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The petroleum sector following establishment of new unity government - International Law Office

International Law Office

Energy & Natural Resources - Iraq

The petroleum sector following establishment of new unity government

January 31 2011

Introduction
Replacement of oil minister
New court for foreign investment
Export of Kurdistan petroleum
Comment


Introduction

On December 20 2010 a new unity government was announced, whereby former Prime Minister Nouri Al Maliki maintained his position and Iyad Allawi, who won the most seats in the March 2010 election, joined in a special power-sharing deal. Unsurprisingly, the upstream petroleum industry was one of the salient issues that contributed to the almost 10-month impasse in the formation of a new government. Despite the long hiatus with no functioning government (during which time Al Maliki did not relinquish his day-to-day duties), once the new government was formed, several systemic changes occurred in quick succession.

Replacement of oil minister

The most significant change in the new unity government relevant to the Iraqi petroleum sector was the removal of Hussain Al Sharistani, who was minister of oil from 2006 to 2010. Sharistani, a longtime industry insider who was the pivotal architect in the 2009 and 2010 petroleum bid rounds, now holds the arguably more powerful ministerial appointment of deputy prime minister for energy - a position which did not exist before the unity government was created. Industry analysts believe that this appointment was due both to the new power-sharing arrangement and to a move to create more of a working relationship between the fiercely territorial Ministries of Oil and Electricity. A better relationship between these two ministries is needed to reform the electricity sector following the Ministry of Electricity's purchase of 56 fuel oil electricity turbines from General Electric and Siemens (the so-called 'mega-deal').

The new minister of oil is Abdul Karim al-Luabi, who was appointed on December 21 2010. One of his first acts was to initiate a fourth round of petroleum bidding (the first and second bid rounds were solely for petroleum fields, while the third bid round was exclusively for natural gas). He has not announced what form of contract and model will be used for the petroleum bid round and has not indicated which individual fields will be involved. Industry insiders state that up to 12 fields, including the large Baghdad field in central Iraq, may be part of the fourth bid round. The minister has also publicly stated that production must increase on several petroleum blocks.

New court for foreign investment

A separate occurrence which coincided with the creation of the new unity government was the establishment of a new court for foreign investment. The new Foreign Commerce Court is a streamlined federal court under the Ministry of Justice which has specific jurisdiction to entertain disputes only where one of the litigants is a foreign party. The court's goal will be to create an impartial court where international parties do not feel as though the Iraqi party has a home field or domestic advantage. The foreign investment court will be run from Baghdad by a former Supreme Court justice. According to information provided by the court, the justices involved have received recent training abroad in international standards of business law and will be backed up by specialised legal staff. During the court's inauguration, it was stated that if the court is a success, a separate branch will be opened in Mosul.

Export of Kurdistan petroleum

On January 19 2011 another systemic change occurred in the disputed petroleum sector when the Kurdistan Region (as negotiated by the Kurdistan regional government, whose seat of power is in Erbil), following a deal with the federal Ministry of Oil led by the new minister, began re-exporting abroad petroleum which had been produced within its borders.

The ability for the Kurdistan regional government to export its petroleum and retain the remuneration fees for its own benefit and not that of the federal Iraqi government has been a long-debated and unsettled issue during Sharistani's tenure as minister of oil. In fact, Sharistani was publicly adamant that the Kurdistan regional government's exportation abroad was illegal under the 2005 Constitution. This exportation date was initially agreed on or around December 25 2010 - approximately four days after the new oil minister assumed his formal portfolio.

Comment

The most significant change to take place in the Iraqi energy sector could be the passage of the federal comprehensive Petroleum Law, which has been before the Council of Representatives since 2007. Its passage will be a legislative priority for the new minister of oil and, with the new unity government now in place, it is hoped that it will not be debated or deadlocked.

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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