19 July 2004
Iraq’s interim government has taken its first step toward institutionalizing oil policy in Iraq by establishing the first supreme council for oil and gas.
“We don’t want oil policy to be in the hands of one person but it’s a matter for the whole nation represented by the prime minister and other members of the cabinet,” Thamer al-Ghadban, Iraq’s interim oil minister, told International Oil Daily from Baghdad on Friday. The council will be headed by Iyad Allawi, Iraq’s interim prime minister.
Iraq has never had a supreme council for the oil sector. Under the previous regime, Saddam Hussein was the absolute decision maker on everything related to the sector, including investments, marketing and foreign energy relations. Under Saddam, there was a follow-up committee on oil issues, which included an appointed oil minister and the head of the marketing organization, but its major role was to approve Saddam’s decisions.
The nine-man new council will be made up of the deputy premier, the ministers of oil, finance, planning and international cooperation as well as a minister of state, the governor of the Central Bank of Iraq and an adviser. The minister of state is to be chosen among four currently serving in the cabinet. The adviser to the council has yet to be announced. The adviser also may serve as secretary of the council.
By establishing a supreme council for the oil and gas sector, Iraq follows in the steps of neighboring Saudi Arabia and Kuwait.
The Saudi Supreme Petroleum Council, which was revived in 2000, is chaired by the king but is run by the deputy chairman, Crown Prince Abdullah. Kuwait’s Supreme Petroleum Council is headed by Prime Minister Sheikh Sabah al-Ahmad al-Sabah.
“The establishment of the council does not infringe on the authorities of the oil minister who will have a pivotal role in bringing up the issues to the attention of the council,” al-Ghadban said.
A statement issued by the Iraqi oil ministry on Friday stated that the council’s role will be to “draw up public policy for managing the hydrocarbon resources in Iraq and achieving optimum utilization of them and for the development of the national oil industry in order to achieve the highest revenue possible.”
The role of the council, which could hold its first meeting as early as this week, is to approve medium- and long-term plans for the oil sector, and approve major investments and their financing.
In addition, its role is to approve contracts with foreign investors or organizations, define an oil marketing policy, determine pricing of petroleum products for the domestic market and the distribution of proceeds, and set up terms of service for the oil ministry and the companies working under its umbrella.
Since the overthrow of the previous regime, Iraqi oil officials have steered away from outlining any investment terms Iraq is likely to offer international oil companies, until an oil policy is adopted by a legitimate government.
The current interim government, considered a caretaker until the first elections are organized, should in principle be replaced by a new one early next year. However, as long as the security situation remains fragile in Iraq, there are no guarantees that elections would be organized according to the timetable set up by the United Nations Security Council.
While firming its grip on the oil sector, Iraq’s oil ministry issued a warning to foreign oil companies from pursuing oil agreements with any persons or bodies during the interim period other than the central government of Iraq, at the risk of losing out on any future opportunities in the country.
“Companies that wish to be welcomed here in the future should not enter into or try to pursue the implementation of agreements with persons who are not empowered to represent the sovereign government of Iraq,” another statement issued Friday by the ministry said.
“The respect of Iraqi law and relevant international laws by the companies in the past will be taken into consideration in future negotiations of agreements,” it added.
The warning was aimed at oil companies, including Norwegian minnow DNO, which have been pursuing oil exploration and development deals with the Kurdish regional governorates in northern Iraq.
DNO announced last month that it has inked an exploration agreement that covers a concession in northwest Kurdistan within the KRG-controlled provinces of Erbil and Duhok, which it said lies north of the producing Taqtaq field in Sulaymaniyah Province.
The drive to bring in exploration companies to the region was started in 2002 by the Patriotic Union of Kurdistan (PUK), which governed Sulaymaniyah as part of the interim regional government of northern Iraq. Acting independently of authorities in Baghdad, the PUK reactivated its efforts after the war last year and provided US and European firms with a sample production-sharing agreement for the Taqtaq area northeast of Kirkuk. The Taqtaq field is thought to produce less than 5,000 barrels per day of oil.
“Oil and natural gas resources will be developed by our national oil companies in consultation with the provinces and governorates of Iraq whether directly by national efforts or in cooperation with highly qualified international oil companies. Such development shall be in accordance with open and transparent bidding processes and internationally recognized business codes of conduct,” the statement said.
Iraqi officials say they are not worried about the Kurdish governorates signing deals that might not be recognized once the legal status of the Kurdish areas is decided in the Iraqi constitution. However, they are keen to make their position clear to the international oil industry.
“We want to avoid any misunderstandings and don’t want anyone saying to us in the future that we did not say anything when it happened. So let it be clear now that this is our position,” one Iraqi official said.
In an attempt to address the need voiced by the Kurdish governorates to develop oil resources in the areas that have been under their semi-autonomy since the 1991 Gulf War, the ministry’s statement said it “recognizes that Iraq owns several oil fields that are considered to be a strategic asset because of their size and the quality of their crude.”
“These will be high on the list of priorities for development in the near future through transparent and competitive bidding,” it said.
By Ruba Husari, London
(Published in International Oil Daily Jul. 19, 2004)