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Statement From Minister Of Natural Resources
Kurdistan Regional Government-Iraq
30.4.2007
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April 30, 2007
The Kurdistan Regional Government (KRG) clarifies
its position regarding the latest developments on
the Draft Oil Law
In the light of the recent developments, the
Kurdistan Regional Government (KRG) expresses
serious concerns regarding the draft Annexes to the
proposed Oil and Gas Law that were recently
circulated, and that were discussed last Wednesday
at a conference in Dubai (“the Dubai Annexes”).
These are concerns that should be shared by all
Iraqi citizens. In summary, the Dubai Annexes are
inconsistent with the overriding policy goal of
maximizing economic returns to the Iraqi people, and
inconsistent with Iraq’s federal Constitution. The
Dubai Annexes are inconsistent with the proposed Oil
and Gas Law that was agreed by the Council of
Ministers on 15 February 2007.
As a member of the Federal Oil and Energy Committee,
I urge the Committee to address these concerns, and
consider the merits of the attached KRG-proposed
amendments to the Annexes. Until our concerns are
addressed, the KRG cannot support any Oil and Gas
Law package of legislation in the Council of
Representatives.
Our concerns with the Dubai Annexes are as
follows:
1. Concentration of unaccountable power: The Dubai
Annexes attempt to allocate almost 93 per cent of
Iraq’s proven petroleum reserves to a new “Iraq
National Oil Company” (INOC), leaving barely 7 per
cent for Regions and other entities to use for
inward investments. Furthermore, the majority of the
fields included in the 7 per cent remainder are
marginal or not commercial. Massive power will be
concentrated in the hands of INOC without any clear
investment and production targets, and without clear
accountability to the people of Iraq. With this
level of concentration, the proposed Oil and Gas
Law, and any regulatory apparatus, will become
irrelevant.
The Board of INOC must be entirely separate from the
Oil Minister and the Oil Ministry: INOC must be a
regulated, not a regulatory, body. Because it is
supposed to be a federal institution, INOC must be
accountable to the Federal Oil and Gas Council, and
not to the Council of Ministers. INOC must not be
given almost the entirety of Iraq’s oil and gas
reserves.
The proposed Federal Oil and Gas Council, an
intergovernmental institution, will recognise to the
fact that Regional rights over petroleum have
paramountcy in the Constitution over federal rights
(Article 115) and the right of Regions to be
represented in federal decisionmaking (Article 105).
2. Return to old regime methods: The concentration
of power in the hands of INOC will represent a
return to method of petroleum management of previous
Iraqi regimes, where centralized oil power was a
corrupting influence, and used to fund violent
campaigns by elites against neighbouring countries
and against our own Iraqi citizens.
Iraq’s petroleum regime must be modern. The KRG is
well aware that all successful oil producing
federations have a decentralized petroleum sector,
with some level of national cooperation, and all are
open to private investment. Iraq’s Constitution, in
Article 112, mandates just such a petroleum sector,
and the Constitution must be honoured.
3. Breach of constitutional rights of Regions: The
allocation of petroleum to INOC as proposed in the
Dubai Annexes is unconstitutional. Specifically:
(a) The Dubai Annexes purport to give to INOC
petroleum fields that are undeveloped, including
fields that must be managed by future Regions in
Iraq, including a future southern Region or Regions.
These fields must be under the management control of
Regions and Governorates pursuant to Article 112 of
the Constitution. Undeveloped fields over which no
Region or Governorate asserts jurisdiction should be
allocated, temporarily, to the Oil Ministry, and
open to bidding.
(b) The Dubai Annexes give to INOC currently
producing fields, but do not place INOC under an
obligation to manage those fields jointly with
Regions and Governorates. Article 112 of the
Constitution is clear on this point also, but the
INOC law, as drafted, does not acknowledge the role
of Regions and Governorates as joint partners in
management decisions, but rather refers only to a
diluted consultation mechanism.
(c) The Dubai Annexes do not clearly recognize KRG
authority to contract in the Kurdistan Region, and
indeed propose exploration and development blocks in
the Kurdistan Region that differ from those which
are already the subject of KRG contracts with
private investors. Annexes 3 and 4, in particular,
must recognize the fact that the Constitution
itself, in Article 112, allocates fields other than
currently producing fields to the Regions and
Governorates, including the Kurdistan Region. The
Annexes must recognize that the KRG has already
allocated exploration and development blocks in the
Kurdistan Region under Production Sharing Agreements
pursuant to the Iraq Constitution. The Annexes must
clearly acknowledge that fields and blocks in the
Kurdistan Region are under the KRG’s jurisdiction,
that it is for the KRG to define the coordinates of
the fields and blocks, and that the KRG will be
contracting authority for those fields and blocks.
The KRG considers that, in the unlikely event the
proposed Law with the Dubai Annexes were presented
to the Council of Representatives and approved by
the Council, the law would be immediately void as
unconstitutional by virtue of Article 13 of the
Constitution.
4. Breach of constitutional revenue sharing rules:
It is also unclear whether the Dubai Annexes will
require INOC’s revenues to be shared throughout Iraq
according to population. Article 112 of the
Constitution is very clear on this requirement.
With these Dubai Annexes, Iraq is in great danger of
losing its main source of revenue to an
unaccountable entity that will absorb funds for
alleged reinvestment and expansion but without
returning funds to the people of Iraq. The KRG has
advanced several discussion drafts of a revenue
sharing law for Iraq that would pool all petroleum
revenue, wherever that revenue is raised, for
sharing throughout Iraq according to the
Constitution. We have received no response.
5. Failure to maximize revenue for Iraq: The legal
obligations of INOC to develop Iraq’s petroleum are
unclear in the Dubai Annexes. Article 112 of the
Constitution requires oil production in Iraq to
maximize returns to the peoples of Iraq. The Dubai
Annexes provide Iraq with no assurance that INOC
will be any better than the current bureaucracy in
increasing petroleum revenue for Iraq. Many of the
fields which are proposed to be allocated to INOC
have been discovered for up to 30 years, without any
development. With no accountability or contractual
requirements to produce, why should we expect the
performance of INOC to be any better than that of
the Oil Ministry in past years and decades?
INOC must be clearly defined as a contract-holder
for each of the particular fields allocated to it,
like any other contractor in Iraq, with contractual
obligations to the Iraq federation to develop fields
and generate revenue for Iraq-wide sharing. This was
the intent of the 15 February Draft Oil and Gas Law.
Each field for which INOC is the contractor must,
depending on the particular nature of the field,
have a mandatory program for field development. If
the mandatory program is not met, the field should
be put on the market for open bidding, to obtain
maximum timely returns to the Iraqi people. INOC
should be given a mandatory target of increasing
Iraq’s petroleum production to 4.5 million barrels
per day within 5 years, and should lose some of its
contractual rights if individual field targets are
not met.
6. Deters investment: The Dubai Annexes will deter
investment in Iraq’s petroleum sector. The Annexes,
and the comments conveyed by some of the presenters
at the Dubai conference, send a clear message: Iraq
is closed for business. This message is obviously
designed to undermine the 15 February proposed Oil
and Gas Law with respect to private sector
opportunities in Iraq, and to stir up anti-foreign
and reactionary sentiment. This was the message that
the organizers wanted to convey through their hand
picked speakers.
The authors of the Dubai Annexes announced to the
conference that INOC will not enter into any
contractual arrangements with the private sector,
including Iraqi companies. They also announced that
the earliest possible bidding round for the very
small number of non-INOC fields will be December
2008. One Iraqi expert who had been originally
invited to speak at Dubai was at the last minute
barred from addressing the conference when the
organisers realised that he would be supporting
private sector participation in Iraq’s oil and gas
sector. The authors of the Dubai Annexes also
announced that the Annexes had been made available
for discussion “three months ago”, a statement was
blatantly false.
This is an obvious effort to return, by the back
door, to the early anti-investment negotiating
drafts of the Oil and Gas Law that the Oil and
Energy Committee rejected as long ago as August last
year. The principle underpinning the 15 February
2007 draft Oil and Gas Law approved by the Council
of Ministers was that private sector investment
under Production Sharing Agreements would be at the
center of Iraq’s petroleum strategy, with the
additional use, if necessary, of risk-reward service
contracts. This principle was agreed in the draft
Law. The principle is inscribed in strong terms in
Article 112 (2) of the Constitution itself, which
obliges the federal government, with Regions and
Governorates, “to develop the oil and gas wealth in
a way that achieves the highest benefit to the Iraqi
people using the most advanced techniques of the
market principles and encouraging investment”. One
of authors of the Dubai Annexes, himself serving
under a Constitution adopted by nearly 80 percent of
Iraq’s voters, denigrated key provisions of the
Constitution. As our Prime Minister has repeatedly
stressed, the people of Kurdistan are only willing
to remain part of the Iraqi Federation on the basis
of full implementation of Iraq’s Constitution.
The Dubai Annexes are unconstitutional, against the
interests of the Iraqi people, and contrary to the
15 February agreement and Draft Oil and Gas Law. The
undeveloped fields to be listed in Annex 3 and the
blocks to be listed in Annex 4, must be clearly
stated as fields and blocks which will be developed
using Production Sharing Agreements.
KRG-proposed amendments to the Annexes:
I understand that some members of the Federal
Government wish to maintain firm Iraqi control over
Iraq’s petroleum sector. That wish is
understandable. However these draft Annexes will not
give control to the Iraqi people: it will create a
new oligarchy in which Iraq’s oil is left in the
ground and the interests of Iraqi citizens are once
again ignored.
The overriding goal of the Oil and Gas Law must be
to maximize returns to the people of Iraq in all the
Regions and Governorates, consistent with the
Constitution of Iraq. The KRG has proposed Annexes
which I believe will achieve this goal, and which
strike a fair balance between the interests of the
Federal Government, the Regions, and Governorates.
Even under the KRG proposal, INOC will receive
almost 58 per cent of Iraq’s proven petroleum
reserves, including INOC’s carried interest on four
projects. This will enable INOC, under a clear
mandatory program, to raise its share of production
to around 4.5 million barrels per day, but still to
allow reasonable scope for the private sector and
inward investment to boost Iraq production levels to
approximately 8 million barrels per day. The result
with be a united and prosperous federation.
Outstanding matters:
In these circumstances, I note the outstanding
matters that must be agreed before there is a
serious oil and gas package for the Council of
Representative’s consideration:
1. Annexes: The Oil and Energy Committee must agree
the Annexes to the Law.
2. Model Contracts: The Oil and Energy Committee
must agree model production sharing and service
contracts. I note that the KRG has seen no proposed
model contracts of any sort from the federal
government. We once again strongly urge the federal
government representatives on the Oil and Energy
Committee to adopt model contracts that are similar
to the Model Production Sharing Agreement that the
KRG has adopted and will continue to use in the
Kurdistan Region.
3. INOC and Ministry of Oil Laws: The Oil and Energy
Committee must agree laws for the structure and
organization of INOC and the Oil Ministry. The KRG
has received from the federal government
representatives no official draft of a proposed INOC
law or Ministry of Oil Law, though they have been
promised for some time. These draft laws must be
consistent with the Constitution and the principles
of the draft Oil and Gas Law.
4. Revenue Sharing Law: The KRG has to date received
no response to its proposed Federal Revenue Sharing
Law, which we circulated in early March. The KRG
draft proposes that all petroleum revenues, defined
as broadly as possible, should be received and
shared by an intergovernmental entity pursuant to
Articles 106 and 112 of the Constitution, so that
all Iraqis, and all levels of government, may
benefit from Iraq’s petroleum assets. To date there
has been no response and not one single meeting
regarding a Federal Revenue Sharing Law.
The time has come for a serious discussion on
revenue sharing. The KRG still awaits the Federal
Government to authorize its representatives to meet
with the KRG at the earliest opportunity to discuss
the draft Federal Revenue Sharing Law. This is
obviously a critical piece of legislation without
which the Oil and Gas Law cannot progress.
Finally, I express the hope that all these matters
can be concluded as quickly as possible. The KRG has
at every point in these discussions worked
diligently and honestly to solve the difficult
problems that face Iraq’s oil sector. We have done
so not only in the interests of the Kurdistan
Region, but also in the name of the Constitution of
Iraq and, we believe, in the interests of all the
Iraqi people. We remain available to the Federal Oil
and Energy Committee to agree the remaining issues.
In the meantime, the KRG remains open to business
and will continue to exercise its full authority
under the Constitution of Iraq, including the
negotiation of competitive Production Sharing
Agreements with experienced international investors,
for the benefit of all Iraqi people.
Dr. Ashti Hawrami
Minister for Natural Resources, Kurdistan Regional
Government
Krg org | oilvoice com
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