The chronic bottlenecks plaguing Iraq's oil and gas sector could soon be eased by a dedicated industry logistics hub near Basra, the country's maritime gateway.
The rapid expansion of oil and gas production has created huge demand for material and services among the international oil companies contracted to develop the supermajor fields in the country's south.
To cater for this demand, the Basra International Oil and Gas Hub (BIOGH) and the Iraqi Free Zone Authority have agreed to set up a free zone for oil and gas service companies at the Khor Al Zubair port.
"The deal could have major benefits for Iraq. It will considerably reduce costs and time," said John Moore, a director at BIOGH.
BIOGH is a private company, while the free-zone authority is part of the finance ministry.
The joint venture will now begin work on the infrastructure on what it claims will become the world's second largest free zone for oil and gas companies.
The zone will be completed in four phases. Once finished, it will stretch over 1,110 hectares.
If all goes to plan, the first companies could set up shop in the zone in a year, said Mr Moore, who estimates that it could take up to 10 years for the four phases to be completed.
Similar to the free zones in the UAE - such as the mammoth Jebel Ali zone in Dubai and the emerging Khalifa Industrial Zone Abu Dhabi (Kizad) - resident companies will be exempt from corporate tax.
It will also be easier for them to obtain visas for their staff, with immigration procedures long having been a thorn in the side of companies operating in Iraq.
Infrastructure bottlenecks in the country have prevented service companies from deploying at full capacity, as storage and transport options are limited.
The resulting shortages are weighing on the government's ambitious plans to raise its production and the international prestige that comes with increasing output, as well as pushing up costs.
Additional costs are not borne by international oil companies, but are slimming government oil receipts.
Companies are remunerated according to technical service contracts that are not regarded as lucrative in the industry, but allow companies to pass costs on to the government.
Mr Moore said that the state-owned South Oil Company was one of the biggest supporters of the zone.
It is the first time that the Iraqi free zone law, established in 1998, is applied to the oil and gas sector, said Salem Chalabi, the head of the Iraq desk at DLA Piper, the lawyers that advised on the deal.
The largest free zone for the hydrocarbon sector is the Onne zone in Nigeria.
[ fneuhof@the national.ae ]
