Tackling the operational challenges in Iraq

Telecommunications and internet services are crucial to operating anywhere, especially in Iraq with its mountainous terrain, sparsely separated hubs and under-developed communications networks.

Fortunately, Iraq’s networks are developing at a steady pace. There is a general consensus that cell phone coverage is adequate, particularly in the municipal centres where there are a number of different service providers. Like many developing countries, these signals deteriorate as you move away from the major centres.

“Phones work, Blackberrys work and the internet works, but these services come at a cost. It comes down to how much you are willing to pay for these types of services,” says Day.

 

A few good men
Even the best communications networks can only bring an under-developed workforce so far. Assembling the right team in Iraq, training it to operate in compliance with the oil and gas industry’s stringent international standards is not easy. This is particularly difficult in Iraq where many have been displaced and denied formal training after decades of war.

Iraq’s higher education system was severely damaged in 2003. According to a UNESCO report approximately 61 university and college buildings were damaged by war.

Re-development of the education system has been slow due to the lack of investment into local infrastructure.

For many service companies, the biggest problem is not importing equipment or technology, but developing the local Iraqi people in order to do the job. There is an overriding feeling amongst contractors in Iraq that companies simply cannot double or triple production by getting people from outside.

In addition to the shortage of qualified workers, the language barrier presents even more challenges for many companies.

“This was a big issue, so we had to take on interpreters,” says Peter Robinson, Middle East regional director for Bertling, a ship-owning, chartering and transport logistics company with operations throughout Iraq. “But, even with interpreters, some things get lost in translation,” he says.

For specialised skills positions, engineering and management positions, this is typically easier because nationals with the pre-requisite higher education have usually received English training as well. But hiring for the technical skills positions is more challenging.

“Everyone is looking for talented local staff. At some point, the bigger companies were interviewing people, if they could speak English and had a higher education, they would take them,” says Robinson.

“If you’re recruiting welders and mechanics, the English needs to be encouraged and trained. But if you’re recruiting for the junior engineer level, the level of English can be very good. But there’s a big chasm in between,” warns Day. “And you’ve got to take care of that as an employer.”

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Safety First
Once the team is assembled, ensuring that they have adequate health coverage is a must. A healthy team is a productive team. Like anywhere in the world, there are physical dangers to working in Iraq. Employers need to be conscious of the facilities available for delivering health care to employees.

“If you have a problem in Iraq, it’s the same if you’re Iraqi or an expatriate, you need medical care,” says Day.

The successive wars in Iraq have left many marks on the country, but have also attracted reliable emergency and rapid response medical evacuation services such as RMSI which has been providing health care services such as single doctor clinics, medical evacuations and field hospitals in Iraq since 2006.

The company has also established a field hospital with an intensive care unit in Petronor’s Iraq Energy City. It operates land ambulances capable of handling numerous terrains and an air ambulance service at the Al Basrah airport.

Such services come with a hefty price-tag. “A single bed in simple accommodation costs as much as a 5 star hotel in Dubai per night, which is cost prohibitive to many and drives everyone’s service prices up considerably,” says Travis Vincent, RMSI director of business development.

While health care may be a very serious concern for all companies, there has been a shift in the type of issues which medical services have to deal with in Iraq. Instead of treating medical problems associated with violence and crime, a medical provider in Iraq today treats more normal oil and gas health issues.

Training
Currently 90% of Bertling’s employees in Iraq are nationals including the company’s team of 30 Iraqi truck drivers. Within its Saffron base there are 40-50 locals and only four expats to oversee HSE, site management, engineering and training.

With such a reliance on the local workforce, there is an ever-pressing need to provide in-house language and skills training.

“We had to start from the basics, how to load and strap down cargo and the importance of headboards to address the momentum of cargo during sharp breaking etc,” says Robinson.

While such in-house skills training is hugely beneficial to Iraqis who receive direct training and can look forward to upward mobility, it could very well complicate employment habits in the future.

Speaking at the Business Opportunities in Iraq forum at ADIPEC, Omar Moussa, vice president and general manager of Schlumberger’s Iraq operations, revealed that there are no coordinated efforts within Iraq to train the local work force.

“Every IOC is doing its own thing, every service provider is doing its own thing,” he said. “In 10 years from now, depending on where they were trained, you will have different people with different expertise and different development,” he warned.

Among other things, the country would certainly benefit from a centralised English training system. Currently many companies provide English training, but there is no co-ordination and the security and travel costs for potential teachers are high.

Another concern for some companies is what Robinson describes as a ‘short-term mentality’ which is common throughout Iraq. The country’s recent history has led to scepticism over how long the current boom will last.

Retaining employees might be difficult for some employers after providing the right training because larger companies can offer them better deals.

Be that as it may, the companies in Iraq all agree that they are in it for the long haul and have real plans to develop the local teams, despite the challenges.

“In five years time, hopefully we can increase our nationalisation programme, and the competence level of our employees,” says Neil Shepherd, vice president of Weatherford’s Iraq operations. “We want to see them taking over some of the more key positions in our organisation and give them the opportunity to work outside of Iraq.”

The other good news is that recruiting is becoming a lot easier as more recruiting companies emerge in Iraq. Their entry makes it easier for smaller companies who can have them take care of hiring as well as taxes and payroll, a very difficult issue in itself.

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Cash Only
It is hardly surprising that the financial institutions in Iraq are somewhat underdeveloped and underused. Most financial transactions are done in cash, not cheque and certainly not online.

“In Iraq I have to pay local staff in cash, there are no bank accounts and no banking system I could use,” says Day. “So that was an enormous challenge because you literally carried or made cash in transit drops to your staff in payroll,” he continued.

“At the moment, we are in the process of setting up bank accounts for our people, but the problem is that many of the local Iraqis and even some registered businesses haven’t been exposed to having bank accounts,” says Robinson. “We’ve got around 20% of our people registered right now.”

At sea and On the Road
Naturally, there are decisions to be made when dealing with Iraq’s ports as well. The main ports which are available in Iraq are Umm Qasar and Khor AL Zubair.

“All the other ports are in such poor state they’re not even considered,” according to Robinson. Even Khor Al Zubair has a limited draft, restricting the size of the ships able to go through.

Once landed, transporting through the ports can present problems of its own. “The process can take quite a bit of time, and if there are any issues with the paperwork or the equipment when it arrives in port, it can be stuck there for several months,” says Shepherd.

The customs rules and ministry rules can also be a problem as they are frequently subject to change.

“We might go in there today and they might say that things have changed, we’ll ask how it’s changed, but there’s usually no clarity, they change the rules but sometimes they don’t know why,” says Robinson.

But as the economic activity increases both the companies and the government officials are learning how things should be operating, it is now becoming a matter of handling the rising volume.

Fortunately, when it comes to land-transport, most agree that the roads are adequate.

Keeping the lights on
Access to electricity and power generation can cause significant problems to operating in Iraq, especially during the blisteringly hot summer months and at night.
Blackouts are commonplace, and most companies must generate their own electricity.

Despite a significant increase in grid-based electricity capacity, with peak net daily production in 2011 70% higher than in 2006, the country still falls short of meeting energy demand.

The IEA report estimates that the net capacity available at peak in 2011 was 9GW while estimated net capacity required to meet demand was 15GW, the country will need to increase power generation capacity by an additional 70% in order to catch up with peak demand by 2015.

The IEA report also points out that as national power generation becomes more reliable, there will be even higher demand for grid-based electricity.

Currently, 90% of Iraqi households use private generators, either within the household or at the neighbourhood level.

Despite government subsidies for private generator fuel, the costs associated with private power generation are still higher than from the grid. Fortunately the IEA report expects that grid connected power-plants will reach gross capacity of 60GW by 2020 and 83 GW by 2035, provided that the adequate investments are made.

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Compliance
Meeting the international standards in the oil and gas industry is not easy in Iraq. Regarding any of the aforementioned concerns for businesses operating in the country, there are gaps between the standards set out by international oil companies and those which are available in Iraq.

“Compliance is one of the chief priorities for our CEO” says Robinson. For Bertling, meeting international standards in Iraq has meant opening its own facilities. “Our research showed that [compliant companies] didn’t really exist, and so Bertling decided to open its own facility, we would bring in our own transport and apply our
own standards.”

Raising local standards by importing international ones has become an industry trend throughout Iraq. Lakeshore Toltest chief operating officer Kevin Parikh says: “Compliance is one of our strengths, we operate under the Operation Safety and Health Act, our procedures are second to none, which puts us in a niche compared to other companies which may or may not have that.”

Security
And of course, the question on everyone’s mind: is it safe? Risk assessment is the main challenge for everyone in Iraq. “How do you assess an extremist?” asks Robinson.

“Sometimes locals are unhappy for some reason, there may be some shootings going on,” says Parikh. “We have to protect our site, and we do that in conjunction with the locals and the police.”

Despite significant improvements over the last six months, security costs still represent a major part of a company’s operational costs. “30% of our costs go into security,” says Shepherd, but Weatherford is not alone in paying the high prices for the right protection and for good reason.

Day’s advice is to not rely on just one single service provider. “There are licensing issues in Iraq, and the providers of these security services could lose their licenses at the drop of a hat,” he says. “And that could shoot risks through the roof.”

The associated costs of adequate security can provide too costly for businesses with lower margins, such as business support and service industries. According to Vincent, this is starting to change as the assessed threat in many areas is reducing over time.

The larger security companies are beginning to work with the local security firms, and passing on their knowledge to these companies, explained Shepherd. It’s a trend that’s been happening over the last six months.

In addition to the entry of more security firms, international companies are learning how to integrate better with locals. Instead of paying a premium for security services, these companies are investing in the local communities.

For Lakeshore Toltest, that means investing in community programmes including a youth football league, for Petronor, this involved the construction of a local community centre where it could meet the local players to build relationships and trust with its future neighbours.

No problem is insurmountable, not even in Iraq. After years of war, the Iraqis are ready to get to work and rebuild their country with the help of its massive resource wealth and some foreign investment. The attitude throughout those working in Iraq is extremely positive.

There may be a lot of hurdles to overcome for companies entering Iraq, and every individual company needs to weigh the costs and benefits to see whether entering the country will be rewarding. “Even with a small footprint in Iraq, the costs can be high and companies need to be prepared to absorb these costs for some time,” says Vincent.

“A lot of people complain about the problems, but this is an organic country, it had nothing for many years. You can’t go from zero to what everybody expects over night, you need to be patient,” says Robinson as he reaffirms the company’s plan to remain in Iraq over the next decade.

“Our long term plan is to grow at 10% for the next 3 years. We are planning to stay there for a ten, fifteen, maybe twenty year programme. Iraq is going to be larger focus for us,” revealed Parikh.

While the start-up process in Iraq may be daunting and wrought with dangers, the rewards could be massive and ultimately it’s a long term investment for the ones who chose to make the move. “It’s a long term investment for us. There would be no point going into Iraq short term,” Robinson concludes.