Hydrocarbon Legislation in Iraq

The 2005 Constitution called for legislation governing the oil sector and various drafts of new federal hydrocarbons laws have been under discussion in Iraq since 2006, and delays have arisen largely as a consequence of lack of consensus between central government and the regions. Ben Lando of Iraq Oil Report goes so far as to assert that the legislation has become the grounds for a "proxy battle" over the balance of powers between the central government, the semi-autonomous Kurdistan region, and the other provinces.

The much-discussed draft oil and gas law (or draft hydrocarbon law), key to resolving long-standing disputes over the exploitation of Iraq's reserves and boosting production, first received approval by the Iraqi Council of Ministers in February 2007. However its approval by Parliament has been repeatedly delayed by the political stalemate between Baghdad and the regions. Due to the ongoing political disputes, as of late 2012 no framework law had been passed into law, and two competing drafts of the document were on the table awaiting further discussion in parliament.

The second key draft law is the Iraq National Oil Company Law, which would re-establish the Iraq National Oil Company (dissolved in 1997), thereby creating once again a single entity to manage the country's oil business. These two laws are interdependent. The hydrocarbons law would create a Federal Council for Oil and Gas (FCOG), which would set the policy carried out by INOC.

In their analysis, Revenue Watch Institute state that despite the media's focus on the role of the private sector, the most contentious issue in Iraq's legal framework is the division of authority between the federal centre and the regions.

=Hydrocarbons Law=

The Iraq Federal Oil and Gas Law has been referred to by Keith Myers or Revenue Watch Institute as "one of the most eagerly awaited and contentious pieces of legislation in the oil industry worldwide." The stalled law should set out terms regulating how foreign oil firms will be able to operate in Iraq, resolve bitter disputes between the central government and Iraqi Kurdistan, and remove a key obstacle to the development of the country's hydrocarbon reserves.

The differing drafts which have been discussed since 2007 are based on differing interpretations of the wording of the 2005 Constitution, much of which lacks clarity. In the summer of 2011 the Cabinet and Parliament each produced their own drafts of an oil law. The draft drawn up by the Cabinet concentrated state oil powers in the central government, while the Parliament version (supported by the KRG), distributes more authority to the regions. The Parliament oil committee approved its own draft in August 2011 and sent it to the full Parliament, but a group of MPs loyal to Prime Minister al-Maliki walked out of the session, broke quorum and effectively halted the oil law's progress. Later in October 2011, Maliki and then-KRG Prime Minister Barham Salih agreed to restart negotiations taking an earlier draft law from February 2007 as a base, however these talks never took place.

All of the draft versions being considered would create a body called the Federal Oil and Gas Council (FOGC), on which regions, governorates and federal government are represented. However each version dictates a different structure of powers and responsibilities. The Cabinet draft envisages an FOGC that reports to the executive, while many oil committee MPs believe it should be an independent body responsible to the Parliament.

The prospect of a negotiated resolution to the impasse dimmed during 2011 following a political crisis sparked by the sacking and arrest of vice-president Tariq al-Hashemi, and deepened following disputes over contracts awarded by the KRG to ExxonMobil and other oil majors, and further disputes over crude exports.

In April 2012, Kurdish Oil Minister Ashti Hawrami told Iraq Oil Report that the Constitution already grants Kurdistan the right to develop its resources with full autonomy, and suggested that a federal oil law may not even be needed in the KRG, which passed its own regional law in 2007.

=Iraq National Oil Company Law=

The draft Iraq National Oil Company Law would re-establish the Iraq National Oil Company (INOC) as a state-owned company managing all of the state interests in current and new fields and operating with a degree of financial and administrative autonomy.

As a result of the law, the Ministry of Oil would be stripped of its operational responsibility to become more of a policy-making body. It would also be likely to acquire some powers currently held by the Kurdistan Regional Government (KRG). While supporters of the law assert that if the company is set up properly it would increase both the efficiency of the Oil Ministry and be a more effective steward of the industry. However Oil Minister Karim al-Luaibi stated in 2012 that "this law adds nothing to what the Ministry of Oil is doing already."

Since being proposed in 2007 this law has also undergone substantial changes and was stalled as of 2012.

=Local content provisions=

As of 2012 there are no measures in place in Iraq that mandate a certain level of local content in energy sector projects, that is legislation which obliges contractors to make use of local goods and services. Such concerns are instead addressed under Article 26 of Iraq's model Technical Service contracts, which stipulates that contractors should allocate a minimum of US $5 million annually to the country's Training, Technology and Scholarship Fund (TTSF), although this demand was reduced to $1 million for contracts awarded in Iraq's third licensing round.

=External Links=

Iraq Oil and Gas Law: Draft law 17 August 2011 (ar)

Iraq National Oil Company Law: Draft law 31 March 2011 (ar)

= References =