Oil laws not likely before January election
Submitted by Ben Lando on Tuesday, 15 September 2009
By BEN LANDO
Iraq Oil Report
BAGHDAD – The four interrelated draft bills aimed at modernizing Iraq’s oil sector will likely continue their three-year limbo until after the January national elections, when a new government is formed and a new Parliament seated.
The laws could end rancor between parties and allow for both short-term cash and long-term strategic development of Iraq’s only cash crop.
“I hope these four laws are passed during this parliamentary session but I don’t think so,” said Ali Hussein Belo, a Kurdish member of Parliament and chair of the Oil, Gas & Natural Resources Committee.
The committee is meeting at least twice a week, usually every other week. Members have said some laws have been blocked from the body’s agenda by the Parliament Presidency Council, made up of the speaker and his two deputies.
Jabir Khalifa Jabir, second deputy of the committee and member of the Basra-based Fadhila Party – which, along with the Kurds, are big opponents of Oil Minister Hussain al-Shahristani – said the council also prevents Parliament from summoning key ministers for official questioning and criticism.
“Shahristani is backed by some politicians and officials, and it has been delayed. Every time we try to question, this issue is not considered,” Jabir said.
Powerful political parties have become virulent opponents to issues relating to decentralizing government oil authority and the role for foreigners in Iraq’s proudly nationalized oil sector. But now, nearly everything in Iraqi politics is set aside for the larger goal of gaining or maintaining power after the coming elections, with most incremental legislative progress put on the back-burner.
Members of Parliament said, however, that an income tax on foreign oil firms has received wide support. In its current draft form, the bill would assess a 35 percent tax on all oil companies directly contracted to the government.
The bill was approved by the economic committee but must make its way two more readings, likely not before the Eid al-Fitr holiday which caps the month-long holiday of Ramadan ending next week.
“This law is very important for the Iraqi economy,” said Amira al-Baldawi, a committee member and an independent within the Shiite United Iraqi Alliance block. “The oil revenue is the main revenue for Iraq and it is the duty of the government to have such a kind of law like this tax.”
Parliamentarians said the tax rate could be altered, among other changes that the bill could undergo, before it gets what is assumed to be easy approval by Parliament.
Under the current form the tax would not apply to subcontracting firm and it would not be retroactive. Parliament is keen on getting it on the books before an upcoming mass tendering of oil projects.
“Any company that gets profits, whether drilling or other, any company registered as a company and has a contract signed with the Iraqi side it will be under this tax,” Baldawi said.
A source at the Oil Ministry said, on condition of anonymity, that it requested the tax be raised to 35 percent from the original 15 percent proposed. The source said oil companies contacted about this have not raised any objections.
Meanwhile, the Oil Ministry is moving forward with signing deals to develop the Nassiriya oil field and in talks with BP and Shell on two separate oil and gas ventures. Political barriers aside, it is weathering the criticism as it readies 11 oil field projects to be put up for foreign oil company development in an auction slated for December.
Iraq holds the world’s third largest oil reserves at 115 billion barrels, but experts believe much more is to be found when modern exploration is conducted on the discovered fields and unexplored areas. The country is producing 2.4 million barrels per day, below what such reserves could handle given proper infrastructure and nationally-accepted governance.
Decades of wars, mismanagement and sanctions during Saddam Hussein’s regime have resulted in brittle infrastructure, fields in need of fixing, and a lack of new technology, methods and equipment –both in capital and human resources development. Since 2003, the oil sector took a hit like all other Iraqis, trying to survive now year seven of the war.
Setting aside security, the oil sector is still mired in disputes over how the hydrocarbons sector should be managed.
Currently, policy is being set, regulated, and the industry operated by the Oil Ministry in Baghdad, led by an appointee of the Prime Minister, within the post-2003 sectarian-based quota system of a ruling coalition. This is the by-product of inaction by the government – maintaining a status quo of most pre-2003 oil sector management practices – not an active decision by the government.
Laws proposed since 2006 have received a variety of movement, though none making it far into Parliament.
Furthest along are what’s commonly called the Oil Law and the law reconstituting the Iraqi National Oil Company.
The Oil Law would set the groundrules for determining oil policy, including the roles of local, provincial and regional governments within Iraq, and to what extent foreign oil firms will have access. Theoretically, it would settle the disputes between the Shiite-led parties dominating government now and the influential minority players representing the three northern, semi-autonomous Kurdish provinces in the north. And, if the law didn’t cross the “red line” set by oil unions and nationalists within the oil industry and political spheres, it would roll back some of the oil nationalism instituted in the 1960s and 70s, when Iraq took control from the foreign oil firms that had a death grip on its most lucrative resource.
The rebuilding of the national oil sector capacity and engagement with the foreign oil firms – and their much needed expertise – would fall largely under the purview of a reconstituted Iraqi National Oil Company. INOC was disbanded in 1987 when Saddam Hussein wanted to further solidify control within the Oil Ministry.
Currently 16 separate oil companies are run by the ministry. These include the two giants, the South Oil Company and North Oil Company, which produce Iraq’s oil. They, along with companies responsible for exploration, pipelines, repairs, refining and other operations integral to an oil sector, would become part of a vertically integrated national oil company, separated from much of the politics of Iraq. The company would do the work itself or bring in foreign firms to assist.
Both of these laws have been given to Parliament, but the energy committee has kicked them back to the council of ministers for more clarification and to respond to immediate concerns with the bills’ text.
A third law would reorganize the Ministry of Oil to be more of a true regulator of the industry, maintaining its political connections and having a seat at the oil policy setting table. It would have a smaller role in actual day-to-day oil operations.
Anchoring what has been termed as a package-only legislative endeavor is the revenue sharing law. It would determine the mechanisms for collecting and redistributing all of Iraq’s state income, of which oil is 95 percent.
Neither of these laws has been approved by the Council of Ministers.
“This is because at this time there are barriers facing fulfillment of these laws,” said Belo. “So under these circumstances (after the election) and if there is political agreement, it will happen. But there are always surprises.”
Without new laws, Iraq is developing its oil sector in a conflicting concoction of constitutional interpretation. The 2005 Constitution left such issues vague in order to get political consensus.
The Kurdistan Regional Government interprets the mentioning of local input into oil policy as giving it authority to sign oil deals. The KRG passed a regional oil law in August 2007 and soon after initiated a steady flow of deals.
There are nearly three dozen companies involved in two dozen oil and gas projects. But the central government calls them illegal and threatened to confiscate any oil attempted to be produced and exported without its approval. Any firms contracted with the KRG have also been blacklisted from purchasing Iraqi oil and receiving any oil deals from the central government.
The KRG has announced plans to be ready to produce one million barrels per day by 2011, though this depends on the ability of Iraq’s export infrastructure and the realization of some of the early signs of exploration success in the region. Two of the contracts signed in 2004, before the beef between region and capital, have started exporting as of June 1.
But this has not solved the dispute over who should pay the contracting firms – Norway’s DNO for the Tawke field and the Taq Taq field operated by Swiss/Canadian Addax Petroleum and Turkey’s Genel Enerji – with Baghdad saying it is KRG’s responsibility to do so out of its 17 percent share of state revenues.
The Ministry of Oil is also moving along with its oil projects, despite complaints from nationalists it is too open to foreign companies, by the KRG that questions its authority without a new law, and by Parliamentarians, some of which say the legislative body should have approval of contracts.
A Japanese consortium led by Nippon Oil is looking more likely to be awarded – perhaps as early as this week – a contract to develop the 4.4 billion barrel Nassiriya oil field in Dhi Qar province. Local and ministry officials have said the consortium has better funding and is closer to the terms the ministry wants, as opposed to the Italian firm Eni’s bid.
“Therefore there will be a meeting in the next week or after the Eid, and this meeting will be to finalize the contract,” said Sabah Shabeeb al-Sa’idi, the head of the commercial and legal affairs department in the Oil Ministry’s Petroleum Contracts and Licensing Directorate. Sa’idi has not confirmed who the winning company.
Sources said Shell has held meetings in Basra last week on a proposed joint venture with the South Gas Company to capture and utilize natural gas being flared in the province. An early agreement inked a year ago and scheduled to be finalized this month will likely be delayed until after the elections as well. Shell has a satellite office in Basra along with a head office in Baghdad.
Officials from BP held at least two days of meetings in Basra as well last week. BP and its junior partner the Chinese National Petroleum Corp. are negotiating the contract to develop the super-giant Rumaila oil field in Basra province. The field was the only project awarded of the eight oil and gas projects offered in a June 30 auction to foreign oil firms.
http://www.iraqoilreport.com/the-biz...election-2237/
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Submitted by Ben Lando on Tuesday, 15 September 2009
By BEN LANDO
Iraq Oil Report
BAGHDAD – The four interrelated draft bills aimed at modernizing Iraq’s oil sector will likely continue their three-year limbo until after the January national elections, when a new government is formed and a new Parliament seated.
The laws could end rancor between parties and allow for both short-term cash and long-term strategic development of Iraq’s only cash crop.
“I hope these four laws are passed during this parliamentary session but I don’t think so,” said Ali Hussein Belo, a Kurdish member of Parliament and chair of the Oil, Gas & Natural Resources Committee.
The committee is meeting at least twice a week, usually every other week. Members have said some laws have been blocked from the body’s agenda by the Parliament Presidency Council, made up of the speaker and his two deputies.
Jabir Khalifa Jabir, second deputy of the committee and member of the Basra-based Fadhila Party – which, along with the Kurds, are big opponents of Oil Minister Hussain al-Shahristani – said the council also prevents Parliament from summoning key ministers for official questioning and criticism.
“Shahristani is backed by some politicians and officials, and it has been delayed. Every time we try to question, this issue is not considered,” Jabir said.
Powerful political parties have become virulent opponents to issues relating to decentralizing government oil authority and the role for foreigners in Iraq’s proudly nationalized oil sector. But now, nearly everything in Iraqi politics is set aside for the larger goal of gaining or maintaining power after the coming elections, with most incremental legislative progress put on the back-burner.
Members of Parliament said, however, that an income tax on foreign oil firms has received wide support. In its current draft form, the bill would assess a 35 percent tax on all oil companies directly contracted to the government.
The bill was approved by the economic committee but must make its way two more readings, likely not before the Eid al-Fitr holiday which caps the month-long holiday of Ramadan ending next week.
“This law is very important for the Iraqi economy,” said Amira al-Baldawi, a committee member and an independent within the Shiite United Iraqi Alliance block. “The oil revenue is the main revenue for Iraq and it is the duty of the government to have such a kind of law like this tax.”
Parliamentarians said the tax rate could be altered, among other changes that the bill could undergo, before it gets what is assumed to be easy approval by Parliament.
Under the current form the tax would not apply to subcontracting firm and it would not be retroactive. Parliament is keen on getting it on the books before an upcoming mass tendering of oil projects.
“Any company that gets profits, whether drilling or other, any company registered as a company and has a contract signed with the Iraqi side it will be under this tax,” Baldawi said.
A source at the Oil Ministry said, on condition of anonymity, that it requested the tax be raised to 35 percent from the original 15 percent proposed. The source said oil companies contacted about this have not raised any objections.
Meanwhile, the Oil Ministry is moving forward with signing deals to develop the Nassiriya oil field and in talks with BP and Shell on two separate oil and gas ventures. Political barriers aside, it is weathering the criticism as it readies 11 oil field projects to be put up for foreign oil company development in an auction slated for December.
Iraq holds the world’s third largest oil reserves at 115 billion barrels, but experts believe much more is to be found when modern exploration is conducted on the discovered fields and unexplored areas. The country is producing 2.4 million barrels per day, below what such reserves could handle given proper infrastructure and nationally-accepted governance.
Decades of wars, mismanagement and sanctions during Saddam Hussein’s regime have resulted in brittle infrastructure, fields in need of fixing, and a lack of new technology, methods and equipment –both in capital and human resources development. Since 2003, the oil sector took a hit like all other Iraqis, trying to survive now year seven of the war.
Setting aside security, the oil sector is still mired in disputes over how the hydrocarbons sector should be managed.
Currently, policy is being set, regulated, and the industry operated by the Oil Ministry in Baghdad, led by an appointee of the Prime Minister, within the post-2003 sectarian-based quota system of a ruling coalition. This is the by-product of inaction by the government – maintaining a status quo of most pre-2003 oil sector management practices – not an active decision by the government.
Laws proposed since 2006 have received a variety of movement, though none making it far into Parliament.
Furthest along are what’s commonly called the Oil Law and the law reconstituting the Iraqi National Oil Company.
The Oil Law would set the groundrules for determining oil policy, including the roles of local, provincial and regional governments within Iraq, and to what extent foreign oil firms will have access. Theoretically, it would settle the disputes between the Shiite-led parties dominating government now and the influential minority players representing the three northern, semi-autonomous Kurdish provinces in the north. And, if the law didn’t cross the “red line” set by oil unions and nationalists within the oil industry and political spheres, it would roll back some of the oil nationalism instituted in the 1960s and 70s, when Iraq took control from the foreign oil firms that had a death grip on its most lucrative resource.
The rebuilding of the national oil sector capacity and engagement with the foreign oil firms – and their much needed expertise – would fall largely under the purview of a reconstituted Iraqi National Oil Company. INOC was disbanded in 1987 when Saddam Hussein wanted to further solidify control within the Oil Ministry.
Currently 16 separate oil companies are run by the ministry. These include the two giants, the South Oil Company and North Oil Company, which produce Iraq’s oil. They, along with companies responsible for exploration, pipelines, repairs, refining and other operations integral to an oil sector, would become part of a vertically integrated national oil company, separated from much of the politics of Iraq. The company would do the work itself or bring in foreign firms to assist.
Both of these laws have been given to Parliament, but the energy committee has kicked them back to the council of ministers for more clarification and to respond to immediate concerns with the bills’ text.
A third law would reorganize the Ministry of Oil to be more of a true regulator of the industry, maintaining its political connections and having a seat at the oil policy setting table. It would have a smaller role in actual day-to-day oil operations.
Anchoring what has been termed as a package-only legislative endeavor is the revenue sharing law. It would determine the mechanisms for collecting and redistributing all of Iraq’s state income, of which oil is 95 percent.
Neither of these laws has been approved by the Council of Ministers.
“This is because at this time there are barriers facing fulfillment of these laws,” said Belo. “So under these circumstances (after the election) and if there is political agreement, it will happen. But there are always surprises.”
Without new laws, Iraq is developing its oil sector in a conflicting concoction of constitutional interpretation. The 2005 Constitution left such issues vague in order to get political consensus.
The Kurdistan Regional Government interprets the mentioning of local input into oil policy as giving it authority to sign oil deals. The KRG passed a regional oil law in August 2007 and soon after initiated a steady flow of deals.
There are nearly three dozen companies involved in two dozen oil and gas projects. But the central government calls them illegal and threatened to confiscate any oil attempted to be produced and exported without its approval. Any firms contracted with the KRG have also been blacklisted from purchasing Iraqi oil and receiving any oil deals from the central government.
The KRG has announced plans to be ready to produce one million barrels per day by 2011, though this depends on the ability of Iraq’s export infrastructure and the realization of some of the early signs of exploration success in the region. Two of the contracts signed in 2004, before the beef between region and capital, have started exporting as of June 1.
But this has not solved the dispute over who should pay the contracting firms – Norway’s DNO for the Tawke field and the Taq Taq field operated by Swiss/Canadian Addax Petroleum and Turkey’s Genel Enerji – with Baghdad saying it is KRG’s responsibility to do so out of its 17 percent share of state revenues.
The Ministry of Oil is also moving along with its oil projects, despite complaints from nationalists it is too open to foreign companies, by the KRG that questions its authority without a new law, and by Parliamentarians, some of which say the legislative body should have approval of contracts.
A Japanese consortium led by Nippon Oil is looking more likely to be awarded – perhaps as early as this week – a contract to develop the 4.4 billion barrel Nassiriya oil field in Dhi Qar province. Local and ministry officials have said the consortium has better funding and is closer to the terms the ministry wants, as opposed to the Italian firm Eni’s bid.
“Therefore there will be a meeting in the next week or after the Eid, and this meeting will be to finalize the contract,” said Sabah Shabeeb al-Sa’idi, the head of the commercial and legal affairs department in the Oil Ministry’s Petroleum Contracts and Licensing Directorate. Sa’idi has not confirmed who the winning company.
Sources said Shell has held meetings in Basra last week on a proposed joint venture with the South Gas Company to capture and utilize natural gas being flared in the province. An early agreement inked a year ago and scheduled to be finalized this month will likely be delayed until after the elections as well. Shell has a satellite office in Basra along with a head office in Baghdad.
Officials from BP held at least two days of meetings in Basra as well last week. BP and its junior partner the Chinese National Petroleum Corp. are negotiating the contract to develop the super-giant Rumaila oil field in Basra province. The field was the only project awarded of the eight oil and gas projects offered in a June 30 auction to foreign oil firms.
http://www.iraqoilreport.com/the-biz...election-2237/
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