by Issam el Jalabi

30-08-05 The following analysis of the Constitution is remote from the essence of the national and religious political conflicts between elements of the Iraqi people over the draft Constitution. The latter was submitted to the National Assembly, after the agreement of the majority comprising the Iraqi Coalition Party and the Kurdistan Alliance Party, apart from the remaining parties, especially those overshadowed during the last elections.
This analysis is only confined to two articles, out of 153, related to oil and gas, since they are extremely important and constitute the main pillars of the Iraqi economy.

It seems that the final proposed version was the outcome of an agreement between the political leaders. It does not take into account the opinions of specialized experts. All information that preceded the announcement of the draft Constitution reflect a strive to maintain a centralized decision-making and administration of oil resources.
However, the surprise came aboutwhen responsibilities were distributed amongst the central government, the provinces, and the districts in a way that will lead to loss of control and deterioration of the oil industry, which was subject to long years of destruction and embargo, in addition to fraud operations and oil properties’ confiscation following the occupation.

The text, derived from several sources, put forth the following:

Article 109:
Oil and gas are the property of the Iraqi people in all provinces and districts.

Article 110:
1 - The federal government handles, in cooperation with the producing province and district cabinets, the management of oil and gas extracted from the present fields, provided the proceeds would be evenly distributed, in keeping with the demographic distribution all around the country.
In addition, a share shall be allotted, for a specific period of time, to the afflicted provinces, which were unjustly deprived by the previous regime, and later affected, in a way to secure abalanced development of the different areas in the country. This shall be regulated by a law.

2 - The Federal government, along with the producing province and district cabinets, shall put forth strategic policies that are necessary to promote oil and gas resources in order to provide the Iraqi people with the utmost benefits by adopting the latest market values and investment promotion techniques.

At a time when there is consensus over article 109, although we don’t see the reason for insisting on the statement “in all provinces and districts” as if it is a confirmation of the dissention within the Iraqi people, contradictions are evident in article 110, of which we mention the following:

a - The distinction between the actual producing fields and the new fields, which will be developed later…. And even for producing fields, the responsibility of which was distributed among the federal government and the producing provinces and districts. However, they should observe here the article 111, in which it was stated that “everything stipulated in the exclusive areas of expertise of the federal authorities falls within the provinces’ prerogatives.
The other mutual prerogative of the federal government and the provinces, in case of conflict, will give priority to the province law.” Therefore, the province authority is the one prevailing at the end! This is really surprising.

b - The draft entrusted the task of putting forth the strategic policies necessary to develop oil jointly to the federal government and the producing province and district cabinets.
This means that conflicts will most probably arise on the methodology, wording, timing, priorities, and even the slightest details, which will lead to impeding urgent decision making aimed at speeding up the development process, unless we go back to article 111 once again and the province supremacy over the centre.

c - The draft did not identify the party responsible for the management of new fields, once they enter the production stage. In addition, it didn’t identify the way to distribute proceeds generated from these fields (which is presently the case for the producing fields). Will they completely be in favour of the producing provinces and districts?

d - At a time when the draft is calling for the adoption of the investment promotion principle and the latest market value techniques (which is a mysterious issue), the clear distribution of responsibilities, however, without identifying them, will make the cooperation with foreign oil companies and other prospective investors difficult.
In addition, possible conflicts may arise between the centre and the provinces and districts, as each one will probably want to adopt a different cooperation methodology.

e - There are common fields between more than one district, as well as mutual combinations that need operations, which can lead to severe conflicts between districts, especially if they are subject to the authority of a single province.

f - The draft did not tackle the transformation industry with respect to establishing refineries, gas refining plants, warehouses, and transport pipes. It failed to mention the way to distribute the latter among districts, especially that there will be a trend, which started two years ago, to build refineries, power stations, and others, in each district apart from the rest of the districts.
The process could require signing internal agreements, especially by non-producing districts, in order to organize marketing and transport operations, and possibly transit taxes, to generate additional revenues and enhance their financial resources.

g - Article 150 of the draft Constitution utterly legitimised all agreements pertaining to exploration and development, which were signed between the Kurdish authorities and foreign companies. This article deemed all decisions taken by the government of the Kurdistan province, including the judicial decisions and agreements, effective retrospectively since 1992.

h - A myriad of conflicts will arise between districts and provinces with respect to supplying refineries with crude oil, pricing methods, adoption of market prices and preferential prices, and the impact thereof on the prices of oil derivatives. Conflicts will also revolve around such issues as power stations and the fuel alternatives prepared for them (crude oil, heavy fuel -- gasoline -- gas), in addition to plants and factories for cement, fertilizers, breeze block and others, especially with respect to non-producing districts.
We noticed during the past two years that certain district departments have failed to execute the orders of the centre with respect to, for instance, supplying power to the national network.

What has been put forth only represents a minor part of what could ensue from the management, running, and development process of the oil and gas industry, which can be avoided if a central methodology is adopted in planning, management, and execution. It can also be avoided in the event that cooperation with provinces and districts is made through central councils such as the Planning Council or others, and the issue of distributing proceeds remains isolated from oil affairs and industry.
There were high hopes regarding reviving the National Oil Company and entrusting direct responsibility therein to develop fields, manage production and market operations for all Iraqis. On the other hand, we notice that the way is paved for the establishment of big companies, probably in provinces, and even in producing districts. There will also definitely be oil ministries in every province.

Are we talking about a one and only unified Iraq?
How will the future of the oil industry be?

Issam el Jalabi is the Former Oil Minister and President of National Oil Company.