Great story over at the World Socialist Web Site (WSWS), which has consistently great commentary, on the corporate plunder of Iraqi oil reserves:
Report outlines plans for corporate plunder of Iraqi oil
A report published in November by the London-based environmental and social justice network Platform ... entitled "Crude Designs: the rip-off of Iraq's oil wealth", is a concise review of how Iraq's vast energy resources, worth hundreds of billions of dollars, will be handed to transnational companies over the next several years.
(See also Naomi Klein's excellent article Baghdad Year Zero for more on this)
Following are excerpts from the WSWS article...
The contractual form agreed on by the US experts and Iraqi exiles for the development of Iraq's oil industry was the
Production Sharing Agreement (PSA).
Platform characterises PSAs as an "ingenious arrangement". They were first introduced in the 1960s as a means for circumventing constitutional obstacles or political opposition to the privatisation of nationalised oil industries. Under a PSA, the oil remains legally the possession of the state where it is extracted. Only the operation of the field is controlled by the foreign operator, generally for a period of 25 to 40 years.
PSAs have proven to be a far more lucrative form of contract for transnational energy conglomerates than royalty arrangements. Under most royalty deals, the state takes a fixed percentage of the value of each barrel of oil extracted, regardless of the company's costs or profit margin. Under a PSA, because the state still ostensibly "owns" the oil, the revenue from sales is firstly used to pay the company in full for its exploration, production and other capital costs. The remaining profits are split between the state and the company, according to an agreed ratio.
The profit split generally appears to be to the advantage of the state with ratios of 60:40 or even higher. The companies, however, are guaranteed a return, as all their costs are covered before any profit-sharing begins. Moreover, they can increase their share of the total revenue by inflating their costs or by subcontracting work to their own subsidiaries.
the Platform report notes that a PSA can specify that any disputes be resolved in international tribunals such as the US-based International Centre for the Settlement of Investment Disputes or the French-based International Chamber of Commerce. These bodies are controlled by the major powers rather than the nation-state where the oil is being extracted.
The decision by the US occupation to apply this PSA model to Iraq amounts to naked corporate plunder. While common in countries that do not possess large reserves of oil and gas, or where the cost of the development of fields is substantial--such as offshore oil wells--PSAs are virtually unheard of in large oil-producing states like Iraq. Such nations either exploit their energy resources directly or use their bargaining power to negotiate far more equitable contracts.
the first clause of Article 109 stipulates that
the Iraqi federal government only has authority over the "management of oil and gas extracted from current fields". Article 111 declares that "all powers not stipulated in the exclusive authorities of the federal government shall be the powers of the regions and governorates". The implication is that
the federal government will control the 17 currently producing fields, while the 63 undeveloped fields, as well as any new discoveries, will be under the jurisdiction of the regions and provinces.
In other words, PSAs can be signed for the exploitation of new fields with regional governments such as the Kurdish Regional Government (KRG) in northern Iraq, or the provincial governments in the predominantly Shiite Arab and oil-rich south. The Platform report notes that of the 25 new fields named by the Iraqi Ministry of Oil in 1995 for "priority development", 11 were in the south, 11 in the north and just 4 were in the central region.
The constitution was ratified by referendum on October 15. Significant portions of Iraq's oil can therefore be hived off to transnational energy giants regardless of who makes up the government in Baghdad after the elections on December 15, or how long the anti-occupation insurgency continues in the predominantly Sunni Arab provinces of central Iraq.
Last week, this process began. The KRG announced that drilling had begun on the Tawke field in northern Iraq on the basis of a PSA signed with the Norwegian company DNO in June 2004. The agreement gives 60 percent profit to the Kurdish region and 40 percent to the company. The project is the first oil development by a foreign company in Iraq for 20 years.
"Crude Designs" states: "The key issue here is bargaining power. The Iraqi state is new and weak, and damaged by ongoing violence and by corruption, and the country is still under military occupation ... the oil companies will inevitably wish to focus on the current security situation to push for a deal comparable to--or better than--that in other countries in the world, while downplaying the huge reserves and low production costs that make Iraq an irresistible investment."
The report points to a blatantly neo-colonial contractual clause that is likely to be inserted into PSAs on the demand of the US and other occupying powers--
a stipulation against government interference over oil production rates.
Platform observes: "Iraq would not be able to control the depletion rate of its oil resources--as an oil dependent country, the depletion rate is absolutely key to Iraq's development strategy, but would be largely out of the government's control. Unable to hold back foreign companies' production rates, Iraq would also be likely to have difficulty complying with OPEC (Organisation of Petroleum Exporting Countries) quotas which would harm Iraq's position within OPEC and potentially the effectiveness of OPEC itself."
A key objective of the major powers since the oil crisis of the 1970s has been to shatter the ability of the main oil-producing states to ever again ration world oil supplies.