Jiyad commentary on draft oil law

Iraqi economist Ahmed Jiyad has produced a detailed analysis of the draft oil law:
Oil and Gas Law in Iraq- Comprehensive and Critical Assessment (MS Word doc)

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."

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”.

"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.""

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 analysed on Democracy Now

Iraqi blogger Raed Jarrar - who translated the leaked draft into English - and Oil Change International's Antonia Juhasz discuss the oil law on Democracy Now radio. Extracts below:

RAED JARRAR:"There are three major points. Financially, it legalizes very unfair types of contracts that will put Iraq in very long-term contracts that can go up to thirty-five years and cause the loss of hundreds of billions of dollars from Iraqis for no cause. Secondly, Iraq will not be capable of controlling the levels of production, which means that Iraq cannot be a part of OPEC anymore. And Iraq will have this very complicated institution called the Federal Oil and Gas Council, that will have representatives from the foreign oil companies on the board of it, so representatives from, let’s say, ExxonMobil and Shell and British Petroleum will be on the federal board of Iraq approving their own contracts. And the third point is the point about keeping Iraq’s unity. The law will authorize all of the regional and small provinces’ authorities. It will give them the final say to deal with the oil, instead of giving this final say to central federal government, so it will open the doors for splitting Iraq into three regions or even maybe three states in the very near future... The [Federal] council just has the authority to veto what the regional and provincial authorities decide. So, you can see that [as] this council is kind of controlled by foreign companies, the possibilities of the council vetoing what’s happening on the regional level will be very small."

ANTONIA JUHASZ: "The law does almost word for word what was laid out in the Baker-Hamilton recommendationl, to turn Iraq's nationalized oil system, the model that 90% of the world’s oil is governed by, into a commercial system fully open to foreign corporate investment on terms as of yet to be decided. So it leaves vague this very important question of what type of contracts will the Iraqi government use. But what it leaves clear is that basically every level of the oil industry will be open to private foreign companies... In addition, it does maintain the Iraq National Oil Company, but gives the Iraq National Oil Company almost no preference... And all contract models are still on the table, yet to be determined. I think that’s left vague or open, so that the very necessary criticism to earlier drafts of the law, which included specifically production sharing agreements, might be quieted... Iraq's oil only costs less than a dollar per barrel to pump and oil is selling at over $50 per barrel, the Iraqis are already making a tremendous return on their oil. The danger is that under the different models of oil contract that are being put on the table, that the Iraqis would lose the vast majority of that profit to the foreign oil companies."

RAED JARRAR: No one in Iraq knows about the law... Even parliamentarians in the Iraqi government, the ones who will have the final say to pass this law, haven’t received a copy of this law yet. I sent them the copy three or four days ago... I think they’re planning just to surprise the parliamentarians one morning and have them vote on it without any knowledge of what the law actually causes. The document was originally written in English. It was sent to the Iraqi oil ministry, and some parts of it were changed, and some parts were edited, some parts were added. So when I translated it, I made my translation based on an English copy leaked in mid-2006... The major differences are regarding the authorities that can control oil, and it can show very clearly what the Iraqi leaders, who are influential and can control these laws, are planning to do. It can show very clearly that there are very influential separatist Iraqi leaders who are trying to use this law to fund the separatist project and to turning Iraq into three states. In fact, one of the things that I did while translating is I kept some traces of the original one, so that people can see the small differences, how many of the authorities that were supposed to be a given to the central government and to the ministry now were shifted to the regional authorities. This is the most interesting thing that happened in the changes. But overall, it’s a law that is promoted by the Bush administration and the IMF."

Union leader warns on oil law

In a passionate speech to over 200 delegates at a conference on the new oil law in Basra this Tuesday, Hassan Jumaa, President of the Iraqi Federation of Oil Unions warned that: "History will not forgive those who play recklessly with the wealth and destiny of a people." Noting that the 2005 Constitution of Iraq states that oil and gas are the property of the Iraqi people, Hassan Jumaa argued that: "This clause in the constitution will remain but ink on paper if the oil law and oil investment law being presented to the Parliament are ratified, laws which permit production-sharing contracts, laws without parallel in many oil producers, especially the neighbouring countries. So why should Iraqis want to introduce such contracts in Iraq given that applying such laws will rob the Iraqi government of the most important thing it owns?" He stated that the union does not oppose the introduction of new technology by multinational companies, clarifying that the objection was to forms of investment which would give control to those companies. He concluded that: "Those who spread the word that the oil sector will not improve except with foreign capital and production-sharing are dreaming." (The full speech in English)

Iraqi Oil Union Conference on Oil Law - 6th Feb

The General Union of Oil Employees will hold a conference tomorrow on the Oil Law in cooperation with the Basra University's "Center for Arab Gulf Studies", held at the Oil Education Center. All relevant political parties, trade unions, NGO, acedemics and MPs are being invited. A joint statement will be prepared during the conference for the Iraqi parliament and prime-ministry. The trade union movement has not been consulted at any stage of the law's evolution, despite repeated calls for involvement in the drafting process. Contacts:

• Hassan Jumaa Awad Al Assadi, President of the General Union of Oil Employees (Arabic Only) +964 7801 001 196
• Ewa Jasiewicz, Naftana (UK Support Group for the GUOE) +44 7749 421 576
• Greg Muttitt, Author of 'Crude Designs' report on PSAs, +44 7970 589 611

BWP warns about PSA

The Bretton Woods Project, an NGO monitoring the IMF and World Bank, warns about the forthcoming oil law being pressured on Iraq by the IMF (and others). On Production Sharing Agreements, it quotes Heike Mainhardt-Gibbs, consultant to US-based NGO Bank Information Center: "PSA-driven development of the oil sector stands to make it even more difficult to ensure that the necessary changes will be made to improve overall governance, such as the creation of checks and balances across government agencies and economic and social sectors. Given this potential, the PSA contract model promoted by the World Bank may lead Iraq down the path of the resource curse".

PSA language removed from oil law draft

Hassan Hafidh of Dow Jones reports that: An amended copy of a draft Iraq hydrocarbon law sets out a new model for production-sharing agreements, or PSAs, with Western companies, a senior Iraqi oil official said Tuesday. The amended copy of the controversial law dated Dec. 15, seen by Dow Jones Newswires, doesn't refer directly to PSAs, as the first draft did a few months ago. "We have changed the text of the law from PSA to development and production contract in order to avoid (media) fuss," said the senior official, who is close to the committee entrusted with drafting the law. The new draft law recommends the Iraqi government sign "development and production contracts," or DPCs, along with service or risk production contracts with foreign companies to upgrade the country's war-ravaged oil industry. The 38-page document states: "A model contract could be based on service contract, development and production contract or risk contract." An older copy of the draft from August stated: "A model contract could be based on service contract, buyback or PSA."... The Independent reported this month that Iraq's massive oil reserves may be thrown open for large-scale exploitation. Western oil companies "could end up grabbing up to 75% of the beleaguered nation's oil profits under an oil law," the paper reported. The Iraqi oil official rejected The Independent's report, saying it is baseless. "The law states that the government should make the utmost returns from our oil and gas resources and that Iraq owns all its (oil and gas) resources," he said. Negotiations with Western companies could start immediately after parliament approves the draft law, which could be in "the first quarter of this year," the official said.

The official said the draft law doesn't spell out what kind of PSAs Iraq would sign with Western oil companies, but officials have agreed that the Iraqi government should have its own model of PSA. The new model is based on both PSAs and buyback contracts, he said. The official said the new Iraqi PSA model, or DPC, would state the following terms:

• Companies cannot book crude oil reserves of any given oil field in their own market capitalizations, as is the case with ordinary PSAs.
• Iraq will pay the costs of the contract in cash, rather than paying back the money through produced crude oil or products, he said.
• All equipment brought by the company to carry out the contract is the property of Iraq. The company, however, has the right to use this equipment to carry out work in Iraq.
• Any extension of the contract beyond the original timeframe should be approved by the Iraqi cabinet.
• Profit received by the company is to be agreed on by both sides, for example, one dollar on each barrel produced for a certain period of time, the official said.

The official said the Iraqi government wants to sign DPCs to develop undiscovered oil fields, rather than to discovered oil fields. The new draft law also recommends signing service and risk production contracts. A risk production contract allows a company to explore and develop a particular location, but doesn't give it the right to claim back expenses from the Iraqi government if it doesn't find oil. The draft law recommends setting up model, or prototype, contracts after the approval of the law. It also recommends the establishment of an Iraqi National Oil Company, and a Federal Oil and Gas Council. The latter would approve oil contracts and set the country's petroleum policies, and would include ministers of oil, finance, and planning, plus the governor of the Iraqi Central Bank and a representative from each region or province.

Kamil Mahdi says Iraqis won't accept oil sellout

Iraqi economist, Kamil Mahdi, based at Exeter University (UK), writes in the Guardian today under the title "Iraqis will never accept this sellout to the oil corporations", here are some extracts:

"Before embarking on controversial measures such as this law favouring foreign oil firms, the Iraqi parliament and government must prove that they are capable of protecting the country's sovereignty and the people's rights and interests... The oil law is likely to open the door to these corporations at a time when Iraq's capacity to regulate and control their activities will be highly circumscribed. It would therefore place the responsibility for protecting the country's vital national interest on the shoulders of a few vulnerable technocrats in an environment where blood and oil flow together in abundance. Common sense, fairness and Iraq's national interest dictate that this draft law must not be allowed to pass during these abnormal times, and that long-term contracts of 10, 15 or 20 years must not be signed before peace and stability return, and before Iraqis can ensure that their interests are protected.

This law has been discussed behind closed doors for much of the past year. Secret drafts have been viewed and commented on by the US government, but have not been released to the Iraqi public - and not even to all members of parliament. If the law is pushed through in these circumstances, the political process will be further discredited even further. Talk of a moderate cross-sectarian front appears designed to ease the passage of the law and the sellout to oil corporations. The US, the IMF and their allies are using fear to pursue their agenda of privatising and selling off Iraq's oil resources. The effect of this law will be to marginalise Iraq's oil industry and undermine the nationalisation measures undertaken between 1972 and 1975. It is designed as a reversal of Law Number 80 of December 1961 that recovered most of Iraq's oil from a foreign cartel. Iraq paid dearly for that courageous move: the then prime minister, General Qasim, was murdered 13 months later in a Ba'athist-led coup that was supported by many of those who are part of the current ruling alliance - the US included. Nevertheless, the national oil policy was not reversed then, and its reversal under US occupation will never be accepted by Iraqis."