The privatisation of refineries in Arab countries seems to be very much in the news lately. There are already examples in Egypt, Libya and Jordan, but the bigger ventures are those probably coming up in the next few years.

The conversion project of Cairo refinery, the search for investors by Azzawiya refinery in Libya and Deir Azzor refinery in Syria, are a few examples.

But the more substantial efforts are those in the various joint ventures in Saudi Arabia related to the existing Rabigh refinery or the expansion of Yanbo refinery and the grassroots' refinery already under construction in Jubail.

Saudi Arabia, at a later stage, is scheduled to open its joint ventures to the public while initial ideas suggest the Jeezan refinery might be open to the public from the beginning.

It is a well known and established fact that refineries, as important as they are, may not exactly be good money makers.

Margins are generally less than what is desired, sometimes negative and often subject to volatility, which makes it difficult for refining projects to attract private capital. Therefore it is important for oil producing and exporting countries to integrate refinery projects with their plans for the upstream sector of the industry or to give sufficient incentives to lure private investment.

Capacity

Although refinery capacity in Iraq is close to 800 thousand barrels a day (kbd), refinery utilisation in the last few years has been around 50-60 per cent which necessitated the import of light petroleum products to satisfy local demand.

However, many new refining projects are on the table in Nsiriya (300 kbd), Karbala (140 kbd), Meesan (150 kbd) and Kirkuk (150 kbd).

All these plants are under feasibility study and front-end engineering design by well known engineering companies, but the Ministry of Oil suddenly decided to open all of them to private investment.

In 2007 Iraq issued a special law for private investment in refineries and products marketed locally or for export. The law did not attract any investors because the incentives in general, especially on crude supply, were limited.

The Ministry of Oil and the National Investment Commission in Iraq are holding a conference on June 27 in Baghdad to provide information about the technical parameters and studies of proposed refineries and to outline options for private funds to build and operate them.

While Iraq does not have a specific model in mind, it hopes that this will come as a result of the conference where Iraq will listen carefully to what the invited companies are going to say and whether they will have a preferred model in mind.

It may not be easy to get interest in all these refineries and it would have been better to select the most likely two at present for offers. But this may be a result of this effort and it remains to be seen.

The proposed plants are likely to cost within the fence $15 billion (Dh55 billion) to $20 billion given their complexity and the high cost of engineering projects. The additional costs of crude supply, power and products pipelines has to be added, and it remains to be seen if in the current situation in Iraq whether private investors will be willing to put up such substantial commitment in refining.

Missed shot

Iraq missed the opportunity to include some of these refineries with the bid rounds for the upstream fields where their inclusion by bidders could have given them preference.

In any case, this effort to be useful for Iraq should be coupled with modernising and improving the existing refineries in Baiji, Basra and Daura.

There is plenty of room for expansion and improvement in these refineries to increase their light products yield and improve their profitability.

In my view they could be equally good, if not better, for investors than developing new and costly refineries.

Iraq should make use of the experiences of neighbouring countries and perhaps the road will become much clearer after the upcoming conference. At some point in time, Iraqi private capital will also have its chance.

The writer is former head of Energy Studies Department in Opec Secretariat in Vienna.