in motion a whole series of things and a change of tactics, change in the ways that the two – that Turkey, on the one hand, and the authorities in northern Iraq, on another, related to one another on a range of issues, including the PKK problem, which is so vexatious and difficult for Turkey – but putting what already was a strong economic relationship with a lot of investment in a very different context.  That, I think, has been helpful to the grand project in Iraq of rebuilding a country and reestablishing a sense if unity and purpose for the people of Iraq, and helping to deal with some of these tensions along the Turkey-Iraq border.

Third point:  I think I’m one that shares all of the enthusiasm that you expressed about potential energy trade between Iraq generally and Turkey, and on to the rest of Europe, and in particular, between northern Iraq and Turkey.  It’s clear that the very obvious disagreements over the right policies and the right strategies that relate to hydrocarbon development is holding up a lot of important work, and is holding up what you’re talking about.

And I think as I look forward, it will be extremely important to get some of those things resolved, get a hydrocarbon law passed through the Council of Representatives in the nearest future to try to – and a hydrocarbon law that reflects an agreed-upon strategy for the development of the resources, an agreed-upon strategy for the export of those resources, of course. 

It involves some working out of arrangements on revenue sharing and so forth, but that’s extremely important if all of this is to go forward.  And I hope and I’m sure we can expect the authorities in the north and the authorities in Baghdad will make that a priority as soon as the new government is formed.

MR. OZHAN:  Thank you.  We have, what, half an hour – a little bit more than half an hour – so if you can just keep it short.  But let’s have the political picture of all of these because I mean, these are not usually what’s in deadlock because of – usually this is what engineering details, rather than what political details.  What is yours?

JOOST HILTERMANN:  Well, thank you.  As Dr. Hawrami indicated, the potential for Iraq to become a source of stability in the region and to supply oil and gas to Europe and also to the region, of course, and its neighbors, is huge.  And I think Dr. Hawrami touched on some of the very difficult issues that – (inaudible, audio interference).  And if a representative of the Iraqi government had been here, you would have heard – (inaudible) – problems are, still, that need to be resolved.

And this is why Iraq, today, remains in crisis.  And we need to find a way out.  There is really no Iraqi – and I include all Iraqis, of course, the Kurds very much included – there is no Iraqi consensus over what Iraq should look like, or what its identity should be, what its vision is, what its strategy should be on a range of issues.  And this is, I think, the biggest challenge that Iraq faces. 

We can look at some of the terms that are used to describe Iraq.  You can find them in the Iraqi constitution, and you can find a broad agreement on the terms.  But once you start scratching them a little bit, it turns out that there is actually total disagreement.  Dr. Hawrami rightly mentioned that, in the 1990s, during the years of opposition to the regime of Saddam Hussein, the opposition parties agreed that the future, post-Saddam Iraq should be federal.

But what they didn’t agree on is what federalism meant.  And so the Kurdish parties had their definition of federalism and the Shiite parties had their own, which differed, and in fact, different Shiite parties had different definitions of what federalism should be like.  And after 2003, these conflicts came out into the open, after the regime had gone.  The notion of power sharing, which is clearly critical to Iraq’s future – the issue, I think, is agreed to by most Iraqis – that there should be a power-sharing government.

I’ve heard across the board from Iraqis that all the lists that emerged from these elections, which, by the way, are the same old lists that were there before the elections, should be part of the new order and should share power in the government.  These are four main lists.  And not only Iraqis agree to that; it seems that the countries in the neighborhood agree to that, be it Turkey or the Arab states or, indeed, Iran.  And of course, the United States has been on record, as well, as calling for an inclusive and broadly based government.

But the devil is in the detail.  You say power sharing, but how do you share the power?  Where does the relative weight lie?  Who gets more than someone else, or how do you divide it equally?  And the current negotiations over forming a government are very much stuck exactly over how much power the prime minister should have vis-à-vis his own cabinet, vis-à-vis the president, vis-à-vis the parliament.  These are key issues that need to be resolved; the same for wealth sharing.

And we think the conflict between the Kurdistan Regional Government and the federal government in Baghdad covers a range of issues that go to the core of these very questions of federalism and power sharing.  And the root, of course, of this conflict is very deep.  They lie in the end of the Ottoman Empire and the new Iraq that emerged from that.  It was never a unified Iraq, and if it was unified, it was done so through the force of arms and through suppression and through dictatorship.  And again, Dr. Hawrami’s absolutely right that this is the last thing Iraq needs in the future; we need to get rid of all of that.

But to overcome a century, really, of repressive rule and one-party rule for good parts of that period, you don’t just get rid of it by removing a regime.  You actually have to totally reconfigure the political order.  And I think the 2005 permanent constitution was a first step, but it didn’t resolve the key issues.  It’s prescribed certain processes, but the reason that the constitution hasn’t been implemented is because, in a way, it is not implementable because some of these key issues were left open in such a way that there could be no consensus over how to move forward.

But I think that is the negative side of the constitution.  But I think the positive side is, the constitution is also very vague in its language, and it’s left open in interpretation.  And while that creates challenges, at the same time, it also creates opportunities.  And I’ll just give you one example:  You know, on the very difficult question of Kirkuk, which is at the core – it’s one of the issues in the conflict between Baghdad and Erbil – the constitution is so vague that, actually, a solution could be found that could accommodate the various sides. 

And so while this is seen as one of the most intractable issues in Iraq, I’m actually optimistic that a solution can be found on Kirkuk.  This is one source of conflict between Baghdad and Erbil.  The others are the question of resources – oil and gas – and this is what Dr. Hawrami’s mandate is, to work on that.  There is also the division of power between the two sides, and the constitution is a guide on that, but there are still many unresolved issues, including, for example, the status and funding of the Kurdistan regional guard force.

So I think, bottom line, is that Iraqis have – and again, the process of forming a government, which is stuck after seven months, show that the Iraqis are not capable, at this stage, to resolve these issues by themselves.  They need external help, and they need constructive help.  There has been a lot of talk of external interference that is very nefarious and destructive, but I think there is a regional consensus on one thing, which is very critical – that is, that none of the neighboring states, nor anyone, wants to break up Iraq.

Everyone is committed to a unified Iraq.  That is an important basis to work from, and so countries in the region, they need to come to some kind of compromise agreement over how, exactly, power is shared and divided in Baghdad between the various lists that have emerged from the elections.  Turkey in particular, since we are in Turkey here, has a very important role to play – has played, in fact, a very energetic role, I would say, in both Baghdad and Erbil. 

And because it has clearly stated that it takes, sort of, equal distance from all Iraqi actors, it has a real potential of playing a very constructive role.  And it should use this to bring especially Baghdad and Erbil together and to bridge the very large gap that continues to exist today on these critical issues of land and resources and power sharing.  So I would just like to end on that note and thank you very much.

MR. OZHAN:  Thank you very much, especially the analysis of the vague feature of the constitution and its direct manifestation or reflection to general Iraqi politics and the current situation and the deadlock.  Now the floor is open for the Q&A session.  Please introduce yourself and direct your question. 

MR. HAWRAMI:  A couple of remarks, or –

MR. OZHAN:  Definitely, if we’re not getting any questions, it looks like.  Please.

MR. HAWRAMI:  Just maybe to help the process along, two or three remarks from my colleague – and he’s an expert on Iraq.  He’s been spending more time than I have, I think – (laughter) – in Iraq.  I think he mentioned a lot about KRG and federal government issues, as if Iraq doesn’t have any other problems.  In reality, if you look at the map seven months after the election, we are not the problem.  We are just waiting for somebody to talk to. 

The whole issue is actually Iraqi that say – because you’re talking about KRG here – or even individual parties, they cannot actually agree on their own program, their own candidate before even they sit down and we can actually participate with anything.  So the fact that we have that going on doesn’t – we should be very careful, here.  Iraq’s problem is not KRG-federal government.  If that was the case, I think it would be much easier to solve.  It is a much wider problem of, actually, power sharing, wealth sharing, control.

While the principles are agreed, as I agree with my colleague here, to say that you talk to them, that everybody in the region will say, we share power; we share wealth.  But when you go into the detail, they say, it will be with me, but I promise to share it.  And that is, you know, give me all the power and I promise to share it.  Give me all the wealth; I promise to distribute it. 

No, we want it by law.  We want it actually done by regulation.  This is where the difference is, actually, you could say then they don’t mean it.  They just want to go to power and stay there; cannot be actually removed.   So that’s very important.  Kirkuk, I’ll just offer, maybe, a little bit of comment that might be helpful.  There is one area – and I’ve been saying this a few other places – that needs to be separated out. 

The issue of Kirkuk, the territorial dispute, if you like, whatever the constitution says to deal with the issue, it should not be complicated further by adding oil issue – oil-rich city into the argument.  Because when it comes to oil, the management of the producing fields, the federal government has an absolute right to be a partner.  And I’m here and I’m telling you, from the region, that is what’s in the constitution and we honor that.  There’s no problem there.

Furthermore, the revenue, regardless of that, will go for all of us.  So wherever Kirkuk ends up has nothing to do with oil, from Kurdistan’s point of view.  The people who do not want to implement it, they use oil as an argument, as we lose the control and they take the oil.  That should not be about that.  Furthermore, a more important thing, maybe, for the people who are familiar with the history of Kirkuk, this is, yes, a giant field.  It is no longer – was a giant field.

It was discovered in 1920s and has been producing since, more or less, the creation of the Iraqis state until now.  It has taken out about 17 billion barrels of the precious reserves already – produced, sold, used for wars.  That is not there anymore.  What is left is about 7, 8 billion barrels of reserves.  And when it comes to Kirkuk City, which is the main area of dispute we’re referring to, barely a quarter of that amount remains under the city.

So why are we actually linking oil to the dispute?  It’s very important to separate the issue out once and for all so that the focus should be on, really, the territory, that people lost their homes – whatever other issues are in the constitution to deal with that.  But when you start adding oil into the equation, you’re effectively pouring oil on the fire.  It’s not helpful to actually mix the two issues.  But even in the constitution, the oil has its own set of articles, how it works, and disputed territories has entirely a separate mechanism to sort it out.  So hopefully, that’s a bit helpful for debate.

MR. OZHAN:  We have one question.

Q:  John Robert Sitka (sp) from Platts.  Question for Dr. Hawrami:  You mentioned your prospects for gas, and you also mentioned that you could extend the existing pipeline in the Kurdish regional area up to Turkey.  How much do you need the cooperation or the permission of the federal authorities for this, and how quickly do you think you could do this?  And could you be a little bit more specific on the kind of gas reserves and gas – (inaudible, audio break) – that you think might support such a line?  Thank you.

MR. HAWRAMI:  Thank you.  We have already built a pipeline from the southern part of the Kurdistan region – from Sulaymaniyah to a place we call Chamchamal and then to Erbil, to bring gas to the power stations.  And that pipeline is currently carrying about 200 to 250 million cubic feet of gas a day.  It goes to those two power generators, and we’re going to extend it to Dohuk, which is just at the border, for a third power plant, which is basically being completed – (inaudible).

So within nine months or so, we will have – a year, maximum – pipeline to the border, more or less.  But that is not the sort of pipeline that will carry all the gas available in the future.  There will be some surplus that can fire, maybe, one or two power plants in Turkey.  While we are waiting for the Nabucco pipeline to be built, we can build the rest of the infrastructure. 

We have, as I said earlier, some 40 contractors, 45 contractors working in the region.  They have invested billions of dollars in the region.  They are willing to add additional money to build the infrastructure.  It will cost only a billion dollars or so for this infrastructure.  We have a plan, actually, to build a twin pipeline – gas pipeline and an oil pipeline to the border.  And they will join the exit route for international markets. 

Now, do I have permission?  I don’t need permission.  Under the constitution of Iraq, under the parliament of Kurdistan, we have the right to do all of those things.  What permission we don’t have and we will never seek to have is to take the revenue.  We don’t want the revenue.  The revenue can go to Baghdad – the net revenue, I’m talking about, net of costs – costs are costs – the revenue can to the federal government to be distributed to use within the initial budgetary mechanism and hopefully, later on, within the revenue-sharing mechanism I cite in my talk. 

So revenue is not our game; we want the progress on the ground, the work to happen.  As a byproduct of what we’ve been doing, if we didn’t do this, we wouldn’t have the power now.  If we didn’t do that, we don’t have refineries.  If we didn’t have those, there would be poverty in Kurdistan and there would be, basically, the destabilization of the only stable area in the region.  So we should be encouraging what we have done, and we are willing partners that whatever goes out of Kurdistan from the Kurdistan region, the revenue can be carved out for Baghdad. 

We are not after the revenue as exclusive for the Kurdistan region – never been our game, will never be our game.  That is for Iraq.  So when it comes to that, then if the net revenue goes to Baghdad, what permission are we talking about?  We are one country.  We remain as one country, I hope.  And we believe the revenue will be uniting us.  I think it is the only thing, actually, Iraqis need to package together to say, look, we are real partners; we are stakeholders in this country.  Look at what comes to you, what comes to me; therefore, what is the complaint?

Why is the revenue of oil important?  Because 90, 95 percent of our wealth derives from that, as we are not like the Republic of Turkey, where we have many, many other walks of life to generate the revenue for the people.  It’s only one instrument.  When you centralize that in the hands of one person, you have – it’s not against the constitutional law; it’s actually an economic dictatorship.  When you have an economic dictatorship in the hands of one person, you end up with a real dictatorship to follow. 

So we must distribute the revenue, and therefore, we’re saying in what we’re doing, through Iraqis, we are working for the good benefit of the future of Iraq to remove destabilization and contribute to uniting Iraq through actions, not through talking – by generating the wealth.  And that is what we need.  And I’m publicly saying the revenue is for all of Iraq and, by practice, can go to the federal government.  We have no problem with that.

Now in terms – talking about the guards, I mentioned some eight new discoveries.  We have two, already, gas fields there – Chamchamal and Khor Mor.  We are partially developed for the power plant.  And between those, we have probably about 20 to 30 tcf – just those two fields. 

And we have a lot of associated gas, and the new discoveries, also, they have seen gas columns in the reservoirs.  And we are still working, drilling, but if you ask me this question in six month’s time, I can tell you precisely how much reserves we have.  But the forecast, geologically, from the people who actually assess the area, we’re comfortable to 200 tcf.  We’re planning on 100. 

Now, Nabucco pipeline needs only about 20, 30 tcf.  So let us plan it; let us go for it; and let’s do it.  The revenue can be carved out; RWE can pay to Baghdad.  We have no problem with it.  Whoever takes the gas; after the cost of the contract is paid, the revenue can go to Baghdad.

MR. OZHAN:  Okay, thank you.  Any other questions?  Joost, would you like to comment or answer?  I’m not getting any questions.  That’s the problem.  (Chuckles.)

MR. HILTERMANN:  Well, I think that there clearly is – I didn’t, by the way, combine the question of Kirkuk and oil.  I said that –

MR. HAWRAMI:  No, no, you didn’t.  Other people do.

MR. HILTERMANN:  All right, okay.  I have, in the past, done that.  I have to be totally honest.  But I didn’t do it in this presentation because I’m very interested in the possibility of, in fact, separating the territorial from the oil question.  And if it can be done through joint management and through revenue sharing, then that’s ideal.  But the problem so far is that this is not moving forward for the reasons we have discussed, in Baghdad. 

And so for all practical purposes, given the oil wealth that is in Kirkuk – and it is still considerable, and there is so much more that could be found in the Kirkuk governorate – that the two remain linked.  And so I think it is an aspiration to de-link them, but it remains a reality.  So that’s one important point.

The other one is just that we can talk about all the potential and maybe the KRG is not asking for the permission from the Baghdad government to export, but the reality is that, at the moment, there is no export through the Kurdistan region through Turkey.  And that is not because Turkey doesn’t want the oil and gas – it clearly does want it and it wants it sooner, rather than later – but because the Baghdad government doesn’t, in fact, allow for the export. 

And even though it did allow it for four months, or has allowed it in principle, it does not recognize the contracts that exist, that the KRG has signed, and it doesn’t want to pay for the cost of the companies and the profit, or if it does, the details haven’t been worked out, haven’t been agreed.  And so this agreement hasn’t been implemented.

And Turkey, on its side, has made very clear that it will not make a separate deal with the Kurdistan region about oil and gas.  And so all exports have to be approved by Baghdad, and if you look at the new agreement that extends the contract on the Kirkuk-Melekli-Ceyhan pipeline, it states very clearly that the state marketing organization in Iraq, SOMO, remains the sole agency responsible for approving exports. 

So Turkey very much agrees with Baghdad that this is the case, and so it would, again, go back to the issue of, we need to resolve – we need desperately to resolve the conflict between the KRG and Baghdad so that there can be consensus as to how Iraq’s natural resources, wherever they may be, can be exploited and exported for the benefit of everyone.

MR. HAWRAMI:  Okay, a small correction here.  Have you seen the agreement?

MR. HILTERMANN:  I think I have.

MR. HAWRAMI:  Or are you talking about the press releases?

MR. HILTERMANN:  No, no, I saw the agreement.

MR. HAWRAMI:  The agreement does not refer to any exclusivity.  The agreement goes, actually, further.  It says, if there is a spare capacity and not utilized by Iraq – (inaudible) – has a right to engage, as long as it does not disadvantage Iraq’s right, with any third party to fill up the pipeline.  So it doesn’t say I give it to KRG or anybody else, but actually, the agreement does the opposite from what you were saying. 

And to the best of my knowledge, the Turkish partner has never been in a blacklist in Kurdistan, or otherwise.  They don’t want to get involved with the internal constitution of Iraq.  And in fact, you can look at their website what Baghdad tried to do.  It actually tried to take an innocent remark and make it bigger than it was.  Effectively, Turkey doesn’t want to be party to the internal disputes and respects the constitution of Iraq. 

That’s what I’m aware of.  They want Iraqis themselves to sort out that issue.  So in fact, far from it, the agreement says the responsibility of Iraq, whatever goes into the pipeline, and when it crosses the border, Turkey is obliged to take it to Ceyhan.  It does not interfere with which color of crude oil it is and where it’s coming from. 

Whether it comes from Kurdistan, comes from any part of Iraq, it goes because that’s what the agreement says.  But for us, as Iraqis, we need to sort this out, and I’m confident that as a part of the formation of this new government, this issue will be behind us.  It requires a lot of courage to say that – (chuckles) – but I think it is at the heart of the discussion and it will be clear agreement on it so that we know where we’re going with the program of the next government. 

There’s no point in forming the government – it’s better to just wait another year or two and keep arguing – to forming the government without actually having an agreement on the program.  The program must be at the heart of it anyway, at these revenue-sharing and the heart of the investment and these sorts of sensitive issues that have been damaged in Iraq for the last four years.  So it will be behind us, but also for your information, Dr. Maliki has agreed to pay the contractors.


MR. HAWRAMI:  The finance minister has agreed to pay the contractors.  The bureaucracy of the ministry of oil is what is stopping it.  Now that will be behind us, as well.  Soon, that will be behind us.  Okay, as you say, there I have it.  Thank you very much.

MR. WILSON:  I’ll just close.

MR. OZHAN:  Yes.

MR. WILSON:  My former counterpart in Baghdad, Ryan Crocker, was fond of saying about Iraq, Iraqi politics, Iraqi issues and challenges that everything in Iraq is hard.  And I think the discussion here has sort of helped illuminate for us what some of the particular issues are around hydrocarbon development and exports that I think are so important for Iraqi-Turkish relations, very important for the greater Black Sea region, clearly important if a big and ambitious project like Nabucco is to get going.

Those of us who care about Iraq share your optimism in principle and deeply hope that it is borne out by events.  Our next and last event, as part of this Black Sea Energy and Economic Forum, is a lunch that will convene at the Mensara (ph) restaurant in about 12, 15 minutes.  So thank you all very much.  Thank you, panelists, for being with us.  (Applause.)

MR. OZHAN:  Thank you very much.


Related Experts: Ross Wilson