Iraq’s parliamentary Oil & Energy Committee is seeking to hold the signing of any further oil and gas contracts until the passing of two key pieces of legislation, a move that could delay the Oil Ministry’s plans for the country’s oil sector.
The committee has submitted a formal statement to parliament to vote on, which was provided to MEED by Luay Jawad al-Khateeb, an adviser to the members. The statement highlights the committee’s reservations about the prospect of oil and gas contracts in Iraq being approved by just the cabinet, instead of the full parliament.
|Iraq’s natural gas production|
|Cubic feet a day (million)|
|South gas production||450|
|South gas flared||700|
|Source: Iraq Energy Initiative|
The statement has requested Iraq’s Council of Representatives, who will meet on 12 July, to pass a vote to suspend “the process of initiating any new contracts regarding the production of crude oil and natural gas, and hasten the legislation of the Oil and Gas Law to become the legal cover for any new contract, whether by the Federal Government or that of the producing regions and governorates”.
So far, Baghdad has signed 14 oil and gas technical service contracts following three licensing rounds. It is currently planning a fourth bid round for January 2012, covering exploration blocks across the country.
The semi-autonomous Kurdistan Regional Government (KRG) has moved even faster, signing 37 production sharing agreements since 2007, but is clashing with the central government.
Other provinces have also been trying to bring in international oil companies. On 5 June, a letter from Oil Minister Abdulkarim al-Luaibi informed the committee of an exploration licence awarded to an unnamed foreign oil firm by the Salah al-Din Governorate in the north of Iraq.
A moratorium on contracts could have a major impact on the Oil Ministry’s plans, including a long-delayed $12bn scheme with a consortium comprising UK-Dutch oil major Shell Group and Japan’s Mitsubishi to capture and utilise flared gas in the south of the country. Shell Group declined to comment on the possible moratorium on contracts.
The consortium has been waiting for approval from the Oil Ministry since July 2010. Since then, negotiations between the Oil Ministry, state-run South Oil Company and the Shell Group-Mitsubishi tie-up continued without resolution (MEED 9:7:10).
“This is a mid-stream venture, so it should not be impacted by the legislation, which has been a matter of debate since 2007,” says a source close to the company.
“The legal framework to form the venture is Law 21 and 22 of 1997, so the deal’s final approval is not dependent on the passing of the oil and gas law.”
According to the 2005 Constitution, the oil and gas law would set out the roles of the federal and provincial governments, as well as international and national oil companies in the oil sector. A draft law has been proposed since February 2007, but has yet to be passed by parliament which continues to debate its key issues. As a result, Iraq has had to rely on Saddam Hussain-era laws to develop its oil sector.
The Committee has also criticised draft legislation for the creation of a Iraqi National Oil Company (INOC). This would revive a state-run firm established in the 1960s, but later merged with the Oil Ministry in 1987.
The cabinet approved a draft law to establish INOC in 2009, but with its role and authority not clearly delineated it has faced the same delays as the oil and gas law. The draft INOC law has been presented to parliament for its first reading and is waiting to be scheduled for second reading to consider the proposed amendments. Without further delays, the amended draft could see a final vote within the next two months. The Oil law faces a similar time line.
Al-Luaibi says INOC’s creation is unnecessary. In an address to the Oil & Energy committee, Al-Luaibi said: “Our companies are doing the same job. [There is] no need for establishing this company. If we have two organisations with the job of marketing oil, then this will definitely create problems.”
The Oil & Energy Committee is pushing for INOC to be an independent entity, accountable to a federal oil council representing the country’s governorates and regions. In his testimony before the parliament in Baghdad on 3 July, Al-Khateeb also criticised the draft INOC law and urged the MPs to consider the views he presented on behalf of Iraq Energy Institute and other experts that could not make it to Baghdad.
“As it is written now, it is just creating another government department and almost rebranding the [Oil] Ministry as INOC, except without political or Opec functions posing clear conflict between regulator and regulated bodies, which doesn’t get Iraq anywhere,” says Al-Khateeb.
“It’s about time to have constitutional institutions in place with full accountability; the oil industry cannot be a one-man show anymore,” he adds.
|Oil export revenue|
|Year||Month||Average daily export (million b/d)||Revenues ($m)|
|Source: Oil Ministry|