Next Iraqi oil and gas licencing round could legitimise KRG oil contracts

oil refinery

By Shwan Zulal:

The oil and gas laws in Iraq are set to be delayed once again and there seems to be no political will to resolve the issues holding back some companies investing in Iraqi energy sector. A dispute is brewing and this time it is between the Iraqi parliament and Al-Maliki’s (Nuri Al-Maliki, Iraqi Prime Minister) Government.  The Oil and Energy Parliamentary Committee headed by Adnan Al-Janabi appears to be trying to delay the January round of the Gas and Oil licence auction. The parliamentary committee has threatened to take the issue to the lawmakers and try to block the government’s attempt to go ahead with auctioning the licences before the Iraqi Petroleum law is in place.
Al-Janabi told Reuters that he had “asked the Oil Ministry to postpone the auction but it had refused, and any contracts that resulted would be illegal.” He added that his committee would ask parliament to forbid “the carrying out of new bid rounds or the signing of any new contracts until the necessary petroleum legislation is passed”.  The Iraqi oil ministry has issued a brief statement in response, saying that the ministry is holding the auction in compliance with Iraqi laws. However, the committee has threatened to ask parliament to pass a law preventing the government from signing any new contracts.

Referring to Kurdistan oil contracts, Al-Janabi, has been quoted by the news agency saying that the contracts need to be “brought into line”. Kurdistan Region has been at the centre of this political squabbling. There are nearly 40 companies operating in the region and their contracts with the KRG (Kurdish Regional Government) has been and are still in question. Although many international legal experts have rendered the contracts constitutional and there has been political agreement, the position remains unclear and the latest remarks by Al-Janabi does not make it any clearer.

The latest dispute between Al-Janabi and Al-Maliki’s government highlights the lack of political direction in Iraq. Nevertheless, if the government wins the argument -which is very likely as previous attempts to stop the auctions in Court failed- and if it goes ahead with granting new licenses in January without oil and gas legislation, this will certainly give legitimacy to the KRG oil contract.

The argument against the validity of Kurdish oil contract has always been about whether the contracts are constitutional. The constitution stipulates that oil and gas legislation must be passed to regulate the industry and grant licenses which must be carried out accordingly. It is likely that the new round of licenses will go ahead as the oil ministry planed and the Energy Committee in charge of the new legislation will oppose it. Al-Janabi says the contracts will be “illegal” and hence the contracts are invalid and unconstitutional according to the committee. This will automatically set a precedent and put the new and old contracts granted by the Iraqi government on a par with contracts granted by KRG.

The process of granting KRG licences has been far from transparent, but it has brought expertise and money for much-needed infrastructure in the region. Only yesterday, the Kurdish opposition were asking for more transparency from the Kurdish government when dealing with oil companies and their contracts. The process of granting licences to oil exploration companies and attracting investors has been successful in Kurdistan Region. Despite disagreement over the validity of the contracts in Baghdad, investors have poured money into the region – in excess of $10Billion.

Investors in Kurdistan are somewhat reassured by the recent payment of outstanding amounts for exporting oil from Kurdistan, which was long overdue. Furthermore, Al-Maliki’s attempt to grant licences without the oil and gas law being passed will politically make it difficult to render Kurdish contracts granted under the same conditions invalid while giving legitimacy to other contracts granted by central Iraqi government.

Al Janabi also told Reuters “If the Oil Ministry proceeds with its plans, it will not be acting legally, and any signing parties will do so at their peril”. The uncertainty has spooked some investors and cast doubt on the future supply projection of the Iraqi oil production. The Iraqi government oil production targets by 2017 was 12 million barrel per day, but many experts and even ministers doubt this can be achieved while the political turmoil continues.

Iraqis are suffering and have neither basic services nor security. Meanwhile, the country has been rundown by rampant corruption. Division and lack of trust among politicians has lead to incongruity and disagreement on how to sell the only commodity Iraq depends on and its main source of income.

This article first appeared on Kurdish Views


One Response to Next Iraqi oil and gas licencing round could legitimise KRG oil contracts
  1. hotfile
    July 8, 2011 | 15:57

    Thanks for the nice blog. It was very useful for me. Keep sharing such ideas in the future as well. This was actually what I was looking for, and I am glad to came here! Thanks for sharing the such information with us

Leave a Reply

Wanting to leave an <em>phasis on your comment?

Trackback URL