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. -------------- CURRENT HYDROCARBON LEGISLATION PLAN -------------- ¶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 BAGHDAD 00000153 002.2 OF 002 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. -------------- STATUS OF HYDROCARBON LEGISLATION PACKAGE -------------- ¶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.) -------------- COMMENT -------------- ¶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