Dr. Ashti
Hawrami, KRG Minister for Natural Resources, responds to comments
received on the draft Kurdistan Petroleum Act
Erbil, Kurdistan – Iraq, 22 August 2006 - The initial
Kurdistan Regional Government (KRG) Draft Petroleum Act was produced
for internal discussions in early July 2006. At the same time, a
similar compatible Draft Law was also prepared by the KRG for the
whole of Iraq, which was presented to the Federal Authorities. Over
the last several weeks, it became apparent that the priorities of
the Federal Authorities remained focused on other pressing matters,
hence the KRG decided to publish our Draft Petroleum Act for the
Kurdistan Region for public consultation on 7 August. This was
intended to generate some feedback internally as well as from the
wider international investment community regarding the fairness and
the clarity of the proposed Act.
Since its announcement on the KRG website, the Draft Petroleum Act
had over 1,830 hits. We have also received a number of calls, as
well as written enquiries on the subject, which have been compiled
by the KRG Spokesman Khaled Salih. Dr. Salih referred these
questions and enquiries to Dr. Ashti A. Hawrami, the KRG Minister
for Natural Resources, who responds to them and other questions
here.
Q: Are you pleased with the level of response so far and has
this exercise helped you to confidently proceed with the Act and
seek the approval of the Kurdistan Region’s parliament (the
Kurdistan National Assembly) on it?
Dr. Hawrami: Indeed, I am very
pleased with the responses and comments, as they indicate support
and serious interest in the Act and in the accompanying production
sharing contract (PSC) model. Therefore, I am now confident that the
Draft Act will be seen as being fair, clear and investor friendly,
hence in due course I will proceed to the next step to get it
approved by the Kurdistan Region’s parliament. We will then be able
to expedite inward investment to Kurdistan, which should provide
significant benefits to the people in Kurdistan as well as to the
rest of our people in the Federal Iraq.
Q: What is the process now and are you still aiming for
September?
Dr. Hawrami: Firstly, we need to
deal with the comments received (work on that has already started),
then we need to get the Arabic and Kurdish versions updated and
reviewed. These matters may take another two or three weeks, so by
around mid-September the Draft Act should be ready for presentation
to the Parliament. The Draft Act is expected by the Kurdistan
Region’s parliament, so it should not take too long to be formally
approved.
Q: Are you going to wait for the approval of the Kurdistan
Region’s parliament before inviting companies for potential
contracts?
Dr. Hawrami: No, we have already
started the process. We need to have discussions and time for
negotiations with the interested companies, so by the time the Act
is approved we should be in the position to sign a number of new
contracts.
Q: Are these the usual “small” size companies that the KRG
opponents keep attacking at every conceivable opportunity, or do you
expect some larger companies to come as well?
Dr. Hawrami: Firstly, nothing is
wrong with these small companies. Each of the four groups that
presently has contracts in Kurdistan, has its market capitalization
well in access of $2 billion. So, they are not that small and for
sure they are capable of undertaking the contracts assigned to them.
The critics should remember that all the present day majors also
started from a very small base, and they only grew by taking risks
on the opportunities that came their way. People should also
remember that, at the time we had these companies, Kurdistan was in
a difficult situation: there was no constitution, no investment law,
no petroleum law to encourage the larger companies to invest in
Kurdistan, and two regional administrations to deal with. Over the
last 18 months all of that has changed very rapidly and favourably.
Kurdistan is now open for business and offers real opportunities to
all types of companies, including the majors. Our primary criteria
for selecting companies would be their overall technical capability
and financial strength to perform the contracts in question. Indeed,
over the last few months, in particular as the result of our recent
Investment Law and our Draft Petroleum Act, I had been approached by
over 10 medium to major size companies who have indicated a
readiness to do business in Kurdistan.
Q: Several press reports claim that the some people in
Baghdad regard the previous agreements to be illegal. How do you
react to that?
Dr. Hawrami: I think these
comments might just be the rehash of all the old stories or they are
coming from people who may not have a full understanding of Iraq’s
Constitution, or perhaps they just simply do not respect it. As I
said earlier, we only have four signed contracts, but I am unaware
of any official objections from Baghdad on them. For the record,
everyone should be aware of the good standing of all these
contracts, as their legality is clearly reaffirmed by Article 141 of
the Iraq Constitution, which states that “Legislation enacted in the
region of Kurdistan since 1992 shall remain in force, and decisions
issued by the government of the region of Kurdistan, including court
decisions and contracts, shall be considered valid unless they are
amended or annulled pursuant to the laws of the region of Kurdistan
by the competent entity in the region, provided that they do not
contradict the Constitution.”
Q: As you said, the legality of the contracts is clear but
how about their commercial terms, particularly the DNO contract
which is often criticised?
Dr. Hawrami: Again, these
criticisms are coming from the same sort of anti-Kurdish,
anti-federalist people and their friends who appear to be very
selective in their analysis. In the case of DNO, the Contractor
consists of two parties (DNO and the KRG), each contracting party
has 50% interest in the projects, the other party to the contract is
the Government of Kurdistan (the KRG). The contract allows for 40%
oil profit to go to the contractor (which means 20% to DNO and 20%
to KRG). I’m sure anyone can work easily out that this is 20%
overall profit to DNO as a foreign investor, and not 40% as the
critics keep saying. I believe that a 20% margin is reasonable,
considering that DNO took an exploration, as well as a political
risk, by working in Kurdistan. We are proud of our partnership with
them. Likewise, we are happy with all the commercial terms of the
other three contracts. Therefore, my message to everyone is to get
real, find something constructive to do or to talk about, because
Federal Iraq is here to stay. The KRG will not waiver from any of
its constitutional rights, and for sure we shall also continue to
support the rights of all the governorates as defined in the
constitution.
Q: Can you cite some of the specific comments received on the
Draft Act?
Dr. Hawrami: As I mentioned in
the beginning, the comments are all positive and there are a few
constructive recommendations from a number of oil companies which
relate to major integrated projects, contractual rights to
“associated and non-associated gas”, and the royalty and the cost
recovery limits in the cases for high risk frontier exploration, or
for projects involving major upfront capital investment. Other
comments were of a minor nature, but will nevertheless be addressed
in the final Draft Act. A couple of general messages of support are
worth mentioning just to illustrate how well the Draft has been
seen. An e-mail message from a major oil company started by saying:
“It took some time for us to digest the documents. Congratulations
and our compliments, this is a modern petroleum law that covers all
relevant points”; another message said “Well you have made excellent
progress in a very short time, here in the USA the documents are
seen to be fair, modern and thorough in all aspects”.
Q: People have asked if we had any responses from Baghdad.
Are you aware of any?
Dr. Hawrami: To be fair I did
not expect any from Baghdad. They already saw our proposed Iraq Act
some six weeks ago, which is similar to the Kurdistan Act. However,
I understand that our proposed Act for Iraq has been circulated in
Baghdad for comments. This is excellent news. I had a couple of
indirect messages from senior people at the Oil Ministry who seem to
like it because of its inclusiveness and its special concern for the
whole country. So, we hope that the Iraq Act also progresses soon.
Q: There were comments on selecting PSC (production sharing
contract) as a model, versus a buy-back type model. How do you
respond to these?
Dr. Hawrami: Due to my
international work for over the last 30 years and in looking closely
at many oil producing provinces around the world, I have came to the
conclusion that PSC is the most realistic model that Iraq (or at
least Kurdistan) should consider to create the right climate for
inward investment. The buy-back model is not widely understood, in
fact it has not been implemented anywhere except in one country
where it failed badly to attract any serious inward investment.
Therefore we must not blindly copy this type of model and make
similar mistakes, as this will cost us dearly for sure.
Q: How do you respond to those who discourage oil companies
from coming to Kurdistan?
Dr. Hawrami: Again, I am not
surprised as this, which is coming from the similar anti-Kurdish and
anti-federalism sources. However, I strongly object to those who are
in senior government employment positions, who abuse their roles by
discouraging investment into Kurdistan. I feel they are clearly
undermining the constitution and their actions will not do any good
for Federal Iraq. If they continue with their hostility towards
Kurdistan, we will name and shame them by taking them to the Federal
Parliament.
Q: Finally, when do you expect to produce oil from the
previous contracts?
Dr. Hawrami: The DNO discovery
and the Taq Taq field should come into production during the first
and second quarter (Q1 and Q2) of 2007, respectively. Export
pipeline connections are under consideration, the initial production
levels should start at around 40,000 barrels of oil per day,
increasing by the end of 2007 to over 100,000 barrels of oil per
day. In 2008 we should go to over 200,000 barrels of oil per day.
Surely this is an excellent start to bring early new revenues for
the benefit of the entire population of Iraq. Considering this
positive contribution from the KRG, I wonder who in their right mind
could justify discouraging new investments in Kurdistan, which in
due course and with our fullest support will certainly extend to the
rest of the country.
The proposed draft Petroleum Law for the Kurdistan Region and
related documents
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