The law establishing (or re-establishing) Iraq National Oil Co (INOC) has finally passed the first hurdle, by getting the approval of the council of ministers, not without some opposition as one would expect. After all, the new company to be established as a holding company with considerable powers is set to become the most important institution in the operation of Iraq’s oil sector due first to its structure and second to the authorities it will exercise, including on its finances.
Structurally, it will be attached to the council of ministers and its chairman has a ministerial rank. His two deputies will have the rank of deputy ministers. In addition to the chairman and the vice chairman, the board will also include the heads of its subsidiaries, representatives of the ministries of finance and planning and the central bank in addition to two experts from the ministry of oil to be nominated by the oil minister. Those two nominees appear to be the only link between the oil ministry and the future INOC.
And here’s a caveat: the heads of the five departments housed at headquarters should have at least 15 years experience in their fields and so should the heads of North Oil Co, South Oil Co and Missan Oil Co whose ownership will be transferred from the oil ministry to the new mother company.
So what will the new company do? According to the draft law, it will manage, develop and operate producing fields as well as discovered but undeveloped fields and sign exploration contracts, among others, and explore in “new areas outside its area of operation”.
But the company’s biggest powers lie in its financial capabilities. INOC will be set up with a capital paid by the government (about $400 million) which it will pay back over several years from its net profit, paid by the ministry of finance per barrel produced on top of cost. Only when it has accumulated a certain reserve after paying back all its capital will its entire profits go to the government. This should help it guarantee its investments for several years and prepare its long term plans accordingly.
The development of Iraq’s oil sector has been in disarray since 2003 and there are no signs that it’s on its way to recovery. INOC’s draft law offers potential to create a modern and powerful state oil company. But in today’s Iraq more than goodwill is required to over-jump the remaining hurdles and to do away with a few sacred cows along the way as well.
The decision to re-establish INOC is long overdue..I believe that all concerned will welcome the decision provided that the draft meets the necessary requirements in providing INOC with all the administrative and financial authorities and more important the right to access all hydrocarbon resources as per the laws establishing INOC Nos 123 of 1967 and 97 of 1967.
Although I have seen a draft that is claimed to be the one that the Cabinet had passed ( which Ruba Husari seems to have based her above editorial on) but I would rather reserve my comments and judgement for now and APPEAL to the Ministry and the Cabinet to publish the draft that it had approved on their official websites and local newspapers and call for comments especially from oil and legal experts and not to repeat the events of 2007 when a draft oil & gas law was adopted but was only revealed after considerable time and after crisis had erupted that had not died down until this very minute..
Also to put an end to the conflicting statements made by various officials whereby some claim that the draft of INOC will be passed to the parliament for discussion after it reconvenes next month (September 2009) while Dr. Shahristani was quoted on 6th August by IPA news agency saying that this law is part of a package of laws related to oil & gas and can only be discussed and passed as a package… So what and whom shall we believe??
Issam Al-Chalabi
Amman
7/8/2009
Clarification about INOC draft law
The Council of Ministers (CoM) passed on July 28th by a majority vote a draft law for the re-establishment of Iraq National Oil Company “INOC”. A number of points were raised by the Shoura Council, Ministry of Finance, Ministry of oil, and Legal Directorate in the Council of Ministers Secretariat, and recommendations were also made by the Advisory Commission. All were attached to the draft.
To start, there is only one draft that was discussed and voted by the CoM, it’s the same text that was prepared by a high level committee established by the Council of Ministers Secretariat order and was entrusted with preparing a draft law. The Shoura Council studied the draft and hosted a number of senior Iraqi oil experts seeking their opinion and advice on a number of vital issues. The draft was sent back to the Council of Ministers Secretariat as it’s always the case with a number of valid recommendations such as limiting the approval needed from the Federal Oil & Gas Council “FOGC” to decisions taken by INOC Board of Directors to certain categories instead of all the decisions, in order to give INOC’s board of directors more freedom. Another recommendation was to increase INOC’s initial capital.
The draft law introduces a new concept which is that of INOC as a “holding company”. The reason behind that was to keep South Oil Co, North Oil Co, and of course Missan Oil Co (the draft law was written before the establishment of MOC) as companies, or otherwise they would loose their status and become branches or divisions, or “organizations” as they used to be called before the introduction of Law 22 of 1997. This issue was raised in 2004 when the Shoura Council objected then to having INOC as a mother company owning operating companies. The concept of a “holding company” is not used in Iraq though it’s used in the states of the Arab Gulf and in Egypt. However, being a holding company doesn’t restrict INOC’s activities to owning stocks and supervising subsidiaries, because the new Law authorizes INOC to do much more than that as stipulated in Articles 4 and 15. INOC can form companies, carry out all sorts of oil operations from exploration down to marketing. In addition to that it shall remain a state-owned company just like any other state-owned enterprise in Iraq.
The advisory commission recommended a number of amendments to overcome the dependence on legislating the Oil and Gas Law first due to the understanding that a package of four laws have to be passed together.
It’s to be mentioned that when a draft law is passed by CoM conditional with approved amendments, then such amendments would be attached to the text and sent to the Council Of Representatives.
Thamir A.Ghadhban
Baghdad 9th August 2009