Technical Service Contracts cancelled, what next?

Q&A Update

Technical Service Contracts cancelled by Iraqi government – what next?

Briefly, the recent cancellation of the TSAs or TSCs – originally part-written by the US state department and international oil companies - is evidence of the progress the Iraqi and international campaign has made, and how much there is still left to play for.

The oil law is now unlikely to be passed before Bush and Cheney leave office. The Iraqi Oil Minister Hussein Shahristani himself admits there is no prospect for the foreseeable future.

The Chinese development contracts for the al-Ahdab deal near Baghdad as well as the gas capture contract for Shell are likely to be signed soon.

The details of the contracts have not been released to the parliament, nor have they been subject of public scrutiny or debate. However they could be signed soon. Oil experts and civil society leaders in Iraq continue to call for an open debate and transparency and consultation with all Iraqi resource deals.

While some have claimed the fact that the first major contract has gone to a Chinese company as evidence that the US/UK occupation is not pursuing its own oil interests, it should be noted that al-Ahdab is a small field by Iraqi standards - about a billion barrels. For the 8 much larger fields available in the bidding round (collectively more than 40 billion barrels), it is indeed the US and European companies that are the front-runners.

So why weren’t the Technical Service Contracts not signed?

Essentially, the reason for the collapse of these negotiations (after nearly a year) was that the western oil companies were so greedy. They weren't interested in the contracts in their own right (they're only 1-year service contracts), but in what they could give them beyond. So they were insisting on long-term extension rights, giving them first refusal on subsequent longer contracts - something the Iraqi government resisted. But the companies were too greedy and have now missed out altogether, so will have to wait for the bidding round.

Why has the Iraqi Ministry of Oil taken this position?

That the Oil Ministry was prepared to stand up to the companies is due to the shift in the politics of the oil issue. Eighteen months ago, oil policy in Iraq was consistently reflecting the interests of the western companies and governments - it was due to the popular campaign in Iraq that the Oil Ministry felt able to (and needed to) push a firmer line.

So what happens next?

Other contracts are proceeding. A bidding round is about to be launched for 8 large oilfields (roughly the same ones that would have been covered by these no-bid contracts), and then there is the contract agreed recently with Chinese companies for the al-Ahdab field and with Shell for gas development for the domestic and export market. All of those are long-term contracts (reportedly 20 years).

What kind of contracts are these long term ‘development’ contracts?

According to the Ministry's claims, they are service contracts. If that is true, they would be comparable at least to contracts in Venezuela and Iran, rather than giving such a large share of ownership, control and revenues as the production sharing contracts the companies wanted; but still giving away more than in Saudi Arabia and Kuwait, where foreign companies do not manage a whole field, but are just contracted to install a piece of technology, for example.

How do we know that these contracts won’t just be Production Sharing Agreements of privatisation deals by another name?

It is hard to say because so far there has been absolutely no transparency, and no-one knows what the terms of the contracts are. The priority now in Iraq has to be for these terms to be disclosed - the issues are too important to be decided in secret.

How can the companies start work in Iraq when the oil law is still not passed?

The legal position in Iraq is that limited contracts (like in Saudi Arabia) can be signed without an oil law, but extensive ones (like production sharing contracts) can't. These contracts currently being considered are in a grey area in between. To know the answer, we would have to see the precise terms of the contracts, and take legal advice.