February 28, 2007

TIME magazine, reporting on the Oil Law, echos Jubilee Iraq's analysis. "Iraq's major creditors have made clear they expect a working oil industry, as a precondition for forgiving billions of dollars in Iraqi debt incurred largely by Saddam Hussein's wars against Iran and Kuwait and by his mega-splurging at home. Under the new law, agreed on Monday by Iraq's cabinet, foreign oil companies will be allowed to cut long-term exploration and development deals with the government for 20 years." It also mentions that "Parliamentarians and Iraq's oil unions have already begun mobilizing against the draft legislation, arguing that it is a desperate attempt by al-Maliki's government to satisfy Western demands, which could damage Iraq's economic future and speed the country's ultimate disintegration."

February 21, 2007

Jubilee Iraq is one of the founding members of the Hands Off Iraqi Oil coalition that is campaigning against the signing of unfair long-term contracts on Iraq's oil and gas fields with foreign companies such as Shell and Exxon.

The reason Jubilee Iraq is supporting this coalition is because the pressure to pass a new Oil Law setting the framework for contracts with oil companies is coming from the IMF and creditor countries such as the US and Britain. In order to qualify for debt relief from the Paris Club in November 2004, Iraq was required to sign up to an IMF Standby Agreement. That Agreement was finalised in December 2005, with one of its principal requirements being the rapid adoption of an Oil Law. The IMF wanted a law to be in place by December 2006. That deadline hasn't quite been met, but there is tremendous pressure on the Iraqi government to pass it within the next few months. This is despite that fact that, as with the Paris Club agreement itself, there has been no consultation with the Iraqi people or even with the Iraqi Parliament. Many Iraqi MPs only learned about the existence of the Oil Law when a near-final draft was leaked last week.

Those arguing for the privatisation of Iraq's oil industry say that the only way that it can be repaired and developed is with the financing, technology and expertise of international oil companies. However, just as it did in the 1970s, Iraq could once again develop the oil industry by itself, buying in expertise and technology (without signing over control) and financing this using oil revenues plus oil-secured loans.

However, the creditors have put Iraq into a Catch-22 situation. It cannot access the new financing needed in sufficient amounts and at reasonable rates while the odious Saddam-era debt remains on the books. Now, the Saddam debt is being gradually reduced (although not by as much as Jubilee Iraq argues that it should), mainly through the Paris Club mechanism. However, the condition for the completion of the promised Paris Club 80% reduction (certainly the final 20% of it) was first the adoption of the IMF Standby Agreement and then the completion of that 3yr IMF program (until end-2008), including the adoption of the Oil Law.

So here is the Catch 22. Iraq will only be able to borrow what it needs to develop its oil industry after the Saddam-era debt is reduced. However that depends on the grace of the creditors who have demanded (and some, such as Britain & the US, have shaped) the Oil Law. Judging from the draft Law, many of the oil fields will be contracted out to foreign companies long before the debt cancellation is fully implemented, and hence before Iraq has the option to finance their development itself. None of this is not surprising, given that the Paris Club creditors (US, Britain, Russia, France etc.) are also the home countries for most of the oil majors who are looking to sign long term agreements with Iraq.

For almost 4 years Jubilee Iraq has been warning that Saddam's Odious Debt (which should have been largely written off unconditionally through an arbitration process in 2003) would be used as a lever to seize control of Iraq's resources. This prediction is likely to be fulfilled within the next 12-18 months as 20+ year contracts are signed with oil companies under the new Law, most likely on terms that are unfavourable to Iraq.

Jubilee Iraq does not oppose the principle of foreign investment in the Iraqi oil industry per se. That is outside our scope. However we do oppose a process which is being driven by Saddam's creditors, whose oil companies are the very ones lining up to carve up Iraq. The important decisions on developing Iraq's oil fields should be taken carefully, after a full consultation with the Iraqi Parliament and the people as a whole. They should not be forced through rapidly because of creditor pressure.
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Relevant sources:

The Paris Club Agreement on debt 21 November 2004 reads: "as soon as a standard IMF programme is approved, a reduction of 30% of the debt stock will be delivered...[and] an additional tranche of debt reduction representing 20% of the initial stock upon completion of the last IMF Board review of three-years of implementation of standard IMF programmes."

The IMF Standby Arrangement was agreed on 23 December 2005, and the relevant passage are: "32. The authorities see the need to make progress in reorganizing, and improving the governance of the oil sector. They intend to: (i) implement, with US technical assistance, a metering system for oil production; (ii) restructure oil sector operations into fully commercialized enterprises, with regulatory oversight by the Ministry of Oil; and (iii) draft a new petroleum law in line with the new constitution and international best practices, thereby defining the fiscal regime for oil and establishing the contractual framework for private investment in the sector. Progress in the drafting of this law will be discussed with staff in the program reviews.... 50. The [IMF] staff underscore the need to press ahead with structural fiscal reforms. These include, most urgently, measures to enhance the efficiency and transparency of public financial management, the move forward toward the commercialization of oil-related state enterprises, and the drafting of a new petroleum law.

February 14, 2007

A source at the Iraqi Central Bank said that the consumer price index rose 70% last year due to the rise in the prices of oil products (If energy is excluded, the index increased only 30-35%) The fuel price, for example, increased from 50 dinars to 400 dinars after the removal of government subsidy. The article explains: "Stopping the government subsidy was one of the recommendations of the IMF which requests the application of an economic reforms program by 2008 before approving to write off 80% of Iraq's debt to the creditor nations that are members of the Paris Club." Due to this escalation in prices, the Central Bank was compelled to increase the interest rate to 20% from 8% at the beginning of 2006.

February 08, 2007

"Kuwaitis promised us to write-off 80 per cent of the $10 billion (the total value of its debts on Iraq)," Ayad Al-Samarra'ai, Chairman of the Finance Committee in the Iraqi Parliament told Gulf News. "Iraqi political activities towards Kuwait aim to cancel or to convince Kuwait to waive the compensation from the second Gulf War and to reduce its debts on Iraq. Kuwaiti officials expressed the possibility of responding positively to Iraqi demands. However, before the Kuwaitis take any political decision, they want to be reassured on the political and economic situation in Iraq, and that the circumstances will allow Kuwaiti investments to enter Iraqi markets."

Ammira Al-Bldawi, an Economist and a member of the Economic Committee in the Iraqi Parliament said that for Iraq to continue paying compensation for the 1990-1991 Gulf War is "unacceptable because the new political situation cannot endure the burdens of the former regime, and Kuwait, which stood by the political change in Iraq, should take practical steps for the cancellation of debts and compensations."

February 02, 2007

The Kuwait Times reports that an Iraqi delegation, headed by Parliament Speaker Mahmoud Al-Sherestani, "starts an official visit to Kuwait this week for talks aimed at convincing Kuwaiti officials to forgive its multi-billion-dollar debt and tens of billions of dollars in war reparations." The article reflects that in 2004 Kuwait "pledged to considerably cut its estimated $16 billion debt" during a visit by James Baker who "also won similar pledges from other Gulf states which have accumulated debts of close to $50 billion." It continues "But Kuwait also told Baker that any decision on forgiving Iraqi debts rested with a decision from the National Assembly which according to the constitution holds the final say on granting or forgiving loans to foreign countries. A majority of MPs do not favour any reduction of debt or compensation, let alone forgiving them. Islamist MP Waleed Al-Tabtabai said in a statement that a large majority of MPs and among the Kuwaiti people reject the idea of forgiving Iraqi debts for "national, security and economic reasons"... He also said that the Iraqi government has no legitimacy to negotiate the issue of debts because it is accused of being sectarian in nature."

February 01, 2007

100 Iraqi Parliament members have signed a note urging the Kuwaiti authorities to cancel Iraq's debt to Kuwait in order to help the government to reconstruct the country and restructure the economy, Iraq Directory reported. A senior Iraqi deputy said that canceling Iraq's debts will help Iraq to abide with the requirements of the International Monetary Fund to reconstruct Iraq's economy and improve the citizens' income and living conditions.

The Kuwait Times reports that in response, Sheikh Jaber Al-Mubarak Al-Sabah, the Acting Prime Minister, "said that the government is going to refer the suggestion of dropping Iraqi debts to Kuwait's National Assembly. Al-Mubarak said if 100 Iraqi MPs asked us to drop the debts, we should ask the opinion of Kuwait's MPs regarding the issue. Meanwhile, MP Faisal Al-Mussalam praised the statement of Al-Mubarak because the decision for dropping Iraqi debts must be adopted by the National Assembly."