Iraq's parliamentary oil and gas committee is looking to cancel a multi-billion dollar gas pact agreed by the oil ministry and Royal Dutch Shell Plc in 2008, as reported to media by the committee's secretary. Both the Shell deal and another multi-billion dollar contract between Iraq and China National Petroleum Corporation (CNPC) were unlawful since they had not been endorsed by parliament as necessary under Iraqi law, Iraqi MP Jabir Khalifa Jabir said.
Shell’s deal was unauthorized and damaging to Iraq’s economic interests, said Jabir.
We are going to do everything we can to revoke this deal and to push Shell out, Jabir said. Both these deals are illegal because they didn’t go through parliament. The companies and their lawyers knew the old Iraqi oil law very well.
Any new deals Baghdad signs in bidding rounds in progress would also be exposed to revocation, he said.
The oil ministry has said it does not require parliament’s support to sign latest deals. Jabir said Iraqi law 97 clearly states new deals must be approved by parliament.
The committee had observed the preliminary Shell deal for the past six months and all members agreed it was illegitimate, he said.
Shell entered into an agreement in September 2008 to capture gas which Iraq wastes through burning. But the deal has stoked opposition among MPs for giving the company monopoly rights on future gas production in the south.
This is bad for Iraq’s economy, Jabir said. Under the contract Shell has monopoly rights to all gas in Basra and the south. This is not right.
Jabir also criticized the lack of transparency in the deal’s award, which came without a bidding round. It was illegal as the local provincial government was not engaged in the negotiations, he added.
The deal made no condition to prioritize domestic supply, he said, regardless of the oil ministry and Shell having initially said it would.
There are fears Shell will just take the gas and export it rather than meeting increasing local demand, he said.
The agreement gave the company the right to sell the gas at global prices, he said. That meant that if Shell sold the gas domestically, Iraq would have to pay Shell international prices and then subsidize the price to industry and power users.
The alternative was to charge local customers international prices, which would put them at a disadvantage with competitors in other countries in the Gulf receiving cheap energy supplies.
This is to the detriment of Iraq’s economy, he said. We can’t pay Shell international prices and then finance the subsidies from the budget.
The committee would prioritize canceling the Shell deal before turning its consideration to CNPC’s deal, he said. The committee had less concern about the Chinese deal as it was less harmful to Iraq’s economy, he added.
If you have a deep wound on one hand and a cut on the other, you deal with the wound first, he said.
Jabir said he was in support of foreign investment in Iraq’s energy sector, but wanted the investment to be for the nation’s benefit and within the regulation. Iraq requires billions of dollars to overhaul and expand its dilapidated infrastructure.
A draft oil decree that would specify the framework for foreign investment was unlikely to be approved in 2009, he said. The legislation has been stuck with feuding politicians for over two years.
Too many people are involved, there are too many problems, and the oil minister is happy with the delay and can make decisions with no accountability, he said. The oil ministry is withholding information from the committee. Is this democracy?