By Ahmed Mousa Jiyad, August 2011
On Wednesday 17 August 2011 the Iraqi parliament began the first reading of a new version of oil law proposed by the oil and energy committee-OGC of the parliament itself. The timing and the procedure of the debate created confusion and prompted significant walkout of many parliamentarians members of influential political groups. The debate was postponed until after Ramadan Eid, when the House convene again in 6th September.
Once again the confusion has been generated by different versions of the draft law. In addition to this version proposed by OGC, reports say there are two other versions: one suppose to have been prepared by a committee under the supervision of Dr. Shahrisani, Deputy PM for energy affairs and another one prepared by the Ministry of Oil. Most likely, the two are the same and thus represent the version that would be proposed by the executive branch, and would be sent to the parliament for debate. Hence, this could be the real motive behind the walkout and the resulted chaotic situation we have seen in the parliament on Wednesday.
After quick review of this OGC proposed oil law, which was communicated to me same day 18 August 2011, I have the following remarks with specific reference to the related articles of the law:
One- Article 5. Formation and Structure of Federal Oil and Gas Council-FOGC
Two: Article 6. Entities that have Authorities.
This article mentions six entities that have role in “managing the petroleum resources”
1- The article mentions under number 5 “representative of each region”, and under number 6 “representative of each producing province”. The law outlines, in the following articles, the authorities of the first four entities, e.g., the Parliament, Council of Ministers, FOGC and the Ministry of Oil. But the law did not contain any information on powers of the remaining two listed under items 5 and 6 referred to above in “managing the petroleum resources”.
2- The article ignores, by omission or intention, INOC.
3- This article is obviously very week, inconsistent and thus could cause too much confusion.
Three: Article 7. The Role of the Parliament
1- This article confined the Role of the Parliament in “managing the petroleum resources” into two functions only: Promulgate laws pertaining to operations related to petroleum sector, and the approval of the international agreements related to petroleum sector. There is apparent inconsistency as the scope of the proposed law was limited to sub-sector of the petroleum sector, not the whole petroleum sector;
2- This article, and again by intention or omission, ignores the oversight role of the Parliament, which is enshrined in the constitution.
3- The formulation of this article is obviously unconstitutional as it ignores the supervisory function of the parliament, and could very well lead to circumventing the role of the parliament in this very vital sector.
Four: Article 8. The Role of the
Council of Ministers-CoM.
1- This article reduces the role and functions of the Council of Ministers to two items only: Propose laws, to the parliament, related to “discovery and development of the petroleum resources”, and “guarantee” that FOGC and the Ministry uses suitable means to consult and coordinate with regions and producing provinces.
2- The CoM role would be confined to proposing laws that are related only to “discovery and development” of petroleum resources. This could be interpreted literally that CoM has no authority to propose any law outside these two specific activities “discovery and development”.
3- While CoM could influence the ministry of oil, it has no authority under the proposed law to influence FOGC, since there are only three ministries in this council. How could then CoM “guarantee” a council that it has no legal power to influence its deliberations.
4- The article mentions nothing on the role of the CoM with regards formulating petroleum policies and the linkage of such policies with the national development plans and policies.
5- As was the case in the previous article, this formulation of this article is obviously unconstitutional as the constitution gives the executive authority (exercised by the CoM) much wider authority and powers than envisaged under the proposed law.
Six: Article 9: the Functions of FOGC
1- The article lists wide range of important functions and powerful authorities of FOGC in a very elaborated and comprehensive fashion, unlike those briefs mentioned in articles seven and eight pertaining to the parliament and CoM respectively.
2- In the previous drafts of the law, FOGC did have powerful role that made me to consider it as “mini Council of Ministers or Supper ministry”. But in this new draft FOGC has more power than the Council of Ministers itself.
3- In the same time FOGC is accountable to no body. Nothing in the proposed law suggest any system of FOGC accountability and for whom!
4- The proposed formulation of FOGC under this article would defiantly have disastrous ramifications on the petroleum sector. This is due to the add-hoc nature of FOGC, the tremendous authorities and power it has, the proposed voting system within FOGC in approving its decisions, the complete absence of systemic good governance and with the weakened role suggested by this law of both the legislative body (the Parliament) and the executive (CoM).
5- Accordingly the constitutionality of this non-elected body to undertake such functions could very well challenged on many grounds.
Seven: Article 10: Bureau of Independent Advisors-BIA.
1- FOGC will have unspecified number of “Iraqi and foreign” advisors in Petroleum and Law, each with three year un-renewable contract.
2- The selection and number of these advisors are the prerogatives of FOGC only. And with the structural weaknesses of FOGC, as outlined in item Sixth, the role of such advisors could be very influential and effective.
3- With the possibility that most of such advisors could be foreigners, the outcome could be that FOGC decision will be effectively made by foreign advisors. This is further but significant flaw of this proposed law and FOGC.
Eight: Article 11. The Role of the Ministry of Oil
1- This article outlines different functions of the Ministry. In the absence of the ministry’s law (which has nor been proposed yet), the provisions of this article pre-determine the major premises of the ministry’s role and function.
2- All of such functions are subject to the approval of FOGC. And because of the nature of FOGC and its work modalities, as discussed above, there are no guarantees that what the Ministry proposes would get through FOGC. Hence, the possibility of marginalizing the Ministry’s role in the development of petroleum upstream and midstream sub-sectors is very real and highly probable.
Nine: Article 13. The Role of INOC.
1- Though INOC was not mentioned in Article 6 of this law, this article 13 repeats unnecessarily some of the provisions of INOC Law (Still under second reading by the Parliament enacted)
2- The same flaws I identified earlier regarding the proposed INOC law are applicable here as well especially with regards to: the effective control of FOGC over INOC; the ambiguity about the oilfields earmarked for INOC; the condition of competitiveness with other IOCs inside Iraq; the function of “marketing” of oil as such collide with SOMO, among others.
Ten: Article 14, the Specialised Commissions in the Region.
1- This article authorises the specialised commissions in the Region (Kurdistan) to hold bid rounds in the presence of “one expert from BIA)!? . As the BIA comprises foreign advisors, this provision indicates the preference of KRG for such foreign advisors to legitimise their future bid rounds and resulting contracts.
2- These “specialised commissions in the Region” were not mentioned among the entities listed under Article 6, indicating to the weak and inconsistent formulation of this law.
3- This article clearly creates two-tier system inside Iraq, and thus does not provide the best solution for the current impasse between the federal and regional authorities.
Eleven: Articles 15 and 16 on Licensing.
1- Article 15 provides two types of contracts: Exploration, Development and Production Contracts, and Development and Production Contracts. This is rather very restrictive in the sense that one-phase contracts are not possible. For example there will be NO exploration contracts, or development contracts or production contracts.
2- The article is silent about the nature of these two types of contracts as “Service contracts”. Hence, the possibility of production sharing contracts remains high and can be sought by regional and provincial authorities. This possibility is further enforced by other provisions in article 16 of this proposed law.
3- There is no reference to conducting Exploration, Development and Production activities through “direct national efforts”. This could be interpreted that the only possible modalities are the two types of contracts referred to in Article 15, and this implies full weakening of INOC in the future development of the upstream petroleum sub-sector.
Twelve: Articles 18 Contracts approval by FOGC.
1- All future contracts have to be assessed by BIA in order that FOGC give its opinion on such contracts. Hence, it becomes apparent the central role of the BIAs, especially the foreigners among them!
2- FOGC approval of future contracts can be granted by defaults through elapse of time mechanism. Therefore, future contracts could be validated without the actual approvals by FOGC!
Thirteen: Article 21 Licensing and Contracts
1- The article refers to “Marketing” of petroleum as part of the model contract. This provision practically eliminates the role and function of SOMO, and replaces it by the contract holder(s).
2- The duration of each contract could be 25 years.
3- Many provision of this article are within the powers of the “specialised commission” and /or the “contracting entity” with no reference to the approval of FOGC.
4- Sub paragraph “fifth” of this article suggests, “Marketing and invest petroleum on the bases of attaining maximum revenue benefit to the value of the alternative opportunities”. Apart from the vagueness of this formulation, the paragraph does say who would enforce it:- the “specialised commission”, the “the contracting entity” or FOGC? Moreover, what are the modalities to assess and verify the “opportunity cost” for “Marketing and invest petroleum”?
Fifteen: Articles 30-32 on Pipelines.
1- Article 30 says the federal government owns the “current” main pipelines. The implications are future main pipelines could be owned by regional or provincial governments, and if this is correct then this could cause conflict between all three governments with possible negative consequences on having well functioning pipeline network.
2- Moreover, the “specialised commissions” (in the regions and producing provinces) are entrusted to draft systems on how “licence holders” use the pipelines.
3- However, Article 31 says, FOGC decides the entity that owns and manages the main pipelines. But article 32 asserts that, “the exploration, development and production contract offers the rights to access the main pipelines..”
4- Obviously there are so many ambiguous and conflicting provisions pertaining to ownership, maintaining and utilisation of the main pipelines. And such conditions are bound to have detrimental impacts on the overall development of the upstream petroleum sector.
Sixteen: Article 43, Dispute Settlement
1- This article contains unprecedented provision, which says dispute arising from “interpretation and implementation of this law or directives based on it” through direct negotiation between the concerned parties.
2- This provision reduces the status of Federal Oil and Gas Law to a status of a contract, and this is completely erroneous and impermissible as it eradicates the sovereignty of a national law.
Seventeen: Article 46, applicability of this law
1- All contracts concluded by the Ministry of Oil and the KRG before the enactment of this law would reviewed by a 3 men committee comprising the minister of oil, the specialised minister in KRG and the head of oil and energy committee of the federal parliament. The said committee will presents the results of its efforts to FOGC, and if issues remain unsolved they will be addressed by the leaders of the three major political blocks.
2- The implications of this article are that all already concluded contracts are “politicised”, and by only three political groups, as if others have no say a typical elitist approach. Moreover, legalising these contracts by this way would tarnish the legitimacy of the whole process. As this is a law that suppose to remain valid for long period while the current “three major political blocks” are circumstantial which might change any time due to political alignments or election. Finally, what happens if the majority of the parliamentarians oppose the conclusions of the “3 men committee” and the horse-trading by the leaders of the “three major political blocks”.
Eighteen: Article 48
non-applicability of the law.
The law does not apply to “gas manufacturing” and this could be interpreted to exempt the deal with Shell regarding Basra Gas Company.
Ahmed Mousa Jiyad,
Iraq/ Development Consultancy and Research,
Norway.
18 August 2011