< Back to Iraqi Dinar in the News September 19th, 2008

Iraq oil minister blames Kurds for delay in oil law

Iraq oil minister blames Kurds for delay in oil law

BAGHDAD (AFP) — A series of contracts awarded by Kurdish leaders is blocking the passage of a national oil law, prompting Baghdad to use Saddam Hussein era rules for new deals, Oil Minister Hussein al-Shahristani said.

In an interview with AFP, Shahristani said a majority of parliament's 275 members were hesitating to pass the new oil law after the northern Kurdish administration signed contracts ahead of the national law.

"The KRG (Kurdistan Regional Government) has gone ahead and signed even production sharing agreements. This has created concern among parliamentary blocs," said the former nuclear physicist.

Shahristani said some MPs want the new law to be modified in order to "ban production sharing contracts."

"Others are questioning the usefulness of the new law. They say if the KRG is not abiding by the new law in spite of participating in negotiations during the framing of the bill, why have a new law?," the minister said.

"They say the KRG contracts are clear violations of the new law and the administration is not abiding by the law, then what is the point of passing the new bill. We might as well keep the old law."

The passing of the oil law is seen by Washington as a key benchmark in boosting national unity in the violence-wracked country.

The draft legislation has been intensely disputed by Iraq's bitterly divided communities over how revenues from oil sales would be distributed in the 18 provinces.

The dispute aggravated after the KRG signed a series of contracts with foreign oil companies to boost oil production in its northern territory.

The bulk of Iraq's oil reserves, the world's third largest, are in the Kurdish north and the Shiite south.

Shahristani, a strong opponent of the KRG contracts, said he does not see the law being passed in parliament in the near term.

"If the KRG does not cancel its contracts and make a clear commitment to abide by the new law, parliamentarians would not pass the law," he said, adding Baghdad was left with no option but to tap the existing law from Saddam's regime to boost its own oil production.

"The new law does not offer any more benefits to foreign companies than the prevailing law. After waiting for more than a year, the government decided to go ahead and use the prevailing law to boost production."

Baghdad has recently signed two contracts with foreign companies -- one with state-owned China National Petroleum and the other with Royal Dutch Shell.

China National would develop the Al-Ahdab oil field in central Iraq as part of a service agreement with Baghdad.

The company has managed to get a foothold in the Iraqi oil sector by reviving its 1997 contract signed with the former Iraqi regime.

However, activities were suspended due to UN sanctions and security issues following the US-led war of 2003 that toppled Saddam.

Shahristani said Baghdad has managed to change the previous joint venture contract into a mere service agreement.

In the second venture, Iraq's state-owned South Oil Company will hold a 51 percent stake with Shell holding 49 percent. The new company would capture gas from an oil field in the southern province of Basra.

These two deals do not violate the languishing oil law, said Shahristani, adding "we want to abide by the new law even if it is still to be approved."

Shahristani said the ministry has embarked on an aggressive plan for the next three to four years as it taps the prevailing oil law to ramp up production.

Iraq is estimated to have 115 billion barrels of oil.

It has 80 proven oil and gas fields, including 27 which are operational, the minister said.

"The plan is to offer all these to international bidding gradually."

He said Iraq also has 65 exploration blocks which it plans to offer for similar bidding.

"The decision is to develop oil production as fast as possible by cooperating with international companies," he added.

"The whole idea of bid rounds is to find what is the best offer you can get and what kind of capital investment is required. We are talking of tens of billions of dollars here."

Iraq also plans to step up its refining capacity by adding extra units to existing refineries as well as constructing "new state-of-the-art units."

Shahristani said new refineries are being planned in the provinces of Nasiriyah, Karbala, Kirkuk and Maysan.