Iraq steps toward long-term oil contracts

Article 6 Apr 2006 admin

In late January, the International Monetary Fund finally released its Standby Agreement, signed with the Iraqi government a month previously. The Agreement provided a future financing facility, but more significantly allowed the cancellation of 30% of Iraq’s debt owed to the Paris Club of creditor nations – in exchange for Iraq’s compliance with the IMF’s conditions on economic policy. Jubilee Iraq, the Iraqi anti-debt network, and other civil society groups criticised the undemocratic timing of the deal, coming before the new government is appointed but one week after the December elections, thus denying Iraqi voters a chance to react through the ballot box.

Most controversial was the slashing of fuel subsidies, the first phase of which occurred as a requirement of the signing of the deal, suddenly and without alternative social protection programmes in place. The hike in fuel prices led to protests on the streets of Iraq, and the resignation of the Oil Minister, Ibrahim Bahr al-Uloum.

Unnoticed in the small print however, was a deadline of end of 2006 for passing an Oil Law, and a requirement that the IMF be involved in drafting the law. The law will set out the future framework of Iraq’s oil industry, and the IMF is known to favour bringing in foreign companies.

In February, officials of the Oil Ministry attended workshops in the USA, in which oil industry lobby group the International Tax and Investment Center pushed again for Iraq to give multinational oil companies long-term control of the country’s oil through a form of contract known as a Production Sharing Agreement (PSA) – which PLATFORM’s research has shown could cost Iraq up to $200 billion in lost revenue.

The use of PSAs has now been publicly accepted by senior politicians and Oil Ministry officials – although only in international fora, especially oil industry conferences. There remains a desperate need for public debate in Iraq.

Meanwhile, the oil majors continue to position themselves for the PSA bonanza, once the oil law is in place. Two weeks ago, Shell was awarded a contract to provide metering at Iraq’s export terminals – a job that elsewhere would have gone to a specialist metering company. Combined with Shell’s earlier deals – to provide Iraq’s Gas Master Plan, to examine the geology of the huge Kirkuk field, and to advise on expansion of the Missan gasfield – the company now has access to Iraqi export data, geological studies and natural gas prospects, and most importantly, to key officials in the Oil Ministry. The other majors have similar deals.

However, at a conference last week in Amman, all of the five Iraqi trade union federations, unanimously called on the government to “refuse all foreign control over the oil sector, whether by privatisation or by production sharing agreements”.

The coming months will be crucial to this issue.

Focus Areas