Iraqis Rebel over Proposed Oil Law

May 30th, 2007 - by admin

Ahmed Janabi / Al-Jazeera & Tina Susman / Los Angeles Times – 2007-05-30 23:34:47

Row over Iraq Oil Law Ahmed Janabi / Al-Jazeera

Kirkuk’s fate will be determined through a referendum this year. A draft law being considered by the Iraqi parliament would enable US companies to take control of Iraq’s oil industry, oil experts in the country say.

The proposed bill, approved by the Iraqi government in February after months of wrangling, opens the country’s oil sector to foreign investors 35 years after it was nationalised.

“The law is designed for the benefit of US oil companies,” Ramzy Salman, an Iraqi economist who worked for the Iraqi oil ministry for 30 years, said. “If approved, it would take things back to where they were before the nationalisation of Iraq’s oil in 1972.” But he said the situation would be reversed when Iraqis regained their “true sovereignty”.

Salman said: “If there is something that should be worked on, it is the [Iraqi] constitution. “The constitution contains serious gaps in terms of who is in charge of the oil and its revenues … [despite the] oil in Iraq being under every Iraqi river, desert, marsh and farm.”

The new law, if approved, would authorise production share agreements (PSAs), which offer huge profits for foreign oil companies.

PSAs are normally ideal for poorer countries exploring virgin lands or wanting to extract oil from fields where the resource is well below the surface and are designed to protect investors from the risks involved in such exploration projects.

‘Completely Inappropriate’
But Iraqi oil experts say investors face virtually no risk, as the country’s oil is the cheapest to extract worldwide, and is of such a high quality that it sells at a premium on world markets.

Issam al-Chalabi, Iraq’s former oil minister, said PSAs were completely inappropriate for Iraq.

He said: “An oil barrel in most of Iraq’s oilfields costs between 50 cents and one dollar to extract. Iraq’s fields are also proven, and investing in them is risk-free.

“These kinds of agreements are normally given when there is a risk, as the case in Sudan, Yemen and several other countries, where companies invest money with great risk that they would not find oil, or they find difficult to extract oil.”

Political Motives
Al-Chalabi said PSAs were a highly profitable formula for oil companies and in many cases they were granted for “political reasons. Under no circumstances would Iraq relinquish its authority, its responsibility and its control over Iraq’s natural resources”

“In the 1990s, the government of Saddam Hussein gave PSAs to Russian and Chinese oil companies, but it was more of a political decision than economic,” al-Chalabi said.

“The US and its allies lobbied in the 1990s against Iraq in order to tighten UN sanctions, while Iraq was betting on Russia and China to help remove or at least ease the sanctions.” He said the contracted Russian and Chinese oil companies were mostly government-owned.

The 12.5 percent profit protected by the new law is also disputed by many as being too low. Al-Chalabi said the percentage was excessive given current oil prices.

“Iraq’s PSA with the Chinese and Russians gave a profit percentage less than 10 per cent when the oil barrel price was around $25, but now the barrel is over $60 which means the percentage of 12.5 per cent is too high,” he said.

Break-up of Iraq
The draft law would give Iraq’s provinces a free hand in giving exploration and production contracts, which some fear will lead to a decline in the authority of the central government over the country’s main resource.

Observers say that if the new law is approved, it will also encourage separatists in the oil-rich provinces to split off. Eventually the break-up of Iraq would be impossible to prevent.

Iraq’s constitution allows governorates to form a semi-independent regions, which enjoy full rights in controlling natural resources.

Dhafir al-Ani, an Iraqi member of parliament, said: “The proposed oil law is the best possible in the current situation. “However, if there are some gaps in it, then the reason is the constitution, which contains several controversial issues and needs to reconsidered.”

Government Denial
Iraqi officials insisted in a forum held in Dubai last month that the bill due to be submitted to parliament will keep the country’s oil wealth in Iraqi hands and benefit all of its warring communities.

“Under no circumstances would Iraq relinquish its authority, its responsibility and its control over Iraq’s natural resources,” Hussein Shahristani, the country’s oil minister, told reporters in the United Arab Emirates.

Muhammad Bahr al-Ullom, who laid the early foundations of the current draft oil law when he served as Iraq’s first post-war oil minsiter in 2004, has told reporters that he is in favour of the new law. He said it would not put Iraq’s oil at the hands of foreign oil companies and it would not devide Iraq.

Al contacted Bahr al-Uloom in Iraq and agreed with him to call a few hours later for a telephone interview. However, there was no answer to a telephone call at the appointed time or when subsequent attempts to reach him were made.

Kurds and the New Law
Ashti Hawrami, oil minister for the Iraqi Kurdish region, said at the Dubai conference that the Kurds would reject any ammendments to the suggested law and that they would go ahead with deals they have already made, whether the law was approved or not.

Al-Ani agreed with Salman that the proposed law was a “political” deal to strengthen US allies in Iraq. He said: “We are a democratically elected legistlative body, if we would blindly approve anything presented to us, then why are we there? I prefer we go home. We have increasing signs that the law is a political deal.”

Iraq’s Kurdish semi-autonomous region has already given PSAs to foreign oil companies, and is in favour of the proposed oil law. The region may well gain control of the oil-rich governorate of Kirkuk through a referendum due to be held later this year.

If the new law is approved and the Kirkuk referendum came in favour of the Kurds, the Kurdish region would enjoy huge economic power.

Iraqis Resist US Pressure to Enact Oil Law
Tina Susman / Los Angeles Times

(May 13, 2007) — Foreign investment and Shiite control are the primary concerns. A White House deadline for passage is in doubt.

It has not even reached parliament, but the oil law that U.S. officials call vital to ending Iraq’s civil war is in serious trouble among Iraqi lawmakers, many of whom see it as a sloppy document rushed forward to satisfy Washington’s clock. Opposition ranges from vehement to measured, but two things are clear:

The May deadline that the White House had been banking on is in doubt. And even if the law is passed, it fails to resolve key issues, including how to divide Iraq’s oil revenue among its Shiite, Kurdish and Sunni regions, and how much foreign investment to allow. Those questions would be put off for future debates.

The problems of the oil bill bode poorly for the other so-called benchmarks that the Bush administration has been pressuring Prime Minister Nouri Maliki’s government to meet. Those include provincial elections, reversing a prohibition against former Baath Party members holding government and military positions and revision of Iraq’s constitution. Republican leaders in Washington have warned administration officials that if the Iraqi government fails to meet those benchmarks by the end of the summer, remaining congressional support for Bush’s Iraq policies could crumble.

Their impatience was underscored Wednesday by Vice President Dick Cheney during a visit here. “I did make it clear that we believe it’s very important to move on the issues before us in a timely fashion, and that any undue delay would be difficult to explain,” Cheney told reporters.

But Iraqi lawmakers show little sign of bending to accommodate Bush on an issue as crucial as oil. “We have two clocks — the Baghdad clock and the Washington clock — and this is a perfect example,” said Mahmoud Othman, a lawmaker from the semiautonomous Kurdish region of northern Iraq. “This has always been the case. Washington has been pushing the Iraqis to do things to fit their agenda.”

Iraq is believed to have some of the world’s largest oil reserves, about 115 billion barrels. The country’s 2007 budget is based on predictions that oil proceeds will reach $31 billion, 93% of the government’s revenue. But war and political instability have kept production down.

Just before the US-led invasion in March 2003, production was 2.6 million barrels per day. US officials predicted a rapid rise to 3 million barrels. Instead, Iraq often has struggled to push the daily total to 2 million barrels because of obsolete equipment and security problems.

The oil law is supposed to change this by opening the industry to foreign investors who could modernize equipment and increase production. U.S. officials hope that spreading oil profit fairly across the country would cause instability to ebb. Iraq’s cabinet, the Council of Ministers, approved a draft oil measure in February.

From there, it was to go to parliament. U.S. officials predicted passage would be quick, but it has stalled. The objections are as vast and technical as the measure itself and reflect the wider problems facing Iraq: regional distrust of the Shiite-led central government; wariness of foreign interest; and anger toward the United States, which many Iraqis believe invaded Iraq solely to get its hands on the oil.

Kurds Object
The Kurdish regional government voiced its opposition to the measure last month after seeing lists drawn up by the Iraqi central government that categorized the oil fields according to levels of development and geographical boundaries. Those factors would determine who would manage the fields and the contracts involving them — regional authorities or the state-run Iraq National Oil Co., which has yet to be established.

Kurdish authorities say the lists gave 93% of fields to the national oil company, including some they say are at least partially in Kurdish territory. Their dissatisfaction has been made blazingly clear on the Kurdistan regional government website, which has posted the lists along with comments in red letters beside the sections they oppose. “WRONG!” and “TOO BIG!” are common remarks. Kurdish officials have said that unless the lists are redrawn, they will not support the bill. Kurdish parties control about one-fifth of the parliament.

Other points of contention, which have drawn in Sunnis as well as Shiites, involve the mechanism for distributing oil profit and the degree of foreign participation in a committee that would set policy on contracts and other industry issues. None of those is clarified in the proposed legislation. “Quite a lot of it is not good, to be honest,” said a Western energy expert in Baghdad who spoke on the condition of anonymity to avoid angering Iraqi officials.

“A lot of the difficult questions were fudged, like revenue sharing and who controls the oil fields. These obviously are vitally important, but they wanted a benchmark passed, so it was pushed,” he said, referring to US officials.

The question of how to divvy the money is especially troublesome because of Sunni Arab and Kurdish distrust of the Shiite-led government. Under the proposed law, the central government would control a bank account used for distributing oil proceeds. “There were ideas that checks from the single oil account should have three signatures: one should be Sunni; one should be Shiite; one should be Kurd,” said Zalmay Khalilzad, the former U.S. ambassador to Iraq who left the post in March.

Passing the measure “requires a very hands-on effort by the international community, by the United States,” Khalilzad said. “This is the paradox of this situation. We have a greater sense of urgency because of our situation than they do.” The Western energy expert said Iraqi politicians estimate that a decision will take a few months or perhaps until the end of the year. “They say, ‘Hang on, this is an important law, we’re not just going to pass it,’ ” he said.

Foreign Investment
Next to how to divide the money, the most contentious issue appears to be the role of foreign investment. The measure envisions profit-sharing agreements, which reward foreign contractors for doing business in risky environments. Even those who support the proposal as a framework have reservations about the details.

“All in all, we need the new law. The existing ones are very old,” said Haider Abadi, a member of Maliki’s Islamic Dawa Party, a Shiite group. “Having said this, though, it does not mean that at this stage we are for a full opening of the doors to foreign investment in the oil sector.”

Salim Abdullah Jabouri, a spokesman for the Sunni bloc, also expressed concern about having foreign companies profiting from Iraqi oil. “We think that the timing of this law is not suitable,” he said. Some of the fiercest opposition has come from oil workers, who threatened to go on strike this week to protest the legislation.

Imad Abdul Hussain, a leader of the Federation of Oil Unions, said workers want oil production to remain in government hands. “Oil is Iraq’s sovereignty. It is the only wealth in Iraq. It unifies Iraqis. When we give it to a foreign investor, this means the sovereignty is taken away,” he said. Energy experts, though, say Iraq has no hope of increasing production without foreign expertise and money.

Beyond all the political issues looms Iraq’s most basic problem: security. The country may need help from outside investors, but “without security and a stable regime, none of this will mean much, because they won’t come in,” said Gal Luft, an energy expert at the Institute for the Analysis of Global Security, a Washington think tank that studies energy-related security issues. There were at least 15 attacks on Iraqi oil facilities in the first three months of the year, according to the institute.

They included slayings of oil industry workers and bombings of wells and the pipeline that carries oil from Baiji, in northern Iraq, to Turkey. The number of attacks is lower than during the same period last year, but Luft said that is because saboteurs’ favorite target, the pipeline, has been hit so many times that it rarely functions. “They normally do not attack pipelines that are not in operation,” Luft said.

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