Analsyis of Oil Law by Munir Chalabi

UK-based Iraqi political analyst Munir Chalabi has written a political analysis of the oil law. which he says “seems to be no less than the old concessionary model in a new guise.” He notes that a key part of the draft have not yet been released: “The three appendices, which will specify which parts of the already discovered giant oil fields will be counted as “existing producing fields” and which will be counted as “not yet developed fields” that are partially or not yet producing oil. This judgment will decide which oil fields will be allocated to the Iraqi National Oil Company (INOC) and which of the existing fields will be allocated to the IOCs (from 10% to up to 80%).

He also notes that “This is the wrong timing for introducing such a strategic oil law. As several articles of the Iraqi constitution, including articles 112,113, and 115, are under review and there is the possibility that some of these articles will be changed within the coming months, it would be unwise to base such an important law on unknown constitutional articles. It is likely that the new oil law will contradict the new articles of the constitution. On the other hand, if articles 112 and 115 are altered as expected, it will possibly remove the fears of some experts regarding the tendency within the law to lead to sectarian and regional agendas.”

He recommends that a full oil law should only be developed after the occupation ends. But suggest that “It will be in the Iraqi people’s interest to have a “provisional oil law” which re-establishes INOC and gives it full decision-making powers similar to what was stated within Iraqi laws 123 and 130 of 1967, until such time comes when Iraq is no longer under occupation. Furthermore the provisional oil law should permit only a short-term contract between INOC and the international oil companies so as to provide technical help to develop the existing oil fields.”

On a historican note, he says the Ba’ath regime made moves to privatise Iraq’s oil but were inhibited from doing so fully because of sanctions: “The first step which was taken by the Baathist government was in 1987 when they dissolved INOC… Two PSA agreements were signed with the Russians. This includes the 1997 twenty three year agreement with the Russian oil company, Lukoil, for the development of the West Qurna-2 giant oil field. The third PSA agreement was signed in 2000 with the Chinese National Oil Company.”

BG visits Kurdistan

The Telegraph breaks the news that BG Group, the British oil and gas explorer, recently visited the Iraqi Kurdistan to investigate opportunities for gas exploration. Until now, only minnows, such as Norway’s DNO, and Aim-listed companies Petrel Resources and Sterling Energy, have signed deals with the KRG. BG Group declined to comment.

Iraqi Politicians Urge Rejection Of Draft Oil Law

Dow Jones Newswires reports on a conference of prominent Iraqi parliamentarians, politicians, ex-ministers and oil technocrats in Amman yesterday, hosted by the Iraqi Centre for Strategic Studies. The conference urged the Iraqi parliament to reject Iraq’s controversial hydrocarbon law, fearing that the new legislation would further divide the country already witnessing civil strife.

Mohammed Bashar al-Faidhi, spokesman of the Association of Muslim’ Scholars said: “We call on members of the parliament to reject this law. This critical draft law would revive foreign companies’ control on Iraqi oil wealth that Iraq had gotten rid of years ago.” Faidhi said. Saleh al-Mutlak, head of the National Dialogue party said: “Iraqis are suspicious that if the law is passed at this critical time that Iraq is passing through, they would think it would be passed in order to serve the interest of foreign companies. This law would also further divide the Iraqi people because most of them would oppose it.” Issam al-Chalabi, former Iraqi oil minister during the government of Saddam Hussein, criticized the draft oil law, saying prominent Iraqi oil experts weren’t allowed to take part in discussions of the legislation and that it wasn’t published in the media in order that the Iraqi people could see it, he said “Enough time should be given to draft the law before submitting it to the parliament for approval.” Mohammed al-Jobouri, trade minister during Allawi’s cabinet, said, “Iraq needs a hydrocarbon law, but the timing of the law isn’t suitable. There are some loops in the law that needs more discussions.” Other parties represented in the meeting were Allawi’s Iraqi List and the Iraqi Accord Front headed by Adnan al-Dulaimi. Neither the Shiite United Iraqi Alliance, the largest bloc in the parliament, nor the Kurdish Coalition attended.

Exposed: British government pushing oil interests in Iraq

The British government has been using its position as a military occupation power to push the interests of oil corporations in Iraq, according to PLATFORM, a founding member of Hands Off Iraqi Oil. Documents it obtained through the Freedom of Information Act reveal extensive efforts since at least 2004 to push for companies such as BP and Shell to receive long-term contracts, which would give them exclusive rights to extract Iraq’s huge oilfields. British diplomats in Baghdad and civil servants in Whitehall have worked with oil company lobbyists, helping them obtain direct contact with Iraqi decision-makers, and have been closely involved in shaping the oil law, which was approved by the Iraqi cabinet last week. The findings will be revealed this evening in a documentary on al-Jazeera’s English-language channel, as part of its ‘People and Power’ series.

Six oil companies – BP, Shell, ExxonMobil, Chevron, Total and ENI – worked through a lobbying organisation known as the International Tax and Investment Centre (ITIC), which has pushed for production sharing agreements. The UK government documents that PLATFORM has obtained show that:

  • Foreign Office and Treasury officials advised ITIC in late 2004 on their strategy for influencing the Iraqi government.
  • The British Ambassador to Iraq formally sent ITIC’s lobbying document “Petroleum and Iraq’s Future: Fiscal Options and Challenges” to the Iraqi Finance Minister.
  • A British diplomat helped organise a meeting in Beirut in January 2005, at which the oil companies put their case directly to ministers and officials of the Iraqi Ministries of Oil, Finance and Planning.
  • The Foreign Office hired a former BP executive to lead its work on Iraqi oil policy in 2003 and 2004. He wrote a ‘Code of Practice’ for the Iraqi Oil Ministry, which called for multinational companies to play the major role in developing Iraq’s oil, and for the Ministry’s policies to be compatible with those of BP.

Greg Muttitt of PLATFORM commented: “That Iraq’s oil law was shaped by outside interests, bypassing even members of the Iraqi parliament, gives the lie to the claims that the US/UK agenda was to bring democracy to Iraq. But it also raises serious questions about our own democracy: whether the government is representing British citizens, most of whom opposed the decision to go to war, or whether in Iraq it is in fact representing a few wealthy oil corporations”.

English translation of draft Oil Law

The KRG has today published its official English translation of the draft Oil Law agreed by the cabinet on 15 Feburary. The arabic original is also available through the same link. KRG Natural Resources Minister Dr. Ashti Hawrami said: “Old and inaccurate translations of this vital draft law have been circulating in the media in recent weeks. By publishing the original Arabic and the authoritative English translation together, we hope to make the picture clearer for potential investors in Iraq.”

KRG demands

The KRG press release accompanying the new english translation says: “The KRG has also voluntarily agreed that existing KRG petroleum contracts, which are explicitly validated by the Iraq Constitution, may also be reviewed by a panel of independent advisors.” It continues: “The 15 February draft has not yet been introduced to the Iraq Council of Representatives (the Parliament), pending the completion of related matters. The Oil and Energy Committee will next prepare the four critical Annexes referred to in the draft Oil and Gas Law, which allocate the management of particular petroleum fields and exploration areas in Iraq to the KRG, the Iraq National Oil Company, and the Iraq Ministry of Oil. The Committee also needs to agree model petroleum contracts and guidelines for contractual terms, without which no investment in Iraq can begin. The Kurdistan Regional Government has agreed with the Federal Government that it will support the draft Federal Oil and Gas Law provided that the Annexes and other documents are concluded to the KRG’s satisfaction, and if it is accompanied by an agreed Revenue Sharing Law for submission as a package to the Council of Representatives. ” Minister Hawrami adds: “We must make sure that the Federal Government, like Kurdistan, is doing all it can to attract new investment to Iraq. It is vital that the Federal Government adopt the same market-friendly approach that the KRG has been using in its contracts.”

“Troubles for the Oil Deal” – TIME Magazine

An excellent article by Vivinnee Walt for TIME reports that “parliamentarians and Iraq’s oil unions have already begun mobilizing against the draft legislation, arguing that it is a desperate attempt by al-Maliki’s government to satisfy Western demands, which could damage Iraq’s economic future and speed the country’s ultimate disintegration.” She points out where the pressure is coming from: “Iraq’s major creditors have made clear they expect a working oil industry, as a precondition for forgiving billions of dollars in Iraqi debt incurred largely by Saddam Hussein’s wars against Iran and Kuwait and by his mega-splurging at home.” It continues by interviewing Iraqi MP Salah al-Mutlaq “[he] says he is certain he will find allies among his colleagues, who he says believe that the law is geared to the needs of Western oil companies rather than Iraqis. There has been no public hearing on the draft, whose details have largely been kept secret. Iraqi lawmakers fumed last July when U.S. Energy Secretary Samuel Bodman discussed the draft during a trip to the region, “when hardly a single parliamentarian had seen it,” says Kamil Mahdi, an Iraqi who is senior lecturer in Middle East economics at the University of Exeter in Britain, and who spent Tuesday discussing the law by phone with several parliamentarians. He said several believe that the government should wait until the war ends before locking Iraq into long-term deals with foreigners.” Finally it notes: “Iraq’s biggest oil unions, which could potentially disrupt production, have been among the law’s strongest opponents. Hassan Jum’ah Awwad Al-Asadi, head of Iraq’s Federation of Oil Unions, the largest union group, says he intends to mobilize his 23,000 or so members against the draft. “We want a new, different law, which will be in the interests of Iraqis,” he said by phone from Basra on Wednesday. “If there is no solution we can stop production, stop exports.” In a more threatening tone, he told union members at a conference on the law in Basra in early February: “We strongly warn all the foreign companies and foreign capital in the form of American companies against coming into our lands under the guise of production-sharing agreements.””

Iraqi Cabinet resolution on Oil Law

The resolution of the Iraqi Cabinet assumes the Oil Law will pass rapidly through the Parliament and be harmonised with existing Iraqi laws and implemented by 31 May.

Council of Ministers, Oil and Energy Committee, Feb 26th,11:00 AM
The Iraqi government [the council of ministers] submits this law, regulating oil operations, to the Council of Representatives… the following arrangements shall be adopted to finalize the regulating of oil and gas operations in Iraq:

1- This oil and gas law and its four appendices shall be submitted to the Council of Representatives, after agreeing on the types of model contracts and on the general terms and conditions, together with the Financial Revenues Management Law. All parties shall finalize this task before March 15th 2007.

2- Finalizing the laws of the Iraqi National Oil Company [INOC] and the Ministry of Oil in accordance to this laws articles and regulations. In addition, the Oil and Gas law in Kurdistan region must be in harmony with the articles and regulations of the federal oil and gas law, ad in accordance to the constitution.

3- All oil operations and exploration and production rights’ granting shall be put on hold for areas included in article 140 that might have administrative changes for its boarders, except the oil operations related to the INOC that may continue its work in the fields discovered and already developed in accordance to the constitution.

4- All parties must abstain from signing new contracts agreements related to exploration and production activates in Iraq until this law is fully enacted.

5- The Federal Government, in coordination with the regions governments, shall finalize the requirements needed to implement this law and activate the entities mentioned in the law in a time period not exceeding the end of May. In case this deadline was not met, the Iraqi Prime Minister shall meet with the president of Kurdistan Region to implement the law within one month and reach a solution based on one of the following options:
a. In case article 5 was not finalized by the deadline of May 31st 2007, the two parties shall have the right to sign Exploration and Production Contracts in accordance to the constitution, this law, and the general principles of contracts’ models (the first option).
b. Extend the time period mention above.

Platform criticism of the Oil Law

PLATFORM, a founding member of the Hands off Iraqi Oil coalition, has issued a series of criticisms of the draft oil law approved by the Iraqi Cabinet yestarday:

• PSAs under another name: The law allows Iraqi oil to be developed by foreign companies under long term contracts which will give them exclusive rights. These are likely to be contracts known as Production Sharing Agreements. Due to the surrounding controversy, the term Production Sharing Agreement has been dropped in favour of Exploration and Risk Contracts. ERCs are thought to be the equivalent of PSAs under a different name.

• A Surrender of Sovereignty: Article 41 legislates for any disputes between foreign companies and Iraqi authorities which cannot be resolved through negotiation to be resolved ‘through arbitration or the competent authority’. In practice this means through a secretive and remote international arbitration tribunal – over riding domestic law. Iraq will not have the power to intervene using its own judicial system.

• Parliament By-passed: With revenues (article 11) as with contracts, there is no provision for Parliamentary scrutiny. Fields such as West Qurna and Majnoon could each alone account for up to 10% of all government revenue. As such, the terms of these developments should be subject to Parliamentary debate as they are in many other countries.

• No Guarantee of State Participation: No minimum level has been set for state participation in contracts. For a country as well endowed with resources and technical skills as Iraq, a high minimum threshold would have been expected. Article 35 allows companies unlimited transfer of profits outside of Iraq. This could restrict the government’s ability to manage financial crises.

• Sectarianised Decision-Making: The newly created Federal Oil and Gas Council will decide which contracts are accepted. The Prime Minister, in consultation with the main parties is likely to decide its composition. All decisions on the fairness of the contracts and whether they serve Iraqis’ interests will be completely removed from public or parliamentary scrutiny. As with the structure of the current government, grown from the original sectarian composition of the Governing Council of June 2003, the Federal Oil and Gas Council will be sectarianised, leading to regional and sectarian agendas impacting on national economic policy. Iraqi oil union leader Hassan Jumaa comments: ‘We believe this law to be more political than economic; it threatens to set governorate against governorate and region against region’.

• Iraqi Companies Undermined: Foreign companies are only ‘encouraged’ to co-operate with Iraqi companies and purchase goods and services from them ‘whenever they are competitive’ (Art 9) Iraqis should only be employed ‘to a reasonable extent’. Normally contracts specify minimum Iraqi content and employment and minimum levels of training and technology transfer.

• Lack of Transparency: The previous requirement to have contracts published 2 months after signing has been dropped, requiring only ‘financially significant’ contracts to be published, with no time limit.

• Limited Regulatory Space: The definition of ‘good oil field practices’ (Art 4. Def 4) including relating to health and safety and environmental standards is equated to what oil companies think is right. This could seriously restrict the regulatory influence of the Iraqi government.

Oil Law approved by Cabinet

The Iraqi Cabinet today approved the draft oil law. The AP reports that “the Parliament will take up the measure when it reconvenes early next month after a recess. With all major parties endorsing the bill, approval is likely — although some politicians predicted a vigorous debate on some of the details.” It continues: “Many Iraqis fear the measure will effectively hand the country’s major natural resources over to foreign oil companies. Supporters maintain that oil giants have the billions of dollars needed to upgrade the country’s decrepit wells, pipelines and port. Under the oil legislation, regional administrations will be empowered to negotiate contracts with international oil companies. The contracts will be reviewed by a central government committee in Baghdad headed by the prime minister… According to Iraqis familiar with the deliberations, the draft law would offer international oil companies several methods to invest, including production-sharing agreements. Those would give U.S. and other international companies a substantial share of the oil revenues to recover their initial investments and then allow them big tax breaks.”

Pepe Escobar, Asia Time’s leading journalists, provides a damning critique of the draft law which he says is a result of “SCIRI delivering Iraq’s Holy Grail to Bush/Cheney and Big Oil – in exchange for not being chased out of power by the Pentagon.” He points out that outside of Iraq: “Nobody wants colonial-style PSAs forced down their throat anymore. According to the International Energy Agency, PSAs apply to only 12% of global oil reserves, in cases where costs are very high and nobody knows what will be found (certainly not the Iraqi case). No big Middle Eastern oil producer works with PSAs. Russia and Venezuela are renegotiating all of them.”