Despite denials that oil was a war aim, American troops were detailed to secure oil facilities as they fought their way to Baghdad in 2003
"Major combat operations in
In the battle of
–
"The
that Iraqi oil is there for the people of
– Stockwell Day, Canadian Alliance MP,
House of Commons, April 8, 2003
Blood and oil: How the West will profit from
The 'IoS' today reveals a draft for a new law that would give Western oil companies a massive share in the third largest reserves in the world. To the victors, the oil? That is how some experts view this unprecedented arrangement with a major
Published: 07 January 2007
The Independent & The Independent on Sunday
So was this what the
And
Now, unnoticed by most amid the furore over civil war in Iraq and the hanging of Saddam Hussein, the new oil law has quietly been going through several drafts, and is now on the point of being presented to the cabinet and then the parliament in Baghdad. Its provisions are a radical departure from the norm for developing countries: under a system known as "production-sharing agreements", or PSAs, oil majors such as BP and Shell in
PSAs allow a country to retain legal ownership of its oil, but gives a share of profits to the international companies that invest in infrastructure and operation of the wells, pipelines and refineries. Their introduction would be a first for a major Middle Eastern oil producer.
Critics fear that given
"Three outside groups have had far more opportunity to scrutinise this legislation than most Iraqis," said Mr Muttitt. "The draft went to the
"The
That suggestion came to nothing. In May 2003, just after President Bush declared major combat operations at an end, under a banner boasting "Mission Accomplished", Britain co-sponsored a resolution in the Security Council which gave the US and UK control over Iraq's oil revenues. Far from "all oil revenues" being used for the Iraqi people, Resolution 1483 continued to make deductions from
That exception aside, however, the often-stated aim of the
Paul Wolfowitz, Deputy Defense Secretary at the time of the war and now head of the World Bank, told Congress: "We're dealing with a country that can really finance its own reconstruction, and relatively soon."
But this optimism has proved unjustified. Since the invasion, Iraqi oil production has dropped off dramatically. The country is now producing about two million barrels per day. That is down from a pre-war peak of 3.5 million barrels. Not only is Iraq's whole oil infrastructure creaking under the effects of years of sanctions, insurgents have constantly attacked pipelines, so that the only steady flow of exports is through the Shia-dominated south of the country.
Worsening sectarian violence and gangsterism have driven most of the educated élite out of the country for safety, depriving the oil industry of the Iraqi experts and administrators it desperately needs.
And even the present stunted operation is rife with corruption and smuggling. The Oil Ministry's inspector-general recently reported that a tanker driver who paid $500 in bribes to police patrols to take oil over the western or northern border would still make a profit on the shipment of $8,400.
"In the present state, it would be crazy to pump in more money, just to be stolen," said Greg Muttitt. "It's another reason not to bring in $20bn of foreign money now."
Before the war, Mr Bush endorsed claims that
But in a country more dependent than almost any other on oil - it accounts for 70 per cent of the economy - control of the assets has proved a recipe for endless wrangling. Most of the oil reserves are in areas controlled by the Kurds and Shias, heightening the fears of the Sunnis that their loss of power with the fall of Saddam is about to be compounded by economic deprivation.
The Kurds in particular have been eager to press ahead, and even signed some small PSA deals on their own last year, setting off a struggle with Baghdad. These issues now appear to have been resolved, however: a revenue-sharing agreement based on population was reached some months ago, and sources have told the IoS that regional oil companies will be set up to handle the PSA deals envisaged by the new law.
The Independent on Sunday has obtained a copy of an early draft which was circulated to oil companies in July. It is understood there have been no significant changes made in the final draft. The terms outlined to govern future PSAs are generous: according to the draft, they could be fixed for at least 30 years. The revelation will raise Iraqi fears that oil companies will be able to exploit its weak state by securing favourable terms that cannot be changed in future.
In the July draft obtained by The Independent on Sunday, legislators recognise the controversy over this, annotating the relevant paragraph with the note, "Some countries do not accept arbitration between a commercial enterprise and themselves on the basis of sovereignty of the state."
It is not clear whether this clause has been retained in the final draft.
Under the chapter entitled "Fiscal Regime", the draft spells out that foreign companies have no restrictions on taking their profits out of the country, and are not subject to any tax when doing this.
"A Foreign Person may repatriate its exports proceeds [in accordance with the foreign exchange regulations in force at the time]." Shares in oil projects can also be sold to other foreign companies: "It may freely transfer shares pertaining to any non-Iraqi partners." The final draft outlines general terms for production sharing agreements, including a standard 12.5 per cent royalty tax for companies.
It is also understood that once companies have recouped their costs from developing the oil field, they are allowed to keep 20 per cent of the profits, with the rest going to the government. According to analysts and oil company executives, this is because
While the costs are being recovered, companies will be able to recoup 60 to 70 per cent of revenue; 40 per cent is more usual. David Horgan, managing director of Petrel Resources, an Aim-listed oil company focused on
Dr Zainy, an Iraqi who has recently visited the country, said: "It's very dangerous ... although the security situation is far better in the north." Even taking that into account, however, he believed that "for a company to take 20 per cent of the profits in a production sharing agreement once all the costs have been recouped is large".
He pointed to the example of Total, which agreed terms with Saddam Hussein before the second
And while the company was recovering its costs, it is understood it agreed to take only 40 per cent of the profits, the Iraqi government receiving the rest.
Production sharing agreements of more than 30 years are unusual, and more commonly used for challenging regions like the Amazon where it can take up to a decade to start production.
Analysts estimate that despite the size of
Confirmation of the generous terms - widely feared by international non government organisations and Iraqis alike - have prompted some to draw parallels with the production-sharing agreements Russia signed in the 1990s, when it was bankrupt and in chaos.
At the time Shell was able to sign very favourable terms to develop oil and gas reserves off the coast of Sakhalin island in the far east of
Although most other oil experts endorsed the view that PSAs would be needed to kick-start exports from
"PSAs have a cost in sovereignty and future revenues. It is not true at all that this is the only way to do it." Technical services agreements, of the type common in countries which have a state-run oil corporation, would be all that was necessary.
James Paul of Global Policy Forum, another advocacy group, said: "The
Mr Paul added: "It is relatively easy to get the oil in
One point on which all agree, however, is that only small, maverick oil companies are likely to risk any activity in Iraq in the foreseeable future. "Production over the next year in
An oil industry executive agreed, saying: "All the majors will be in
Mr Muttitt echoed warnings that unfavourable deals done now could unravel a few years down the line, just when Iraq might become peaceful enough for development of its oil resources to become attractive. The seeds could be sown for a future struggle over natural resources which has led to decades of suspicion of Western motives in countries such as
Iraqi trade union leaders who met recently in
"The Iraqi people refuse to allow the future of their oil to be decided behind closed doors," their statement said. "The occupier seeks and wishes to secure... energy resources at a time when the Iraqi people are seeking to determine their own future, while still under conditions of occupation."
The resentment implied in their words is ominous, and not only for oil company executives in
Despite US and British denials that oil was a war aim, American troops were detailed to secure oil facilities as they fought their way to
Halliburton, the firm that Dick Cheney used to run, was among US-based multinationals that won most of the reconstruction deals - one of its workers is pictured, tackling an oil fire. British firms won some contracts, mainly in security. But constant violence has crippled rebuilding operations. Bechtel, another
In just 40 pages,
A 40-page document leaked to the 'IoS' sets out the legal framework for the Iraqi government to sign production- sharing agreement contracts with foreign companies to develop its vast oil reserves.
The paper lays the groundwork for profit-sharing partnerships between the Iraqi government and international oil companies. It also lays out the basis for co-operation between
The document adds that oil companies will enjoy contracts to extract Iraqi oil for up to 30 years, and stresses that
It concludes that the proposed hydrocarbon law is of "great importance to the whole nation as well as to all investors in the sector" and that the proceeds from foreign investment in
The role of oil in
The $50bn bonanza for US companies piecing a broken
The task of rebuilding a shattered
As well as contractors to restore the infrastructure, such as its water, electricity and gas networks, a huge number of companies have found lucrative work supporting the ongoing coalition military presence in the country. Other companies have won contracts to restore
In May 2003, the Coalition Provisional Authority (CPA), part of the US Department of Defence, created the Project Management Office in
In June 2004 the CPA was dissolved and the Iraqi interim government took power. But the
The largest beneficiary of reconstruction work in
30,000 Number of Kellogg, Brown and Root employees in
36 The number of interrogators employed by Caci, a
$12.1bn UN's estimate of the cost of rebuilding
$2 trillion Estimated cost of the
WHAT THEY SAID
"Oil revenues, which people falsely claim that we want to seize, should be put in a trust fund for the Iraqi people"
Tony Blair; Moving motion for war with Iraq, 18 March 2003
"Oil belongs to the Iraqi people; the government has... to be good stewards of that valuable asset "
George Bush; Press conference, 14 June 2006
"The oil of the Iraqi people... is their wealth. We did not [invade
Colin Powell; Press briefing, 10 July 2003
"Oil revenues of
Paul Wolfowitz; Deputy Defense Secretary, March 2003
"By 2010 we will need [a further] 50 million barrels a day. The
Dick Cheney;
© 2006 Independent News and Media Limited
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