A new behemoth or the reform Iraq needs?
Parliament has passed a law to re-create Iraq National Oil Company. It faces opposition
"We have to make reforms. Maybe not with 100% success. But we have to start. Don't just sit there and criticise—get in the middle of the politics."
Ibrahim Bahr al-Ulloum is speaking as he sits on a sofa in his home in Baghdad's al-Jadriya district. An enormous tray of fruit rests on the table between us. As if to prime his argument, a sudden power cut switches off the lights and fans. Iraq's energy sector has made much progress in recent years-but electricity supply is still erratic, even in the house of a powerful parliamentarian and former oil minister.
But Ulloum is feeling optimistic. After years of debate, parliament in early March passed a law to re-create Iraq National Oil Company (Inoc). Ulloum championed it. He won't say so explicitly, but many observers think he'd like to be its new chief executive.
It would be some role. Inoc has existed before—running the upstream in some guises from 1966 to 1987—but the recent law would give the latest version huge responsibilities in Iraq's energy sector. The Ministry of Oil (MoO) would be left to formulate policy. Inoc would take over all its contracts, act as a holding company for all the regional upstream firms like those in Basra, Missan and the centre of the country, and eventually compete for contracts with IOCs.
In short, re-instituting Inoc, according to the new law, would involve a colossal power transfer away from MoO, which wouldn't even retain oversight of the company's operations. Inoc's chief executive would hold a ministerial-level position, reporting directly to the prime minister, not the oil minister.
The Inoc law doesn't stop there. It demands that a minimum of 10% of oil revenue be handed to Inoc to manage through what Ulloum calls "four pots". Some of this money would capitalise Inoc itself; but the rest would be split into three other funds, one of which would pay a dividend each year to Inoc's stockholders—every Iraqi resident in the country, who would own a non-transferable share.
Risk and rewards
Reducing the government's claim on oil income "is a tool to push the government to work for other revenue," says Ulloum. Last year, he says, oil accounted for 88% of the Iraqi federal budget and this "disease of oil revenue" is unsustainable. So, according to the law, each year parliament could cut the amount of oil revenue allowed to the government. "If we can reduce it by 2% a year, 15 years from now the government's budget will be only 50%," says Ulloum. "I said to parliament, 'this is your opportunity'."
It may also be Ulloum's opportunity. So vast would Inoc's role in Iraq's energy sector and economy be that some critics of the new law believe it to be a vehicle for Ulloum to advance his political career. "Inoc has lived with me for 14 years—I care about it," says Ulloum, but adds that he would "have to make sure I could do the job in the right way". The task of appointing the chief executive will fall to the president, he insists.
By his telling, re-establishing Inoc would only be the start of a big future for the company. He cites Petronas as a model, suggesting Inoc would eventually compete domestically and internationally for upstream contracts. It would also seek, like Saudi Aramco and other Gulf NOCs, to build downstream positions in import countries. "What is wrong with Inoc taking a share in (foreign) refineries?" The law, he says, will also force Iraq to start taking renewable energy and petrochemicals development seriously.
All that would take time. Inoc must develop technical prowess. While it will be in control of the five drilling companies, "Inoc has a long way to go until it can compete with others—we have enough rigs, but we don't have enough trained people yet."
The first task is to make sure the company actually comes to exist. The new law has attracted much criticism. Thamir Ghadhban, a former oil minister and now advisor to the government, says he welcomes the idea of resurrecting Inoc—he even talks of its eventual privatisation—and the effort to take some responsibilities away from MoO. But he has other objections.
One problem, he said in a separate interview with Petroleum Economist in Baghdad, was the law's stipulation that unless governorates hand over their oil revenue to Inoc, the latter would withhold the dividend payable to that governorate's citizens. This will play into the growth of Iraqi regionalisation seen in recent years, says Ghadhban. "This trend is a danger to the unity of Iraq." A unified source of revenue has helped keep the country together—and clauses in the new Inoc law would threaten this, he maintains. "This means that Basra governorate could take over oil operations and sell the oil by itself," contravening the Iraqi constitution. "If they did that, they could give their citizens much more than they will give the citizens of Iraq." It would, he says, prompt a national emergency.
In Ghadhban's view, Inoc should be established and then the government should start repealing or amending some of the law's clauses, starting with those giving the company control of the four oil-wealth funds.
Others don't think the law will go anywhere at all. Although it was due to be officially published in the government gazette as Petroleum Economist went to press, "I doubt you'll see Inoc formed within a year, if ever," said one Iraqi oil insider.
"There are too many conflicts of interests," says a senior Iraqi oil analyst. "You can't have a board comprising members of the MoO and the regional oil companies, and then let Inoc compete with IOCs for assets. It's creating a state within a state."
Others see Inoc as just another layer of bureaucracy for Iraq's oil sector. "It's creating another behemoth," says Shwan Ibrahim Taha, chairman of local investment firm Rabee Securities. "You can't tell me the government won't be in control of that."