State­ment On Oil & Gas Pol­icy by the Kur­dis­tan Re­gional Government

The Kurdish Globe - - NATIONAL -

The Kur­dis­tan Re­gional Government is proud of the achieve­ments of its oil and gas in­dus­try since the fall of the former regime in 2003.

It ex­pects the fed­eral government of Iraq to be proud of them, too.

Since oil ex­ports from the Re­gion started in 2009, bil­lions of dol­lars have flowed into Iraq’s trea­sury from fields in Kur­dis­tan that have been ex­plored, dis­cov­ered and devel­oped un­der the KRG’s mod­ern, pro­gres­sive and in­vestor­friendly pe­tro­leum regime.

All this has been achieved by at­tract­ing world-class com­pa­nies to the Re­gion with min­i­mal fi­nan­cial risk to the Iraqi state.

One would think that fed­eral of­fi­cials in Bagh­dad would em­brace the progress made in the Kur­dis­tan Re­gion and value the con­tri­bu­tion to the na­tion’s wealth.

One would think that fed­eral of­fi­cials would rec­og­nize the use of the Re­gions’ nat­u­ral gas to pro­vide elec­tric­ity to its peo­ple and those of hard-pressed neigh­bour­ing prov­inces.

One would think that fed­eral au­thor­i­ties would ap­plaud the KRGs plans to cre­ate a north­ern en­ergy cor­ri­dor for Iraq, whereby up to 3 mil­lion bar­rels a day could soon be flow­ing through the north of Iraq to Turkey and in­ter­na­tional mar­kets be­yond, and the rev­enues are shared by all Iraqis.

It is dis­ap­point­ing, there­fore, to learn that the fed­eral oil min­is­ter in Bagh­dad has taken it upon him­self to air to an in­ter­na­tional news agency a num­ber of hos­tile po­lit­i­cal opin­ions about the KRG and its pru­dent and con­sti­tu­tion­ally sound man­age­ment of the nat­u­ral re­sources that lie within the ter­ri­tory it ad­min­is­ters.

In a se­ries of ill-judged re­marks to Reuters, the fed­eral min­is­ter of oil:

threat­ens to cut the KRG’s share of the fed­eral bud­get;

threat­ens com­pa­nies ac­tive in Kur­dis­tan for pur­su­ing their le­gal right un­der the PSCs to mar­ket the oil and gas that they have dis­cov­ered;

threat­ens other com­pa­nies for ex­er­cis­ing their le­gal right to ex­plore for oil and gas;

ap­pears to incite vi­o­lence in the dis­puted ter­ri­to­ries;

ac­cuses the KRG of oil “smug­gling” and “traf­fick­ing”.

In ad­di­tion, he re­veals de­tails of an il­le­gal and un­con­sti­tu­tional plan to al­legedly al­low BP to en­hance the re­cov­ery of some of the de­pleted fields in Kirkuk (a dis­puted ter­ri­tory un­der Ar­ti­cle 140) with­out con­sult­ing and ob­tain­ing ap­proval of the other par­ties to the dis­pute.

CO­OP­ER­A­TION NOT CON­FRONTA­TION

Iraq’s ci­ti­zens are sim­ply tired of this sort of lan­guage of threat and in­tim­i­da­tion, which in the cyn­i­cal pur­suit of nar­row po­lit­i­cal agen­das serves only to cre­ate di­vi­sion and strife.

The min­is­ter does not even speak for the whole fed­eral government. Such re­marks re­flect a lack of re­spect for the Con­sti­tu­tion of Iraq and also for the peo­ple of Kur­dis­tan. They rep­re­sent a de­gree of panic and des­per­a­tion. It would ap­pear the over­rid­ing phi­los­o­phy is that if your own poli­cies have failed, lash out and blame oth­ers.

Good gov­er­nance and the de­liv­ery of es­sen­tial ser­vices are what should mat­ter to the state’s se­nior of­fi­cials, not the ac­cu­mu­la­tion of power for pow­ers’ sake.

Ci­ti­zens of Iraq know all too well the dan­gers of al­low­ing the coun­try’s abun­dant oil and gas re­sources, and its rev­enues, to fall un­der the con­trol of a hand­ful of mis­guided peo­ple in Bagh­dad.

The coun­try will only thrive on a diet of co­op­er­a­tion and co­or­di­na­tion, not on con­fronta­tion. That is what the ba­sic law of the land, the Con­sti­tu­tion, de­mands.

LE­GAL IS­SUES

In terms of oil and gas man­age­ment, the KRG firmly be­lieves in, and abides by, the let­ter and spirit of Iraq’s per­ma­nent, fed­eral Con­sti­tu­tion, which was rat­i­fied by the ma­jor­ity of Iraqi peo­ple in a na­tion­wide ref­er­en­dum in 2005.

The fed­eral Con­sti­tu­tion gives pri­macy to re­gional law ex­cept in ar­eas listed un­der the ex­clu­sive pow­ers of the fed­eral au­thor­i­ties. Oil and gas are not listed un­der the ex­clu­sive pow­ers of the fed­eral government.

All oil con­tracts in the Re­gion fall within the KRG oil and gas law, de­bated and passed by the Kur­dis­tan par­lia­ment in 2007 and fully in line with the rel­e­vant pro­vi­sions of the per­ma­nent Con­sti­tu­tion.

The Con­sti­tu­tion not only out­lines the cur­rent and fu­ture roles for fed­eral and re­gional pow­ers in the man­age­ment of Iraq’s oil and gas, it en­dorses past au­thor­i­ties as well.

There were oil and gas con­tracts with the KRG en­tered into be­fore the coming into force of the Con­sti­tu­tion and pro­vid­ing for fu­ture ex­plo­ration, ap­praisal, and po­ten­tially, pro­duc­tion.

Un­der Ar­ti­cle 141, all such con­tracts en­tered into by Kur­dis­tan since 1992 are con­sid­ered valid in ac­cor­dance with their terms.

Un­der the Con­sti­tu­tion, all non-pro­duc­ing fields (at the time of its writ­ing) fall un­der the sole power of the re­gions and gov­er­norates and there­fore con­tracts were signed be­tween the KRG and the IOCs.

Nei­ther the fed­eral government nor the fed­eral oil min­is­ter is a party to th­ese con­tracts, so the Min­is­ter has no ju­ris­dic­tion to take any le­gal ac­tion against PSC hold­ers.

The Pro­duc­tion Shar­ing Con­tracts in the Kur­dis­tan Re­gion have been a great success for Iraq. They have meant that an es­ti­mated 45 bil­lion bar­rels of oil and 36 tcm of gas can be added to Iraq’s to­tal re­serve fig­ures.

KIRKUK LI­CENSES

The al­leged agree­ment with BP on a plan to re­verse the de­cline of oil­fields of Kirkuk is an­other un­con­sti­tu­tional and il­le­gal move an­nounced by the min­is­ter. Ac­cord­ing to Ar­ti­cle 112 of the Con­sti­tu­tion:

The fed­eral government, with the pro­duc­ing gov­er­norates and re­gional gov­ern­ments, shall un­der­take the man­age­ment of oil and gas ex­tracted from present fields, pro­vided that it dis­trib­utes its rev­enues in a fair man­ner… and this shall be reg­u­lated by a law.

The term “present fields” refers to fields al­ready un­der pro­duc­tion at the date of the Con­sti­tu­tion (Oc­to­ber 2005). Kirkuk is one such field.

The man­age­ment of the Kirkuk field there­fore must be un­der­taken by the fed­eral au­thor­i­ties, the gover­norate, and be­cause it is part of the process out­lined un­der Ar­ti­cle 140, the KRG.

Be­cause none of this has hap­pened, the fed­eral oil min­is­ter can­not act uni­lat­er­ally, and no wise com­pany would make it­self a party to such a dis­pute.

The fed­eral oil min­is­ter makes threat­en­ing noises about vi­o­lence in the dis­puted ter­ri­to­ries.

“SMUG­GLING”

The min­is­ter also makes sev­eral in­sult­ing ref­er­ences to “smug­gling” and “traf­fick­ing”. We trust that this is not a slur against the peo­ple of Kur­dis­tan.

The KRG re­spect­fully sug­gests that the fed­eral oil min­is­ter con­sults the dic­tionary. One of the pri­mary def­i­ni­tions of “smug­gle” is: “to con­vey (goods) clan­des­tinely into (or out of) a coun­try.”

How­ever, the trade in oil and gas across Iraq’s bor­ders oc­curs as a re­sult of of­fi­cial re­gional government pol­icy. There is noth­ing clan­des­tine or un­der­hand about it.

Un­der the Septem­ber 13 agree­ment, co-signed by Min­is­ter Luaibi, the KRG is en­ti­tled to 17 per­cent of Iraq’s re­fined prod­ucts plus a fur­ther 17 per­cent of the crude oil in Iraq that is sent to burn in the power sta­tions.

The peo­ple of Kur­dis­tan and sur­round­ing prov­inces are ben­e­fit­ting from the sup­ply of prod­ucts and power gen­er­ated as a re­sult of the KRG’s re­sults-driven en­ergy pol­icy.

Bagh­dad does not sup­ply the Re­gion with its en­ti­tle­ment to re­fined prod­ucts, there­fore the KRG trades quan­ti­ties of crude and con­den­sate and fuel oil in a barter ar­range­ment for diesel, kerosene and ben­zene. This trade counts as part of the Re­gion’s 17 per­cent en­ti­tle­ment and is fully doc­u­mented and ac­counted for. It pro­vides real help to Iraq’s ci­ti­zens.

In any case, ac­cord­ing to the fed­eral Law of An­ti­Smug­gling of Oil and Oil prod­ucts (No. 41 of 2008), “it is pro­hib­ited to carry oil and oil prod­ucts by any land, marine or river means of trans­porta­tion un­less get­ting an of­fi­cial per­mis­sion from the Min­istry of Oil or the rel­e­vant en­tity in the re­gion.”

The “rel­e­vant en­tity” in this case is the Min­istry of Nat­u­ral Re­sources in Kur­dis­tan, which is­sues ex­port li­censes and con­trols and doc­u­ments the process in a man­ner con­sis­tent with the prin­ci­ples of the Ex­trac­tive In­dus­try Trans­parency Ini­tia­tive (EITI). The KRG will con­tinue to legally and pro­fes­sion­ally ex­port oil and prod­ucts, in line with its rights un­der the Con­sti­tu­tion.

BUD­GET AND REV­ENUE IS­SUES

Af­ter decades of op­pres­sion, dic­ta­tor­ship, and war, rev­enue shar­ing, power shar­ing and de­cen­tral­iza­tion are the ob­vi­ous keys to Iraq’s fu­ture unity.

Thus, our re­gional government be­lieves in the Con­sti­tu­tion as it is, not as its op­po­nents would wish it to be.

Ar­ti­cle 111 of Iraq’s con­sti­tu­tion clearly states that oil and gas be­long to “all the peo­ple of Iraq in all the re­gions and gov­er­norates.”

It does not state that the oil and gas be­longs ei­ther to the fed­eral Min­istry of Oil or the il­le­gal and un­ac­count­able mo­nop­oly of the state oil mar­ket­ing or­ga­ni­za­tion (SOMO), which was cre­ated by Sad­dam Hus­sein.

Nev­er­the­less, the own­er­ship of the oil and gas in Iraq is with­out prej­u­dice to its man­age­ment and to the distri­bu­tion of its rev­enues.

And nowhere does the Con­sti­tu­tion state that ei­ther the man­age­ment or ex­port of oil and gas from Iraq are the ex­clu­sive pre­serve of the fed­eral au­thor­i­ties.

The KRG’s op­po­nents know this, which is why their state­ments are of­ten cyn­i­cally de­signed to de­ceive and mis­lead the gen­eral pub­lic.

The threat to cut the KRG’s share of the fed­eral bud­get there­fore is not only sense­less but empty.

The fed­eral oil min­is­ter is step­ping well be­yond his re­mit in speak­ing about the fed­eral bud­get, cre­at­ing yet an­other smoke­screen for the in­com­pe­tency of his min­istry and of the fed­eral ad­min­is­tra­tion.

Had it not been for the fed­eral government’s ob­struc­tion­ist poli­cies, the Kur­dis­tan Re­gion could now be ex­port­ing 500,000 bar­rels per day or some $18 bil­lion per year. That is more than enough to cover the KRG’s an­nual bud­get of around $10 bil­lion and pro­vide ex­tra bil­lions for the peo­ple of Iraq.

This is in ad­di­tion to the waste­ful, costly and en­vi­ron­men­tally dam­ag­ing oil min­istry pol­icy of gas flar­ing which has cost Iraqis an es­ti­mated $10 bil­lion in lost rev­enue ev­ery year since 2003.

The mis­man­age­ment of oil and gas re­sources by the fed­eral author­ity and its lack of re­spect for the Con­sti­tu­tion and the many agree­ments it has signed, has cost Iraq not just bil­lions of dol­lars of po­ten­tial rev­enue but also myr­iad op­por­tu­ni­ties for na­tional rec­on­cil­i­a­tion.

Iraq really can­not af­ford to sus­tain th­ese losses for much longer.

The KRG re­mains com­mit­ted to Iraq’s Con­sti­tu­tion, and is or­ga­niz­ing its oil and gas in­dus­try in a pro­fes­sional and mod­ern way. It will thus con­tinue to move un­wa­ver­ingly for­ward and not al­low it­self be side­tracked by cheap and coun­ter­pro­duc­tive at­tempts at po­lit­i­cal sab­o­tage.

The KRG’s sta­bil­ity, its eco­nomic dy­namism and in­vestor-friendly poli­cies, plus its pa­tience and flex­i­bil­ity on the po­lit­i­cal front, have been cru­cial fac­tors in shep­herd­ing Iraq through the tur­bu­lent wa­ters since the re­moval of the dic­ta­tor­ship in 2003.

Kur­dish lead­ers have tried to pre­vent Iraq from de­scend­ing into sec­tar­ian con­flicts, and have con­sis­tently avoided tak­ing sides in any in­ter­nal strife. Had it not been for their role, one can only guess what un­known fate would have be­set the coun­try.

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