Iraq Cautions over BP, CNPC Deal

Source: Reuters 11/1/2009, Location: Middle East

The Iraqi parliament's oil and gas committee has expressed concern to British officials over what it called an "illegal" multibillion-dollar deal that BP Plc will sign with the Iraqi government on Tuesday, a lawmaker said.

Some lawmakers in parliament object to the contract awarded to BP and China's CNPC to develop the 17 billion-barrel Rumaila oilfields, Iraq's biggest, because they feel they have a right to authorise or reject such agreements.

The government disagrees, and believes cabinet approval is sufficient.

The committee's objections are indicative of the political risks facing oil firms and other investors as Iraq emerges from years of sectarian war and heads into an election in January.

Lawmakers say there is no guarantee that contracts signed by the current government of Prime Minister Nuri al-Maliki will be honoured by the government that succeeds it.

"We, in the oil and gas committee, are seeking to meet the British ambassador in Iraq and BP officials to discuss the illegality of the Rumaila oil deal and its detrimental effect on democracy in the country," Jabir Khalifa Jabir, secretary of the oil and gas committee, said on Sunday.

Jabir told Reuters BP was infringing Iraq's constitution and laws by moving forward with the deal.

"BP's willingness to sign the Rumaila contract encourages the oil ministry to violate the constitution," Jabir said.

Oil Minister Hussain al-Shahristani will sign the deal with BP chief executive Tony Hayward a little over a week before he is due to be summoned to parliament for a potentially tense grilling over his handling of Iraq's oil wealth. The contract is Iraq's first major new deal with an international oil firm since the 2003 U.S.-led invasion.

It is part of a broader plan for several deals with foreign firms to revitalise an oil sector that has decayed after decades of war and sanctions, and to boost lacklustre output of 2.5 million barrels per day to 7 million bpd in six to seven years.

Iraq has the world's third-largest oil reserves, but is 11th in the league of oil producing nations. If successful, the deals will catapult Iraq to third place.

The oil ministry on Monday will also sign a preliminary deal with a consortium led by Italy's Eni (ENI.MI) to develop the 4 billion-barrel Zubair oilfield. That contract still needs cabinet approval before a final version can be signed. The letter from the parliamentary oil and gas committee was delivered to the British embassy on Saturday, Jabir said. The committee was awaiting a response.

Political Risk
Despite a sharp fall in overall violence, Iraq's fractious ethnic and sectarian groups are by no means united. Disagreements between the Arab-led government in Baghdad and ethnic Kurds in the north have, for instance, held up passage of modern hydrocarbon laws that would clarify the ground rules for foreign investment and the distribution of Iraqi oil income.

Jabir said that the absence of the legislation meant the oil ministry had to adhere to existing laws when striking oil deals. Those laws, in his view, gave parliament oversight.

"In this meeting, we want to make it clear to BP officials that the Rumaila contract they are about to sign has no legal cover and they should certainly weigh the risks overshadowing the deal," he said.

"Parliament unanimously welcomes foreign oil firms to help Iraq revive its shattered oil sector, but this should be done legally."


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