14 October 2004
Iraq’s interim Council of Ministers is expected to review a proposal to recreate a state oil company by next month at the latest, ahead of announcing its reestablishment before the end of the year, Iraq’s interim Oil Minister Thamer al-Ghadban said Wednesday.
The proposal — which calls for the establishment of the Iraq National Oil Co. (INOC) as a holding company, with the existing North Oil Co., South Oil Co., Iraq Drilling Co. and Oil Exploration Co. as subsidiaries — was submitted to the cabinet of Prime Minister Iyad Allawi early this summer, but has yet to make the agenda for discussion.
“The proposal has already been submitted to the [presidential] Council of State for legal review, and I think it should be examined by the Council of Ministers this month or November at the latest. We’re still on time to announce it before the end of the year,” al-Ghadban told International Oil Daily from Baghdad Wednesday.
The original INOC was established by decree in 1964 and started operations 1968, but was split up on the orders of former President Saddam Hussein in 1987.
Both former and current Iraqi oil industry sources say INOC enjoyed enormous independence, including over its finances, even though its decisions had to be approved by the highest political authorities. The challenge now is to establish the entity with the same independence from interference at a time of political volatility and polarization in Iraq, they say.
Once the interim cabinet schedules a discussion of the proposal, ministers will have the right to make comments and express views. The oil ministry will then integrate such input, until the final draft is approved by all ministers.
“Once it has been approved by the cabinet, it will be submitted to the Council of State for approval by the president and his council, before it becomes law,” al-Ghadban said of the procedure.
The current draft suggests establishing INOC as a state-owned public company operating on commercial basis and in charge of all financial and technical aspects of oil and gas exploration, development and production on a day-to-day basis. Policy decisions would remain in the hands of the oil ministry.
The draft proposal also suggests creating a board of directors, which would be chaired by the oil minister and would include the chief executive of INOC and other top officials such as the director general of marketing arm Somo.
The proposal includes regulations concerning issues such as the financing of the company and its subsidiaries, as well as auditing and monitoring controls.
In guidelines he submitted to the Supreme Council for Oil Policy, the country’s top energy body, Allawi outlined his own vision for INOC, saying the company should seek self-sufficiency in its capital funding requirements, either through commercial borrowing against future incremental production, or through partner funding in joint ventures. He also said the state should not guarantee any INOC borrowing. INOC would be allowed up to $1.50 for each barrel of oil it produces to fund its operating costs, according to Allawi’s proposal.
“Even in the old days, INOC had the right to borrow funds and that’s an option we included in the draft,” al-Ghadban said. “But we also suggested that it be given the possibility to establish subsidiaries inside Iraq and outside, as well as to buy other companies both at home and abroad and integrate them.”
According to al-Ghadban, INOC would have extensive options for financing, such as taking a portion of its domestic sales revenues and possibly of taxes on such sales.
By Ruba Husari, London
(Published in International Oil Daily Oct. 14, 2004)