PRIME MINISTER MALIKI: "NO CHANCE" OF HYDROCARBONS

S E C R E T BAGHDAD 002565 SIPDIS E.O. 12958: DECL: 09/24/2029 TAGS: PREL ECON ENRG EPET IR IZ SY SUBJECT: PRIME MINISTER MALIKI: "NO CHANCE" OF HYDROCARBONS LEGISLATION BEFORE ELECTIONS Classified By: Ambassador Chris Hill for reasons 1.5 b,d ¶1. (S) In a September 22 meeting, Iraqi Prime Minister Nouri al-Maliki told Ambassador that pending hydrocarbons sector reform legislation "will not see the light of day" during this session of the Council of Representatives (CoR, the Iraqi Parliament). The current CoR, Maliki said, is &dead8 and no longer effective, and cannot be relied upon to pass any legislation. The GOI, he said, is effectively at a standstill. "If the CoR cannot even pass minor amendments to investment regulations," he asked, "how can it be expected to pass four major pieces of legislation?" Progress now on these bills, he concluded, is "not possible. They must await the next CoR." ¶2. (C) Maliki also dismissed an alternative UNAMI proposal to incorporate revenue sharing (one of the four hydrocarbons sector bills) as an amendment to the Iraqi Constitution. He waved the suggestion away, noting that revenue sharing is "already in the Constitution." He was similarly opposed to a suggestion that the KRG and GOI could enact parallel legislation affirming any revenue sharing arrangement. Revenue sharing is a federal government issue, not an issue that should be legislated by the KRG parliament, he said. ¶3. (C) Comment: While the CoR may be a lost cause for now, Post will continue to press key actors on each side to engage in discussion and negotiation towards a political agreement on revenue sharing. Once a political consensus has been reached, a mechanism for making this agreement permanent must be identified. Taking into account Maliki's comments, the most likely mechanism is an improved version of the 2007 draft of the Financial Resources Law (aka, the draft revenue sharing law). This law has no realistic prospect of passage prior to the formation of a new government in early 2010. This delay could give parties an opportunity to make necessary changes to the draft to bring it into compliance with best financial management practices. The mechanisms set forth in the current draft of the revenue sharing law are not consistent with the operating Financial Management Law, and therefore would need significant re-drafQg. (The GOI has made significant progress on fiscal and budgetary regulation in the last three years, and this bill as drafted does not meet those higher standards.) We will also continue to stress our commitment to the goals of transparency, accountability, and equitable revenue sharing implemented in a manner that is consistent with the Constitution, the Financial Management Law, existing bilateral and multilateral agreements, and internationally accepted public-financial-management best practices. We will express our belief that these goals can be met through continued negotiation between the GOI and KRG of carefully crafted financial sector legislation and regulation. HILL