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Iraq: Kurdish Region Promoting Investment

The Kurds want to improve oil infrastructure, such as this refinery in Al-Sulaymaniyah (AFP) PRAGUE, September 15, 2006 (RFE/RL) -- Over the past year, the Iraqi Kurdish regional government has taken steps to unify its Al-Sulaymaniyah and Irbil administrations, drafted a constitution for the region, passed an investment law, and drafted a petroleum law, which is expected to be presented to the Kurdish parliament for ratification this month.

The region's prime minister, Nechirvan Barzani, told representatives of some 800 international companies from 30 countries attending this week's international trade fair in Irbil that the region's free-market approach makes it a logical choice for investing in Iraq.

U.S. Ambassador to Iraq Zalmay Khalilzad was on hand for the opening ceremony of the four-day trade fair, telling U.S. companies on September 14 to focus on the tourism, agriculture, and energy sectors. "I do not want you to spend four days in Kurdistan, and then return without a contract, and personally I invite you to take advantage of Kurdistan and invest in this area," quoted Khalilzad as saying.

Government Incentives

The trade fair will also highlight major projects already under way in the Kurdish region, including the construction of an international airport, as well as hotels, a conference center, power station, a hospital, and hundreds of new housing units. Another international trade fair is already slated to take place in Al-Sulaymaniyah in November.

Local officials have touted the region's investment climate. Under the region's new investment law, foreign investors are given the same rights as Iraqi investors, giving them full ownership of projects. Companies and their non-Iraqi staff may freely transfer their profits or income abroad without paying taxes or customs.

The law also provides major investment incentives, including exemptions from all noncustoms taxes and duties on projects for 10 years. In addition, imported equipment, machinery, spare parts, raw materials, and even furniture are exempt from taxes, duties, and import licenses under certain conditions.

Wrangling Over Oil

By contrast, the status of the draft petroleum law is less clear. The regional government (KRG) published a revision of the draft on September 9, nearly one month after the first draft was made public. The initial version reportedly drew criticism in Baghdad and abroad. The government contends that the latest version, which has yet to be presented to the region's council of ministers and parliament, clarifies provisions disputed in the earlier draft.

The Kurdish region has been largely spared the violence that grips the rest of Iraq (RFE/RL file photo)

"The revisions in the draft published [on September 9] reflect, for the most part, the KRG's effort to describe in greater detail an appropriate cooperative arrangement on petroleum licensing, operation, and revenue sharing between the KRG and the federal government of Iraq," the regional government said in a press release.

According to the draft, the regional government vows to work with the central government pursuant to the requirements laid out in the Iraqi Constitution only if the following conditions are met within three months of the law's entry into force: agreements must be set on revenue sharing, distribution, and administration of extracted petroleum; the regional government and the Iraqi government restructure the petroleum industry; and two federal institutions regulating current fields and the exploration and development of future fields must be established.

Iraqi Deputy Prime Minister Barham Salih confirmed in late August that an oil-sharing agreement had been reached, but said differences remained over who would hand out oil contracts. Details of the agreement were not released.

Should the conditions laid out in the draft not be met, the regional government retains the exclusive management and control of petroleum operations and revenues, the draft states. Given the current state of affairs in Baghdad, it is reasonable to assume that the central government could not meet the requirements laid out in the draft law, particularly the clause on restructuring the petroleum industry, which is quite vague.

Territorial Disputes

More contentious is the draft's clause on disputed territories, which states: "The [Kurdish] ministry [of Natural Resources] may enter into petroleum contracts for petroleum operations in disputed territories where the minister concludes after consultation with other governmental authorities in Kurdistan that it is likely that the citizens in those disputed territories, in the referendum required by Article 140 of the Constitution of Iraq, will decide that those disputed territories are to be part of Kurdistan."

The implication that Kurds reserve the right to begin oil production in Kirkuk ahead of any referendum that might place the oil-rich governorate legally inside the boundaries of the Kurdish region is sure to draw fire from both Baghdad and the governorate's Turkoman and Arab communities.

As the regional government works to promote foreign investment, it will need to better address the issues of corruption and transparency. It will also need to address infrastructure issues if it is to promote investment in areas outside the region's three major cities: Irbil, Al-Sulaymaniyah, and Dahuk.

As for security, the region has remained free of the violence that has plagued much of the rest of Iraq over the past 3 1/2 years, thanks in part to the strength of the region's security apparatus. But, the regional government must also convince investors of its commitment to the rule of law. The arrest of demonstrators, journalists, and other activists in recent months has not gone unnoticed in Western media reporting on the Kurdish region.

Issues such as the presence of PKK fighters along the northern border area and threats from the Turkish and Iranian militaries, are also likely to have a negative impact on investors.

Iraq's Kurdish Region

Iraq's Kurdish Region

KURDISH AWAKENING: The ethnic Kurdish region in the northern part of Iraq has struggled in recent years to reestablish its cultural and political identity after decades of oppression under the regime of deposed Iraqi President Saddam Hussein. In December, RFE/RL correspondent Charles Recknagel traveled to this area and filed several reports:

Relative Peace Underscores Issue Of Kurdish Region's Future

Kurdish Culture Begins To Flourish In Kurdistan Region

Kurds Ponder How To Strengthen Autonomy After Elections

Irbil’s Kurds Live On A Hill Of Undiscovered Treasures

THE COMPLETE STORY: RFE/RL's complete coverage of events in Iraq and that country's ongoing transition.

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