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C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 001122 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 03/25/2017 
TAGS: ECON ENRG EPET KCOR EIND IZ
SUBJECT: DCM DISCUSSES HYDROCARBON LEGISLATION STATUS WITH 
OIL MINISTER 
 
Classified By: Deputy Chief of Mission Daniel V. Speckhard for reasons 
1.5 (b) and (d). 
 
¶1. (C REL GBR) Summary. On March 25, the Deputy Chief of 
Mission met with Minister of Oil Husayn al-Shahristani to 
discuss the status of the package of hydrocarbon legislation. 
Shahristani said that drafts of all companion laws were ready 
-- revenue management, reconstitution of the Iraq National 
Oil Company (INOC), reorganization of the Ministry of Oil 
(MinOil) -- as well as drafts of the annexes to the framework 
hydrocarbon law approved by Council of Ministers (CoM) on 
February 26. He said that the framework hydrocarbon law had 
been submitted to the Shura (Legal) Council to put it in 
"final format," but the process was taking longer than 
expected. The Minister noted that several CoM Energy 
Committee meetings had been held while the Committee Chair 
Deputy Prime Minister (DPM) Barham Salih was absent, and the 
participants had discussed the MinOil reorganization and INOC 
laws. He said that the INOC law proposed a new form of 
company not covered by Iraqi commercial law and that a 
sub-Committee had been formed to advise the broader Energy 
Committee on the company's formation. Shahristani 
acknowledged that the Kurdistan Regional Government (KRG) 
wants the revenue management law to require that provincial 
and regional shares of revenue be deposited in independent 
accounts in the central Treasury rather than a single account 
that would then distribute the funds through the federal 
budget. The Minister said that this was "completely 
unacceptable." He attributed much negative criticism of the 
hydrocarbon law to expatriate oil officials in Amman who 
generally opposed the new political system in Iraq. 
Shahristani agreed that the best way forward would be for KRG 
and GOI negotiators to meet to finalize the draft 
legislation. End Summary. 
 
---------------------- 
Status of Legislation 
---------------------- 
¶2. (C REL GBR) Minister Shahristani said that the framework 
hydrocarbon law had been submitted to the Shura Council to 
put it in "final format," and the process was taking longer 
than expected. (Note: The Shura Council or Legal Committee is 
responsible for assuring that proposed legislation is 
consistent with existing legislation. End Note.) He also said 
that the annexes to the framework law that would list 
currently producing and undeveloped discovered fields 
assigned to the Iraq National Oil Company, undeveloped 
discovered fields outside INOC operations, and exploration 
areas had been submitted to the Energy Committee two months 
ago and that he had not received any comment. He said that he 
believed this silence meant there was no opposition to the 
lists. (Comment: KRG negotiators have told us that these 
annexes had not been shared with them, though there have been 
versions available on the Internet that the Kurds have 
publicly stated have not been agreed. End Comment.) 
 
¶3. (C REL GBR) According to Shahristani, the Energy Committee 
had several meetings while Chairman DPM Barham Salih was 
absent. PM Maliki chaired these meetings. The Minister said 
that the Committee had discussed the MinOil reorganization 
law three weeks ago, and again at a meeting the day before. 
He told us that no KRG officials had been present at the 
meetings, but that the Committee would meet again on March 
26, and that DPM Salih would review the law. The Minister 
expected that there would be no problems with gaining support 
for the law. 
 
¶4. (C REL GBR) Shahristani said that the INOC law was more 
complicated because it establishes a form of company not 
covered by Iraqi commercial law. He told us that the Energy 
Committee had decided to form a sub-Committee consisting of 
representatives from the Ministry of Finance, Ministry of 
Planning, and Ministry of Justice to advise the Energy 
Committee on the company's formation. He said the 
sub-committee would report to DPM Salih. 
 
¶5. (C REL GBR) The Ministry of Finance has the lead on the 
revenue management law, and as Finance Minister Bayan Jabr 
told the DCM on March 15, Shahristani confirmed that the KRG 
opposed having revenue deposited in a single account 
distributed through the budget preferring to have multiple 
accounts for provincial/regional revenue shares.  This would 
give the local governments greater access to funds and 
protect them from volatility in Baghdad. Shahristani said 
that the KRG proposal was "unacceptable." He said that the 
Kurds had instead been urged to present the assurances they 
would require to feel their shares were protected. Since this 
matter had come up months ago, Shahristani was optimistic 
that it could be resolved quickly. (Comment: Another area of 
dispute mentioned by Jabr on March 15 was the issue of 
 
BAGHDAD 00001122  002 OF 002 
 
 
reparations for "damaged areas."  Jabr said that his draft 
included reparations, but that, while there are Shia and 
Kurdish factions that support this provision, he expected it 
would encounter resistance when the Energy Committee reviewed 
the draft law. He said that the criteria for determining 
"deprivation" were too ambiguous. Jabr also said that the KRG 
had not remitted customs duties to the federal government 
since last year, claiming the KRG owed approximately $400 
million. He believed that this matter would need to be 
resolved when the GOI considered the mechanism for collecting 
and distributing revenue, since non-oil revenue would be 
included in the distribution formula as well. Minister 
Shahristani told us that he believed this issue was an 
entirely separate matter. End Comment.) 
 
------------------ 
Proposed Contracts 
------------------ 
¶6. (C REL GBR) Shahristani called remarks made by KRG 
Minister of Natural Resources Ashti Hawrami on numerous 
contracts the KRG intended to execute with or without a 
national hydrocarbon law "unhelpful." He did say that MinOil 
would likely hold bid rounds for service contracts on 
producing fields in the second half of the year, and that he 
had already received many "interesting proposals." 
 
--------------------------------------------- -------- 
Media Reaction to the Framework Law and a Way Forward 
--------------------------------------------- -------- 
¶7. (C REL GBR) Minister Shahristani told us that he believed 
that the negative press response to the framework hydrocarbon 
law was emanating from Amman from ex-MinOil officials, and 
that most of their criticisms were of provisions that were 
not even in the law. He said that these individuals were 
fundamentally opposed to the new political system in Iraq, 
calling them Baathists and Arab Nationalists. He did not 
believe their criticisms merited a response. He said that 
other opposition in the media was being mounted by Iraqi 
political groups who want to delay passage of the hydrocarbon 
legislation package until the constitutional review process 
is complete since they want to reduce regional powers 
currently recognized in the framework law. The last group he 
identified as being critical of the law was those opposed to 
the idea of Production Sharing Agreements  (PSAs). He said 
that even though the framework law did not mention PSAs, 
these group were suspicious that PSAs would be executed, and 
they associated this contract type with overly generous terms 
for foreign oil companies. 
 
¶8. (C REL GBR) Shahristani told us that the Ministry was 
undertaking efforts to dispel some of this misinformation by 
holding seminars about the hydrocarbon legislation. He said 
the next one would be held in Dubai on April 6 for Iraqi 
Parliamentarians, and that industry experts would explain how 
the hydrocarbon law fits into the Constitutional framework. 
The DCM told Shahristani that Ambassador Khalilzad had spoken 
with KRG Prime Minister Nechirvan Barzani, who agreed to send 
a drafting team to Baghdad in the coming days, and 
Shahristani agreed that having KRG and GOI negotiators work 
together to finalize the drafts would be the most expedient 
way forward. 
CROCKER