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Iraqis Near Deal on Distribution of Oil
Revenues
9.12.2006
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December 9, 2006
BAGHDAD, December 8 ,--Iraqi officials are
near agreement on a national oil law that would give
the central government the power to distribute
current and future oil revenues to the provinces or
regions, based on their population, Iraqi and
American officials say.
If enacted, the measure, drafted by a committee of
politicians and ministers, could help resolve a
highly divisive issue that has consistently blocked
efforts to reconcile the country’s feuding ethnic
and sectarian factions. Sunni Arabs, who lead the
insurgency, have opposed the idea of regional
autonomy for fear that they would be deprived of a
fair share of the country’s oil wealth, which is
concentrated in the Shiite south and Kurdish north.
The Iraq Study Group report stressed that an oil law
guaranteeing an equitable distribution of revenues
was crucial to the process of national
reconciliation, and thus to ending the war.
Without such a law, it would also be impossible for
Iraq to attract the foreign investment it
desperately needs to bolster its oil industry.
Officials cautioned that this was only a draft
agreement, and that it could still be undermined by
the ethnic and sectarian squabbling that has
jeopardized other political talks. The Iraqi
Constitution, for example, was stalled for weeks
over small wording conflicts, and its measures are
often meaningless in the chaos and violence in Iraq
today.
But a deal on the oil law could be reached within
days, according to officials involved in the
drafting. It would then go to the cabinet and
Parliament for approval.
The major remaining stumbling block, officials said,
concerns the issuing of contracts for developing
future oil fields. The Kurds are insisting that the
regions reserve final approval over such contracts,
fearing that if that power were given to a
Shiite-dominated central government, it could ignore
proposed contracts in the Kurdish north while
permitting them in the Shiite south, American and
Iraqi officials said.
The national oil law lies at the heart of debates
about the future of Iraq, particularly the issue of
a strong central government versus robust regional
governments. The oil question has also inflamed
ethnic and sectarian tensions. Sunni Arabs, who
preside over areas of the country that apparently
have little or no oil, are adamant about the
equitable distribution of oil revenues by the
central government.
On the drafting committee, Sunni Arabs have allied
with the Shiites against the Kurds, who have sought
to maintain as much regional control as possible
over the oil industry in their autonomous northern
enclave. Iraqi Kurdistan has enjoyed de facto
independence since 1991, when the American military
established a no-flight zone above the mountainous
region to prevent raids by Saddam Hussein.
Gen. George W. Casey Jr., the senior American
commander here, and Zalmay Khalilzad, the American
ambassador, have urged Iraqi politicians to put the
oil law at the top of their agendas, saying it must
be passed before the year’s end.
The drafting committee is made up of ministers and
politicians from the main Shiite, Sunni Arab and
Kurdish blocs in government. They began talks months
ago, but the pace picked up recently, said an
American official tracking the negotiations, who
spoke on condition of anonymity because he did not
want to give the appearance of Western interference
in sovereign Iraqi matters.
At the start of the talks, the Kurds fought to
ensure that regional governments have the power to
collect and distribute revenues from future fields,
Iraqi and American officials said. They also
proposed that revenues be shared among the regions
based on both population and crimes committed
against the people under Mr. Hussein’s rule. That
would have given the Kurds and Shiites a share of
the oil wealth larger than the proportions of their
populations.
But the Kurds dropped those demands, said Barham
Salih, a deputy prime minister who is a Kurd and the
chairman of the committee.
“Revenue sharing is an accepted principle by all the
constituent elements of the Iraqi government,
including the Kurds, and that is the unifying
element that we’re all hoping for in the oil law,”
Mr. Salih said in an interview.
The American official said the Kurds were willing to
make concessions because a national oil law could
attract more foreign oil companies to exploration
and development in Kurdistan. A large foreign oil
company would have more confidence in signing a
contract with the Kurds if it were to operate under
the law of a sovereign country rather than just the
law of an autonomous region.
Some Kurdish leaders also believe that the
concessions are a worthwhile price to pay for having
a stake in the much larger revenue pool of the
country’s oil industry, the American official said.
The southern fields accounted for 85 percent of
total Iraqi crude production last year, partly
because northern production was hampered by
insurgent sabotage. The south has an estimated 65
percent of the country’s 115 billion barrels of
proven reserves.
But the Kurds are still holding out on the issue of
oil contracts, arguing that the Constitution
guarantees the regions absolute rights in those
matters. The Kurds recently discovered two new oil
fields after signing exploration contracts with a
Turkish company and a Norwegian company.
“There are those among us who say we cannot go back
to the former days of centralization, which were not
conducive to good business practice and to the idea
of federalism that is enshrined in the
Constitution,” Mr. Salih said.
In its recommendations released Wednesday, the Iraq
Study Group took the opposite tack, to the anger of
the Kurds. The report said that “no formula that
gives control over revenues from future fields to
the regions or gives control of oil fields to the
regions is compatible with national reconciliation.”
Though the Kurds have ceded their position on the
issue of future revenues, they are fighting for
control over the development of future fields.
The drafting committee met Thursday night to try to
resolve the contract issue, but could not reach an
agreement.
Distributing revenues by population could be a
difficult matter without a reliable census, which
Iraq lacks. Sunni Arabs often claim they are at
least 60 percent of the population, not the 20
percent that is commonly cited. The Shiites are
generally estimated to be 60 percent of the
population, and the Kurds 20 percent. The American
official said a national census expected to be taken
next year should determine the share of revenue that
goes to each province or region.
If doing a census next year is too politically
fraught, or if security conditions prevent it, then
revenues could be distributed to provincial or
regional governments according to the household
counts used by Mr. Hussein’s government to
distribute rations in the 1990s.
The Kurds have insisted that revenues collected by
the central government should be put into an account
that automatically redistributes the money into
sub-accounts dedicated to the provinces or regions.
This approach could be written into the national oil
law or into a separate law, the American official
said.
The working draft of the oil law re-establishes the
state-run Iraq National Oil Company, which was
founded in 1964 to oversee oil production but was
shut down by Mr. Hussein in 1987. The company would
operate using a business model and not through a
government budget process. Iraqi and American
officials say that would make management of oil
production more efficient and separate it from the
Oil Ministry, which has been rife with
corruption.
The North and South Oil Companies, which currently
manage production in their regions, would fall under
the umbrella of the Iraq National Oil Company. Any
exports would still be sold through a state
marketing company.
The law also sets production thresholds for creating
new regional companies. A province or region, for
example, might have to show it can produce 100,000
barrels a day before a company can be created there.
Officials in Maysan Province in the south have
already said they want to start a company.
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