No compromise yet on Iraqi draft oil law

BAGHDAD, Iraq -- Iraqi officials say a hotly debated proposed oil law will not favor Americans but acknowledge that foreign companies will be allowed to take their profits out of the country -- an incentive to draw foreign investment.

The Oil Ministry has been struggling for months to reach a compromise over draft legislation to govern Iraq's most important industry and pave the way for much-needed investment and know-how to revitalize the devastated infrastructure. But the measure faces strong objections by ethnic Kurds and concern about American influence in the sector.

Published reports in the Middle East said the proposal would provide for so-called product sharing agreements that would give international oil firms 70 percent of the oil revenue to recover their initial investments and subsequently allow them 20 percent of the profits without any tax or restrictions on transferring funds abroad.

"Without a decisive military victory, the U.S. occupation of Iraq seems to be about to grab its oil prize by establishing a new sharing arrangement," the English-language Yemen Observer said Saturday, echoing a frequent criticism that the U.S.-led invasion was aimed in part at capturing Iraq's oil.

Iraqi officials denied that the proposed law would favor Americans but stressed that it would set terms aimed at attracting international funds and know-how to an industry that faces a rampant insurgency and struggled even before the war due to sweeping U.N. sanctions imposed after Saddam Hussein's 1990 invasion of Kuwait.

Trade Minister Abed Falah al-Sudani said American companies will be among those bidding for contracts under the proposed law and the Iraqis will "take the best offer ... and take into consideration the experience of the company."

He did not specify monetary terms but said "foreign companies will be able to win concessions for a long time," without elaborating.

"Iraq's economy has suffered because of the security situation and the economic laws, but we now want to implement laws that reform the country and reform the economy. These laws will increase the growth of the economy," he said.

Prime Minister Nouri al-Maliki has pressed hard for a new oil law to be passed since he came to office on May 20. And President Bush stepped up the pressure on the Iraqis to pass legislation to share oil revenues among all Iraqis in announcing his new Iraq strategy earlier this month.

Iraqi officials also have struggled to overcome strong objections by ethnic Kurds in the oil-rich north who are reluctant to give up regional control.

On Jan. 18, the Oil Ministry said the law was nearly ready to be submitted to the Cabinet and expressed hope it could be ratified by parliament within a month.

But ministry spokesman Assem Jihad said Friday the measure had been delayed by unspecified "differences among some groups." He said the ministry hoped the differences could be overcome so parliament could approve the bill before a monthlong recess Feb. 10.

The distribution of oil revenues and central control over contracts are believed among the key sticking points.

Kurdish lawmaker Mahmoud Othman pointed out that the constitution passed last year provided for a Kurdish federation in the north that would co-manage existing oil fields along with the central government and have full control over new ones. Shiites would control new oil fields in their southern regions -- terms that have drawn objections from the disaffected Sunni minority.

Othman said the Kurds want the final say in signing contracts with foreign oil companies for projects in their area, signaling opposition to plans to give full control over contracts to a central oil committee.

"If they don't amend the law or the current draft or reach a mutual agreement, the Kurdish side will not accept it," Othman said.

Jihad said a Kurdish delegation will visit Baghdad to try to resolve some outstanding issues.

"The Kurds talk about this issue as if they are from another country while they are part of the Iraqi government and parliament. They want bigger share for Kurdistan regarding the oil revenues."

Negotiators also are stuck over taxes and the terms for agreements with international companies, as well as concerns that American and other multinational firms will get a disproportionate share of the profits.

Jihad dismissed claims that the proposed law would allow 70 percent of Iraq's oil to be sold to U.S. or other foreign oil companies but conceded that they would not face restrictions in taking profits outside Iraq.

He said the proposed law would establish that central product sharing agreements, or PSAs, would be negotiated with the companies on an individual basis.

"Some are trying to give a distorted idea about the new law that aims at serving Iraq's interests. Such reports are baseless," he said. "We should differentiate between monopoly and investment."

"The foreign companies can take their profits outside Iraq without any restriction because the aim of the law is to encourage investment," he said.

He said the question of taxes was still being negotiated, adding that the law provides a two-year tax exemption for general investment projects but no decision had been made on whether they should tax oil investments.

"This law protects both the full rights of the investors and of the Iraqi government," he said.

Iraq is believed to be producing around 2.2 million barrels of oil a day and exports about 1.5 million, well below prewar levels of 2.5 to 3 million barrels a day.

Some legislators pointed out that Iraq is desperate and needs all the help it can get.

"Foreign companies are welcome. American companies have the experience and they have people on the ground in Iraq. American companies have the courage to come into the market," said Amrah al-Baldawi, a member of the parliament's economic committee.

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Associated Press writers Qassim Abdul-Zahra, Sameer N. Yacoub in Baghdad and Yahya Barzani in Sulaimaniyah contributed to this report.