MINOIL RESPONDING TO PRESSURES TO ADVANCE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000153

SIPDIS

SIPDIS

E.O. 12958: DECL: 01/15/2017
TAGS: ECON EPET IZ KJUS KCOR PGOV EINV PBTS
SUBJECT: MINOIL RESPONDING TO PRESSURES TO ADVANCE
HYDROCARBON LAW, BUT NEGOTIATIONS CONTINUE

REF: BAGHDAD 04616

BAGHDAD 00000153 001.2 OF 002


Classified By: Economic Minister Counselor Daniel Weygandt for Reasons
1.4 (b) and (d).


1. (C REL GBR) Summary: On January 14, emboffs and USG
hydrocarbon legal advisor met with Minister of Oil Husayn
al-Shahristani and senior Ministry of Oil (MinOil) officials
to discuss the status of the national hydrocarbon law.
Shahristani has stepped-up efforts to produce a draft for
presentation to the Council of Ministers (CoM),and said his
hope is to send the draft to the CoM by its Thursday meeting.
Continuing negotiations could prevent this target from being
met, so Deputy Prime Minister (DPM) Barham Salih said that he
might request an extraordinary CoM meeting regarding the
hydrocarbon law on Sunday or Monday of next week.


2. (C REL GBR) Summary continued: Shahristani has finally
engaged his Deputy Ministers and Directors General in the
drafting process, and he told us that they are working from a
new draft that Minister Shahristani had been tweaking until
the night before the January 14 meeting. New language
introduced by Shahristani at this late stage caused problems
at a high-level political meeting held on the evening of the
14th, with approval authority continuing to be the key
sticking point. The Minister and senior Oil officials
acknowledge that there are still significant technical
problems with the law, but hope to send it to the CoM for
quick political blessing and then to the Council of
Representatives (CoR) sometime next week. Shahristani was
very receptive to offers of US legal assistance, though made
it clear that input would not be incorporated prior to
delivery to the CoM or the CoR. MinOil officials anticipate
that the draft will be reworked to address technical problems
during the CoR's upcoming recess. Shahristani told us that
even though he understands that the package of hydrocarbon
legislation (including laws regarding revenue-sharing,
reorganization of MinOil, reconstitution of the Iraq National
Oil Company, and possibly a petroleum tax law) must be
reviewed together, he saw no reason why submission of the
main hydrocarbon law should be delayed until all of the draft
laws are completed. End summary.

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CURRENT HYDROCARBON LEGISLATION PLAN
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3. (C REL GBR) On January 14 Minister of Oil Shahristani
called a meeting with emboffs and USG legal advisor,
demonstrating that he is engaged on the hydrocarbon law after
what has seemed to be a lack of involvement in the drafting
process. Shahristani told us that he has been working on a
new draft, and USG legal advisor pointed out some significant
technical problems with the previous draft that Shahristani
acknowledged were still not fully addressed. The expectation
by Government of Iraq (GOI) officials seems to be that CoM
blessing will be given quickly, and Shahristani told us that
the hope was to submit the draft to the CoM on Thursday,
January 18, so that it could possibly be delivered to the CoR
by Sunday. He referred to the CoM's blessing as an indication
that the basic principles of the law have been agreed upon,
and that the draft was not "untouchable." He did not seem to
anticipate that very much would be done between presenting
the draft and the CoR's recess, providing sufficient
opportunity to improve the draft during the recess.
Shahristani also expects that the Parliamentary process will
take time, suggesting that substantial technical improvements
can be made.


4. (C REL GBR) Shahristani's late changes to the draft law
have resulted in a reopening of what Barham told us at a
December 18 meeting (reftel) were some previously settled
issues--chiefly regarding contracting authority. At a
ministerial-level hydrocarbon meeting at the DPM's residence
on the evening of January 14, "right to reject" vice "right
to approve" language is still under discussion, as well as
addition of a time constraint within which the Federal Oil
and Gas Committee must respond about a contract to assuage
Kurdish concerns that the federal government will hold up the
approval process. Continuing negotiations could prevent
Shahristani's and Barham's target for getting the draft to
the CoM by Thursday, so the DPM said that he might request an
extraordinary CoM meeting regarding the hydrocarbon law on
Sunday or Monday of next week.


5. (C REL GBR) The Minister welcomed offers of US legal
assistance, though made it clear that input neither would nor
could be incorporated prior to delivery to the CoM or the
CoR. Shahristani was enthusiastic about receiving a detailed
commentary on the law, and asked for specific help with model
contracts. He expected work to continue over the spring to

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fine-tune the draft and related legislation. He made it clear
that advisors should not have affiliations with any oil
companies, and emboffs emphasized that USG legal resources
were independent experts currently working in academia.

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STATUS OF HYDROCARBON LEGISLATION PACKAGE
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6. (C REL GBR) Minister Shahristani told us that the
appendices for the main hydrocarbon law are complete,
including the list of producing fields/areas to be developed
by the Iraq National Oil Company (INOC),the other discovered
fields open for bid rounds, and exploration blocks--all
related to projects MinOil hopes to develop in the next three
years. (Comment: The current hydrocarbon law gives
significant power and attractive projects to INOC, whose
contracts will not need to be reviewed by the Proposed
Federal Oil and Gas Committee, but would be subject to
general government procurement regulations. Shahristani said
that MinOil will expect INOC to increase the production of
existing fields through service contracts with international
oil companies. End comment.)


7. (C REL GBR) According to Shahristani, the draft law to
restructure the Ministry of Oil is completed, and a group
within MinOil is working on a draft law to reconstitute INOC.
Shahristani told us that even though he understands that the
package of hydrocarbon legislation must be reviewed together,
he saw no reason why submission of the main hydrocarbon law
should be delayed until all of the draft laws are completed.
Shahristani expects the Minister of Finance to take the lead
on the revenue-sharing law and petroleum tax provisions, for
which he expects technical assistance would be requested.
(Comment: A MinOil Deputy Minister told us that the South is
expressing dissent with the sharing of revenue from new
fields and with forms of shared contracting authority. He
would not share details on which parties in the South have
communicated this to the Ministry. End comment.)


8. (C REL GBR) In response to a question about transition
into the new hydrocarbon regime, Shahristani said that MinOil
plans for a two-year transition period to transform the
current structure into the new bodies and authorities
established by the hydrocarbon law. (Comment: The
simultaneous consideration of the complete legislative
package is necessary because the main hydrocarbon law will
need to be revised to reconcile the roles of the institutions
established in the legislative package, such as MinOil, INOC,
and the Federal Oil and Gas Committee. End Comment.)

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COMMENT
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9. (C REL GBR) Shahristani's current level of engagement on
the hydrocarbon law is encouraging, including the possibility
that the draft main law may be presented to the CoR before
the CoR's upcoming recess. While it is clear that a great
deal of works remains, it is also a very good sign that
Shahristani is seeking technical assistance from the US so
that the legislative package is in better shape for
consideration by the CoR in March. We intend to develop a
strategy for engaging CoR members on the issue once the law
is presented to them.
KHALILZAD