KRG Ministry of Natural Resources

26 February 2007

Erbil, Kurdistan-Iraq, (KRG) - On 24th February Mr Masoud Barzani, President of the Kurdistan Region, announced that an agreement had been reached with Iraq’s Prime Minister Dr Nuri al-Maliki on the latest draft of the Federal Oil Law. Since this announcement, the Kurdistan Regional Government (KRG) has received many enquiries about this final agreement. Dr Ashti Hawrami, the KRG Minister for Natural Resources, offered the following explanations to the KRG Spokesman Dr Khaled Salih. 

1. What is the substance of the agreement? 

The essential terms of the agreement are as follows. The Kurdistan Region will voluntarily share some of its Constitutional powers to manage petroleum exploration and development in Kurdistan with the Federal Government. In particular, and in the interests of transparency, the Kurdistan Regional Government (KRG) will permit an independent panel of experts to review the KRG’s petroleum contracts against certain agreed commercial criteria. The KRG will also voluntarily pool all of the petroleum revenues to which it is entitled with all the other regions and governorates. 

In return, Kurdistan will be guaranteed a share of pooled revenues proportionate to its population. The Kurdistan Regional Government will, of course, retain the power to sign contracts for petroleum exploration and development in the Kurdistan Region. 

2. What does the agreement mean for Iraq and for the Kurdistan Region, and how optimistic are you that the draft law will be adopted by the Council of Representatives in Baghdad? 

It is a great achievement for all of us in Iraq. We are confident that the remaining crucial oil law annexes and the Revenue Sharing Law will also be agreed upon soon in order to complete the process for the approval of the Council of Representatives. Most of the people I worked with are sincere and committed to complete the drafting process sooner rather than later. However, as you know, there are some individuals who still dream of maintaining central control over the management of the country’s wealth and resources; they would like to delay or derail this process in order to keep Iraq unstable. Fortunately, they are in the minority, therefore I remain optimistic about the outcome. 

3. What is the importance of the annexes and the Revenue Sharing Law? 

The annexes provide for the allocation of specific territories and oil fields to the Iraq National Oil Company (INOC), the Oil Ministry and the KRG, as well as agreeing on model contracts and criteria for awarding contracts to ensure that all of Iraq, not just Kurdistan, is attracting new petroleum investment for the benefit of the whole country. These are, and have always been, a priority for the KRG. 

The Revenue Sharing Law is an essential companion-piece to the Federal Oil Law, because it will guarantee to the Kurdistan Region, and all other parts of Iraq, their fair share of petroleum revenue according to population. It will also guarantee the viability of the Federal Government. The sharing of petroleum management powers by Regions cannot work if the federal government does not, in turn, fairly share petroleum revenues. The Constitution of Iraq is very clear on this point, so the two laws will go to the Iraqi parliament as a package. 

4. Was it the case, as some say, that the KRG were better organised by fully supporting your lead in the negotiations on behalf of the Kurdistan Region? Was it the case, as is widely rumoured, that you lately came under significant pressure to make concessions to Baghdad? 

First of all I am pleased to hear that others felt that we were better organised, but that was primarily because we wanted to conduct the negotiation in a more businesslike fashion, to focus on the key issues that mattered to all concerned. The Iraq petroleum sector needs a common-sense approach. For the most part, the negotiations were going reasonably well, but some negotiators needed more time to understand the federal Constitution and the fundamental principles of sharing responsibilities and rights in a new Federal Iraq. Generally speaking, the committee worked as a team, but by the time we reached the final stages of the negotiations the process became more intense. New deadlines were imposed on us, without adequate time to agree on the Revenue Sharing Law and the important annexes to the oil law. 

5. Why was the draft law rushed through without these annexes? Was it the case that you came under pressure to agree the basics, but to defer the details to a later date? What do you say about the rumours that attempts were made by the rest of the committee members to put more demands on the KRG by enlisting the support of US Embassy officials during the final stages of the negotiations? 

Towards the end of last year, some deadlines appeared to be set to get the law done quickly. That did not leave the committee with any time to focus on the remaining important issues of the oil law annexes as well as the Revenue Sharing Law. Naturally, as the imposed deadline approached, the debate became more intense and more focused on the unresolved issues. Some senior US Embassy officials were brought in to assist with the process. Yes, we all had different opinions on how to proceed to the final stage. The KRG’s concerns were very clear: we wanted to avoid having an incomplete law rushed through and we did not want to repeat the Constitution-drafting experience by putting form over substance. We were very much concerned that haste would be at a price of an incomplete drafting, that would likely lead to future internal conflicts and misunderstandings. We wanted to avoid creating uncertainties that would impact inward investment in the future. In that regard I am pleased to say that despite all the demands made from all quarters, including pressure from allies and colleagues within, we managed to persevere with our vision to get an agreement from all the parties that the remaining annexes and the revenue sharing law will also be agreed upon before submitting the whole package to the Council of Representatives. 

6. Can you tell us about the existing contracts? What will happen to them? 

There are five existing contracts. They were awarded before 2005. The contractors are DNO (Norwegian), Genel/Addax (Turkish/Canadian), WesternZagros (Canadian), PetPrime (Turkish/American), and A&T Energy (Turkish/American). These contracts have already been reviewed in the light of the draft Kurdistan Petroleum Act and modified where necessary to ensure that they meet the highest commercial standards. We do not envisage any further adjustments being necessary on these contracts; however we will consult the independent panel of experts appointed by the Federal Oil and Gas Committee, after its establishment under the Federal Oil Law, to ensure that they meet the Iraq-wide required standards. In the meantime, investment will continue under those contracts. 

7. Can you disclose anything about the terms of these contracts? Can you also respond to those critics who imply the presence of irregularities in these contracts being the reason why the KRG has not so far been willing to disclose them to the Federal Authorities? 

As you can appreciate, these are commercial contracts between two parties and it is unusual to publish these terms without the consent of the contractors involved. These contracts were specifically ratified by Article 141 of the Constitution, but in the interests of transparency we will allow them to be reviewed by a panel of experts once appointed by the future Federal Oil and Gas Committee. There are no irregularities in any of these contracts that I am aware of. We have already reviewed and modified these contracts and are satisfied that they meet international standards, and I am also sure that they will also pass all the criteria and guidelines that Iraq might adopt under the Federal Oil Law. However, in the interests of full transparency, we have decided to compile all these agreements and publish them in the near future on the KRG website for the Iraqi and international experts to see and comment on as they wish. I am quite sure that some commentators will see them as being amongst the toughest contracts even by today’s high oil price and market conditions. As usual the KRG will lead the way in transparency and accountability.

8. Are there any more contracts in the pipeline and what would be the process for awarding new contracts in Kurdistan? 

We have been negotiating with a number of parties, including large companies. For new contracts we will follow the forthcoming federal guidelines to invite competitive sealed bids on a number of exploration areas in the Kurdistan Region. This will be done through a bidding process, and we will not finalise any new contracts for a couple of months or so to allow the Federal Oil Law to be adopted by the Council of Representatives. All new contract negotiations will be carried out and awarded by the KRG. However, we will allow the Federal Oil and Gas Committee and its appointed independent panel of experts to review them to ensure that they meet the agreed federal guidelines, before final ratification by the KRG. We see this process as a positive element of our overall policy, as it will apply to all new contracts throughout Iraq. This will ensure that common standards are adhered to and maximum returns are achieved for the whole country. 

9. If in two months time the law is not passed by the Council of Representatives in Baghdad, what would you do then? 

Let us hope that this will not happen. If in a two months time the law is still under debate by the Council of Representatives, then we will be reasonable about it and maintain support for the process being completed. However, if the oil law is still facing difficulties and the annexes and the Revenue Sharing Law have not been agreed, then that would be unfortunate as we will be facing a new situation and we will have to review our options again. 

10. It is not clear what would happen in the case of the disputed territories, would you able to elaborate any further on this issue? 

The disputed territories, including Kirkuk, are dealt with in the draft Federal Oil Law. We have agreed on two things: that the Iraq National Oil Company (INOC) will continue to manage the current producing fields, including Kirkuk; and that no further activities will take place in these areas until the referendum process is completed. It should be noted that since we have now agreed to share revenues throughout Iraq, oil and gas will not feature in our discussions regarding the future of the disputed territories. For sure, this will make it easier for all concerned to understand that the referendum required by Article 140 of the Constitution is not about oil, but it is just about people, their homes and their preference for being within the Kurdistan Region or not. 

11. Are you satisfied with the results and the contributions made by the KRG? 

If we go strictly by the Iraq Constitution, the KRG is entitled to assume much greater powers over oil and gas. However, to make it work for all concerned, we had to be accommodating and pragmatic in our approach. I am pleased to say that almost all our ideas are now featured highly in the draft Federal Oil Law; indeed, the Federal Oil Law is modelled on the Kurdistan Region Petroleum Law. I am particularly pleased with the articles which call for the restructuring of the industry throughout Iraq in order to create greater accountability and transparency and to offer opportunities for inward investment. The current draft of the Federal Law recognises that regional administrations will have the power to award contracts in the region. The companion Revenue Sharing Law would allow revenues to be distributed to the KRG and all other regions and provinces of Iraq based on their populations, whether they have oil or not. We see this as a major step towards stability throughout Iraq. 

12. What is the status of the draft Kurdistan Region Petroleum Act? 

The draft Kurdistan Region Petroleum Act has been ready for some time. It will be slightly modified to be in harmony with the draft Federal Oil Law and the Revenue Sharing Law. It will go to the Kurdistan Parliament around the same time as the Federal Oil Law and Revenue Sharing Law are submitted to the Iraq Council of Representatives.