Petroleum Law not About Fair Distribution of Revenues

The Iraqi petroleum bill has run into heavy opposition in parliament from Kurds and other political forces. The Bush administration had made passing it by June 15 one of 4 major "benchmarks" for the progress of the al-Maliki government.

But there is another corner of the petroleum bill that is often misreported. It has to do with the weakness of the central government and the power of the provincial confederacies or "Regions."

Juan Cole's explains:
An informed observer of Iraq affairs with expertise in finance and law allowed me to reprint the following email message, though he wants to remain anonymous:

The reporting in the press-media about the proposed Petroleum Law omits a material fact. The proposed Law does not have a word that relates to the “fair distribution of revenues.” That phrase relates to the dispersion of gasoline stations, not to the distribution of revenues. The gasoline stations will be covered by another petroleum law not yet considered by the Council of Ministers. What is really going on relates to the Iraqi Constitution. The context is Article (113): "The federal system in the republic of Iraq is made up of the capital, regions, decentralized provinces, and local administrations."

The Iraqi Constitution has a unique feature distinguishing it from the US federal structure. The provinces are the basic units of governance. But the Constitution treats regions [provincial confederacies] as more important in the federal structure. There are extensive provisions with respect to the permitted regional governing institutions. There are only two relating to provinces.

The proposed Petroleum Law has provisions which deal with the ownership rights – including rights to award oil field development contracts – granted by the Constitution to “Regional Authorities.” Article 110 of the Constitution expressly gives the power, in the case of the oil industry, to the federal government and “the producing regions and provinces,” but the provinces are not included as such; they are disempowered. The way the Constitution is written permits, even requires, the substitution of the regional governments for the provincial governments.

The “Regional Authorities” have the power and jurisdiction over the production segment of the oil industry. Basra should “own” the Rumayla Oil Field, but apparently does not. In the cases of many other things, the provinces will also be disenfranchised.

The power and jurisdiction is established by the reservation article, just as all powers not expressly granted to the US federal government are reserved to the states. But the power is reserved not to the provinces, but to the regions:

“Article (111): All that is not written in the exclusive powers of the federal authorities is in the authority of the regions. In other powers shared between the federal government and the regions, the priority will be given to the region's law in case of dispute.”

I don’t know where this came from or whether the US Government had any part in devising it. Much is explained by taking this unique feature into account. It is not clear to me that it has been thought through by the US Government or the Iraqis.

Note also the use of the word “granted.” The US had states. They got together and formed a federal government and gave it powers. That is not what has happened in Iraq.

When Muqtada al-Sadr and others speak of a “unitary government” and a “united country,” they really mean it.

The federal government is going to pass many laws which, under a federal system, should be enacted by the provinces. The problem the Iraqis have is that the Constitutional default or reserved power system calls for the regions to enact the laws, but, outside of the Kurdistan Regional Government’s territory, there are no regional governments in existence to enact the laws.

This unique feature might or might not cause serious problems in the future. The Iraqis are probably developing in sophistication daily. Notwithstanding the elemental struggle going on in Basra, I have seen indications that there are at least a few sophisticated people who appear to have received outside advice in the trade unions and at least one gentleman in South Oil Company. They have a decision to make. They could form their own three-province regional government or they could go it alone. If they decide upon the latter, they will be carving new ground and will have trouble. But they also will have a lot of de facto power.

Abdul Aziz al-Hakim also is breaking new ground. Does he really intend that there will be a replica of the Kurdistan Regional Government (KRG), with a constitution, a legislature, a council of ministers, a court system and other institutions nearly all of which will be new and unprecedented?

If he does not, or if the proposal is defeated in the Council of Representatives – which is a real possibility, see next paragraph – what is going to happen is that the powers of the federal government will be unlimited as a practical matter in relation to the provinces. When the Sunni leaderships look at their options, a regional government must seem to them conceptually and existentially to be a non-starter. What that means is that, with respect to voting or fighting, there are only two alternatives: live with the new system or fight. It would take a significant effort to lay out for them what Mr. al-Hakim might be, but is not necessarily, considering. That is why I have been stressing the point, because preparation should have begun yesterday. One trouble might be that the Embassy has no one who understands the problem in specific detail. They might simply be applying the embedded US model without focusing on the fact of this unique feature in the Iraqi Constitution. I am not clear that the PRTs are being appropriately staffed and have the right mission. Their first and main task after they assure that food and medical assistance is available, is or should be to get the provinces, that is the Regions, started drafting a lot of laws. At the moment, with the exception of the Investment Law, the only laws of Iraq are in decrees of the former regime or orders issued by the Coalition Provisional Authority.

The Sadrists, plus the IAF and Mutlak’s Dialogue have 87 votes. (Those two, in addition to their allotted 30, that the Sadrists cleverly won are going to come in handy at some point.) They would need 51 more. Allawi would add 25, leaving a deficiency of 26. Maliki’s Da’awa has 30; the UIA independents have 23; Fadhila 15.

If the Council of Representatives were to reject the proposed Petroleum Law, that would be that, short of another revolution. The agreement struck between Mr. al-Hakim and Adnan al-Dulaimi to postpone the effective date of the Regions Law until mid-2008 means that the matter might not come up again until after the Regions Law becomes effective, and Provincial elections are held after the enactment of an Elections Law. During that time, staffing and intra-government relationships will be firmly entrenching the new regime in Baghdad. The power of the federal government will be absolute. It should be noted that no reference is being made to the third source of law, the Sharia.