Iraqi National Accord Issues Paper on Oil and Gas Law
The Iraqi National Accord, a Political Party lead by Iraq's former prime minister, has issued the following position paper on Iraq's oil law.
1) On Federal Oil Law & Revenue Sharing Law:
- We should not confuse the two laws: the Revenue Sharing Law is a political agreement and will ensure that all Iraq's oil and other revenues go into one account to be shared fairly among all its citizens according to population and in accordance with the Constitution. In our opinion this should be passed first, to create trust on all sides and ensure fairness.
- The Oil Investment Law (Oil & Gas Law) is a matter of how best to manage the Iraqi oil resources to maximize revenues for all its people.
- A draft was agreed by all sides in February last year, but unauthorized changes by Ministry officials in Baghdad led to disputes and it has been stuck -- Parliament has yet to receive an agreed draft to review and vote on.
- INOC (national oil company) is needed to operate the existing fields and double their current production, which is a major task.
- Private companies (both Iraqi and international) should focus on the undeveloped fields to add their production to Iraq's total, under the oversight and regulation of the Government, and on the best competitive terms to give maximum revenues to the people of Iraq (less than 5% profit rate is possible for many of these discovered fields in the South of Iraq).
- There must be clear separation of roles in the law, between the Ministry (whether Federal or Regional) as regulator, and the companies (whether INOC or private companies) as the regulated operators, as per best international practice and World Bank Guidelines.
- The national oil company (INOC) should have no role in awarding contracts. It must behave as a professional company without special treatment or advantage. Also its Chairman, Board of Directors and Managing Director should not be politicians or Ministry officials, and it should be accountable to the Government through the Ministry of Finance.
2) Oil Policy
- Iraq's production today is 2 million barrels per day -- less than in 1975 when the industry was nationalized. It should be at 10 million barrels per day, but the State has mismanaged the oil sector and misused the oil revenues. We mustn't repeat the mistakes of the past.
- The Constitution calls for maximum investment, and we cannot expect that the Government can do everything itself as the old socialist mentality of the 1970s -- the Government's role should be regulation and oversight, while having capable companies Iraqi and international, investing and working in all areas of Iraq.
- This will boost production quicker, providing higher revenues for Iraq and also more and higher-paying jobs for Iraqis.
- Many of the countries in the region have private companies investing in their oil sector under proper investment contracts: UAE, Qatar, Egypt, Syria, Algeria and Libya. This has brought great benefit and boosted production and revenues.
- The only countries with declining production and failed policies have been Iran and Kuwait, who have both followed state-strangled approaches for political reasons and with disastrous results: Iran insists on the national oil company doing everything and its production has fallen from 6 million barrels in 1979 to less than 4 million today. Kuwait with the same socialist approach has had production fall from 2.8 million barrels to 2.3 million barrels.
- Unfortunately, the current officials in the Iraqi Oil Ministry are advocating the same failed state-dominated policies and contract systems of Iran and Kuwait, instead of pro-investment successful policies of other countries in the region and internationally.
- We should also give preference to Iraqi private-sector companies and encourage them to invest in all sectors of the energy industry, as is normal in all developed economies. They will also be cheaper and give better terms to the Government than foreign companies, who are scared of the security and political situation and will charge more, and will not be accepted by the Iraqi people due to their history of colonialisation and political interference in the Middle East.
3) On KRG Contracts:
- No matter who signs the contracts, the oil revenues will all be shared by all the citizens of Iraq as per the constitution.
- Therefore all investment in Iraq today to boost production and revenues is positive.
- The authorities of the regional and federal governments on oil and other matters are defined by Iraq's constitution, which is the highest law of the country. Any disputes are legal matters which can ultimately be decided by the Supreme Court.
- Public arguments, disputes and accusations between officials at the regional and federal level are wrong and damage Iraq's credibility and reputation. A Federal Minister cannot decide and announce on his own what is "legal or "illegal" to suit his own ends.
4) On Ministry Incomp****ce:
- The Oil Minister is not an oil man but a scientist and maybe a good one.
- The Ministry now is open to politicization and morale is bad.
- Many top officials have left the Ministry in despair.
- No progress to speak of, only empty statements and future plans with ever slipping dates.
- The Ministry failed to sign a single contract with anyone -- the only 'achievement' is an MOU with Iran to build an oil pipeline to send Iraq's oil to Iranian refineries!
- Fuel smuggling and corruption still rife.
- Bad management is causing loss for Iraq as an example, Iraq is currently flaring $7 billion a year worth of gas at least, and there is no fuel for power generation!
- While pr****ding to want "transparency", the Ministry wants to discuss with the large oil majors (Shell, Total, BP). These companies are very capable but also bureaucratic and conservative,
whereas what Iraq really needs are fairer competition maximizing Iraqs interests as companies willing to work on the ground today (like what is happening in Kurdistan).
- "Black-listing", punishing and threatening of oil companies investing in Kurdistan is not only illegal, but has harmed Iraq's reputation and access to investment and oil markets: he has suspended MOUs signed by his predecessor which were adding value to Iraq for free, and has killed the relationships with important customers like Korea and Austria/ Eastern Europe, because their companies signed with KRG! (Even Saddam never stopped exporting oil to the US!)
- Ministry of Oil has been calling these companies "small and unimportant", which is nonsense (OMV is biggest company in Central Europe, Dana Gas is biggest private energy company in Middle East, Reliance is biggest energy company in India).
Iraqi National Accord