Heather Stewart / The Observer – 2007-02-24 23:03:27
(February 25, 2007) — Baghdad is under pressure from Britain and the US to pass an oil law which would hand long-term control of Iraq’s energy assets to foreign multinationals, according to campaigners.
Iraqi trades unions have called for the country’s oil reserves – the second-largest in the world – to be kept in public hands. But a leaked draft of the oil law, seen by The Observer, would see the government sign away the right to exploit its untapped fields in so-called exploration contracts, which could then be extended for more than 30 years.
Foreign Office minister Kim Howells has admitted that the government has discussed the wording of the Iraqi law with Britain’s oil giants.
In a written answer to a parliamentary question, from Labour’s Alan Simpson, Howells said: ‘These exchanges have included discussion of Iraq’s evolving hydrocarbons legislation where British international oil companies have valuable perspectives to offer based on their experience in other countries.’ The talks had covered ‘the range of contract types which Iraq is considering’.
Control of oil is an explosive political issue in Iraq. Hasan Jumah Awwad al-Asadi, leader of the country’s oil workers’ union formed after the invasion in 2003, warned this month: ‘History will not forgive those who play recklessly with the wealth and destiny of a people.’
With much of the country on the brink of civil war, and a fractious government in Baghdad, campaigners say Iraq is in a poor position to negotiate with foreign oil firms. ‘Iraq is under occupation and its people are facing relentless insecurity and crippling poverty. Yet, with the support of our government, multinationals are poised to take control of Iraq’s oil wealth,’ said Ruth Tanner, senior campaigner at War On Want.
The law, which is being discussed by the Iraqi cabinet before being put to the parliament, says the untapped oil would remain state-owned but that contracts would be drawn up giving private sector firms the exclusive right to extract it.
‘There is this fine line, that the wording is seeking to draw, that allows companies to claim that the oil is still Iraqi oil, WHEREAS the extraction rights belong to the oil companies,’ says Kamil Mahdi, an Iraqi economist at Exeter University. He criticised the US and Britain, saying: ‘The whole idea of the law is due to external pressure. The law is no protection against corruption, or against weakness of government. It’s not a recipe for stability.’
Simpson said ‘This confirms the view of those who have said all along that the war in Iraq was not about weapons of mass destruction, but the control of the levers of mass production … This is a cartel carve-up by the occupying powers.’
Oil production in Iraq has slipped to below two million barrels a day – less than before the invasion – and Britain and the US argue that Iraq urgently needs foreign investment to boost output. But Ewa Jasiewicz, of campaign group Platform, said all the other Gulf states had kept production in government hands. ‘Iraq could borrow the money to develop its industry, and pay that off through oil revenues.’
Guardian Unlimited © Guardian News and Media Limited 2007
Draft of the Leaked Iraqi Oil Law
Translated by Raed Jarrar
Click here for a link to the entire translation of the leaked Iraqi Oil Contract.
This translation was made possible by Greg Muttitt, Niqash.org and al-ghad.org
WHEREAS the Iraqi Republic has entered a new era after the adoption of the Constitution In 2005;
WHEREAS, ARTICLE 111 of the said Constitution declares Oil and Gas as the property of the whole nation in all Its Provinces and Governorates;
WHEREAS, ARTICLEs 110, 112, 114 and 115 seen in the light of ARTICLE 111 broadly define the authorities and responsibilities of the Federal and Provincial authorities within the Petroleum sector;
WHEREAS, the Iraqi Republic is endowed with rich Oil and Gas resources, a great portion of which is already discovered and ready for Development whilst more Petroleum resources are yet to be discovered;
WHEREAS, Iraq’s Production capacity during the last decades has been low and at great disparity with its exceptionally rich Oil and Gas resources;
WHEREAS, the Iraqi nation finds Itself at the crossroad to a new and more prosperous future which will require quick and substantial funding of reconstruction and modernization projects;
WHEREAS revenues from oil and Gas represent the most important basis for redeveloping the country in general and the Iraqi economy In particular on sustainable and robust basis in a planned and coordinated manner that takes into consideration the objectives of the Constitution Including the unity of the Iraqi Republic, the exhaustible nature of Petroleum resources, the need for preserving the environment;
To help the Iraqi Ministry Of Oil focus on its main duties of creating policies, planning, and supervision, while achieving the necessary upgrading to enhance operational quality, the oil activates operated solely by the Ministry of Oil have to be transferred to technical and commercial entities and institutions including an independent national Iraqi oil company, and the Iraqi provinces and regions should be given more authorities.
WHEREAS. the rehabilitation and further development of the petroleum Industry will be enhanced by the participation of international and national investors of recognized technical, managerial and operational skills as welt as robust capital resources to help upgrade and develop national expertise and efficiency in the petroleum sector;
WHEREAS, the national private Industry directly and indirectly related to the Petroleum sector are in need of proactive encouragement and support to play a prominent role in the development of the sector;
WHEREAS, the positive interplay between the Federal and Provincial authorities requires appropriate legislative and institutional framework conditions to ensure efficient co-ordination;
WHEREAS, the introduction of a variety of national and international players in the development of the Petroleum sector calls for clear legislative, institutional and operational framework conditions to ensure co-ordination and efficiency between the Iraqi authorities and the commercial players as well as among these players;
WHEREAS, the development of the petroleum sector must be closely coordinated and harmonized with the development of the society and the national economy in a manner that maintains sustainable development for the economy and the environment and in the long term decreases dependence on Oil and Gas revenues;
WHEREAS, the terms and conditions regulating the Petroleum sector are of great importance to the whole nation as well as to all Investors in the sector, there is a need for a clear, fair, transparent and efficient system of governance that inspires confidence, efficiency and co-operation among all participants in the petroleum sector be that on the authorities side (Federal, Provincial or Governate level) or among the national and International actors;
CHAPTER I FUNDAMENTAL PROVISIONS
ARTICLE 1 OWNERSHIP OF PETROLEUM RESOURCES
Ownership of oil and natural gas is vested in the entire Iraqi Federal Oil and Gas Council in all provinces and regions.
ARTICLE 2 SCOPE OF APPLICATION
A- This law applies to Petroleum Operations in all the territory of the Republic of Iraq, including the soil and subsoil on land, as well as inland waters and territorial waters.
B- The scope of this Law excludes the refining of Petroleum, its industrial utilization as well as the distribution and the marketing of Petroleum Products.
ARTICLE 3 PURPOSE
A- This law establishes the regime for the management of Petroleum Operations in the Republic of Iraq, taking Into account the existing International agreements between the Republic of Iraq and other countries on crude oil transportation.
B- The law aims to build upon existing co-operation between the relevant Ministries in the Federal Government administration, in addition to building a base for coordination and discussions among the federal, regional, and provincial oil producing authorities.
ARTICLE 4 Definitions
For the purposes of this law, the following terms and expressions shall have the meaning indicated as follows, unless the context in which used requires a different meaning:
1- “Discovery”: the first Petroleum encountered in a Reservoir by drilling that is recoverable at the surface by conventional petroleum industry methods;
2- “Commercial Discovery”: a discovery which has been deemed to be commercial for Development purposes by the holder of Exploration and Production right;
3- region: Kurdistan region or any other regions created in Iraq after issuing this law according to the Iraqi constitution
4- “Good Oilfield Practices” All those practices related to petroleum operations that are generally accepted by the international petroleum industry as as good, safe, environmentally friendly, economic and efficient In exploring for and producing Petroleum
5- “Good Pipeline Practices” – all those practices related to transportation by pipelines including the design, construction, commissioning, maintenance, operation and decommissioning of pipelines that are generally accepted in the international petroleum industry as good, safe, environmentally friendly, economic and efficient in transporting Petroleum:
6- “Production” – the extraction and disposal of Petroleum;
7- “Petroleum” – all Crude Oil or Natural Gas, or other hydrocarbons produced or capable of being produced from Crude Oil, Natural Gas, oil rocks or tar sands;
8- “Development”: the activities carried out by the holder of Exploration and Production right based on either the Field Development Plan or the Main Pipeline Development Plan, which aim at Production and transportation of Petroleum;
9- “Exploration”: the search for Petroleum by geological, geophysical and other means including drilling of Exploration and appraisal wells;
10 -“Field” – An area consisting of a single Reservoir or multiple Reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.
11- “Field Pipeline” – a pipeline, including valve stations, pump stations, compressor stations and associated installations, collecting crude oil or natural gas from a field or a group of fields and delivering it to a transfer point for further transportation;
12- Pipeline: an entity that consists of a linear pipeline accompanied with other components on the ground level including stations of pumping, valves, compression, and other accompanied accessories for gauging, supervision, telecommunications, remote control, for the purposes of transporting crude oil and natural gas from the transfer point to the delivery point.
13- “Main Pipeline” – The principal pipeline, including valve stations, pump stations, compressor stations and associated installations built by the transporter, for the transportation of crude oil or natural gas from one or several fields or sources inside or outside Iraq;
14- “Field Development Plan” – a scheduled programme and cost estimate specifying the appraisal and development activities required to develop and produce petroleum from a specific field or group of fields by the holder of an exploration and production contract, prepared in accordance with this law and the relevant provisions in the Regulations for Petroleum Operations and the Exploration and Production Contract covering that contract Area;
15- “Main Pipeline Development Plan” – A scheme and cost estimate specifying all activities to be carried out by the transporter for the transportation of petroleum by pipeline inside Iraq and across the territory of neighbouring States, prepared in accordance with this Law, the relevant provisions in the regulations for Petroleum Operations and the Exploration and Production Contract covering that Contract Area and any relevant bilateral agreements.
16- “Decommissioning Plan”: a scheme for the closure of Petroleum Operations and restoration of the operating environment including the removal and disposal of all installations;
17- “Iraqi Person”- Any citizen with Iraqi nationality or any company or institution with legal personality established and registered pursuant to Iraqi legislation, with its headquarters in Iraq and having at least 50% of its share capital held by national citizens or by Iraqi public or private companies or institutions;
18- “Foreign Person” Any non-Iraqi citizen or any company or institution with legal personality established and registered pursuant to Iraqi legislation, and , having less than 50% of its share capital held by national citizens or by Iraqi public or private companies or institutions;
19- “Petroleum Operations” – all or any of the activities related to Exploration, Development, Production, separation and treatment, storage, transportation and sale or delivery of Petroleum at the Delivery Point, Export Point or to the agreed Supply Point inside or outside Iraq. And includes Natural Gas treatment operations and the closure of all concluded activities;
20- “Natural Gas” – all hydrocarbons which are in a gaseous state at atmospheric conditions of temperature and pressure, that might be associated or not with liquid hydrocarbons, as well as the residue gas remaining after the extraction of liquid hydrocarbons from the reservoir;
21-“Associated Natural Gas”: Natural Gas which under reservoir conditions is either in solution with liquid hydrocarbons or as gas-cap gas which overlies and Is in contact with Crude Oil;
22- “Non-associated Natural Gas” – The free Natural Gas other than Associated Natural Gas;
23- “Operator” -the entity designated by the Government, in consultation with the holder of Exploration and Production right, to conduct Petroleum Operations on behalf of the latter;
24- Producing province: any Iraqi province that produces crude oil and natural gas continually on rates more than 150 thousand barrels a day (needs revision)
25- “Reservoir” – a separate accumulation of Petroleum in a geological unit limited by rock characteristics, structural or stratigraphic boundaries, contact surfaces between Petroleum and water in the formation. Or a combination of these, so that Petroleum Production from any portion of the accumulation will affect the pressure in the accumulation as a whole;
26- “Contract Area”: the area within which the holder of an Exploration and Production right is authorized to explore for, develop and produce Petroleum;
27- “development and Production Area”: a part of the Contract Area which following a Commercial Discovery has been delineated according to the terms and conditions of the Exploration and Production Contract;
28- “Crude Oil” – all hydrocarbons, regardless of specific gravity, which are produced and saved from the Field in liquid state at atmospheric pressure and temperature, including asphalt, tar and the liquid hydrocarbons known as distillates or condensates obtained from Natural Gas within the Contract Area;
29- ‘Transporter” – the entity designated by the Council of Ministers to receive Crude Oil or Natural Gas from the holder of Exploration and Production right at the Transfer Point and deliver Crude Oil for export or Natural Gas to the holder of Exploration and Production right at the Delivery Point.
30- “Production Measurement Point” – the place(s) at which volumes and qualities of Crude Oil or Natural Gas to be transferred at the Transfer Point are measured;
31- “Transfer Point” – the inlet flange(s) of the outgoing Pipelines from the Production Measurement Point, where the Transporter shall receive Crude Oil or Natural Gas from the holder of Exploration and Production right;
32- “Delivery Point” – the point(s) of the loading facility at which Crude Oil reaches the inlet flange of the receiving tank-ship or such other point inside or outside Iraq, as agreed to under the Exploration and Production Contract. In the case of Gas it Is the flange of the inlet to the receiving installation for Natural Gas;
33- “Supply Point” – the place at which Crude Oil or Natural Gas is transferred from a Main Pipeline or a Field Pipeline to a different type of transport, processing or use;
34- “The Ministry” – is the Ministry of Oil in the Republic of Iraq and other companies and organizations specifically authorized by it;
35- Specialized institute: Ministry of Oil, National Iraqi Oil Company, or regional institute
36- Regional institute: specialized ministry in the regional government.
Table of Contents
CHAPTER I: Fundamental Provisions
ARTICLE 1: Ownership of Petroleum Resources
ARTICLE 2:Scope of Application
ARTICLE 3 :Purpose
ARTICLE 4 :Definitions
CHAPTER II: Management of Petroleum Resources
ARTICLE 5 :Competence Of Authorities
ARTICLE 6: Creating the National Iraqi Oil Company
ARTICLE 7: Re-Arranging the ministry of oil
ARTICLE 8: Oil Fields’ development and production
ARTICLE 9: Grant of Rights
ARTICLE 10: Mechanisms of negotiations and contracting
ARTICLE 11:Oil revenue
ARTICLE 12: Participation of the State
CHAPTER III: UPSTREAM OPERATIONS ARTICLE 13 :Exploration and Production Contract
ARTICLE 14: obligations of the Holders of Exploration and Production right
ARTICLE 15: building local expertise
ARTICLE 16: Unitisation
ARTICLE 17: Conservation
ARTICLE 18: Access to Main Pipelines and Field Pipelines
ARTICLE 19: Ownership of Data
ARTICLE 20: Restrictions on Production Levels
CHAPTER IV: Transportation
ARTICLE 21: Main Pipelines
ARTICLE 22: Rights and Obligations regarding Pipelines
CHAPTER V: Natural Gas
ARTICLE 23: investment of Gas ARTICLE 24: Associated Gas
ARTICLE 25: Flaring of Natural Gas
ARTICLE 26: Non-Associated Gas
CHAPTER VI: Regulatory Matters
ARTICLE 27: Regulations for Petroleum Operations
ARTICLE 28: Use and Benefit of Land and Rights of Way
ARTICLE 29: Access to Zones Subject to Maritime Jurisdiction
ARTICLE 30: Inspection ARTICLE 31: Environmental Protection and Safety ARTICLE 32: Transfer of Ownership and Decommissioning
CHAPTER VII: Fiscal Regime
ARTICLE 33: General Principles of Taxation
ARTICLE 34: Royalty ARTICLE 35: Other Taxation Issues
CHAPTER VIII: Miscellaneous Provisions
ARTICLE 36: Transparency
ARTICLE 37: implementing anti-corruption laws
ARTICLE 38: attracting competitive participation
ARTICLE 39: Existing Contracts
ARTICLE 40: Resolution of Disputes
ARTICLE 41: Relationship to Existing Legislation
ARTICLE 42: Entry in Force