DPM SALIH'S ENERGY RETREAT ADVANCES HYDROCARBON

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003257

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/28/2016
TAGS: ECON EPET IZ KJUS KCOR PGOV EINV PBTS
SUBJECT: DPM SALIH'S ENERGY RETREAT ADVANCES HYDROCARBON
LAW CONSENSUS

REF: BAGHDAD 03069

Classified By: Charge d'Affaires Daniel V. Speckhard for Reasons 1.4 (b
) and (d).

1.(C) Summary: In an August 27 meeting with the Charge
D'Affaires (CDA),Iraqi Deputy Prime Minister (DPM) Barham
Salih described progress made towards consensus on a national
hydrocarbon law. He admitted that the draft law proposed by
the Kurdistan Regional Government (KRG) and the revised
Ghadban draft adopted by the Ministry of Oil (MoO) are
"diametrically opposed" (reftel). After three days of
discussion during his Energy Committee Retreat, the DPM
asserted that the primary point of contention relates to
contracting authority. The KRG asserts that it can and
should be able to enter into contracts for new production and
exploration without approval by the central government.
Salih told us that he would discourage the KRG from pursuing
its ambitious agenda for presenting a draft regional
hydrocarbon law to the Kurdistan Region,s Parliament in
September to allow more time for consensus to be reached on a
national law. He pointed out that he would need Ambassador
Khalilzad's support in strongly conveying this message to the
Kurds. He stated that over the course of the retreat, the
Committee had on some key principles for national hydrocarbon
legislation, though he acknowledged that the details would
still need to be worked out. The DPM welcomed the CDA's
offer of technical assistance as soon as these general
principles have been agreed upon. End Summary.

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CLOSING THE GAP: COMPROMISE ON REVENUE MANAGEMENT,
POLICYMAKING, INOC
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2.(C) In an August 27 meeting with the CDA, Deputy Prime
Minister (DPM) Barham Salih described progress made towards
consensus on a national hydrocarbon law. Salih told the CDA
that agreement was reached by the Energy Committee which he
chairs on having all hydrocarbon revenues collected and
redistributed by the central government. The members of this
Committee are the Ministers of Oil, Finance, Electricity,
Trade, Planning and Developmental Cooperation, Justice, the
Governor of the Central Bank, the President of the South Oil
Company, and the Kurdish Minister of Natural Resources. He
said that, even though the Constitution left open the
question of how new fields would be handled, participants
agreed that all revenue would be shared and distributed in a
transparent way on the bases of "needs" and population.
(Note: Article 112 of the Constitution specifies that
revenues from present fields are to be distributed fairly
proportional to population distribution, with an allotment
for a fixed period for damaged regions, to ensure balanced
development. End Note.)

3.(C) The Committee also agreed that Iraq's energy policy
should be set by a national entity, such as a Supreme Oil
Policy Committee. (Note: The issue of veto power for the
regions was not addressed. End Note.) This body would
determine such things as production targets, infrastructure
investment, and resource development strategies. Members
might include Cabinet members and industry experts (the
latter appointed for a minimum of five years to provide
continuity across different government administrations). The
Ministry of Oil (MoO) would take on a regulatory role, but no
longer have operational responsibilities. These
responsibilities would instead fall to operating companies,
both regionally and functionally based companies. Salih
described some debate about the need for a national operating
company. Minister of Oil Husayn al-Shahristani advocated
reconstituting the Iraqi National Oil Company (INOC),as laid
out in the revised Ghadban draft. However, the DPM said
their was still some debate on whatever this was needed.
(Note: The rights of the INOC with respect to exploration and
development will require additional debate. End Note.)

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CONTRACTING CONTROVERSY AND LEGITIMATE KRG CONCERNS
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4.(C) Even after three days of discussions, participants
reached no agreement on the issue of contracting authority
for development of new fields. Those arguing that the
regions could independently sign contracts for new production
and exploration would not consent to the compromise that
contracts negotiated by regional entities would need to be
presented to the national policymaking entity for approval
based on pre-determined standards. In DPM Salih's opinion,
Baghdad should be required to ratify , but within the
framework of certifying the contracts meet the agreed

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standards. He also acknowledged, however, the concerns of
the Kurds ) the primary opponents of central contracting
authority ) regarding the political agendas that could
influence the central approval process.

5.(C) Kurdish concerns notwithstanding, Salih recognized that
the KRG plan to present their draft regional law to the
Kurdistan Region's Parliament in September could undermine
the process of establishing a national law. DPM Salih said
that he would discourage the KRG from vigorously pursuing
this schedule, but said that he would need the Ambassador to
convey this message clearly to the KRG as well.

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COMMENT
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6.(C) Salih seemed pleased with the progress made at the
retreat, commenting that the "framework" for the national law
already had several key agreed upon principles, but he also
emphasized that the details would need to be worked out
later. This statement corresponds with Salih approach of
avoiding drafting the law until the principles are agreed
upon by the participants. The Charge offered technical
assistance during the detailed drafting stage of the process.
Salih did not offer a possible timeline for finalizing a
draft national law. Many of the items DPM Salih volunteered
as areas of agreement had already been laid out in the
Constitution, so the Committee was essentially expressing
support for that document. The KRG-proposed national law is
more sophisticated and professionally drafted, but it is
unclear which of the two drafts on the table - the KRG or MoO
proposal - would be used as the basis for further negotiation
or whether a new draft might emerge. DPM Salih was careful
not to express support for particular proposals debated at
the retreat, but suggested that the direction promoted by the
KRG draft national legislation could be used to the advantage
of all of Iraq in terms of encouraging market liberalization.
SPECKHARD