Prague, September 15, --
Over the past year, the Iraqi Kurdish regional government has taken
steps to unify its Sulaymaniyah and Erbil administrations, drafted a
constitution for the region, passed an investment law, and drafted a
petroleum law, which is expected to be presented to the Kurdish
parliament for ratification this month.
The region's prime minister, Nechirvan Barzani, told representatives
of some 800 international companies from 30 countries attending this
week's international trade fair in Irbil that the region's
free-market approach makes it a logical choice for investing in
Iraq.
U.S. Ambassador to Iraq Zalmay Khalilzad was on hand for the opening
ceremony of the four-day trade fair, telling U.S. companies on
September 14 to focus on the tourism, agriculture, and energy
sectors. "I do not want you to spend four days in Kurdistan, and
then return without a contract, and personally
I invite you to take advantage of
Kurdistan and invest in this area," turkishdailynews.com
quoted Khalilzad as saying.
Government Incentives
The trade fair will also highlight major projects already under way
in the Kurdish region, including the construction of an
international airport, as well as hotels, a conference center, power
station, a hospital, and hundreds of new housing units.
Another international trade fair is already slated to take place in
Sulaymaniyah in November.
Local officials have touted the region's investment climate. Under
the region's new investment law, foreign investors are given the
same rights as Iraqi investors, giving them full ownership of
projects. Companies and their non-Iraqi staff may freely transfer
their profits or income abroad without paying taxes or customs.
The law also provides major investment incentives, including
exemptions from all noncustoms taxes and duties on projects for 10
years. In addition, imported equipment, machinery, spare parts, raw
materials, and even furniture are exempt from taxes, duties, and
import licenses under certain conditions.
Wrangling Over Oil
By contrast, the status of the draft petroleum law is less clear.
The regional government (KRG) published a revision of the draft on
September 9, nearly one month after the first draft was made public.
The initial version reportedly drew criticism in Baghdad and abroad.
The government contends that the latest version, which has yet to be
presented to the region's council of ministers and parliament,
clarifies provisions disputed in the earlier draft.
"The revisions in the draft published [on September 9] reflect, for
the most part, the KRG's effort to describe in greater detail an
appropriate cooperative arrangement on petroleum licensing,
operation, and revenue sharing between the KRG and the federal
government of Iraq," the regional government said in a press
release.
According to the draft, the regional government vows to work with
the central government pursuant to the requirements laid out in the
Iraqi Constitution only if the following conditions are met within
three months of the law's entry into force: agreements must be set
on revenue sharing, distribution, and administration of extracted
petroleum; the regional government and the Iraqi government
restructure the petroleum industry; and two federal institutions
regulating current fields and the exploration and development of
future fields must be established.
Iraqi Deputy Prime Minister Barham Salih confirmed in late August
that an oil-sharing agreement had been reached, but said differences
remained over who would hand out oil contracts. Details of the
agreement were not released.
Should the conditions laid out in the draft not be met, the regional
government retains the exclusive management and control of petroleum
operations and revenues, the draft states. Given the current state
of affairs in Baghdad, it is reasonable to assume that the central
government could not meet the requirements laid out in the draft
law, particularly the clause on restructuring the petroleum
industry, which is quite vague.
Territorial Disputes
More contentious is the draft's clause on disputed territories,
which states: "The [Kurdish] ministry [of Natural Resources] may
enter into petroleum contracts for petroleum operations in disputed
territories where the minister concludes after consultation with
other governmental authorities in Kurdistan that it is likely that
the citizens in those disputed territories, in the referendum
required by Article 140 of the Constitution of Iraq, will decide
that those disputed territories are to be part of Kurdistan."
The implication that Kurds reserve the right to begin oil production
in Kirkuk ahead of any referendum that might place the oil-rich
governorate legally inside the boundaries of the Kurdish region is
sure to draw fire from both Baghdad and the governorate's Turkoman
and Arab communities.
As the regional government works to promote foreign investment, it
will need to better address the issues of corruption and
transparency. It will also need to address infrastructure issues if
it is to promote investment in areas outside the region's three
major cities: Irbil, Al-Sulaymaniyah, and Dahuk.
As for security, the region has remained free of the violence that
has plagued much of the rest of Iraq over the past 3 1/2 years,
thanks in part to the strength of the region's security apparatus.
But, the regional government must also convince investors of its
commitment to the rule of law. The arrest of demonstrators,
journalists, and other activists in recent months has not gone
unnoticed in Western media reporting on the Kurdish region.
Issues such as the presence of PKK fighters along the northern
border area and threats from the Turkish and Iranian militaries, are
also likely to have a negative impact on investors.
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