A Shared Stake in Iraq's Future
How the Oil Agreement Points the Way Forward
By Zalmay Khalilzad
Saturday, March 3, 2007; Page A15
Under the national hydrocarbon law approved this week by Iraq's Council of Ministers, oil will serve as a vehicle to unify Iraq and will give all Iraqis a shared stake in their country's future. This is a significant achievement for Iraqis' national reconciliation. It demonstrates that the leaders of Iraq's principal communities can pull together to peacefully resolve difficult issues of national importance.
Resolving concerns about control of oil is central to overcoming internal divisions in Iraq. The country has the third-largest oil reserves in the world, and more than 90 percent of federal income comes from oil revenue. The effective and equitable management of these resources is critical to economic growth as well as to developing a greater sense of shared purpose among Iraqi communities.
The goal of Iraq's leaders was to draft a law that ensured that all Iraqis could be confident they would receive their fair share of the benefits of developing the country's resources, that the revenue from oil and gas would enable a decentralization of power while maintaining national unity, and that Iraq would adopt the best international practices for the development and management of its mineral wealth. By these standards, the hydrocarbon law is a great success. It:
· Reaffirms that oil and gas resources are owned by all the people of Iraq and contains a firm commitment to revenue-sharing among regions and provinces on the basis of population.
· Establishes a predictable framework and processes for federal-regional cooperation that demonstrate the government's commitment to democracy and federalism.
· Creates a principal policymaking body for energy -- the Federal Council on Oil and Gas -- that will have representatives from all of Iraq's regions and oil-producing provinces.
· Ensures that all revenue from oil sales will go into a single national account and that provinces will receive direct shares of revenue, thereby significantly increasing local control of financial resources.
· Establishes international standards for transparency and mandates public disclosure of contracts and associated revenue and payments. This is essential to build confidence in the new political order and to counter corruption.
The law defines a role for the Oil Ministry that is primarily regulatory, which is the modern standard and which will also harness the market to achieve the optimal development of Iraq's resources. It provides the legal framework to enable international investment in Iraq's oil and gas sectors, a break from the statist and overcentralized practices of the past. It also requires best practices in environmental protection and field management and development, ensuring that the environment is not damaged and that hydrocarbon assets are not wasted by poor practices of the past.
While the draft law will need to be enacted by the Iraqi Council of Representatives when it returns from recess, the prospects for passage are excellent because all the major parliamentary blocs are represented in the cabinet. Companion legislation will be required in several areas, and Iraqi leaders hope to complete the entire package of hydrocarbon legislation by the end of May.
Arriving at this agreement was not easy. It has taken other countries years to complete such legislation. While negotiating this law presented special challenges for the federal government, the Kurdistan regional government and the leaders of key political blocs, the approval of the draft by the Council of Ministers sets a precedent for problem-solving and cooperation that is critical to the stabilization and development of Iraq.
This is the first time since 2003 that all major Iraqi communities have come together on a defining piece of legislation. A national reconciliation that stabilizes Iraq can be achieved if similar compromises are made on the future of de-Baathification and on amending the constitution. The agreement on the oil law should give us confidence that Iraqis are willing and able to take the steps needed for Iraq's success.
The writer is the U.S. ambassador to Iraq.
washingtonpost.com
U.S. prepares for Iraq oil windfall
U.S. prepares for Iraq oil windfall
Sat, 03 Mar 2007 10:25:21
Afshin Sepidar
Press TV Analyst
Under close U.S. scrutiny, the first draft of Iraq's new oil law has been completed this week, guaranteeing Big Oil unprecedented profits but Iraqis only decades more insecurity.
This week saw two major developments signaling big changes in the Middle East. First was the official release of the first draft of the new Iraq Oil Law on Monday - on the surface a step on the road to tapping into the country's natural wealth and providing funds for its recovery.
Second was the announcement of regional talks in Baghdad aimed at establishing peace in Iraq - crucially, involving all of Iraq's neighbors, including Iran and Syria, and the United States.
On the surface these are reasons to be optimistic. Certainly that is the way they will be presented. But the fine print of Iraq's oil deal reveals a darker truth. The Oil Law, which may be in place by the end of this month, is nothing less than the biggest cut-price auction of a nation's sovereign wealth since the British barged their way into Mesopotamia over 100 years ago.
While all eyes are on the apparent success of sealing an agreement on oil revenue distribution between Kurds, Sunnis and Shiites, real control over Iraq oil is about to be handed over lock, stock and 115 billion barrels to foreign, mainly U.S., corporate interests. The U.S. mission in Iraq has been accomplished. Is it any surprise then that they now want everyone to get involved in the cleanup?
The Devil in the details
Under the guise of giving partial autonomy to sign oil deals to Iraq's regional entities and at the same time preventing a federal break-up, profits from the sale of Iraqi oil have been secured for the big foreign investors who are going to "rebuild" Iraq's oil industry. The key to this is the use of production sharing agreements (PSAs).
PSAs are an ingenious legal measure developed by foreign companies in the late 1960s after oil-rich countries began to rebel against their imperial overlords. They are a means of securing the right to oil profits while leaving the actual ownership of the oil in the hands of the state. PSAs stipulate that oil revenue will first go to the private company who invested to cover expenses and exploration costs. These days, such deals are only made when the oil is hard to reach or expensive to pump. The International Energy Agency say PSAs apply to only 12% of world oil reserves.
Needless to say, contracts based on PSAs are now just as unpopular as in host countries as the colonial concessions they originally replaced. Russia and Venezuela are renegotiating all of theirs. Bolivia has nationalized its gas. Algeria and Indonesia have established rules governing future oil contracts that preclude their use. No Middle East oil producer works under PSAs.
Thus, the idea of Iraq - which conservative estimates rank as the country with the third-largest oil reserves in the world - being subject to PSAs represents an astounding coup for foreign oil companies and a humiliation for Iraq. According to a report by the oil industry pressure group PLATFORM, PSA-style contracts will guarantee 42% to 162% rates of return for the drilling company for periods of between 25-40 years. And this is not even taking into consideration that whoever controls Iraq - not subject to OPEC quotas since 1998 - will have significant sway over world prices.
It is revealing to note at this point that some of the major players helping the Iraqis to frame this deal were the IMF, representatives of all the major oil companies and, current president of the World Bank and Bush doctrine architect, Paul Wolfowitz.
Foreign experts are already raising the alarm bells. "Iraqis are extremely protective of their resources," said Rochdi A. Younsi, an analyst at Eurasia Group, a political risk consulting firm. "Given the level of anti-American sentiment, any major American oil company perceived to take advantage of their relations in government would be seen as being part of the so-called conspiracy to take over Iraq's natural resources."
Antonia Juhasz, an analyst at the Institute for Policy Studies in Washington who has written extensively on the economic aspects of the invasion of Iraq, said throwing open the oil industry to U.S. interests would only heighten Iraqis' distrust of the United States.
"Most people in Iraq assume the U.S. invasion was about oil. When the people of Iraq learn that the majority of their oil fields are being turned over to foreign private production… it worries me. I wouldn't want to be a soldier on the ground when the law passes."
And Iraqis themselves are not unaware of the injustice of a law many fear to be tantamount to surrendering national sovereignty. Trade union leaders representing hundreds of thousands of Iraqi workers stand together in opposition to the law. Adnan Saffar, member of the Executive Committee of the General Federation of Iraqi Workers, said in a statement, "The Iraqi national interest is surrendered in this law which allows foreign companies investment terms that exploit Iraq's oil wealth. They benefit the foreign investors more than they benefit Iraqi workers, through long term oil contracts that negatively impact Iraq's sovereignty and national independence."
His is among numerous voices in Iraq calling for a fundamental re-think. In a speech last month, President of the Federation of Oil Unions Hasan Jumah Awwad al-Asadi warned foreign companies against coming to Iraq "under the guise of production sharing agreements." He continued to call the law "unbalanced" and said it had been drafted "in a great rush in harsh circumstances."
Ominously, he also warned that "history will not forgive those who play recklessly with the wealth and destiny of a people."
With Iraqis well aware that the deal is not in their national interests, how long will it be before their unheeded warnings are emphasized by the blasts of bombs?
Press TV
OIL,OIL,OIL, ITS ALL ABOUT THE OIL !