HYDROCARBON FRAMEWORK LAW REMAINS ELUSIVE

C O N F I D E N T I A L BAGHDAD 003770

SIPDIS

SIPDIS

STATE FOR NEA-I AND EEB

E.O. 12958: DECL: 11/15/2017
TAGS: EPET ENRG PGOV PREL IZ
SUBJECT: HYDROCARBON FRAMEWORK LAW REMAINS ELUSIVE

Classified By: CETI Ambassador Charles Ries, reasons 1.4 b and d


1. (C) SUMMARY: PM Maliki on November 7 promised Under
Secretary Jeffery that GOI action on the hydrocarbon

SIPDIS
framework law would begin within two weeks, but discussions
with a multitude of other officials in Baghdad revealed that
bridging the remaining gaps between the political parties may
not be as easy as Iraqi leaders suggest. END SUMMARY.


2. (SBU) During a weeklong visit to Iraq, Under Secretary
Jeffery met with key officials to press for speedy passage of
benchmark legislation, including the hydrocarbon framework
legislative package. This cable covers discussions in
Baghdad on the hydrocarbon framework law; septels report on
all other political and economic issues and on visits outside
Baghdad.

PM Advisor: Going Our Separate Ways
--------------

3. (C) Thamir Gahdban, advisor to the Prime Minister and
lead GOI negotiator on the hydrocarbon framework legislation,
said on November 3 that it was a good time to get Kurdish
agreement to move forward on the hydrocarbon legislative
package, because the KRG was in a weak position due to its
crisis over PKK skirmishes with Turkey. He outlined for the
Under Secretary the tortured history of negotiations and the
numerous differences that still separated the political
parties. He remarked the GOI had learned it should not
negotiate directly with the KRG, but instead should leave
political compromises to be worked out in the Council of
Representatives. He confirmed that the KRG enactment of a
regional law and its new production sharing contracts (PSCs)
with international oil companies (none of which had been
published as promised) had elevated tensions and distrust.
When he began negotiating with the Kurds, the KRG had only
four PSCs, and the parties reached agreement in the draft law
on how to treat them
with the understanding there would be no more additional
contracts. "Now the KRG has 10 new ones, and is moving ahead
with even more," he said. He disagreed with the approach of
Minister of Oil Shahristani, who said an oil law is not
necessary to enter into new contracts. However, if the KRG
continued to enter into new contracts, he warned the GOI will
not want a new oil law.


4. (C) Gahdban added the Oil Minister announced at the last
Energy Committee meeting that the MoO's pipeline deal with
Iran changed. Iraq will not receive fuel product in return,
and the quantity exported will be 300,000 barrels per day,
three times the amount originally proposed. In Ghadban's
view, this project change makes no sense, but the Minister
was unwilling to divulge any other details of the arrangement
to the PM's Energy Committee.

Oil Minister Shahristani: Doing it My Way
--------------

5. (C) Hussayn al-Shahristani outlined current activities of
the Ministry on November 4, choosing to highlight the Iraq
North Oil Company's (INOC) activities in drilling new wells,
which he claimed would increase production next year by
250,000 barrels per day. He also reiterated he opened talks
with international oil companies for "oil deals" that would
follow the criteria of the draft hydrocarbon framework law.
However, none of the companies are too keen to begin work in
Iraq given the security situation. These deals would be
service contracts not production sharing contracts, would
only need to go to the High Economic Committee for approval,
and would primarily be for increasing production in the giant
south oilfields. The Ministry is also opening bids on
various refinery projects, and hopes to tackle the problem of
flared natural gas.


6. (C) On the hydrocarbon legislation, Shahristani blamed
the KRG for complicating matters by signing their own PSCs,
which have no basis under current Iraqi law. He said he was
contacted by officials from Syria, Turkey and Iran who all
said they have been approached by companies operating in the
KRG and offered profit shares in exchange for allowing oil
exports. He told them that this would be smuggling, a
criminal activity. He questioned the value of an Iraqi oil
law if the KRG does not intend to respect the law, and
requested that we make sure the KRG knows that its new
contracts will not be accepted. He argued Mr. Hunt should
not use the current political situation to take advantage of
the oil wealth of Iraq.


7. (C) Sharistani added the Ministry of Oil Reorganization
Law and the INOC Law have been completed, although the INOC
Law needs some further work.

Electricity Minister: No Way Now
--------------

8. (C) Minister of Electricity Kareem Wahid on November 4
opined that the parliament would pass the oil law, but added
the people in Iraq have been "brainwashed for 35 years," so
any action needs to proceed step-by-step. If the GOI passes
anything now, he said, it will be handicapped at initial
stages due to all the political compromises, so it would be
better to wait.

CoR Speaker and Deputy Speaker: GOI at Fault
--------------

9. (C) During a November 5 courtesy call, Council of
Representatives (CoR) Speaker Mahmoud Mashadani blamed the
Council of Ministers (CoM) for lack of progress on such
issues as the hydrocarbon legislation, accusing the
government of presenting versions of laws to the CoR, and
later retracting them for further amendment. Mashadani
claimed (disingenuously) that the CoR was still awaiting
presentation by the cabinet of key draft laws, since in a
parliamentarian system, he said, "we are supposed to await
instruction from ministries."

CoR Oil & Gas Committee: Eager, but . . .
--------------

10. (C) Ali Balu, the Chairman of the CoR Oil & Gas
Committee, remarked on November 5 during a group discussion
that the members of parliament know "oil is the future," and
cited action that day to override a Presidency Council veto
of the Private Investment in Refineries Law as proof. CoR
member Abdul Mahdi urged the USG to convince everyone to be
more flexible, and to help address public concerns. CoR
member Bayazeed Abdullah noted the nationalist opposition
fears that U.S. companies will remain in Iraq; the Gulf
countries fear a strong Iraq, but the Kurds favor the oil law
nevertheless.

VP al Hashimi: Let me handle it
--------------

11. (C) Vice President Tareq al Hashimi on November 5 said
the hydrocarbon law highlights what he believed is lack of
coordination and trust among the major political blocs. The
Kurds, he said, introduced a new law on revenue-sharing (a
"stumbling block" to resolution of the hydrocarbons issue).
The Kurd's vision, he added, is to turn the central
government into a "cashier," rather than serve as the body
responsible for national planning and management. To counter
the "unbelievable games" being played by the government,
Hashimi said that the three Presidency Council members -
representing Kurds, Sunnis, and Shia - should be authorized
to negotiate all key draft laws. It would take less than a
week, he stated, for members to negotiate a final draft of
any given law. The draft law could then be sent directly to
Parliament for voting, he added, which would avoid
manipulation by the Cabinet. To illustrate his point, he
referred to the hydrocarbons law and the ten oil contracts
which the KRG recently signed
in the absence of a national framework law.

NSA Mowafuq Rubai'e: My Grand Vision
--------------

12. (C) During a November 5 meeting with U/S Jeffery,
National Security Advisor Mowafuq Rubaie requested USG help
in "pushing the hydrocarbons law," and described GOI plans to
move forward on a stream-lined draft law, separated from a
revenue-sharing law, with or without Vice President Tareq al
Hashimi's cooperation. Rubaie said he would be "extremely
surprised" if this new law was not negotiated/voted on "by
Christmas" this year. Rubaie suggested that the "Group of 4"
(Talabani, Maliki, Abdel-Mehdi, and Barzani) were prepared to
finalize the draft, adding that "the key to getting VP
Hashimi to back down," is finding "good Sunnis" in the
Parliament to support the law. Rubaie said it was his job to
address Ayatollah Sistani's fatwa that the Sunnis must be
part of any agreement on the subject.


13. (C) Responding to questions on how revenue sharing would
be addressed if left out of the hydrocarbons law envisioned
by Rubaie, the National Security Advisor said the PM would
issue an executive order based upon "Saddam's 1969 allocation
law" which apportioned only 13.1 percent of revenues to the
Kurds. The current figure of 17 percent, he added, was only
good until the end of this year, and was merely a "courtesy"
extended by the PM. The Kurds have large amounts of money
from customs and telecom revenues owed to the Central GOI, he
said. Asked how the GOI would address the ten oil contracts
signed between the KRG and foreign oil companies, Rubaie
responded we will "cross that bridge when we get there."


14. (C) Rubaie said the GOI is focusing attention in the
draft national budget on the oil sector and now looking at
how to strengthen export capacity. Ambassador Ries reviewed
recent discussions between the Embassy and the MoO on the
topic and pointed to some of the challenges faced by Iraq's
oil sector, including infrastructure damage, transmission
bottle-necks, and inexperience with tendering and budget
execution. In addition to the complicated balance between
oil exports and electricity generation, U/S Jeffery
encouraged the GOI to focus attention on training new
generations of managers, many of whom are retired, emigrated,
or killed. Rubaie said it was possible that the GOI would
form a "super-ministry" in the future, to bring under one
roof the ministries involved in the energy sector. Rubaie
(as Chair of a presently defunct "infrastructure protection
committee") said he was also considering taking a new look at
infrastructure protection - an issue where U.S. expertise
would be welcomed.

VP Mehdi: Very Agreeable
--------------

15. (C) Vice President Adel Abdul Mehdi said on November 6
that he fully agrees the GOI needs to capitalize on its
momentum, and stated the Prime Minister should go with the
February draft of the oil law which everyone agreed upon and
send it to the CoR. He remarked Shahristani insisted on the
July draft, but the delay was costing everyone money. Mehdi
said he would propose the Presidency Council send its own
draft of the law, but commented "the PM said this would look
bad." He urged POTUS to work more closely with the PM to
pass the law.

PM Maliki: Promises Progress
--------------

16. (C) Rounding out the Under Secretary's time in Baghdad,
on November 7 Prime Minister Maliki noted Iraq needs the
expertise of the USG in the oil field, and asked why the USG
thinks the current Iraq petroleum law is "no good." He
stated the existing law could be used by the international
oil companies, who have expressed an interest in entering
into contracts under it, but eventually concluded that the
new law would be better for national unity because of the
revenue sharing component. He promised within two weeks, the
CoM will make good progress on the law.

COMMENT
--------------

17. (C) The visit served to convince GOI officials of the
enduring USG interest in helping Iraq make progress on the
hydrocarbon framework package (as well as on other
benchmarks). However, to maintain the momentum, we see a
continuing need for timely high-level intervention. END
COMMENT.


18. (U) U/S Jeffery cleared this message.
CROCKER