We are now resuming our practice of providing periodical updates
on the situation in Iraq to appraise visitors of this site of important political,
legal, administrative and economic developments that have an impact and effect
on business potential which was deferred for a while mainly due to the stagnant
security situation. This update will briefly report on the political developments,
the relative calm and the gradually improving security situation which, in time,
will hopefully create a slightly healthier business environment.
1.1. In spite of the political developments, referred to below, and
the improving but still fragile security situation, essential living conditions
and amenities remain lacking with persisting major problems such as security,
lack of services and ethnic cleansing. But, the overall situation seems to be
improving. Obviously permanent continued stability remains a critical obstacle
to achieving economic progress and development in the different sectors. Unemployment
and shortages of fundamental daily requirements of life such as health and medical
care, water treatment and purification and power supply remain and continue as
a destabilizing factor. Oil revenue has increased due to international price rises,
but such revenue is yet to filter through to the economy and be utilized in ways
and means of improving local living standards. Furthermore, oil production and
exports remain at the previous minimal levels compared to reserves potential.
Shortages of refined products also persist. It is hoped that the progress in essential
elements of improved security, political stability, elimination or at least reduction
of corruption, reduction of unemployment levels and the gradual increase of services
will lead to creating a safer and healthier business environment.
2.1. The years 2005/6 witnessed important political
changes in Iraq. The process started with the transfer of sovereignty from the
Coalition Provisional Authority (CPA) to the Iraqi Interim Government on 28 June
2004. Election were held in January 2005 for a National Assembly to draft the
Iraqi Constitution ("IC"). After the elections, on 3 May 2005, the Interim Government
was replaced by the Iraqi Transitional Government selected from amongst the political
Parties in the Assembly. The National Assembly then embarked on the drafting of
the IC of 2005 which was presented and approved in a referendum in October 2005.
In accordance with IC provisions, Parliamentary general elections were then held
in December 2005. These led to the formation in May 2006 of the permanent Iraqi
Government, called the National Unity Government. Even though the above mentioned
Governments were led by different Prime Ministers, they were generally formed
on similar lines.
2.2. Unfortunately, the predominant sectarian and ethnic
trend began with formation of the Governing Council by the CPA in 2003 seems to
continue with the formation of Governments in the same pattern. This is believed
not only to have a negative effect on the quality of ministers selected and consequently
on the performance of the different Governments mentioned above but also provided
an opportunity for neighboring countries that have specific interests to influence
the decision making process. It is further believed that accentuation of these
sectarian and ethnic divisions coupled with the lack of overall Iraqi national
unity has had a major general detrimental effect on all aspects of life in Iraq
including the improvement of essential security, stability and political and economic
normalization and progress.
2.3. Furthermore, the above mentioned trend
created conflicting and divergent fundamental opinions and positions that generally,
in addition to the above mentioned problems, leads to delay in the normalization
process as well as the promulgation of important laws that could have a major
effect on the country such as the Oil Law, that will be referred to below. Another
example of delay is agreeing, approving and ratification of the Status of Forces
Agreement (SOFA) between the US and Iraq, also locally referred to as the ("Security
Agreement" or as Iraq refers to it as "the Withdrawal of Forces Agreement"), that
is intended to provide a new legal framework for forces in Iraq ("the Agreement").
Negotiation of the Agreement began in early 2008 that continued until the November
2008 when the Agreement was finally approved and signed by the Iraqi Government
and the US on 17 November 2008. This approval was generally accepted but was coupled
with public objections, demonstrations, heated discussions and intense Parliamentary
debate that followed. However, Parliament ratified the Agreement at the end of
November subject to a compromise reached that the Agreement will be presented
to the Iraqi people in a referendum within a period not later than 30 July 2009.
Upon obtaining the expected Presidential approval a ratification law will be issued.
3.1. The trend for economic liberalization and
free market policies adopted by the CPA continued. An important new Investment
Law No. (13) of 2006 ("the Investment Law") was promulgated and published in January
2007. This Law provided provisions to encourage economic and social development
as well as helping to create employment opportunities for Iraqi nationals, transfer
of technology and other benefits. The Investment Law revoked CPA Order (39) of
2003 and the Arab Investment Law No. (62) of 2002.
3.2. The Government
of the semi autonomous Region of Kurdistan (RGK) also promulgated the Investment
Law for the Region of Kurdistan ("the Region") No. (4) of 2006 which provided
for encouragement of investment in practically all sectors including the oil and
gas that was restricted in the Investment Law.
4.1. A controversial but important law to regulate the oil
industry in Iraq was drafted by the Oil Ministry called the Iraqi Oil and Gas
law (also known as the National Hydrocarbon Law) was approved by the Iraqi Counsel
of Ministers in March 2007. However, this law was presented to Parliament for
approval in accordance with IC promulgation procedures, but is still in draft
form that needs to be approved and promulgated after nearly two years from the
date of the Council of Ministers approval.
4.2. In 2007, the
RGK awarded oil and gas concessions in the Region to 22 international companies
in spite of objections raised by the Oil Ministry arguing that the Oil Law has
to be passed to allow the grant of oil and gas concession which will be the prerogative
of the Central Government. The RGK argues that the IC provides that oil in Iraq
is the property of the Iraqi people regardless of where they live and reside whether
in the North, Middle or South because oil revenue will ultimately be part of the
State Treasury. It was also reported that the Region intends to export 100,000
B/d. However, in spite of the controversy between RGK and the Ministry of Oil
concerning the grant of concessions the transportation of oil produced in the
Region to export terminals remains was recently discussed between the Oil Minister
and officials in the Region to resolve this difficulty.
was also recently reported that, at the end of September 2008, the Oil Ministry
has signed an agreement with one of the major international oil companies to be
a 49% owner of a joint venture to develop, utilize and export associated gas of
the Southern oilfields.
4.4. In other important developments in
the oil sector the Oil Ministry was reported to have agreed with a Chinese oil
company to develop the Ahdab oil field in Southern Iraq reinstating a cancelled
with China National Petroleum Corporation. The Oil Ministry had also announced
in late 2008 that invitations were issued to 35 pre-qualified oil companies to
attend meetings in London to present offers for contracts to develop 6 producing
fields and 2 gas fields with agreements to be signed before June 2009.
5.1. To further liberalize the
banking, the Government decided to end the exclusivity granted to the Iraqi Commercial
Bank to open Letters of Credit for governmental imports allowing commercial banks
a minor share in this lucrative market.
improve the problematic medical services and health care, it was reported that
a contract was awarded to a German company to build 5 hospitals of 400 beds each
at a cost $140 million each. This will be good start but will not solve the medical
and health situation particularly when many more hospitals are required and qualified
experienced physicians are leaving Iraq.
7.1. Lack of electricity and severe shortages is one
of the major practical challenges to the Government. It was recently announced
that the Ministry of Electricity has adopted a 4 stage plan to expand the national
grid to reach an output of 12 thousand megawatts and has pre-qualified 35 known
companies to bid for contracts of the first stage. Some of the steps taken to
improve this sector were also reported namely an agreement with a Russian company
to return to Iraq to restructure and expand the Yousifiah power station, to provide
1,300 megawatts, that they had left uncompleted for security reasons. It was further
reported that well known German and Japanese companies signed several contracts
to provide smaller power units of varying capacities. Hopefully this again will
be a good start to resolve this problem.
above update is a guideline not intended to be a legal opinion or advice. For
opinions and/or advice on developments or specific legal matters in Iraq, kindly
contact us by e-mail to email@example.com
for the advice required.
Update: December 2008
Update: August 2004
Update: October 2003
Update: Agency Law
Update: July 2003
Update: April 2003
Update on Agency Law: March 2001
Iraq Law latest update from Gulf Law December 2008