http://www.iraqoilreport.com/the-biz...approved-2050/A different Iraq oil law approved
Council of Ministers end-around feuding factions – for now – and move to restart the national oil company with support of key political blocks.Submitted by Ben Lando on Friday, 31 July 2009
By BEN LANDO, NIZAR LATIF and EMAN HAMED
Iraq Oil Report
BAGHDAD – Forget the oil law. Forget revenue sharing. It all comes down to getting the oil out of the ground, into the refineries or export pipelines.
This is done by Iraq’s state-owned oil companies, for now operating as subsections of the Oil Ministry.
But a law just approved by the Council of Ministers and sent to Parliament would remove at least one pair of the handcuffs of Saddam Hussein’s power grip on the oil sector and free the state companies from politics, to focus on the task at hand: developing the world’s third largest oil reserves into the powerhouse it should be.
“The objective of the establishment of this company is to increase oil production and development of oil fields, discovered and undiscovered,” said Abdul-Hadi al-Hassani, deputy chairman of the Parliament’s Oil, Gas & Natural Resources Committee and a member of Prime Minister Nouri al-Maliki’s Dawa Party “This law will refresh Iraq’s oil economy and make it strong.”
He said the committee will start debate following the Ramadan vacation, which ends around Sept. 20.
“In many ways it is a vital instrument,” said Tariq Shafiq, the founding executive director of the original Iraqi National Oil Co. in 1964. “To have an INOC charter enacted is a step forward,” he said, though worried of its financial and political independence.
Iraq is a one-industry economy and, with 115 billion barrels in proven reserves and estimates of the same amount still to be found, not to mentione being a sleeping natural gas giant, determining the roadmap of the hydrocarbons sector has been full of brick walls.
But even amongst opponents of Maliki and Oil Minister Hussain al-Shahristani, there is support for the new INOC.
FOREIGNERS AND FEDERALISM
A popularly nationalized oil sector for more than three decades, Iraq is now looking at foreign investors for the quick but necessary upgrades to a war-, sanctions- and dictator-damaged infrastructure. And the new Iraq brings with it an emboldened Kurdish region, which parlayed autonomy since 1991 into a burgeoning oil sector of its own, demanding a decentralized oil policy and backing it up by passing a regional oil law and signing two dozen oil deals with foreign firms.
Thus, Baghdad is at loggerheads with the Kurdistan Regional Government over the deals it calls illegal and faces a strong nationalist opposition, especially from the now organized oil workers, to just about anything to do with foreign oil firms.
This has stalled a draft hydrocarbons framework law – also called the oil law; the foundation for the modern oil sector – from even making it to the Parliament for a debate on the issues of federalism and foreigners. And an accompanying law outlining the collection and redistribution of revenues – of which oil is 95 percent – hasn’t even made it as far as the oil law.
(The current and former U.S. administrations have pressured Iraq’s leaders to pass the laws, saying it will lead to reconciliation, though they appear to have had the opposite effect.) Don’t even bring up the status of the law to reorganize the Ministry of Oil into a pure regulatory body.
All four laws are considered a complete package, but the oil law – drafted in mid-2006 – has been getting all the publicity.
Until now.
By creating a company tasked with using technical criteria to best develop the country’s crude bounty, it could remove any stigma over the role of foreign companies and thus clear the way for the remaining three laws.
It’s not clear how much of Iraq’s oil and gas fields will fall within the purview of the new Iraqi National Oil Co., – some want only the discovered fields to be granted to INOC – but there are signs the federalism issue could be inching toward resolution.
“The draft of this law is characteristic of all levels, and at levels comparable to those in the (Middle East) region, and can deliver a quantum leap in the oil sector in terms of performance and production,” said Baized Hassan, a member of the crucial Parliament energy committee, and of the Kurdistan Alliance, the Baghdad representation of the Kurdistan Regional Government.
“I think it’s just great idea and we shall work on it very hard to make Iraqi people – Arabs and Kurds – happy in such rich country.”
The law is merely a draft to be debated. When the current afterglow has dimmed begins a true test of the tension between the Kurdish leadership and Maliki. Harsh words and even standoffs between the respective security forces over disputed territories – including the giant Kirkuk field – are included in the oil, revenue, autonomy struggle between the two. And how the regional oil sector is incorporated into the INOC structure will be a long conversation.
Down south, in Basra, the majority of the oil workers have formed unions and threatened to block BP and the Chinese National Petroleum Corp. from entering the massive Rumaila field if they sign a recently awarded contract with the Oil Ministry. The workers want foreign firms in under carefully crafted circumstances and have stopped production before.
The Rumaila deal was awarded in the June 30 auction for five other oil fields, none of which found winning bids. A second auction for 10 oil fields is set for the end of November.
Not only did the unions protest giving development deals to foreigner for already producing fields, but even high ranking officials within the largest state-owned South Oil Co. publicly voiced their opinion. The director general of SOC at the time, Fayadh Hassan Nima, was removed from his post Thursday because of opposition to the Oil Ministry’s plans, the same fate as his two predecessors.
But with a new INOC, South Oil and its dozen sister companies would be removed from the scope of the Ministry of Oil. Thus, operational decisions will be made by technocrats, instead of a political body which, along with being a regulator, must contend with the Maliki-KRG dispute and pressure from the Finance Ministry to increase oil exports as much as possible as soon as possible.
This sounds good to the international oil industry angling to get back into Iraq, of which many representatives, speaking to Iraq Oil Report on condition of anonymity, said they’d prefer negotiating contracts with a fellow oil company than politicians.
“You need to separate administration and operations from regulations, very similar to an auditor and accountant,” said Bob Fryklund, vice president of industry relations for the global energy information and analytical firm IHS. “The political focus can then remain with the ministry and regulatory bodies and allow the operating companies to do just that: focus on growing production and managing the assets for the people.”
Fryklund, whose career included top posts in Libya and Brazil for ConocoPhillips, said INOC would bargain the terms of any deals, be it in an auction or direct negotiations.”It should be up to them to determine the best way to handle the fields.”
SADDAM’S LEGACY
Foreign oil firms controlled Iraq’s oil sector for 50 years. They were granted exclusive access and long-term deals by the British rulers and then the allied monarchy, payments to the country were flexible and the companies would often slow production to boost the price of oil from their fields in other parts of the world.
After the revolution, beginning in the 1960s and culminating in 1975, Iraq took back control of the oil fields and Iraqis turned with pride to a well-trained and productive state company. But progress was marked by the Iran-Iraq War, depleting lives, capital and infrastructure, initiating today’s current need for tens of billions of oil investment dollars.
In 1987, Saddam Hussein shuttered INOC and gave to the closely held Oil Ministry control of nearly all oil strategies, including companies responsible for exploring and drilling, transporting, refining and constructing the oil infrastructure of Iraq.
Without new legislation shaking those shackles and modernizing the Iraqi oil sector, the country’s political leaders have managed as best it can within a centralized, nationalized sector seeking foreign assistance with internal components demanding local control.
Shafiq, who fled Iraq after the late dictator called for his head and is now founder of consultant Petrolog & Associates, also co-authored the new draft oil law which has been stuck in disputes since 2006. He has had no part in the draft INOC law, he said.
“My view is that IOCs (international oil companies) have a role to play,” Shafiq said. “And at the time when the country’s institution are not equipped to carry out the full task, then certainly IOCs are needed but not beyond that.”
He said the need for the new national oil company is evident in controversies surrounding the Oil Ministry’s attempts to sign development deals with foreign companies. At the recent auction, critics questioned the Oil Ministry’s right to sign the deals and whether the fields up for bid were proper for foreign firms. Five fields remained largely because the companies and ministry couldn’t agree on the per barrel fee, the reward from Iraq to the foreign firm’s risk.
“It is the generally accepted view by the international oil community and as well as the opinions of the nationalists in any one country that, to team the national oil company with IOC, they both have a better feel of what are the realities,” Shafiq said. “IOCs would prefer to deal with their counterpart, national oil companies, than being tied to the routine of the government.”
Vie Jul 31, 2009 7:06 pm