Since assuming office in 2019, Kurdistan Regional Government (KRG) Prime Minister Masrour Barzani has aggressively pursued privatisation across numerous sectors in the Kurdistan Region, including healthcare, electricity, customs, postal services, and more. While we will examine the specific sectors privatized, their recipient companies, and the resulting price increases in a later analysis, this report focuses on both the intended and unintended consequences of this privatization strategy, particularly its impact on power-sharing dynamics with the Patriotic Union of Kurdistan (PUK) and on Erbil-Baghdad relations.

A notable feature of Barzani’s privatisation policy is the concentration of contracts among companies either directly or indirectly owned by him or his associates. Since 2019, Barzani’s administration has largely avoided launching projects directly through the KRG. Instead, critical government services have increasingly been handed over to private companies closely affiliated with him. This privatisation predominantly takes place in Erbil and Duhok, as the PUK restricts similar moves in Sulaimani, which remains under its military and administrative control. These privatization arrangements follow a consistent template: service prices increase under the premise of quality improvement, while contract terms heavily favor the private companies—typically allocating 80% of profit margins to these entities and only 20% to the KRG. Notably, the tendering process for these service contracts often occurs through “secret” directives, evidenced by leaked documents bearing “secret” classification stamps. Since these projects are awarded with unlimited government support and without competitive bidding, the quality of services often remains substandard. Furthermore, this approach has effectively undermined small businesses and longstanding enterprises that have operated for decades, through a combination of excessive taxation on independent companies while granting numerous benefits to firms affiliated with PM Barzani and his associates.

While the public rationale behind this privatisation drive emphasizes modernization and efficiency, two significant, unintended political consequences have emerged:

1. This approach has fundamentally altered the power-sharing arrangement with the PUK and diminished the relevance of KRG ministries. The Prime Minister’s strategy appears two-pronged:

First, he has established a shadow cabinet within the Prime Minister’s Office, with dedicated teams that parallel each ministry and effectively usurp ministerial authority. Second, by privatizing ministry services and diverting revenue streams to PM-affiliated companies, these ministries have become largely ceremonial.

Given that the KRG cabinet has traditionally operated as a coalition government, this has rendered power-sharing essentially meaningless. Other parties such as the PUK and Gorran have been significantly weakened, as privatized sectors are effectively controlled by companies linked to the same shadow teams within the PM’s office that oversee each ministry. Therefore, by privatizing ministry services and redirecting revenues to his affiliated companies, Barzani has rendered these institutions hollow, stripping coalition partners of influence. This has turned the KRG’s traditionally collaborative cabinet into a KDP-dominated entity.

In ongoing negotiations between the KDP and PUK to form the next cabinet, this has emerged as a critical point of contention—not only because it has significantly weakened the ministries allocated to the PUK, but also because the PUK now seeks to share in these tenders, demanding that services in Sulaimani and PUK-controlled zones be awarded to PUK-affiliated companies, essentially reinforcing the administrative division of the Kurdistan Region.

2. Another emerging consequence: as privatization redirects revenue streams to private companies, the KRG’s non-oil revenue is declining. This directly impacts the funds that should be transferred to Baghdad under the Iraqi budget law, which stipulates that 50% of the KRG’s non-oil revenue must be remitted to Iraq’s Finance Ministry. The KRG’s non-oil revenue has historically been underreported, as border customs revenues and de facto taxation at KDP and PUK checkpoints often go unreported. This trend jeopardizes the fiscal relationship between Erbil and Baghdad, raising tensions over resource allocation and compliance with national agreements.

In summary, Barzani’s privatisation policy is reshaping not only the structure and efficiency of the KRG’s public sector but also redefining the political and financial dynamics within Kurdistan and its broader relations with Baghdad.