Response of the Federal Supreme Court to the law of the Iraqi National Oil Company

Response of the Federal Supreme Court to the law of the Iraqi National Oil Company

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Shatha Khalil *
The Judicial decision of the Federal Court was issued regarding the law of the Iraqi National Oil Company, based on the provisions of Article 94 of the Constitution and Article 5 / II of the Federal Supreme Court Law No. 30 of 2005, and was publicly announced on 23/1/2019, headed by the Judge Medhat al-Mahmoud and a group of members authorized to the judiciary to issue its decision in the name of people, that the inclusion of any provision in the law leads to the removal of jurisdiction of the exclusive federal authorities or joint competencies between it and the authorities of the region and the provinces producing oil and gas, and this is contrary to the provisions of the Constitution, and requires the provision of unconstitutionality, and the contested points are Irrevocable, if the Federal Supreme Court decided the following:
First: The Judgment on the unconstitutionality of the following articles:
1. The unconstitutionality of article (3) of the law to terminate the tasks carried out by its objectives, it is contrary to the provisions of Article 112 with its first and second paragraphs and Article (114) of the Constitution noting that the tasks mentioned in Article 3 which are subject to appeal requires that Federal government to be with governments of Region and oil producing provinces.
2. The appeal of paragraphs ( 3 and 5 ) of Article (4) of the Law, as they relate to oil marketing operations, which are the tasks of the Ministry of Oil and the associated company, and for their contradicting with Article 112 of the Constitution.
3. The unconstitutionality of Article (7 / first / 1) of the law, which stipulates that “the company shall be headed by an employee of the rank of minister … … for contradicting with the provisions of Article 62 / II , which contradicts with government project despite it includes financial side .
4. the unconstitutionality of the item ( e) of the second paragraph of Article (7) relating to the making of an oil company (Sumo) from the formations associated with the center of the company, because it is inconsistent with the provisions of Article( 110 / I and III )of the Constitution.
5. The unconstitutionality of Article 8 of the law, which stipulated the functions of the Board of Directors, and the majority of the jurisdiction of the federal government with the region and oil-producing provinces, based on articles 78, 80, 112 of the Constitution.
6. The unconstitutionality of article (11) of the law, which stipulates: First, the company deducts an amount covering all the investment and operational costs, not less than the average cost in the fields invested for each barrel of crude oil and gas produced, plus a percentage of the profit ,and this is agreed upon between the company and Ministries of Finance, Oil and Planning, and approved by the Council of Ministers, and reviewed every 3 years, and start work is deducted from the account of the Ministry of Finance in the Central Bank from oil and gas revenues.
Federal Court Decision (Settlement):
The accounts between the Company and the Ministry of Finance shall be settled after the end of the financial year of the Company and after the completion of the final accounts thereof and the approval of the Financial Control Bureau thereon, in contradiction with Articles 78/80/111/112 of the constitution.
7. The unconstitutionality of Article (12) of the law, which showed the financial revenues of the company and its profits and distribution, in violation of the provisions of Articles (78/80 I and II / 106/111/112) of the Constitution.
8. The unconstitutionality of Article 13 / II of the Law, which provided for the exception of the incentives of the employees of the company from the provisions of the law of the salaries of state employees and the public sector No. 22 of 2008 and determined by a system issued by the Council of Ministers, in contradiction to the provisions of Article 62 / 2) Of the Constitution, where it included a financial burden and did not take the opinion of the Council of Ministers.
9. The unconstitutionality of article (16) of the law, paragraph (1), concerning the exception of the company and the companies owned by it from the law of financial management, the law of public companies, the customs law and the law of residence of foreigners, the law of executing government contracts and the data related to ease the execution of it ; The second paragraph stipulates that the Council of Ministers shall , upon the proposal of the Company, issue a system to replace the exempted laws provided for in paragraph (1) of this article individually to guarantee the rights of the public treasury, in contradiction to the provisions of Article 5 of the Constitution which does not permit the repeal of a law by a system or according to certain data .
10. The unconstitutionality of the Article (18 -VI) of the law , which stipulates that “the company may contribute to the development of the agricultural, service and industrial sectors … …, in contradiction to the provisions of Articles (78) and (80) of the Constitution.
Secondly, the rest of the appeals contained in the cases were rejected by the Federal Court for not contradicting the provisions of the Constitution, the general policy of the State provided for in Article 80 of the Constitution, and because it was a legislative option for the House of Representatives according to its jurisdiction included in the article (61-1).
What do you know about the National Oil Company?
In 1964, a national Iraqi facility was established and called (the National Oil Company ), which aimed to find new fields and invest them nationally.
The company according to its founding law enjoys with moral personality and financial and administrative independence , it is linked to the Council of Ministers and its authorities to sign contracts for exploration , production and export in accordance with the policy of the state and not in contradiction to the provisions of the constitution and the company has the right to borrow from any entity inside and outside Iraq, and the company has the right to borrow from any entity inside and outside Iraq, to finance its investments with the approval of the Council of Ministers. ”
Reasons for the opposition of others to the law “National Oil Company”:
On 5/3/2018, the Iraqi Council of Representatives voted in its fourth session on the passing of the law of the Iraqi National Oil Company suddenly and quickly , in spite of its importance and the importance of the serious subjects it contains as the Iraqi presidency rushed 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 passage of it as a final victory for their concepts and great effort in this process.
The reasons for opposing the law by many economists are:
1. Some experts considered that the idea of the law is a “conspiracy”, that the ownership of Iraqi oil to a “government” – independent, and to give this company great “powers” that is not unheard of before: all the oil wealth of Iraq is owned by it , and the government has to negotiate with it to know how much the company will give the government for its annual budget, and be exempt from most Iraqi laws.
2. Revenues derived from the export and sale of oil and gas are sovereign revenues, and can not be “financial revenues of the company” according to the law, because this is contrary to the Constitution, which states that oil and gas belong to the Iraqi people and not a financial return to a public company.
3. Considering the revenues of oil exports as financial revenues for a public company that strips those revenues from the sovereign status which international law provides for protection, and thus exposes those revenues to all forms of seizure and confiscation in implementation of any judicial proceeding in any place where revenues exist which exposes the revenues of oil export to many risks.
4. The law gives the oil company powers to effectively determine the volume of oil imports in the annual general budget, then; the company’s decisions are the basis for economic activity. This means that the company becomes more important than the Ministry of Finance and the Council of Ministers in determining the volume of expenses.
5. 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 (the Citizen Fund), (the Generations Fund) and (the Reconstruction Fund). It is strange that these entities, which are usually within the tasks and Jurisdictions of the Government, especially the Council of Ministers and the ministries of finance and financial planning and others, the law made it of its powers!
6. Article means the manipulation of 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 for 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 the ownership of oil and revenues of the financial company, and how to distribute the profits of the company, and due to 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, plus any revenue that the Company may receive.
Second: The profits of the company shall consist of the total revenues minus the expenses as stated in Article (12).
Third: Distribution of the profits of the company as follows:
• State Treasury: The percentage of the profits of the company shall not exceed 90% of the profits of the Company to give 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:
1) a percentage of the profits for the capital reserves of the company, and the Board of Directors determine the mechanisms and areas of disposal of the reserve to achieve the interests and objectives of the company.
2) A percentage of the profits for the Citizen Fund, which equal shares are distributed for all citizens residing in Iraq, according to the priority of the segments of society, and it is not permitted to sell, buy or inherit shares and ends upon death.
3) The 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 their entitlement is added to the rest of the shareholders.
4) a percentage of the profits to (the Generations Fund), and the aim of investment for the benefit of generations.
5) A percentage of the profits allocated to (reconstruction fund), with the aim of implementing strategic projects in the provinces in which an oil activity of the company is practiced.
6) Economist Ahmed Moussa Jyyad believes that the law that he describes as strange obliges it to distribute the oil revenue, which has become its property, so that no more than 90% of it is transferred to the state treasury. The rest is distributed to “funds”, the first of which is to bribe the citizen to accept this danger on the wealth of his country, called “citizen fund”, which provides each citizen, according to the calculations of economic expert Hamzah al-Jawahiri, no more than $ 50 a year.

The experts, after presenting the paragraphs of Article 13, said that the law set the national oil company as a control body above Iraq over the state. It receives practically all of Iraq’s financial revenues coming 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, since oil and gas (and their revenues) belong to the Iraqi people, not a financial return to a public operating company, although the law made the company president a minister and a member of the cabinet. However, the company in all considerations is a commercial / operating and not sovereign company , which is in any case a public company, and considering the proceeds of oil and gas exports revenues, deprives these revenues from the sovereign status, and may be subject to seizure or confiscation outside Iraq, the 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 treasury of the state, and the company has become an entity that exceeds , by all the means , sovereign ministries such as ministries of oil, finance and planning together .

On the other hand, the Iraqi economist and politician Adnan al-Janabi see the decision is positive , those who designed the “law” , considered the passage of it as a final victory for their concepts and great effort in this process.
As being against the rentier economy according to what he says , that the activation of Article 111 of the Constitution, which stipulates that oil and gas belongs to the Iraqi people, and Article (12 / III) to make the rate of profits of the company is determined by the annual budget, and distributed on shares of equal value to all citizens residing in Iraq and it is not permitted to sell and buy , or inherit shares, and falls upon death and these percentages are determined in the light of what determined by the federal budget for the share of the state treasury.

According to al-Janabi, Article (111) is a coup against the equation of the rentee state, to make rents do 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.

Translated by : mudhaffar al-kusairi

Economic Studies Unit
Rawabet Center for Research and Strategic Studies