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Ratification of federal oil tenders: the debate continues - International Law Office

International Law Office

Energy & Natural Resources - Iraq

Ratification of federal oil tenders: the debate continues

February 01 2010

Prevailing View: Ratification Required
Alternative View: No Ratification Required
Future of Debate

Following first and second-round bids between several international oil companies and the Ministry of Oil, there has been a tremendous amount of discussion about whether these successful companies are subject to further ratification by the Council of Representatives (Parliament) in order for the tender to be a comprehensive and legally binding contract. This discussion has dominated Iraqi domestic politics and petroleum policy and has been exacerbated by the Iraqi national elections, which are scheduled for March 7 2010.

Prevailing View: Ratification Required

Under the prevailing view, all contracts between the Ministry of Oil and third parties (in this instance the international oil companies which were successful in the bidding rounds) require a separate vote in Parliament in order to cure a defect in law and prove binding. This is based on a law which has not been repealed or altered (Law 97/1967), which provides that the Iraq National Oil Company may invest in any fields allocated to it and may partner with third parties for that purpose. However, any and all contracts with third parties may be allowed only by law. As Parliament is the only body that can pass a 'law', under this analysis, such partnerships may therefore be proven legal, enforceable and binding only after ratification from Parliament. After 1967 the Iraq National Oil Company was dissolved and the powers of the board of directors transferred to the Ministry of Oil. Therefore, assuming traditional public international law norms of state succession, these laws - and specifically Law 97/1967 -should be read to apply to the existing Ministry of Oil and the existing state-run oil companies.

Alternative View: No Ratification Required

Branches of the Ministry of Oil recently published a series of opinions arguing that no ratification is required, and that the contracts from the first and second-round bids will be valid following a simple Council of Ministers approval (and not a vote by Parliament). The arguments supporting this view are that Law 97/1967 is ultra vires and non-binding, and that there is no precedence for ratification as many international partnerships in the oil sector have operated in Iraq since 1967 and no ratification has taken place. Further, these commentators argue that a statutory interpretation of Law 97/1967 asserts that a law cannot by itself require issuance of another law, on the basis that power to issue a law is vested only in the Iraqi Constitution in force at the time, namely the 1964 Constitution. Moreover, since none of the 1964, 1968 and 1970 Constitutions specifically elucidated the need for ratification, and since no ratification by Parliament has taken place since the law's inception, there is no modern requirement for ratification of oil and gas contracts through Parliament. Instead, contracts with foreign operators in the petroleum sector should be considered service contracts, which do not require ratification.

Future of Debate

The absence of a constitutional ratification requirement has been noted and is clearly evident. However, the Iraq National Oil Company and the successor in interest (ie, the Ministry of Oil) have clearly been given constitutional authority over the entire timeframe in question to formulate, design and, most importantly, partner with third parties. No subsequent Constitutionnor any subsequent law, order, presidential decree, regulation or ministerial instruction has directly overturned or repealed Law 97/1967.

While the conclusion of the argument will likely wait until after passage of the yet-to-be-passed petroleum law, which has been stalled in the Iraq Parliament for three years and may be issued following the national elections, these arguments are now being tested in the Iraqi courts. Recently, a group of parliamentarians led by Sheda al-Mosawi filed a lawsuit against Oil Minister Hussain al-Shahristani and Prime Minister Nouri al-Maliki, accusing them of violating the Constitution by implementing the Rumaila oilfield contract signed with British Petroleum and Chinese National Petroleum Company.

For further information on this topic please contact Thomas W Donovan at Iraq Law Alliance PLLC by telephone (+964 7 901 919 425), fax (+20 2 760 4593) or email (thomas.donovan@iqilaw.com).

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