KRG WANTS NATIONAL HYDROCARBON LAW NOW

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003341 SIPDIS SIPDIS E.O. 12958: DECL: 09/04/2026 TAGS: ECON ENRG EPET IZ SUBJECT: KRG WANTS NATIONAL HYDROCARBON LAW NOW REF: BAGHDAD Classified By: DCM DANIEL SPECKHARD, REASONS 1.5 (B) AND (D) 1.(C) Summary: In an August 27 meeting, Kurdish Minister of Natural Resources Dr. Ashti Hawrami told Emboffs that the Kurdistan Regional Government (KRG) had published its proposed regional hydrocarbon law to force the GOI to start moving on adopting a national law. Ashti emphasized that the proposed KRG regional law is fully constitutional, adding that the KRG draft of a proposed national law, presented to Baghdad on July 4th, left more room for the central government to participate in hydrocarbon development than the Constitution required. He has halted activity on signing additional Memoranda of Understanding (MOU) with international oil companies (IOCs) at present. Ashti emphasized that the KRG was willing to work with the GOI to establish a fair national hydrocarbon framework. He noted that some progress towards consensus was made at Deputy Prime Minister Barham Salih's Energy Retreat on revenue collection and redistribution by the central government. Disagreement remains on regional contracting authority for new production and exploration. If Baghdad could produce an acceptable national law quickly, fine. The KRG would, however, introduce legislation to its own parliament in September. End Summary. -------------- -------------- GETTING BAGHDAD MOVING ON NATIONAL HYDROCARBON LEGISLATION -------------- -------------- 2.(C REL GBR) On August 27, Kurdish Minister of Natural Resources Dr. Ashti Hawrami spent over three hours with Acting ECON Mincouns and Emboffs to explain the KRG position on a new hydrocarbon law for Iraq. Ashti said the KRG had drafted both regional and national laws in order to force Baghdad into action. Only then did the MoO produce a draft national law (reftel),which Ashti disdainfully described as "already dead." 3.(C REL GBR) Ashti said that the KRG will send its proposed regional hydrocarbon law to the KRG Parliament in September. AM/C noted that passing a national law first was in Iraq's best interest, especially from the standpoint of attracting major oil company investments. Ashti recognized the benefit of a good national law, but he is willing to wait for Baghdad only up to a point. The GOI has promised that a draft national law will be ready for submission to the Council of Representatives (COR) in November, but Ashti doubts they will make this schedule. 4.(C REL GBR) Ashti asserted that the KRG law is fully consistent with the constitutional articles concerning center-regional authorities. He also emphasized that the KRG wanted to see a national law in the near future whether it was passed before or after the KRG acted. He argued that the KRG-drafted national hydrocarbon law presented to Baghdad left more room for the central government to participate in hydrocarbon development than the Constitution, in his view, required. Ashti explained that this approach had been taken to make the process of adopting a national law smoother both politically and commercially (in terms of reassuring foreign investors). 5.(C REL GBR) Ashti emphasized that, if Baghdad failed to move soon, the KRG would pass its own regional legislation. His goal, however, is to pass a regional hydrocarbon law that is constitutional and provides a good model for a national law. The KRG will accept a "sensible" national law with "reasonable" investment terms for IOCs. 6.(C REL GBR) Ashti said that a "normal" country would first pass a national law, but in Iraq "there is no trust." Ashti told us that at the recent Energy Committee Retreat the KRG agreed ) in principle ) to allow oil revenue to be collected by the central government. He said the funds should be held in a trust account regulated by law, and redistributed by a legally established formula. -------------- HYDROCARBON LAW AGREEMENTS AND HURDLES -------------- ¶7. (C REL GBR) The GOI and the KRG have reached agreement on several key elements of the law. In addition to central collection and disbursement of revenue, the GOI will market crude oil on the international market. Overall oil policy, including setting production goals for each field, will be set by a central government body with regional and national representation. The MoO would become a regulator, not a manager. Regional oil companies would independently negotiate contracts for management and improvement of existing facilities, or exploration, development and management of new fields. BAGHDAD 00003341 002 OF 002 ¶8. (C REL GBR) To set national energy policy, the MoO proposed reconstituting the Iraqi National Oil Company (INOC). Ashti said that he saw no value in doing so, but he would be willing to accept it only as a national holding company for operations in developed fields. For new fields, a National Petroleum Council (NPC) would be established. 9.(C REL GBR) Ashti stated that whether the GOI or regional governments have contracting authority for development of new fields is the key obstacle to consensus on national hydrocarbon legislation. Both agree that contracts can be negotiated by the regional companies, and that contracts for EXISTING fields must be approved by the GOI. The KRG is adamant, however, that the regional companies should only be required to submit contracts for NEW oil fields to Baghdad for comment, not for approval. Ashti does not feel that regional contracting authority will interfere with national energy planning, noting that the NPC should behave as a "mini-OPEC," setting production and export targets that would influence the production agreements a region enters into to meet these targets. 10.(C REL GBR) When asked about current contracting activity, Ashti stated that he has frozen negotiations on additional Memoranda of Understanding (MOU) with international oil companies (IOC),until the regional draft hydrocarbon law has been approved by the Kurdish Parliament, adding that there are many companies in line for MOUs. Ashti considers it likely that the South will form its own region before the central government manages to propose viable national hydrocarbon legislation. ¶11. (C REL GBR) Comment - Embassy recognizes the importance of a national understanding on hydrocarbon policy and arrangements before regional authorities take action, and will continue to pressure leaders in Baghdad and Irbil to ensure the legislative process starts at the center. SPECKHARD