between the semi-autonomous Kurdistan Regional
Government (KRG) and around 35 private international
companies over the past few years. The KRG, through
its own Ministry of Natural Resources, is adamant
that the signing and negotiation of contracts for
any 'new' petroleum developments (ie, those taking
place under the 2005 Iraqi Constitution) remains its
sole responsibility, and not that of the federal
Iraqi government.
The current federal government in Baghdad, under the
new minister of oil, Abdul Karim Al Luabi, has
signalled a significant departure from previous
policy, which was insistent that all petroleum
policy be derived and managed by the federal Iraqi
Ministry of Oil. Since assuming power in the new
Iraqi government on December 21 2010, Al Luabi has
made public statements confirming the legality of
the production sharing contracts under Iraqi law,
allowed Kurdish petroleum to be exported through
Iraqi national pipelines and remitted payment to
international oil companies operating in Kurdish
fields under the contracts.
Many commentators have argued that Al Luabi's recent
acts are conciliatory in nature and a realisation of
the authorities that numerous international oil
companies are already operating in Kurdistan despite
Baghdad's attempts to derail the process. Other
commentators assert that provoking the Kurdish bloc
with a significant legal dispute will lead to
further domestic political instability and increased
calls for independence by the KRG.
Notwithstanding these considerations, the debate
over the legality of the Kurdish production sharing
contracts is grounded in an analysis of the division
between federal and regional authorities in Iraq.
The division is apparent in the notions underlying
both the 2005 Iraqi Constitution and Iraqi law as
applicable in the Kurdistan region. Previous
pronouncements by the Ministry of Oil in Baghdad to
the effect that the majority of the contracts were
illegal or unconstitutional under Iraqi law appear
difficult to support under close scrutiny. Instead,
there appears at least a modicum of justification to
the position that the future development and
application of petroleum policy in Kurdistan remains
under the sole jurisdiction of the KRG.
'Present field' v 'future
field' distinction
The constitution allocates any power that is not
reserved exclusively for the federal government to
the regional or governorate governments and gives
priority to regional or governorate laws where there
are disputes over power-sharing.(1) Federalist
notions were enshrined to the effect that no law may
be enacted that contradicts the Iraqi Constitution
or a part of any regional constitution, or any other
legal text that contradicts the Iraqi Constitution.
In examining the language of the Constitution, a
clear distinction is made between 'present fields'
(which are to be jointly managed between the federal
government and the semi-autonomous regions) and
'future fields' (for which the authority to manage
is omitted from the constitution). Based upon the
federalist notions within the same Constitution,www.ekurd.netif
the power is not specifically reserved for the
federal government, then the authorised
semi-autonomous regions may exercise jurisdiction.
Petroleum activities are not among the list of
powers reserved exclusively to the federal
government of Iraq under the Constitution and may
therefore be governed by the KRG. The following
table outlines the division of powers between the
'regional powers' (elucidated in the 2005
Constitution as a 'regional power' or a 'shared
power', which is today applied to the KRG).
|
Exclusive powers of the federal
government |
Shared powers |
Regional powers |
|
No exclusive authority in relation to
petroleum (under Article 110 of the federal
Constitution) |
Petroleum extracted from present fields and
strategic policies for petroleum development
(under Article 112 of the federal
Constitution) |
Anything not listed as an exclusive
authority in Article 110 of the federal
Constitution |
Federalist debate
Article 110 of the Constitution contains the list of
powers reserved exclusively for the federal
government in Baghdad, and this list does not
include petroleum activities. Article 112
establishes shared jurisdiction in certain petroleum
matters by requiring that the federal government and
the relevant region jointly manage extracted
petroleum from 'present fields' and formulate
strategic policies for petroleum development.
Article 115 allocates any power which is not
reserved exclusively for the federal government to
the regional or governorate governments, and gives
priority to regional or governorate laws where there
are jurisdictional disputes over power-sharing.
Article 121 (Paragraphs 1 and 2) reinforces the
division of powers, as follows:
"The regional powers shall have the right to
exercise executive, legislative, and judicial powers
in accordance with this Constitution, except for
those authorities stipulated in the exclusive
authorities of the federal government (Article 121
Paragraph 1); and,
In case of contradiction between regional and
national legislation in respect to a matter outside
the exclusive authority of the federal government,
the regional power shall have the right to amend the
application of the national legislation within that
region (Article 121 Paragraph 2)."
Given the distinction in Article 112 between
'present fields' and 'other fields', the division of
powers in Articles 110 and 115 and the primacy of
regional power in Article 121, the legitimacy in
asserting control over undiscovered fields located
within the Kurdistan Region appears to lie with the
KRG, rather than the federal government.
Kurdish petroleum law
Looking to capitalise on this reading of the Iraqi
Constitution, the KRG passed the Oil and Gas Law of
the Kurdistan Region – Iraq (22/2007). In Article 1
(Definitions), 'current field' and 'future field'
are defined as follows:
"Current Field: a Petroleum Field that has been in
Commercial Production prior to 15 August 2005;
Future Field: a Petroleum Field that was not in
Commercial Production prior to 15 August 2005, and
any other Petroleum Field that may have been, or may
be, discovered as a result of subsequent
exploration."(2)
To further legitimise the claims of the KRG, Article
2 of the same law states:
"Second: Pursuant to Article 115 and paragraphs (1)
and (2) of Article 121 of the Federal Constitution,
no federal legislation, and no agreement, contract,
memorandum of understanding or other federal
instrument that relates to Petroleum Operations
shall have application except with the express
agreement of the relevant authority of the Region."
As the 2005 Constitution does not specifically
reserve the power to issue an oil law as an
exclusively federal power, the Kurdistan Oil Law may
be seen as valid and has not been challenged
legally.
Comment
The definition of the term 'present' in Article
112(1) is the main focus of the argument that the
Kurds will present to justify control over the
region's oil. As the federal government may
expressly assert management over only the 'present'
oil fields (the word not being defined in the 2005
Constitution), and no mention is made of 'future'
oil fields, Article 115 reserves all other powers to
the regions. This would appear to open the door for
Kurdish control over resources which do not fall
under the definition of 'present fields'. This
argument is bolstered on a plain reading of Article
121 of the Constitution, which empowers regions to
override federal legislation that touches on areas
which are outside of the exclusive authority of
Baghdad.
For further information on this topic please contact
Thomas W Donovan at Iraq Law Alliance PLLC by
telephone (+964 7 901 919 425), fax (+20 2 760 4593)
or email (thomas.donovan@iqilaw.com).
Endnotes
(1) Article 110, 112 and 115 of the 2005
Constitution.
(2) Oil and Gas Law of the Kurdistan Region – Iraq
(22/2007), Articles 1(16) to (17)).
- Thomas W. Donovan works in the Baghdad and
Erbil, Kurdistan offices of the Iraq Law Alliance.
His experience centers around structured & project
finance and international investment in Iraq. He has
a broad range of expertise including corporate
governance in various Middle East jurisdictions
including counseling corporations and specifically
international oil companies in the establishment and
their on-going foreign operations. Tom has also been
involved in international dispute resolution
proceedings in Iraq, Kurdistan, and other
jurisdictions in the Arab Middle East, working in
the procurement and enforcement of international
arbitration awards.
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