NASDAQ Run''s

[Arctec]

Analysis: Kurds the winner in Iraq oil law
After nearly a year of negotiations, deadlocked on crucial issues of revenue sharing and control of oil fields.
By Ben Lando

--------------------------------------------------------------------------------

07 March 2007 (United Press International)
Print article Send to friend
The passage appears to have ended, at least for now, the most difficult phase of creating and passing legislation aimed at governing all of Iraq's vast oil and natural gas reserves.

The Iraqi Parliament still needs to approve the hydrocarbon law, backed by the majority Shiites, which is likely now that the Kurdistan Regional Government has endorsed it.

Oil production is struggling in Iraq. Daily production last month averaged nearly a million barrels below the pre-war levels of 2.6 million barrels per day. Passage of the law is seen as the first step to the more than $20 billion of investment the sector needs.

According to the draft, revenue from oil sales will be pooled into a central government coffer and redistributed throughout the country by population, allaying concerns from the minority Sunnis they would be left with nothing.

The regions will have authority to negotiate and sign contracts, though within the contract guidelines set out in the law.

The KRG in the north, governing a region semi-autonomous since the end of the first Gulf War, has continued development of its oil sector during the current war that has stifled the rest of the country.

Claiming authority given it in the 2005 constitution, the KRG signed five exploration and development contracts with private international companies, deals made controversial when the Iraq Oil Ministry threatened not to honor them. The new law may have resolved the conflict.

The KRG also developed its own hydrocarbon law, and proposed federal legislation largely incorporated into the new law.

"If we go strictly by the Iraq Constitution, the KRG is entitled to assume much greater powers over oil and gas," KRG Natural Resources Minister Ashti Hawrami said in a statement issued Monday by the KRG. "However, to make it work for all concerned, we had to be accommodating and pragmatic in our approach. I am pleased to say that almost all our ideas are now featured highly in the draft Federal Oil Law."

The draft law is less of an end-all deal, more like a framework for and the first in a regime of laws needed to govern Iraq's 115 billion barrels of proven oil reserves -- the third-most in the world -- and 111 trillion cubic feet of gas.

The "annexes" to the draft law, as Hawrami calls them, include detailing authority to territories and oil fields to the regions, the Iraq Oil Ministry and the Iraq National Oil Co.; the model and guidelines for contracts; and a law setting the terms of collecting revenues and mechanisms for redistributing them.

These issues have yet to be decided and, Hawrami said, "Will also be agreed upon before submitting the whole package to the Council of Representatives," the Parliament said.

But those agreements, collectively inferred as afterthoughts in negotiations now that the first compromise has been reached, are the thorn keeping the central government and the KRG from shaking hands in the past.

The Kurds fear a strong central government could deprive them of development like under the Saddam Hussein regime. So they've demanded an automatic redistribution of revenue, away from sectarian whims, and at a percentage that appeared to have outweighed its proportion of the population (though a census will need to be conducted before real numbers can be confirmed).

And, citing historical wrongs and the 2005 constitution, the KRG demanded control over all new oil development.

"Kurdistan will be guaranteed a share of pooled revenue proportionate to its population," Hawrami said. "The Kurdistan Regional Government will, of course, retain the power to sign contracts for petroleum exploration and development in the Kurdistan Region."

A federal oil and gas council, which the KRG pushed for, will serve as a non-binding arbiter of disagreements.

Hawrami said a "panel of experts" named by the council will be allowed to review KRG contracts, though the contracts will not be stopped. The KRG will not sign any new deals until the law is passed.