Posted on 20 December 2011.
By Ahmed Mousa Jiyad. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Mr Jiyad is an independent development consultant, scholar and Associate with Centre for Global Energy Studies (CGES), London. He was formerly a senior economist with the Iraq National Oil Company and Iraq’s Ministry of Oil, Chief Expert for the Council of Ministers, Director at the Ministry of Trade, and International Specialist with UN organizations in Uganda, Sudan and Jordan. He is now based in Norway (Email: [email protected]).
The meetings between the federal and KRG delegations held in Baghdad in the last days of October 2011 resulted in an agreement to base their discussion on the February 2007 version of the federal oil and gas law-FOGL.
Detailed, thorough and article-by-article assessments of the February 2007 draft of the law have been done and published by known Iraqi oil professionals, including this writer. The consensus among them indicates the draft suffers from many very serious flaws that ought to be addressed, revised, and redrafted. Moreover, essential and fundamental provisions are, by now, have been overtaken by events that render them outdated, irrelevant and dysfunctional.
What is needed then a very serious look into every article and the entire proposed law from substantive, format and operational aspects to insure its viability, coherence and proper functioning. It would be a grave mistake to consider the “law” as “political deal” since all had learned that most if not all political deals, in Iraq, are easily forgotten and short live!
This intervention aims to shed light on the most important issues and matters of concerns, which should be taken into considerations during the process of negotiating and finalizing a proposed draft of this law.1
Time factor effects
Many very important developments have taken place since February 2007, which makes it imperative to revise seriously various articles in the law since these provisions have been overtaken by events and thus became almost obsolete or redundant.
First: Among these developments are the bid rounds concluded by the MoO that led to concluding long term service contracts. These have generated many major consequences, which have direct implications on the proposed law.
Second: All major oilfields (except few such Kirkuk, Bai Hassan, East Baghdad among others) have been already contracted for re-development and/ or development with IOCs involvement. Consequently, there could be no need to offer any of the remaining fields for IOCs in whatever way or method. These remaining fields could be legally (by this proposed law) earmarked for INOC (to be reinstated), as suggested below.
Third: The concluded service contracts with IOCs, if implemented as envisaged, together with the production from other fields would bring Iraq’s production and export capacities to very high and unprecedented levels, even at partial success of half the contracted production targets. The implications is that there are no compelling reasons for Iraq to expand the production capacities any further at least in the next 15-20 years. The law may suggest a moratorium on any “new” development of oil fields for no less than 15 years. Moreover, the law ought to emphases the proper development of the contracted fields in the most optimum way to ensure the constitutional principle of “highest benefits to the Iraqi people”. Accordingly, the field development plans (initial and final) are of paramount importance that they should be formulated by technically competent petroleum team, approved by and constantly monitored by petroleum central authority;
Fourth: All the bid rounds were based on a service contract type and modality. The law should clearly extend support and preference to this type of contracting by making it mandatory to use this type of contracting. To prevent any misinterpretation it might be advisable to have a specific article in the law to make it unlawful and unconstitutional to conclude Production Sharing Contract- PSC in petroleum upstream sub-sector. The law ought to prohibit PSC in any phase of exploration, or development and production activities, in compliance with constitutional basic principles of collective ownership of petroleum resources and the best interests of the Iraqi people.
Fifth: The service contracts have already established significant milestones that are superior to those envisaged under February 2007 version of this law regarding, interalia, fiscal regime, conservation measures particularly those relating to gas utilization, good vs. best international business practices, dispute settlement modalities etc. Accordingly, good number of articles in this proposed law need revision on the lights of what actually have been concluded and evolved since February 2007.
Sixth: The relationship between this law and the proposed laws for the Ministry of Oil, INOC, Revenue Sharing and finally the General Commission for Observing the Allocation of Federal Revenue have to be well coordinated and considered to ensure harmony and coherence.