MINISTER OF PLANNING WARY OF HYDROCARBON LAW

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002442 SIPDIS SIPDIS E.O. 12958: DECL: 07/23/2017 TAGS: ECON EFIN ENRG PGOV IZ SUBJECT: MINISTER OF PLANNING WARY OF HYDROCARBON LAW Classified By: Economic Minister Charles Ries for reasons 1.4 (b) and ( d). ¶1. (C) Summary: In a July 22 introductory meeting with Economic Minister Ries, Minister of Planning Ali Baban discussed his opposition to the framework Hydrocarbon Law and the progress towards improving GOI budget execution. He noted that the Japanese and World Bank soft loans were approved by the Council of Ministers and insisted that any loans, as opposed to grants, would also require approval by the Council of Representatives. EMin Ries encouraged Minister Baban to help resolve the differences in the draft hydrocarbon law, emphasizing the importance of the law to national reconciliation. End Summary. -------------- Framework Hydrocarbon Law -------------- ¶2. (C) "We face chaos in everything," Minister Baban said, "and I'm afraid that the hydrocarbon law will bring more chaos." The Minister is specifically concerned about the right of regions to negotiate contracts without the input of the central government. He thinks that this allows for political and sectarian conflicts to be imported into decisions about Iraq's oil resources, and emphasized that whatever rights the Kurdistan Regional Government (KRG) gets now will have to be extended to other regions if and when they form, including oil-rich Basra. Minister Baban also said that the KRG's current contracting operations are corrupt and claimed that the regions do not have sufficient expertise to negotiate oil contracts. (Note: Similar claims about Baghdad's monopoly on oil expertise were made by the Shura Council in its review of the law at the end of May. End note.) ¶3. (C) EMin Ries said that the current draft allows for the Federal Oil and Gas Commission to veto any regional contract. Minister Baban remained convinced that this stipulation was not sufficient to protect national equities. He also expressed concern that there was not enough oversight of the production-sharing agreement processes, saying that these agreements should only be allowed with projects requiring sophisticated technical assistance or high levels of investment. EMin Ries responded that these conditions could easily be part of the contract approval process as described in the draft law. He also emphasized to Minister Baban the need for progress on the law, particularly with respect to U.S. public opinion. Minister Baban agreed that progress was needed, but noted that there had been similar pressure to complete the Iraqi constitution very quickly in 2005 and in the rush a number of constitutional problems have emerged subsequently. Minister Baban confirmed local press reports saying he would resign if the law passed in its current form. "The Kurds keep trying to add new conditions," he said, "and I am concerned that this law will threaten our national unity." -------------- Budget Execution -------------- ¶4. (C) Minister Baban remains unsatisfied with the rates of GOI budget execution, but noted that it is improving. He cited an inefficient bureaucracy as the main problem, which is exacerbated by security problems. He thought that the USG-funded Procurement Assistance Center (PAC) embedded in his ministry has been helpful, and said that other ministries were starting to realize that such assistance was available. He also said that 50 to 60% of his senior staff members have left the country due to the security situation, complicating the Ministry's work. The Iraqi public administration as a whole, he said, will need to be rebuilt from the ground up. -------------- World Bank and Japanese Soft Loans -------------- ¶5. (C) Minister Baban said that while grants can be approved by the Council of Ministers, loans must be approved by the Council of Representatives (CoR). He thought that the pending World Bank and Japanese loans would easily be approved by the CoR. (Note: Laws approving soft loans from the World Bank and Japan were given a first reading at the CoR on July 22. End note.) -------------- Comment -------------- ¶6. (C) Minister Baban is a Sunni Kurd and in the past he has balanced the interests of both groups. He has had reservations about other key GOI initiatives, including the BAGHDAD 00002442 002 OF 002 International Compact with Iraq and the 2007 budget law. In the past, however, these reservations have not prevented him from ultimately supporting the government position. Opposing the framework hydrocarbon law resonates with many Iraqis, and rebuilds his reputation with Sunnis. As Minister Baban is one of the key Sunni members of the Council of Ministers, we will continue to lobby him to support in the end adoption of the hydrocarbon law. CROCKER