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March 02, 2007

Iraq: Draft Oil Law Aims To Please All Sides

by Kathleen Ridolfo

Oil worker near Kirkuk (file photo) (AFP)

March 2, 2007 (RFE/RL) -- Iraq's cabinet this week endorsed a draft oil
and gas law for the management of oil resources and an equitable
distribution of revenues. Prime Minister Nuri al-Maliki hailed the
achievement, telling reporters on February 26 that with the endorsement
of the draft law, the government "lays the foundation stone for
building the state." The law will now be submitted to parliament for
ratification before it takes effect later this year.
Seen as a compromise between Sunnis, Shi'a, and Kurds, the law calls for the distribution of oil revenues to the governorates or regions based on population numbers, and grants regional governments or oil companies the right to draw up contracts with foreign companies for the exploration and development of new oil fields.

Regions will be allowed to enter into production-sharing agreements with foreign firms, and a federal Oil And Gas Council will be established to oversee such agreements, holding veto power over the regional governments.


The council will be comprised of the ministers of oil, treasury, planning, and cooperative development; the director of the Central Bank; a minister representing each region; a representative from each governorate not belonging to a region; executive managers from related petroleum companies, including the Iraqi National Oil Company and the Oil Marketing Company; and three or less experts specializing in petroleum, finance, and economics appointed to five-year terms. The council will be responsible for setting oil and gas policy.

The draft law also veers Iraq from its historical state-controlled production path. Like other regional oil producers, oil production in Iraq under Saddam Hussein was nationalized. By allowing for production-sharing agreements, Iraq will break the regional model, a move that could limit state control over resources. But production-sharing agreements will also allow Iraq to rehabilitate its oil sector more quickly -- thereby enriching the national coffers -- than were it to go the nationalization route.

Kurds Support Draft

Proponents of the law say it is a good compromise agreement that represents the interests of all Iraqis. Ashti Hawrami, the Kurdistan Region's minister for Natural Resources, noted on the regional government's website that provisions calling for pooled revenues to be redistributed according to population numbers aim to satisfy the needs of all Iraqis.

Hawrami said the regional government was pleased that it will retain the power to sign contracts for the development of oil and oil resources in the region. Such contracts will still be subject to the approval of the federal Oil and Gas Council.

Hawrami said the five contracts already signed by the Kurdistan Region government and foreign contractors will be reviewed by an independent panel of experts that will be appointed by the Oil and Gas Council following its establishment to ensure that standards set by the draft law are met.

The Kurds have pushed for greater power to sign contracts with oil companies (AFP file photo)

Asked about the status of Kirkuk, Hawrami said the draft provides for the Iraqi National Oil Company to manage current producing fields -- no further activities will take place until after the planned referendum on the status of Kirkuk.

He contended that while the regional government is afforded greater powers over oil and gas through the Iraqi Constitution, it chose nonetheless to take a pragmatic approach to accommodate all parties.

With regard to the Kurdistan Region Petroleum Act, Hawrami said the act will be amended to fall in line with the draft federal law and the revenue-sharing law before it is presented to the Kurdistan National Assembly. The Kurdish parliament is expected to vote on it around the same time the federal laws are presented to the Iraqi National Assembly, Hawrami said.

Critics Blast Draft

The draft law has no shortage of critics. The website of the General Union of Oil Employees in Al-Basrah posted a statement by Hasan Jum'ah Awwad al-Asadi, the anti-American head of the Federation of Oil Unions in Al-Basrah, dated February 9 claiming the draft law represents U.S. interests in Iraqi oil.

Al-Asadi criticized production-sharing agreements, saying such contracts threatened Iraq's sovereignty over its natural resources and would only lead to the fleecing of national wealth. He also contended that privatization of the oil industry would not be accepted by the Iraqi "street." The union has called for legislation to reinvigorate the Iraqi National Oil Company and make it responsible for shouldering the responsibility for oil policy.

A recent gathering in Amman of former oil-industry experts from Iraq called for oil and gas contracts concluded with foreign companies to be submitted to parliament for approval. As it stands under the draft law, the Oil and Gas Council has the authority to approve such contracts.

With regard to the council, detractors have said its composition will reflect the sectarian divisions of the Iraqi government, and hence will lead to regional and sectarian agendas negatively influencing national economic policy.

In addition, the ambiguity of some clauses in the draft -- for example, calling for the publishing of the details of contracts of "significant" value -- raises concerns over transparency, critics argue.

Detractors also say the law will diminish central control over the management of natural resources, which could have disastrous consequences. However, the draft law includes several provisions calling for environmental responsibility and respect for natural resources. Companies that damage natural resources will be held to account to both the government and affected citizens.

A Vote Away?

The fact that the draft law was endorsed by the cabinet, which is comprised of representatives of the leading political parties, increases the probability that it will be ratified by parliament, but it is by no means a guarantee.

Political parties -- both Sunni and Shi'ite -- could easily use the draft as a bargaining chip to gain political concessions from the government. The possibility of Sunni opposition to the draft may have been tempered, however, by recent findings that suggest there are immense oil and natural-gas reserves in Sunni-populated areas once thought barren.
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