Law of the Iraqi National Oil Company between rejection and acceptance

Law of the Iraqi National Oil Company between rejection and acceptance

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Shatha Khalil *
Oil was first extracted in Iraq from the Baba Karkar field in 1927 by the Iraqi Oil Company (IPC). This name was designated on the Turkish oil company after the fall of the Ottoman Empire.
In 1961, the competent authorities enacted Law No. 80, according to which Iraq confiscated 95% of the Iraqi Oil Company, and defined the work of foreign companies in fields where they operated without allowing them to discover new fields.
In 1964, it was established a national Iraqi facility called National Oil Company (NOC), which aimed to find new fields and invest them nationally.
In 1972, all Iraq Oil Companies were nationalized, where foreign oil companies owning three-quarters of the shares of Iraq Oil Company Limited, including the country’s entire oil reserves before this.
The Iraqi National Oil Company recorded successes in raising Iraqi production from 1.4 million barrels per day to more than 3 million barrels per day in 1980, but the outbreak of the first Gulf War with Iran in the same year led to the damage of the GDP of oil in general.
In April of 1987, the company merged with the Ministry of Oil, which became the regulator of its work.
The company according to its founding law , enjoys a juridical personality and financial and administrative independence and linked to the Council of ministers and its powers to conclude contracts for exploration , production and export according to the policy of the state so as not to contradict with the provisions of the Constitution and the company has the right to borrow from any party inside and outside Iraq to finance its investments with the approval of the Council of Ministers. ”
Suddenly and quickly, the Iraqi Council of Representatives voted in its fourth session on 5/3/2018 to pass the law of the “Iraqi National Oil Company”, despite its importance and the serious subjects that it included. The Iraqi Presidency hastened to ratify it despite the campaign of objections raised by some Oil experts.
And the economic, political and oil concepts that raise the questions published by the designers of “law” and considered the approval of the law a final victory for their concepts and great effort in this process.
According to economists opposed to the law, article 12 of it includes the following:
1 – The revenues derived from the export and sale of oil and gas are sovereign revenues, and can be “financial revenues of the company,” according to the law; because this is a violation of the Constitution, which specified that oil and gas belongs to the Iraqi people and not a financial return to a public company.
2- Considering the revenues of oil exports as financial revenues for a public company that deprives those revenues of the sovereign status that the international law provides protection for it and thus presents these revenues to all forms of seizure and confiscation in implementation of any judicial proceeding in any place where revenues exist, so exposing the revenues of oil exports to the danger.
3 – The law gives the oil company powers to effectively determine the volume of oil imports in the annual general budget and therefore the decisions of the company is the basis of the economic activity. This means that the company becomes more important than the Ministry of Finance and the Cabinet in determining the volume of expenses.
4- The law authorizes the oil company to establish, finance and manage financial entities that have nothing to do with the nature of its activities as an extractive oil company. These entities are: (Citizen Fund), (Generations Fund), and (Construction Fund). It is strange that these entities, which are usually the functions and powers of the government, especially the Council of Ministers and ministries of finance and financial planning and others, the law made them of its powers?
5 – The article means tampering with at least 10% of the revenues of oil exports; on the one hand and on the other hand will work on the deviation of the National Oil Company from its core functions as an oil company concerned with the development of the extractive oil sector.
The same experts criticize Article (13) of the Iraqi National Oil Company Law concerning oil ownership and revenues of the financial company, and how to distribute the company’s profits and for the importance of this article, we mention some of its articles:
First: The Company’s financial revenues consist of revenues from the sale of crude oil, gas and any other products. In addition to any revenues the Company may receive.
Second: The Company’s profits shall consist of the total revenues minus expenses as stated in Article (12).
Third: Distribution of the profits of the company as follows:
• State treasury: a percentage shall not exceed 90% of the profits of the company goes to the state treasury and its percentage shall be determined in the federal budget law.
• Distribution of the rest of the profits of the company after deducting the percentage allocated in (1) of this item as follows:
A – Percentage of the profits for the company’s capital reserve, and the Board of Directors has to determine the mechanisms and areas of disposal of the reserve to achieve the interests and objectives of the company.
B – Percentage of the profits to (Citizen Fund) distributed to shares of equal value to all citizens residing in Iraq, and according to priority to the segments of society. It is not permissible to sell, buy or inherit shares and to fall upon death.
C – Shares of Iraqis residing in regions and governorates not organized in a region that refrains from delivering oil and gas revenues produced to the company are deprived of profits and its entitlements shall be added to the rest of shareholders.
D – Percentage of the profits to (the Generations Fund), and to invest for the benefit of generations.
E. A percentage of the profits allocated to (Reconstruction Fund), in order to implement strategic projects in the provinces in which the oil activity of the company is carrying out. There is no exaggeration in the words of Professor Giad, despite it is strange .
The economist Ahmed Moussa Jyyad believes that the law that he describes as strange obliges them to distribute the oil revenue, which has become its property, so that more than 90% of it is not transferred to the state treasury. The rest is distributed to “funds”. The first was to bribe the citizen to accept this threat to the wealth of his country named “Citizen Fund”, which provides each citizen, according to the calculations of economic expert Hamza al-Jawahri no more than $ 50 a year.
After presenting the items of Article 13, the experts believe that the law set the national oil company as a body with authority over Iraq, which effectively receives all of Iraq’s financial revenues from the export of oil and gas, all of which belong to it while all revenues were belong to the financial ministry .
They refer to the contradiction of the constitution as oil and gas (and their revenues) belong to the Iraqi people and not a financial return to a public operating company, although the law made the head of the company a minister and a member of the Council of Ministers, but the company in all considerations is a company / commercial operating ministry and not sovereignty and in any case, it is a public company. The consideration of revenues from oil and gas exports revenues for it that deprives these revenues from sovereign status, and may be subject to seizure or confiscation outside Iraq as a result of any judicial problem that the company exposed to.
They say that the law gave the company the right to distribute its profits to the state and create different funds, and to determine the amount of disbursements to the State Treasury, and the company has become an entity exceeds by all standards the sovereign ministries such as ministries of oil , finance and planning together .
On the other hand, the Iraqi economist and politician Adnan al-Janabi considers the decision to be effective. as the activation of Article 111 of the constitution which states that oil and gas belongs to the Iraqi people and Article 12 – third states to make the company’s profit rate determined according to the annual budget and distributed on shares of equal value for all citizens residing in Iraq , and may not sell or buy or inherit shares and fall at the death and these percentages are determined in the light of what determined by the federal budget for the share of the state treasury.
All this means that every Iraqi becomes a shareholder of equal value in the remaining profits of the national oil company after the imposition of a tax determined by the House of Representatives when the adoption of the federal budget.
According to al-Janabi, article 111 is a coup against the rentier equation of state that the revenue will not go directly to the account of the Ministry of Finance, but to the citizen! The citizen through his representatives in the House of Representatives can accept a percentage of “tax” on his income from oil revenues.
Al-Janabi pointed out that the company’s approval is to eliminate the corruption of some deputies, and to rid future generations of the burdens of excesses and corruption of the rentier state, and the presence of shares of equal value leads in a few years to eradicate extreme poverty and reduce income disparities through the application of the principle of comprehensive income.
He added that the establishment of the Generations Fund is a sovereign fund for surpluses of oil revenues, calling for the start of setting of the proportion of the construction fund for strategic projects.
Al Janabi said that the law will make the citizen and his deputies compete to increase the share of the citizen fund and reduce the government tax and follow up the executive authority, and accountability.
One of the important issues in the law, according to al-Janabi is to deprive the residents of the provinces that refrain from handing over oil and gas revenues to the federal budget of their shares share, which leads to pressure on citizens to deliver oil and gas revenues to the federal budget.
In the view of Janabi, the law is not limited to the fields, but extends the work to include all the territory of the Republic of Iraq and its territorial waters and continental shelf, stated in Article 112 / I of the Constitution.

Economic Studies Unit
Rawabet Center for Research and Strategic Studies