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Analysis: Kurdistan setting own course on
oil
23.8.2007
By Ben.L
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August
23, 2007
WASHINGTON, -- Iraq's Kurdistan Regional
Government will not wait for a federal oil law
before it starts signing more contracts to explore
what is thought to be sizeable reserves in its
territory. The KRG has already signed a handful of
contracts with small oil companies and, now that it
has passed a regional law governing any underground
oil and natural gas, it will not put development on
hold while Baghdad implodes.
"It might take us a little while to sign the next
batch of contracts," KRG Natural Resources Minister
Ashti Hawrami told.UPI, "but at least we have now
paved the way for that."
Iraq's federal oil law has been stuck in
negotiations for more than a year. The Kurds had
been carefully slowing their own law, hoping the
federal law would be completed. Two weeks ago the
KRG Parliament unanimously approved the law. The
approved version has not been released yet; Hawrami
said it's still being translated into English and
Arabic.
He said a version of the federal law the KRG agreed
to in February "is in line with our law."
Whether the new KRG law is the constructive pressure
needed to push those debating the federal law is not
clear.
"We would like to assume that," Hawrami said in a
telephone interview from Erbil, the Iraqi Kurdistan
region capital. Regardless, "we're not going to wait
for the federal law. No. If we were waiting for the
federal law, there's no point in doing our own law."
Iraq exported about 1.6 million barrels per day last
year; that brought in more than $31 billion, making
up more than 90 percent of its federal budget. Iraq
produced about 2 million barrels per day, far less
than its vast reserves can handle.
For much of the last half century, Iraq's oil sector
has been governed from the center, deciding the
strategy for one of the founding members of the
Organization of Petroleum Exporting Countries. But
that included ultimate control in the hands of
Saddam Hussein, a legacy the Kurds, especially,
aren't willing to allow again.
Kurdish semi-autonomy, first gained in the early
'90s, was enshrined in the 2005 constitution. It is
the only official "region" in Iraq, though various
factions within the Shiite community in the south --
where 80 percent of Iraq's 115 billion barrels of
proven reserves are located -- are floating various
plans. (The Sunnis, which have virtually no oil
land, and many Shiites want to keep a strong central
control over the oil.)
"In Kurdistan, we have about 0.5 percent of Iraq's
proven reserves, less than one percent," Hawrami
said, adding when fully explored he expects the KRG
could produce as much as 1 million bpd. "We're
looking at creating proven reserves, new production,
and sharing that with the rest of the Iraqi people."
Critics, however, say too much control for local
governments risks overproduction and lessening the
value of Iraq's oil.
The KRG has already signed contracts with small
companies to explore for and develop its oil and
gas, a move derided by Baghdad for allegedly
overreaching its authority. The Kurds are also keen
on breaking the nationalized oil sector open to a
free market, a prerogative so controversial it is a
major stalling factor of the federal oil law and a
move the oil unions have threatened to strike to
prevent.
To ensure passage of the constitution, its authors
left parts vague. Arguments over the federal oil law
are in many ways rooted in the mixed interpretations
of the constitutional articles applying to Iraq's
oil, which are the third-largest reserves in the
world. It calls for the central government to work
with the oil-rich regions and provinces in "the
management of oil and gas extracted from present
fields" and "formulate the necessary strategic
policies to develop the oil and gas wealth in a way
that achieves the highest benefit to the Iraqi
people."
But "present fields" isn't a technical oil industry
term, leaving for debate what that covers, which is
vital when taking into account the following section
of the constitution:
"All powers not stipulated in the exclusive powers
of the federal government belong to the authorities
of the regions and governorates that are not
organized in a region. With regard to other powers
shared between the federal government and the
regional government, priority shall be given to the
law of the regions and governorates not organized in
a region in case of dispute."
The KRG feels it's been neglected for too long and,
after keeping its area relatively safe, creating
really the only part of Iraq where any economic
development has sprouted, appears empowered to make
its own oil moves.
"It's a milestone for Kurdistan and as well in terms
of the development of Iraq's overall petroleum legal
regime," said J. Jay Park, a partner and chair of
the Global Resources Practice Group at the Calgary,
Alberta-based law firm Macleod Dixon. "This is one
of the key steps required to create that petroleum
legal regime."
Park, who was "active" in helping Somalia draft its
new oil law, represented Canada-based Western Oil
Sands in its successful bid for an exploration and
production sharing agreement with the KRG. He also
conducts regular trainings with the Iraqi Oil
Ministry.
"The oil and gas companies take decisions on
investing based on attractiveness of the geology,
attractiveness of the fiscal terms, and then the
suitability of the legal regime, and sometimes the
political regime related to that legal regime," Park
said. "I'm pretty sure that the absence of an
established petroleum legal regime in Iraq has been
keeping some investors away from looking at the
possibilities of investing there."
While even the most ardent nationalists agree some
measure of foreign investment is needed in Iraq to
modernize the sector and fix what Saddam Hussein, a
decade of sanctions and war broke, many want the
national oil company to stay in charge.
The Kurds have been one of the biggest proponents of
pushing the federal law forward, though its demands
on the contents have stalled it as much as any other
faction. Shafiq said the KRG fought for local
control at the expense of a national strategy.
UPI
Since 1991, the Kurds of Iraq achieved self-rule in
part of the country. Today's teenagers are the first
generation to grow up under Kurdish rule. In the new
Iraqi Constitution, it is referred to as Kurdistan
region. Kurdistan region has all the trappings of an
independent state -- its own constitution, its own
parliament, its own flag, its own army, its own
border, its own border patrol, its own national
anthem, its own education system, its own
International airports, even its own stamp inked
into the passports of visitors.
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