Many oil technocrats, professional and experts hold the opinion that rehabilitating the South Gas Project (began operating by July 1990) was and still is within the technical and financial capacity of South Gas Company, and if needs be with technical support from specialised international construction companies. And this could be the best option Iraq has since even funding was available to do so after 2003. It is worth recalling that Law 84 of 1985 on Preservation of Hydrocarbon Wealth (still valid) prohibits gas flaring unless it is absolutely not possible to utilise it economically and many of its provisions call for the necessity to prepare feasibility studies for any projects pertaining to gas utilisation.
Instead of rehabilitating the South Gas Project and utilising available funding, the ministry of oil signed with Shell a Heads of Agreement (HoA), which entered into force upon signing on 22 September 2008. HOA has one-year duration extendable automatically by additional six months to complete the requirement for the Joint Venture envisaged by the agreement. In March 2010 HoA was extended for six months, and on 29 June 2010 the cabinet approved Shell-led initiative by creating Basra Gas Company (BGC). However, the final approval of this joint venture would be considered by the [new] government after all legal matters pertaining to the establishment of BGC have been met. BGC shares are divided as follows: 51% for the state-owned South Gas Company, 44% for Shell and 5% for Mitsubishi;
Very limited details regarding economics, fiscal and legal frameworks governing this new joint venture are available so far. But many, including myself*, had critically assessed the deal from economic, technical, legal and structural aspects on the basis of HOA contents. The Legal Advisor to the Prime Minister delivered on 28th October 2010 a legal opinion in a “confidential and private” letter to PM Office, comprising many of the views and assessment we have been saying since September 2008, pertaining to the draft contracts (which, as he writes, are voluminous and diverse) establishing the Basra Gas Company.
Between 22nd September 2008 and today many rounds of discussions took place between the Ministry and Shell. Few improvements on HoA are done such as limiting the scope of BGC to associated gas from three oilfields only: Rumaila, Zubair and West Qurna 1, and the role of SOMO.
However, many very significant issues are not known unless and until the related contracts are provided and examined thoroughly. Among these critical issues are briefly listed hereunder:
1- The role of the Parliament. Oil and Energy Committee of the parliament had recently requested the Ministry to submit BGC contracts before signing them. Earlier and during the “Symposium for Reviewing Iraq Oil Policy” held in Baghdad 27 Feb-1 March 2009, the Ministry stated that it would present the final draft of the BGC contracts to the parliament before signing it.
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