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Parliament oil law creates contract review process
By BEN LANDO AND STAFF of Iraq Oil Report
Published August 18, 2011
A draft oil law pushed by key Parliamentarians would establish an intergovernmental council granted decision making on contracting with foreign oil companies and nearly the entire oil strategy, and create what would be a highly-politicized process of reviewing all oil deals signed since 2003.
The law would also create a national oil company with broad responsibilities and turn the oil ministry into a powerful regulatory body.
****The bill, which faces political opposition but is the furthest along in the legislative process of any competing draft laws,****** includes tough language for both state and private oil companies requiring transparency in contracting, subcontracting and other operations.*******
Iraq Oil Report obtained a copy of the draft oil and gas law, which lawmakers introduced in Parliament Wednesday for a first reading, cut short when the bulk of Parliamentarians, led by those loyal to Prime Minister Nouri al-Maliki, walked out of the session.
The Oil Ministry has proposed an oil law, ostensibly different from the bill that was officially submitted earlier this month by 61 members of Parliament including key leaders such as the chairman of the Oil and Energy Committee, Adnan Janabi.
The Council of Ministers must approve the ministry's law before it is submitted to Parliament, which Janabi had said he was waiting for before pushing through his bill. Maliki insists only the Cabinet has the right to submit laws, based on a late-2010 Federal Supreme Court ruling, which is disputed by many in the legislature.
In the absence of a new law governing the oil sector – called for in the 2005 Constitution – Iraq's Kurdistan Regional Government (KRG) and central government have signed a combined nearly 60 oil and gas deals. Each side insists their interpretation of the existing laws and the Constitution – often in conflict with each other – support their case for the deals. And all of these have critics that contend they are either bad deals for the state or illegitimate without Parliament or central government approval.
A draft oil law was agreed to in principle in February 2007 by representatives of the Kurdish and central governments – the two sides most at odds, over the extent of de-centralization and federalism in the oil sector.
But the agreement was premature, fell apart two months later, and the key issues have yet to be resolved.
The Parliament draft oil law is to be a "policy-making strategy for the development of the oil extractive industry so as to achieve the greatest benefit for the Iraqi people and in line with the Federal Constitution," and "to ensure coordination and partnership between the federal government and the regions and producing provinces in the management and development of petroleum resources in order to achieve the national interest in any phase of petroleum operations."
The law contains a no flaring policy, insisting on the best use of associated natural gas aside from the commonly used method in Iraq: burning it away. And, the law specifically does not apply to "the operations of oil refining, gas processing and its industrial uses, storage, transport and distribution of petroleum products."
INSIDE THE LAW
Oil contracts review faces political hurdle
One of the biggest risks oil companies faced when signing contracts in Iraq since 2003 continues to be the legal uncertainty. Even the U.S. government had a long-running standard response to companies that sought its opinion: without a broadly accepted law that outlines which government body has the right to sign contracts, there is no legal guarantee a contract will remain valid amidst the ongoing political evolution in the country.
According to the draft law, all contracts signed before this law is enacted will be reviewed "by a committee that consists of the Oil Minister, the specialized minister in the Kurdistan Regional Government, and the head of the Oil, Energy and Natural Resources committee in the Parliament."
Their review will be sent to a new Federal Oil and Gas Council, a powerful policy-making body that would likely be stacked heavily with political appointees.
The special committee is supposed to rule by consensus, though the trio currently all has opposing views on oil management. "In case there are unresolved issues remaining, then they will be decided by the heads of the three main political blocks."
There is no specific outline of what an acceptable model contract contains – a flashpoint between nationalists, central government officials and those who favor decentralization – other than a list of criteria, including: national sovereignty; ownership of Iraq's petroleum resources; maximum return on national economy; and plans and solutions that ensure the protection of the environment.
Oil and gas super committee
While Parliament will still be in charge of approving legislation affecting the oil sector, all oil contracting and hydrocarbons development strategy decisions will be made and carried out by the Federal Oil and Gas Council, made up of a president, vice president and three independent experts nominated by the speaker of the Parliament, as well as the ministers of Oil, Finance and Planning and one delegate from each producing province or region (defined by producing at least 150,000 barrels per day (bpd) of oil).
The council, meeting at least once a month, will set policies and plans for exploration, development and production of discovered and undiscovered oil and gas fields, and "the criteria for issuing instructions to negotiate contracts for the licensing or development, production and eligibility criteria for companies."
It will also draw up model contracts, review draft contracts, and approve or reject deals.
An Independent Advisers Office will be attached to the council "to study of contracts of exploration and development, production and development plans for oil and gas fields, and any other matters related to this and provide advice and recommendations to the council."
The three advisers and those in the office can be either Iraqi and foreign experts, contracted for three-years only.
A national oil company
The new Iraqi National Oil Co. (INOC), first established during nationalization in 1967 and disbanded in a power-grab by Saddam Hussein 20 years later, would be given numerous powers in this draft law.
Already a point of contention with the Oil Ministry, the INOC would be in charge of oil pipelines and export terminals and ports, all currently producing fields, and any "discovered and undeveloped fields given to it by the Council."
INOC would also compete in bidding rounds with foreign companies for "production, development and drilling operations inside Iraq."
A new Oil Ministry
Much of the aforementioned responsibilities currently reside within the Oil Ministry, which will have its current powers reduced.
According to the law, the ministry will "propose policy, oil laws and plans; prepare draft regulations and issue instructions and data to the implementation of policies, oil laws and plans submitted to the council for approval."
Although its policy making function will lose its teeth, it will still hold regulatory powers: "monitoring and supervising petroleum operations in the light of relevant legislation and contractual terms and international standards adopted in coordination with other relevant bodies to ensure a uniform implementation and application of heterogeneous petroleum policy in all parts of Iraq."
This includes promoting best practices in modern techniques of oil and gas field development per field and, as a whole, the long-term planning for the exploration and development of fields throughout the country.
It will participate in some form in developing model contracts, and be tasked with fiscal oversight such as audits of activities of companies contracted for oil development. It will also be the body negotiating oil-related agreements with other countries, and be the representative of Iraq at OPEC and other international oil organizations and meetings.
Transparency enshrined in law
Key aspects of this law are specific articles detailing the requirements of Iraqi and foreign entities in complying with measures to reduce corruption, including a requirement that all contracting and subcontracting must be done in a transparent bidding process.
But a more stringent method will be the obligation to publish in at least two local daily newspapers "revenues and payments in kind and receipts in excess of one billion Iraqi dinars, which are delivered to any party representing the state or the public sector, derived from any activity associated with oil."
This would be verified by annual reports to the Federal Oil and Gas Council and annual and quarterly budget reports to be audited.
Iraqi staff contributing from Baghdad are anonymous for their security.
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By BEN LANDO AND STAFF of Iraq Oil Report
Published August 18, 2011
A draft oil law pushed by key Parliamentarians would establish an intergovernmental council granted decision making on contracting with foreign oil companies and nearly the entire oil strategy, and create what would be a highly-politicized process of reviewing all oil deals signed since 2003.
The law would also create a national oil company with broad responsibilities and turn the oil ministry into a powerful regulatory body.
****The bill, which faces political opposition but is the furthest along in the legislative process of any competing draft laws,****** includes tough language for both state and private oil companies requiring transparency in contracting, subcontracting and other operations.*******
Iraq Oil Report obtained a copy of the draft oil and gas law, which lawmakers introduced in Parliament Wednesday for a first reading, cut short when the bulk of Parliamentarians, led by those loyal to Prime Minister Nouri al-Maliki, walked out of the session.
The Oil Ministry has proposed an oil law, ostensibly different from the bill that was officially submitted earlier this month by 61 members of Parliament including key leaders such as the chairman of the Oil and Energy Committee, Adnan Janabi.
The Council of Ministers must approve the ministry's law before it is submitted to Parliament, which Janabi had said he was waiting for before pushing through his bill. Maliki insists only the Cabinet has the right to submit laws, based on a late-2010 Federal Supreme Court ruling, which is disputed by many in the legislature.
In the absence of a new law governing the oil sector – called for in the 2005 Constitution – Iraq's Kurdistan Regional Government (KRG) and central government have signed a combined nearly 60 oil and gas deals. Each side insists their interpretation of the existing laws and the Constitution – often in conflict with each other – support their case for the deals. And all of these have critics that contend they are either bad deals for the state or illegitimate without Parliament or central government approval.
A draft oil law was agreed to in principle in February 2007 by representatives of the Kurdish and central governments – the two sides most at odds, over the extent of de-centralization and federalism in the oil sector.
But the agreement was premature, fell apart two months later, and the key issues have yet to be resolved.
The Parliament draft oil law is to be a "policy-making strategy for the development of the oil extractive industry so as to achieve the greatest benefit for the Iraqi people and in line with the Federal Constitution," and "to ensure coordination and partnership between the federal government and the regions and producing provinces in the management and development of petroleum resources in order to achieve the national interest in any phase of petroleum operations."
The law contains a no flaring policy, insisting on the best use of associated natural gas aside from the commonly used method in Iraq: burning it away. And, the law specifically does not apply to "the operations of oil refining, gas processing and its industrial uses, storage, transport and distribution of petroleum products."
INSIDE THE LAW
Oil contracts review faces political hurdle
One of the biggest risks oil companies faced when signing contracts in Iraq since 2003 continues to be the legal uncertainty. Even the U.S. government had a long-running standard response to companies that sought its opinion: without a broadly accepted law that outlines which government body has the right to sign contracts, there is no legal guarantee a contract will remain valid amidst the ongoing political evolution in the country.
According to the draft law, all contracts signed before this law is enacted will be reviewed "by a committee that consists of the Oil Minister, the specialized minister in the Kurdistan Regional Government, and the head of the Oil, Energy and Natural Resources committee in the Parliament."
Their review will be sent to a new Federal Oil and Gas Council, a powerful policy-making body that would likely be stacked heavily with political appointees.
The special committee is supposed to rule by consensus, though the trio currently all has opposing views on oil management. "In case there are unresolved issues remaining, then they will be decided by the heads of the three main political blocks."
There is no specific outline of what an acceptable model contract contains – a flashpoint between nationalists, central government officials and those who favor decentralization – other than a list of criteria, including: national sovereignty; ownership of Iraq's petroleum resources; maximum return on national economy; and plans and solutions that ensure the protection of the environment.
Oil and gas super committee
While Parliament will still be in charge of approving legislation affecting the oil sector, all oil contracting and hydrocarbons development strategy decisions will be made and carried out by the Federal Oil and Gas Council, made up of a president, vice president and three independent experts nominated by the speaker of the Parliament, as well as the ministers of Oil, Finance and Planning and one delegate from each producing province or region (defined by producing at least 150,000 barrels per day (bpd) of oil).
The council, meeting at least once a month, will set policies and plans for exploration, development and production of discovered and undiscovered oil and gas fields, and "the criteria for issuing instructions to negotiate contracts for the licensing or development, production and eligibility criteria for companies."
It will also draw up model contracts, review draft contracts, and approve or reject deals.
An Independent Advisers Office will be attached to the council "to study of contracts of exploration and development, production and development plans for oil and gas fields, and any other matters related to this and provide advice and recommendations to the council."
The three advisers and those in the office can be either Iraqi and foreign experts, contracted for three-years only.
A national oil company
The new Iraqi National Oil Co. (INOC), first established during nationalization in 1967 and disbanded in a power-grab by Saddam Hussein 20 years later, would be given numerous powers in this draft law.
Already a point of contention with the Oil Ministry, the INOC would be in charge of oil pipelines and export terminals and ports, all currently producing fields, and any "discovered and undeveloped fields given to it by the Council."
INOC would also compete in bidding rounds with foreign companies for "production, development and drilling operations inside Iraq."
A new Oil Ministry
Much of the aforementioned responsibilities currently reside within the Oil Ministry, which will have its current powers reduced.
According to the law, the ministry will "propose policy, oil laws and plans; prepare draft regulations and issue instructions and data to the implementation of policies, oil laws and plans submitted to the council for approval."
Although its policy making function will lose its teeth, it will still hold regulatory powers: "monitoring and supervising petroleum operations in the light of relevant legislation and contractual terms and international standards adopted in coordination with other relevant bodies to ensure a uniform implementation and application of heterogeneous petroleum policy in all parts of Iraq."
This includes promoting best practices in modern techniques of oil and gas field development per field and, as a whole, the long-term planning for the exploration and development of fields throughout the country.
It will participate in some form in developing model contracts, and be tasked with fiscal oversight such as audits of activities of companies contracted for oil development. It will also be the body negotiating oil-related agreements with other countries, and be the representative of Iraq at OPEC and other international oil organizations and meetings.
Transparency enshrined in law
Key aspects of this law are specific articles detailing the requirements of Iraqi and foreign entities in complying with measures to reduce corruption, including a requirement that all contracting and subcontracting must be done in a transparent bidding process.
But a more stringent method will be the obligation to publish in at least two local daily newspapers "revenues and payments in kind and receipts in excess of one billion Iraqi dinars, which are delivered to any party representing the state or the public sector, derived from any activity associated with oil."
This would be verified by annual reports to the Federal Oil and Gas Council and annual and quarterly budget reports to be audited.
Iraqi staff contributing from Baghdad are anonymous for their security.
[You must be registered and logged in to see this link.]
