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09BAGHDAD2037 2009-07-30 03:30:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Baghdad
Cable title:  

Iraq: Cabinet Approves Formation of National Oil Company

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1. (SBU) The Iraqi Council of Ministers (the Cabinet) on Tuesday,
July 28 approved draft legislation to re-establish the Iraq National
Oil Company (INOC). That proposal will now be transmitted to the
Council of Representatives (COR, the Iraqi Parliament) for
consideration. Vice Chairman of the COR Oil and Gas Committee Dr.
Abdul-Hadi Al-Hassani told ECONOFF on July 29 that while he was
aware of the bill, his committee has not yet received a copy of the
draft legislation. The COR concluded its most recent session on
July 28 and is expected to be in recess for the next six weeks
during the Muslim period of Ramadan. The COR has announced its
intention to focus on electoral reforms upon its return, which could
further delay consideration of the INOC law.

2. (SBU) Comment: The INOC legislation is one of four key pieces of
pending oil sector reform laws. The others are the Hydrocarbons
Framework Law, the Ministry of Oil reform law, and the Revenue
Sharing Law. The INOC legislation would re-establish the national
oil company (disbanded in 1987), and also begin the process (jointly
with the Ministry of Oil reform law) of separating oil production
from regulation of the oil sector, both of which are currently
conducted under the aegis of the MoO. The INOC bill is a necessary
and welcome step towards modernization of the Iraqi petroleum sector
- one the Embassy has long supported. Also of note are comments
attributed to Thamir al-Ghadhban, head of Prime Minister Nouri
al-Maliki's council of advisors, who said that the draft legislation
does not specify which oil fields will be produced by INOC. He said
that the Federal Oil and Gas Committee would determine the
disposition of the fields. The lack of field allocation to INOC
could become an important bridging measure between the central
government and the KRG on the annexes in the Hydrocarbon Framework
Law. The KRG has consistently maintained that no fields should be
allocated directly to INOC and that fields should be auctioned off.
Under the draft legislation, the proposed Federal Oil and Gas
Committee (the experts charged with creating the overall strategy
for hydrocarbons in Iraq) would determine disposition of the fields.
Such an approach could remove KRG complaints against the annexes,
potentially easing passage of the Hydrocarbons Framework Law. End