Sunday, 25 March 2007

Look, No Hands! Iraqi Oil (2/2)

I'm not like saying I could do a better oil and gas law, but.

  • Appendices are thick. The law was written in English and its Arabic translation apparently looks a bit like Sean Bonney's Baudelaire poems.
  • If you didn't like Capitalism slash privatisation slash globalisation, you'll loathe this: for example, foreign companies are only "encouraged" to co-operate with Iraqi companies, and purchase from them "whenever they are competetive" (Article 9). But I gather that the draft law is even underpar for the curse. And here's why.
  • ERCs. And EPCs. They are PSAs in disguise. And PSAs are contracts which disguisedly privatise oil production (see note 1). The relationship between such contracts and the draft oil and gas law is complex, but it has certainly been written with them in mind. PSAs tend to be long-term contracts (25-40 years); even by the time the wee ones were expiring, Iraq's economy would be significantly worse-off than had the state borrowed money, and done the development itself.
  • More realistically, Iraq might allow private investment on comparable terms to other oil-producing Middle Eastern countries: on shorter-term, less restrictive and less lucrative contracts (buyback contracts, risk service contracts, development and production contracts).

  • There would be no Parliamentary scrutiny of revenues (Article 11). Parliament would not approve big contracts (though something called the Federal Oil and Gas Council would; not sure on its constitution) (Article 12).
  • There exist decentralization issues which inform the privatisation issues. Certain distributed arrangements could lead to regions competing with each other to attract foreign investment. This might involve so-called "You give me that hoof or whatever, I give you all this fucking oil" arrangements. Furthermore, resource significantly outstrips expertise in Kurdistan, so a lot of the day-to-day Gaia-butchering there might end up a thoroughly foreign responsibility.
  • Article 35 allows companies unlimited transfer of profits outside of Iraq. (Fair enough: profits aren't exactly safe in Iraq. 10-20% of Iraq's economy is disappearing through corruption. PSA-type contracts produce a short-term rush of investment. This would in part be investment in elaborate networks of crooks).
  • Under Article 41, disputes between the State of Iraq and any foreign investors would be submitted for arbitration to an international court and will not be decided upon by an Iraqi court, on the basis that Iraqi courts should stick to executing Saddam Hussein.
  • Article 99 is your mum's gay.
  • No minimum threshhold would be established for state participation in contracts. Iraq as a whole is lavishly furnished with industry resources and expertise. Many other countries legislate for a minimum level of participation.
  • Health and safety and environmental constraints would be handed over to the oil companies. "[Definition of] Good Oilfield Practices: all those practices related to Petroleum Operations that are generally accepted by the international petroleum industry as good, safe, environmentally friendly, economic and efficient in exploring for and producing Petroleum" (from Article 4). PSAs have generally exempted investors from future legislation that might hurt their profits.

    Note 1: Under a typical PSA, a private company invests in exploration, drilling and infrastructure. The first oil extracted goes to recovering those costs. There's usually a limit on how much oil can count as "cost oil" in any year. Beyond that, revenues are divided between state and company in an arranged proportion. There is usually also tax and there may be royalties. Platform reckons this would lose Iraq loads; and indeed Russia has had to sell off its snow and its history to meet the shortfall from lost oil. Russia was quoted as saying, "I wish I'd never signed all those PSAs." PSAs are suited to conditions in which production costs are high and exploration prospects uncertain. At the moment they're used for about 12% of world oil reserves, concentrated in the smaller and offshore fields. It was a bit mean to make Russia use them and it's a bit mean to make Iraq do so now, as there's almost definitely some oil there. Vould you like buy Commissar Yezhov from vere he strolled vith Stalin by the canal. I giff you good price. Good price.
  • 1 comment:

    secretagentarthur said...

    Those links to snow and history are supposed to look very white, aren't they? Cause otherwise it's only unintentionally hilarious.