IRAQI HYDROCARBONS LEGISLATION: PERHAPS STILL

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003467

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E.O. 12958: DECL: 10/31/2018
TAGS: EPET ENRG PGOV EINV IZ
SUBJECT: IRAQI HYDROCARBONS LEGISLATION: PERHAPS STILL
STUCK?

REF: A. BAGHDAD 3446

B. BAGHDAD 3347

Classified By: Economic Counselor Michael Dodman, reasons 1.4(b,d)


1. (C) Summary: There are conflicting stories about why the
hydrocarbons legislation briefly moved to parliament in
recent days. Confusion also remains about which is the
"right" version of the law. Parliamentary Committee on Oil
and Gas Chairman Ali Balo believes that a political decision
on hydrocarbons legislation could be reached quickly, but he
also noted that Prime Minister Maliki is focused entirely on
the SOFA. Prime Ministerial advisor and ex-Oil Minister
Thamir Ghadban opined that no movement would occur on
hydrocarbons legislation for the remainder of the year. We
agree. End summary.

Parliamentary Rejection
--------------


2. (C) During an October 29 meeting, Balo offered his
explanation of the recent developments with the Hydrocarbons
Framework Law (HCFL) (ref A). Bobo said that his Council of
Representatives (COR, or Parliament) Oil, Gas, and Natural
Resources Committee had unexpectedly received a draft of the
HCFL that it had not previously seen before. This version
contained new edits from the Ministry of Oil that led the
committee to conclude that the Prime Minister had improperly
endorsed it without the appropriate Cabinet review and
approval. Thus, the committee had returned the draft with a
request that the Prime Minister's office expeditiously
forward the February 26, 2007, draft that the entire Cabinet
had approved. Balo added that a version with the textual
edits made by the Shura Council, but without objectionable
substantive changes, would actually be preferable, since the
Shura Council's language was more professional.

Fishing in Murky Waters
--------------


3. (C) Balo said he was personally surprised by the sudden
submission of the HCFL, since a process was in place to
collect input and develop consensus on the HCFL. Three weeks
previously, Kurdistan Regional Government (KRG) President
Massoud Barzani had met with representatives of other
political factions and formed five committees to examine
specific topics; among the committees was one on petroleum
and finances. The committee members were PM Maliki (Da'wa
al-Islamiya Party); Vice President Adil Abd al-Mahdi (Islamic
Supreme Council of Iraq, ISCI); Tariq al-Hashimi (Iraqi
Islamic Party, IIP); Deputy Prime Minister Barham Salih
(Patriotic Union of Kurdistan, PUK); and Rowsch Nuri Shaways
(Kurdistan Democratic Party, KDP). This committee had been
requested to provide its recommendations regarding
hydrocarbons legislation by November 15. (Note: Other
sources state the meeting actually took place more recently,
on October 15, and that four committees were formed of four
members each. Balo, however, provided the committee
membership twice during our conversation. See ref B.)


4. (C) The planned November 4 meeting with PM Maliki reported
in the press (ref A) will not take place due to Maliki's
unavailability, so Oil and Gas Committee members and
Parliamentary Speaker Mahmud al-Mashhadani met with Cabinet
Secretary Ali al-Alaq to urge that the February 27, 2007,
draft law be sent quickly to Parliament. Alaq was himself
perplexed as to the reasons why the draft had been submitted.
The Parliamentary members urged him to conduct an
investigation to determine whether the draft had been
improperly submitted and how it had happened. The committee
also sent a letter directly to PM Maliki with the same
questions.


5. (C) During an October 30 meeting, Prime Ministerial
advisor Thamir Ghadban offered his explanation of events. He
said that some Oil and Gas Committee members had asked to
receive the HCFL draft, because they thought the time was
ripe to move the legislation forward. Unfortunately, the
Cabinet Secretariat had sent the wrong version of the law.
Thamir commented that no one knows what the right version is,
so he did not expect any forward movement until a political
decision is reached on the preferred version. A decision
could be reached only if PM Maliki and Oil Minister
Shahristani met with KRG Prime Minister Nechirvan Barzani and
KRG Natural Resources Minister Ashti Abdullah al-Hawrami.
Thamir, however, did not expect such a meeting to happen
anytime soon, so he predicted that the HCFL or the law to
form the Iraq National Oil Company (INOC) would not pass this
year. (Note: Thamir is the leading candidate to head INOC.)

BAGHDAD 00003467 002.4 OF 002



Parliamentary Preferences
--------------


6. (SBU) Balo said the Oil and Gas Committee prefers to
review the HCFL as a package with the three other related
laws (the INOC law, the Revenue Management Law, and the
Ministry of Oil (MoO) Reorganization Law). The GOI's
executive branch had drafted a Revenue Management and INOC
law, but had not consulted on the language with Parliament or
presented them to the Cabinet. Balo acknowledged that the
central government and KRG differed on the other laws, but he
claimed that the HCFL was the most contentious, which would
take up "75%" of the committee's time, with the remainder
devoted to the Revenue Management Law. With respect to the
percentage of oil revenue that would go to the central
government for national or strategic investments before
allocations were made to regions and provinces, Balo said the
central government wanted 20% but the KRG would be willing to
accept 10%. (Note: Balo, a Kurd, represents the Kurdistan
Alliance Party.) Balo also said provisions of the INOC law
were problematic, since the draft currently granted INOC with
control over 80% of Iraq's oil production; INOC should have
to bid on an open, competitive basis with other oil and gas
companies for its assets. Balo blamed Maliki and
Shahristani's desire to maintain control over the petroleum
sector for the failure to pass the legislation over a period
of nearly two years after the Cabinet had approved a draft.


7. (U) Balo explained that the Shura Council's substantive
changes had to do with deletions to the HCFL draft that
returned authority and power to the Minister of Oil. The
February 2007 draft provided for the establishment of a
Federal Oil and Gas Council (FOGC),which would include the
Oil Minister as one of a half-dozen or so members. The
"12-13" substantive changes reduced the FOGC's role, which,
by default, meant that the powers and authorities reverted to
the Oil Minister.

Comment: Another Wait
--------------


8. (C) Balo tried to put a positive spin on the current
situation, arguing that, since the Cabinet had already
reviewed and approved the February 26, 2007, draft, a
straightforward political decision was all that would be
needed to pass the legislation quickly. He might have
indicated his real views, however, when he noted that the Oil
and Gas Committee could not meet with Maliki because he was
totally consumed with the SOFA negotiations. While the
underlying dynamic might have shifted somewhat, we agree with
Thamir that, absent some breakthrough on the broad package of
issues with the Kurds, Maliki is unlikely to devote the
attention necessary to move the hydrocarbons legislation this
year.

CROCKER