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< Back to Iraqi Dinar in the News January 20th, 2007

Draft Law Keeps Central Control Over Oil in Iraq

BAGHDAD, Jan. 19 — After months of tense bargaining, a cabinet-level committee has produced a draft law governing Iraq’s vast oil fields that would distribute all revenues through the federal government and grant Baghdad wide powers in exploration, development and awarding major international contracts.

The draft, described Friday by several members of the committee, could still change and must be approved by the Iraqi cabinet and Parliament before it becomes law. Negotiations have veered off track in the past, and members of the political and sectarian groups with interest in the law could still object as they read it more closely.

But if approved in anything close to its present form, the law would appear to settle a longstanding debate over whether the oil industry and its revenues should be overseen by the central government or the regions dominated by Kurds in the north and Shiite Arabs in the south, where the richest oil fields are located.

The draft comes down firmly on the side of central oversight, a decision that advocates for Iraq’s unity are likely to trumpet as a triumph. Because control of the oil industry touches so directly on the interests of all Iraq’s warring sectarian groups, and therefore the future of the country, the proposed law has been described as the most critical piece of pending legislation.

“This will give us the basis of the unity of this country,” said Ali Baban, the Iraqi planning minister and a member of the Sunni-dominated Tawafaq party who serves on the negotiating committee. “We pushed for the center in Baghdad, but we didn’t neglect the Kurds and other regions,” Mr. Baban said.

Negotiators said that the final weeks of wrangling on the draft focused on a federal committee that would be set up to review the oil contracts. Kurdish, and to some extent Shiite, parties wanted to maintain regional control over the contracts, while Sunni Arabs, with few oil resources on territories they dominate, insisted that the federal committee have the power to approve contracts, rather than just reviewing them and offering advice.

The negotiators appear to have finessed that issue by allowing the regions to initiate the process of tendering contracts before sending them to Baghdad for approval. To limit the powers of the committee, they also have drawn up an exacting set of criteria to govern the deliberations of the committee rather than simply relying on its independent discretion. And in a bow to the Kurds, who objected to the use of the word “approve” in describing the committee’s duties, the draft law says instead that the committee may review and reject contracts that do not meet the criteria.

The draft law would also radically restructure parts of Iraq’s state-controlled oil industry by giving wide independence — possibly leading to eventual privatization — to the government companies that control oil exports, the maintenance of pipelines and the operation of oil platforms in the Persian Gulf.

The law would also revive the Iraqi National Oil Company, a countrywide umbrella organization that was essentially closed by Saddam Hussein.

At the same time, the law would place substantial administrative authorities outside Baghdad by allowing any region that produces at least 150,000 barrels of oil a day to create its own operating company, according to Hussain al-Shahristani, the Iraqi oil minister and member of a powerful coalition of Shiite political parties who also serves on the negotiating committee.

Barham Salih, a deputy prime minister and the chairman of the negotiating committee, said that the precise wording of clauses could still change. He was speaking by telephone from Iraqi Kurdistan, where Mr. Salih, a Kurd, said he was still working to cement support for some provisions in the draft law.

“This is the most important piece of legislation that Iraq will adopt, and it is not a surprise that it is taking long, tedious rounds of negotiations,” Mr. Salih said. “We are close, but we have not yet closed the deal. We are making progress and need to continue.”

The developments come with several additional cautions, not the least of which is that in Iraq’s chaotic wartime environment, even laws that do get passed can have little impact. In one example of a document arrived at through similar negotiations, Iraq’s Constitution, it remains unclear what effect many of the fastidiously negotiated clauses are having in the governance of the country.

And even though Iraq’s main political and sectarian groups have been represented in the talks over the oil law, it is still possible that members of those groups could bridle as the draft is scrutinized more widely.

As a case in point, the Kurdistan regional government issued a statement on Friday criticizing an Oil Ministry spokesman for saying that the oil law had been agreed upon unanimously and put in final form.

“Although the process of drafting the oil law is nearing completion, the important annexes to the law are still pending,” the statement said.

Some of those annexes will address how to deal with fields that are already producing oil under existing contracts, how to begin taking bids for drilling new wells in known fields and exploring areas where currently unknown oil fields could be located.

The committee achieved a breakthrough of sorts in December, when negotiators took a step toward central control by agreeing that all oil revenues should first go to the central government before being sent back to the regions in amounts proportional to population.

But the talks bogged down on the question of whether the committee, to be called the Federal Oil and Gas Council, would be called upon to approve contracts proposed by the regions or just review those contracts and offer advice. In its current form, the draft law avoids the word “approve” and in effect gives the committee veto power.

Whatever the language, Mr. Shahristani, the oil minister, said, the committee will in fact pass judgment on each contract, even when it originates in a proposed deal between a company and one of the oil-producing regions.

But the committee must make its decision based on specific guidelines, like a directive to maximize profits for Iraq and to keep the contracting process transparent, Mr. Shahristani said. And there are other checks and balances written into the law. For example, while the regions can propose their own deals, they will have to work with companies that have been “pre-qualified” in Baghdad.

Directives like that could still generate objections in Kurdistan, which wants as much freedom as possible to write its own contracts.

The draft law also specifies that technical experts in the Oil Ministry are to be included in the process at all levels. It is the ministry that will be called upon to write a plan for which oil fields will be developed and drilled first, and which ones will follow. The federal council would simply be called upon to endorse that plan or send it back for revisions.

The Oil Ministry would also be closely involved in developing “model contracts” to be used as templates at all levels of Iraq’s oil industry.

Having an oil law will in principle make it easier to attract international companies with the resources and expertise that the country so desperately needs. Still, hovering over all the negotiations is the question of whether companies will want to do business in Iraq.

Mr. Shahristani, for one, says that because of the financial stakes, companies are already reaching out.

“The international companies keep contacting me — every week, without exception,” Mr. Shahristani said. “They are all very, very keen.”

Yerevan Adham contributed reporting from Iraqi Kurdistan.