Iraq Oil Law May Fail, Part II

Analysis: Iraq oil law changes irk author
Posted : Thu, 21 Jun 2007 02:42:00GMT

The role of Iraq’s central government as a guiding hand over the country’s vast oil reserves has been so altered in the current version of the controversial draft oil law that two of the document’s authors now oppose it.

“The judgment of many is if the oil and gas is the property of the whole nation, it should be managed by whom? The custodian of the whole nation, and that’s the federal government,” said Tariq Shafiq, a London- and Amman, Jordan-based consultant and director of Petrolog & Associates. Shafiq, who just last summer was crafting the legislation, told UPI during a recent Washington visit that subsequent revisions have watered down the central government’s role with political bartering that will lead to mismanagement of the world’s third-largest oil reserves.

Shafiq also warned of overdevelopment of the country’s oil and gas resources, especially if the undiscovered reserves are developed or Kurdistan or other regions develop their fields outside of a central oil strategy.

The law, which was approved by the council of ministers in February, is now stalled in a power struggle between the central government and Kurdistan Regional government over how much of the 115 billion barrels in proven oil reserves each side will control. Various factions, including the powerful oil unions and Sunni political parties, have warned against allowing international oil companies too much access.

And the Iraqi Parliament likely won’t be able to overcome political friction, let alone the deteriorating security situation in the country, to move forward soon on the oil law.

“The pledge by some Iraqi politicians to pass the new oil law by the end of June is not likely to be fulfilled, and Iraqi lawmakers are not expected to tackle this issue until after the parliamentary recess scheduled for the end of July,” Greg Priddy, global energy analyst at the business risk consultant Eurasia Group, wrote Tuesday in the firm ‘ s Energy Trendwatch. “By then, all branches of the Iraqi government will come under tremendous pressure from the U.S. administration, which has listed the new hydrocarbon law as a major priority to be addressed by mid September, when it is expected to submit a full report to the U.S. Congress.” The roots of the Baghdad row — which highlights the future of Iraq: how strong the central government will be and how much power the regions and provinces will wield — are seeded in the 2005 constitution. Key issues of federalism and control over oil were left vague to shore up enough support for passage. Nearly two years later, there is no political consensus.

Shafiq said he and his co-authors took this into account when drafting the law.

They created a Federal Petroleum Commission as a decision-making body to set policy and approve plans and contracts for developing the oil sector. It would incorporate two bodies: “A think tank” of technocrats “made up of nine members, at least three from (oil) producing provinces, but all Iraqis,” and “a negotiating unit for grants of rights to third parties,” taking contract negotiations out of the Oil Ministry ‘ s hands (though the ministry would prequalify companies). The governorate or region the contract applies to would be a part of the negotiating body, another way the drafters interlay federal/local authority, Shafiq said. This was also embedded in the reconstituted Iraq National Oil Company, which was “independent from the state,” Shafiq said, a holding company to develop the oil. (Here again the constitutional squabble takes hold, with the KRG and central government at odds over how much of Iraq ‘ s reserves should be centrally controlled.) INOC would be owned by the state, but with an independent board of directors. Affiliate local companies, owned up to 50 percent by the respective regions or governorates, would carry out INOC’s day-to-day, on-site operations. The directors of the local companies would sit on INOC’s board, ensuring combined local control over the central government’s oil arm.

Seven months after the original draft was presented, negotiators between the Kurdistan and central governments pressed for compromise on the issues. Shafiq, however, refers to it as “muhasasah,” whereby all parties come to an agreement on power sharing via sectarian and religious breakdowns, “which at times doesn’t work in the interest of the whole country” but for those in power, he said. The most-recent draft of the law calls for the council’s membership to “take into consideration a fair representation of the basic components of the Iraqi society.” “Should you qualify a member if he’s a Shiite and a Sunni? Is that how we want to govern oil?” said Shafiq, indignant both because he feels the best candidates of Iraq ‘ s oil sector should manage it and because only a few months ago his brother was killed there in what appears to be a purely sectarian killing. “Now we want to rule Iraq by appointing decision makers for being a Sunni, Shiite, etc.” The March 15 draft of the law has changed Shafiq’s commission to the Federal Oil and Gas Council, enlarged it, created overlap with the Oil Ministry and shifted more power to “embryonic regions,” which Shafiq argues don ‘ t have the expertise to develop their sectors without central government support or heavy reliance on international oil companies. “It’s extremely difficult to optimize and manage an oil industry when each region and governorate has their own laws and regulations,” he said, emphasizing a need for central policy with direct local participation. Shafiq said the latest draft has enlarged membership of the think tank, while politicizing it and weakening its scope. Shafiq said he was asked last spring by Oil Minister Hussain al-Shahristani to help craft the law, along with two other Iraqis: Farouk al-Kasim, now a Norway-based consultant who is also against the law now, and Thamir Ghadban, the current adviser to the prime minister on oil issues, representing the central government in oil law negotiations.


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