KRG Ministry of Natural Resources

Statement by Kurdistan Regional Government 

21 June 2009 

The Kurdistan Regional Government (KRG) believes that the proposed awards by Iraq’s federal Oil Minister for the giant producing oil and gas fields in Iraq would be unconstitutional and against the economic interests of the Iraqi people. 

In the Kurdistan Region, we have made clear progress to significantly increase Iraq’s oil exports and oil revenues in a very short time. This has been done by focusing on exploration blocks and not on the existing producing fields, in line with the best international market practices and within and in conformity with Iraq’s federal constitutional principles. We regret that we cannot say the same for the approach taken by the federal Oil Ministry. 

Regardless of the serious opposition to his plans, federal Oil Minister Hussain Shahristani stated last week that bids will be awarded at the end of this month for eight producing fields in Iraq, including the super-giant fields of Zubair, West Qurna, North and South Rumaila, and Kirkuk. If this happens, the contracts would be unconstitutional and against the economic interest of Iraq. 

Failure to consult 
It is clear that Minister Shahristani has not properly consulted with the producing governorates and regions in Iraq on these weighty matters as required by Article 112 of the Constitution. 

Producing fields can only be administered with the joint control of governorates and regions. This is clearly stated in the federal Constitution, and for good reason: oil powers in Iraq must not be concentrated in the hands of one person. 

Recently, the Director General of Iraq’s most important regional oil producer, the South Oil Company, saw the bidding round as legally and economically flawed. Also, recently, the Governor of Kirkuk Governorate, stated that he and his elected Council had not been consulted on the awards, which include the Kirkuk field. This shows that the federal Minister acts as if the Constitution has no meaning. 

The Kirkuk field is a special case. As is clearly stated in Article 140 of Iraq’s Constitution, Kirkuk is disputed by the KRG and the Federal Government after prolonged anti-Kurdish ethnic cleansing that peaked under Saddam Hussein’s regime in the 1980s. For this reason, Kirkuk must be the subject of joint decision-making between the federal government and the KRG, as well as constitutional revenue-sharing agreements. International oil companies are ill advised to venture in to such contracts with the Oil Ministry without the involvement of the KRG. 

Federal minister working alone 
Minister Shahristani is assuming personal responsibility for his decisions. 
We are not aware of any decision by Iraq’s executive body, the Council of Ministers and the Parliament to approve Minister Shahristani’s award process. Iraq’s head of state, President Talabani, spoke strongly against the bidding process on June 1. A majority of Iraqi parliamentarians are seeking explanations from the federal Minister, and soon will be calling on Minister Shahristani to also answer allegations of incompetence. Most troubling of all, Mr. Shahristani appears to be proceeding without an oil law or at least without even consulting other authorities to confirm the legality and constitutionality of the contracts. 

In February 2007, the federal government and the KRG arrived at a draft oil and gas law, which provided the basis for enacting a law to be consistent with the federal Constitution. That draft was approved by Iraq’s Council of Ministers, but was subsequently altered by the interference of the federal Oil Minister and has not yet been approved by Iraq’s parliament, the Council of Representatives. An agreement on a revenue sharing law, a crucial counterpart to the oil law also stalled, again because of the delays caused on the oil law. 

Meanwhile, the KRG has continued to be the driver for new oil production in Iraq. On June 1, at a public ceremony in Erbil, the President of Iraq, Mr. Jalal Talabani, and the President of the Kurdistan Region, Mr. Masoud Barzani, inaugurated the first export of Kurdistan Region oil to the Mediterranean via Turkey.

The Kurdistan Region, which in 2006 had only exploration acreage, is now exporting 100,000 barrels of oil per day, expected to increase to 250,000 barrels within a year and to 1,000,000 barrels within four years. This will increase Iraq’s export by over 50% from its current level with all the risks of finding and producing the oil borne by the investors (international oil companies – IOCs). Revenues from the Regional export will be shared throughout Iraq in accordance with the Iraqi Constitution. 

By contracts, from 2006, the federal Oil Minister has presided over several unsuccessful technical service agreement (TSA) attempts and now inferior model contracts to attract IOCs to the rest of Iraq. Over that period, Iraq’s oil exports have fallen, despite billions of dollars of state funding. 

Sub-economic returns for Iraq 
The federal minister’s proposed contracts appear likely to produce sub-standard economic returns for Iraq. The Oil and Gas Committee of the Council of Representatives had sought senior independent and expert economic advice on the model contract proposed by Minister Shahristani. That advice described the contract as “an inferior unsatisfactory model” that “does not measure up to the appropriate international standards”. The Oil and Gas Committee has also called for the bidding round to be halted, and we support this until the legal and constitutional status and the economic benefits of such proposed contracts are properly assessed. 

The “Legal Opinion on the contracts of the Federal Ministry of Oil in Iraq” maintained on June 20, 2009, that “any upstream petroleum contract granting exploitation rights to any foreign or other private sector entity, executed by the Federal Ministry of Oil or other instrumentality of the Federal Government (without the required legislative endorsement) will be ultra vires, invalid and unenforceable.” Click here for the English version of the Legal Opinion; Click here for the Arabic version of the Legal Opinion.