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The
New Iraqi Oil Law
By
Ghazi Sabir-Ali
Iraq
today is an occupied country in a state of chaos with sectarian
violence
rife, hundreds of people killed and maimed daily, police
and security forces infiltrated by militias and warlords’ henchmen.
The infrastructure of society is destroyed; hospitals lack equipment
and medicines and, indeed, doctors, as so many have fled from
the everyday brutality that is Iraqi life today. In order to
gain the participation of all groups in the political process
it was agreed that the constitution should be amended. This has
still not been done. Petrol in an oil rich country is in short
supply. And in this maelstrom of unrest and violence the Iraqi
government has passed a draft oil law which many Iraqis, experts
in economics and the petroleum industry, look on with horror,
considering it to be passing over the wealth of Iraq to foreign
companies, and thus its ability for present and future generations
to rebuild the country. Is it right that in such an atmosphere
a law is being enacted which will affect the future livelihood
of the Iraqi people for generations to come?
What does the new law entail? The controversial Production Sharing-Agreements
(PSAs) have been dropped but it is still proposed to hand over
exploration and drilling contracts for decades on terms that
could be disproportionately profitable to the contracting companies
and unfair to Iraqis. Iraq would be unable to change them for
many years to come.
Is
this the answer to Iraq’s problems? Since sanctions
were introduced in 1990 the oil production industry has become
perilously run-down. Equipment and machinery are old and badly
maintained due to the ban on importation of spare parts. The
extraction of oil from reservoirs has been badly mismanaged.
These problems are in urgent need of resolution before any implementation
of massive increases in production. A plan to set matters right
in the production and processing of oil in order to increase
exports from the present 2mn b/d to the pre-First Gulf War level
of 3.3mn b/d should be implemented immediately. Only when Iraq
has some urgently needed income can the government begin negotiations
with foreign companies to take the major step of doubling production
to 6mn b/d.
Iraqi Oil Experts
Who
can implement the first part of the rehabilitation of Iraq’s
oil industry? Iraq has a vast contingent of oil experts skilled
in all aspects of the industry: petroleum and reservoir engineers,
geologists, drillers etc, as well as engineers and scientists
who deal with the overground aspects. These experts ran Iraq’s
oil companies with skill and efficiency before the nationalisation
of the Iraq Petroleum Company in 1972 – at that time, of
5,000 employees only eight were foreign nationals – up
to the present time. I was Deputy Chairman, then Chairman, of
the North Oil Company (NOC) from 1980 to 1993 with a workforce
of 10,000 and I had the privilege of leading this team of highly
capable Iraqis, who came from different backgrounds and different
geographical areas. We executed giant projects with – and
without – the help of foreign contractors, such as the
first underground storage project in Iraq, artificial lifting
of oil from depleted wells and the building of several large
overground crude oil complexes. After the first Gulf War, we
rebuilt a devastated NOC in a short time. In all the cases where
foreign companies were employed, NOC was in charge overall.
I
cannot emphasise enough the capabilities of NOC’s workforce;
and the same applies in the south. In the disciplines of reservoir
engineering, geology and crude oil production they are second
to none. A great deal of finance will obviously be needed, especially
as Iraq’s overseas reserves have already been squandered
by mismanagement on the part of the occupying forces. Technical
help from foreign contractors will also be required but this
should be on the same basis as above with Iraq’s oil industry
in control. The contracts negotiated will need to be generous
due to the unstable state of the country, but not a free gift
of most of Iraq’s oil, and the carrot of huge future contracts
can be dangled in front of the foreign companies.
When the situation has stabilized and security prevails, Iraq
can then build up production to 6mn b/d, an immense undertaking.
To achieve this aim, exploration and drilling on a huge scale
must take place, as well as the construction of major industrial
complexes. This will entail developing giant and super-giant
fields especially in the south. It is here that Iraq will need
a great deal of financial and technical help. The sums will be
huge but the rewards for both Iraq and the participating foreign
companies will be great. In the late 1980s and early 1990s the
Iraqi government was looking into the feasibility of PSAs and
there is no reason, if they are negotiated in a fair and honest
way to both sides, why they cannot be used for these important
new developments. However, now is not the time for them; Iraq
is an occupied country in desperate straits negotiating from
a position of weakness. It has been acknowledged that the new
draft oil law has had input from various non-Iraqi sources.
Development In Stages
So
any development of Iraq’s oil industry should be undertaken
in stages, first rebuilding and maintenance in the next few years
in order to increase oil production to the pre-1990 level of
3.3mn b/d; once this has been established an increase to 6mn
b/d and, eventually in the long term, to the level of Saudi Arabia’s
production of 10mn b/d can be carried out. At all times Iraq
should be in charge of its oil industry and not in any way pass
control to foreign companies.
Let
Iraqis rebuild and develop their oil industry themselves. It
will
be a transgression of major proportions against the Iraqi
people if foreign companies control Iraq’s oil, whether
through PSAs or any other form of agreement. Iraq must be in
charge of an industry which is the country’s only real
source of the income it so desperately needs to rebuild the infrastructure
and lift the population out of the poverty into which three wars
and foreign occupation have driven it. The knowledge and skill
are available. Some of the foreign oil companies are like pigs,
voraciously gathering around the food trough. They must not be
allowed to leave only the dregs for the Iraqi people.
Ghazi
Sabir-Ali is a former
chairman and managing director of Iraq’s Northern Oil
Company (NOC) in Kirkuk from December 1989 to October 1993,
having previously served as Deputy Chairman.(ghazi@sabir-ali.fsnet.co.uk). Petroleumworld
not necessarily share these views.
Editor's Note: This article was published by Middle
East Economic Survey, VOL.
XLIX, No
13, 26-Mar-2007.
This article was written for MEES by Sabir-Ali (in collaboration
with
Valerie Sabir-Ali).Petroleumworld reprint this article in
the interest of our readers.
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News 04/29/07
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