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Iraq Update

 

January 2010

We wish our visitors a happy, prosperous and peaceful New 2010, and hope they find these periodical updates on the situation in Iraq a useful appraisal of recent important political, legal, administrative and economic developments that provide a general idea of the impact and effect on business potential in a country with vast business potential.

1. General

1.1. The official figures recently published of fatalities and terrorist attacks show a marked reduction during 2009. This led to reported expectation of an improved overall security situation. However, there still occurred during the past year fewer but major attacks on Government offices such as the Ministry of Foreign Affairs, Finance and other vulnerable sensitive locations. These latest attacks unfortunately indicate that even with the reported improvement security is still considered fragile. This is coupled with only a slight improvement of essential living conditions and amenities that still remain inadequate.

1.2. It is hoped that the New Year with the scheduled national General Elections, reported below, will lead to the election of a more efficient, progressive and productive Parliament and Government that can achieve progress in essential elements of security, political stability, elimination or at least reduction of corruption, unemployment levels and improvement of services that will lead to creating a safer and healthier business environment. Obviously permanent and continued stability remains a critical obstacle to achieving economic progress and development in the different sectors such as unemployment and shortages of fundamental daily living requirements, health and medical care, water treatment and purification and power supply. The lack of these essential aspects remain and continue to be a destabilizing factor.

2. Elections and New Government

2.1. The sectarian and ethic representation continued during 2009 to hamper and accentuate the complex and slow political process. It is further believed that these unfortunate divisions coupled with the lack of an overall Iraqi national unity Government has had a major general detrimental effect on all aspects of life in Iraq. One of the recent examples of this problem was the haggling and delays to approve the new Election Law which was finally approved by the Iraqi Parliament in early December 2009 after months of delay and nearly a major constitutional crisis.

2.2. It is further hoped that the coming elections that were scheduled initially for January 2010 but were delayed to, hopefully, be beheld in March 2010 would result in the election of more efficient and coherent Parliament that will overcome the presently persistent delays in holding meetings due to frequently abused intentional absenteeism in Parliamentary attendance creating a lack of the required quorum to hold sessions. It is further hoped that new Parliament will not only improve the legislative process but will be able as well as to accomplish the crucial selection of a nationally representative Government necessary for the running of the country and tackling the major essential problems of security, stability, political and economic normalization and progress.

2.3. Another important consequence of the above mentioned political diversity was the delay in approving major legislation such as the recent continued failure to approve the Budget. It was reported that this was linked to the approval of the Parliamentary Procedures Law that the current Parliament intends to defer to the new Parliament to be elected in March 2010.

3. Investment

3.1. In our previous update we mentioned the continued trend for economic liberalization and the application of free market policies, the issue of the Iraq Investment Law No. (13) of 2006 ("the Investment Law") and the promulgation by the Regional Government of Kurdistan ("RGK") of the Investment Law for the Region of Kurdistan ("the Region") No. (4) of 2006. However, while there has been a significant influx of investment to the Region in the different economic sectors including construction, oil, industry and services mainly because of the relative security and stability in the Region, investment in other areas of Iraq, except for the award of oil service contracts reported below, have remained generally deficient.

4. Oil & Gas

4.1. The important but controversial Iraqi Oil and Gas law (also known as the National Hydrocarbon Law) ("the Oil Law") to regulate the oil industry drafted by the Oil Ministry and approved by the Iraqi Counsel of Ministers in March 2007, remains a draft and unapproved by the Parliament.

4.2. In spite of the failure to promulgate the Oil Law, the Ministry of Oil recently announced that 10 service contracts were concluded with major and other international oil companies on the basis of a per-barrel fee of oil produced. These contracts were mainly agreed for areas in the southern and eastern regions of Iraq with proven oil reserves such as Rumaila, Majnoun, Halfaya, West Qurna, Gharaf, Zubair and other fields. Contracts were reported to have been awarded to several consortia that include major international and national companies such as BP, China's National Petroleum (CNPC) Malaysia's Petronas, Exxon Mobil, Shell, Occidental, Eni, South Korea's Korea Gas Corporation (KOGAS), Russia's Lukoil, Norway's Statoil ASA, Japan's Japex and others.

4.3. It was reported that the Ministry of Oil expects Iraq's current production of around 2.4 M B/D to reach 11 M B/D within approximately 7 years. In addition to increased production it was further reported that the service contracts will generate substantial revenue of approximately $187 Billion that will be used in development projects. However, it was also reported that this projected development of oil production and expected revenue will obviously depend on overall stability in the country and improved security without which such massive and costly operations will be very difficult if not impossible to embark on.

4.4. The timing of the award of these contracts at the end of 2009 a few months before the scheduled General Election could also be a controversial issue, particularly when the Oil Law referred to in

4.1 above remains a draft that is not promulgated. These issues could be problematic in the future especially if the sectarian and ethnic divisions remain.

4.5. It was also reported that the disagreement between the Central Government (Ministry of Oil) and the RGK continued unresolved concerning the RGK award of oil and gas concessions without the approval of the oil Ministry. The RGK continues to declare that they are willing to have a serious dialogue to resolve the problem of the division and sharing of revenue so that it could continue to develop its oil and gas industry and increase its exports. It is currently reported that exports from the Region have reached 100 thousand B/D that are produced by a consortia of companies from 2 fields namely Taktak near Zakho by the leading Turkish company Gunel Energy, and Tawke by the Norwegian DNO International ASA. This production is expected to be increased to 200 thousand D/D during the current 2010. Exports from the Region made through the Iraqi pipelines to Turkey were stopped when the argument flared up again concerning the signing of oil concession before the approval of the Oil Law and reaching an agreement between the Federal Government and KRG on the payment mechanism of revenue generated in the Region. The resolution of this dispute is considered essential for the development of the oil industry in the Region.

4.6. The start of oil production in a new well in the Region of Kurdistan in Khormala, South Erbil, of 50 thousand B/D for local consumption was announced in July 2009. This is expected to be increased to 100 thousand B/D. The Erbil 20 thousand B/D refinery to refine oil from the Khormala again mainly for local consumption was inaugurated and announced in July 2009. This current refinery capacity is expected to double to be expanded to 40 thousand B/D.

5. Difficulties Budget and Financing Projects

5.1. In spite of the current oil production, the relatively high oil prices on world markets and the receipt of an estimated revenue of $45 Billion, Iraq's finances continue to run on deficit which was reported to be estimated at $19 Billion. This deficit is expected to covered by State borrowing through the issue of bonds and international loans. There will also have to a reduction and rationalization of public spending and limitation of inflation as well as control of waste and corruption.

5.2. The suspension of vital projects that are essential for the normalization of the living conditions in the country is an unfortunate result of the financial difficulties for example the contracts for the improvement of electricity supplies that were agreed with US and German companies that were suspended.

6. Agriculture

6.1. Iraq is a historically fertile area that used to be called land between the two rivers and was until the discovery of oil an agricultural based economy that used to export grains and foodstuff. However, agriculture was neglected and suffered from numerous political problems in recent years that led to the its deterioration leaving Iraq a net importer of practically all the essential grains, food and provisions. To partly alleviate this problem it was recently reported that the National Investment Board intends to offer 2 million acres of agricultural land on long lease basis to foreign companies for direct foreign investment. The amounts to be invested were estimated at $18 Billion for land reclamation and use of modern production techniques. While apparently there is interest to invest in these types of projects particularly in the Gulf, here again the security factor remains an essential obstacle to implementing such investments.

CAVEAT The 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 sm@gulf-law.com for the advice required.

Other Updates:

Iraq Update: December 2010

Iraq Update: December 2008

Iraq Update: August 2004

Iraq Update: October 2003

Iraq Update: Agency Law

Iraq Update: July 2003

Iraq Update on Agency Law: March 2001

Iraq Law latest update from Gulf Law December 2008

 

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