The Report
of the Iraq Inquiry
•
the need
for increased transparency, including through the Extractive
Industries
Transparency
Initiative (EITI).
479.
The Iraqi
elections took place on 15 December.277
Negotiations
to form a new
government
continued into spring 2006.
480.
On 2 March
2006, DOP(I) considered a joint FCO/DTI paper setting out the
UK’s
objectives
for Iraq’s oil and gas sector.278
481.
The UK’s third
post-Occupation oil strategy set out a more cautious position
on
the potential
role of the private sector, including private
financing.
482.
The FCO/DTI
paper set out three “mutually reinforcing” UK
objectives:
•
Iraq’s
successful economic development;
•
to promote
Iraq’s contribution to global energy security, and its role as
a
constructive
influence within OPEC; and
•
to support
UK companies.279
483.
The paper
stated that raising oil production would require significant
new
investment.
Iraq was unlikely to be able to finance that investment from its
own
resources,
and did not have recent experience of the regulatory, fiscal and
administrative
framework
needed to make optimal use of private investment or the technical
and
managerial
expertise to manage a rapid expansion of the industry. A key
challenge
for the
Iraqi Government was therefore to access external financing and
expertise.
Iraq’s first
step should be to engage with “experienced development partners”,
and
specifically
the World Bank, which could provide independent advice on the
development
of an
appropriate regulatory, fiscal and administrative framework.
Its second step should
be to
engage with international oil companies (IOCs) and oil service
companies (OSCs),
which could
bring in technical expertise and capital.
484.
Any form of
engagement with the IOCs would be politically sensitive. The
“most
straightforward”
form, and the one most likely to result in a rapid increase in
production,
was FDI;
but the “appropriateness” of FDI and the contractual form it might
take, along
with the
internal distribution of oil revenues, would be hotly contested
issues within the
constitutional
review process. Neither Saudi Arabia nor Iran allowed PSAs, “the
form of
FDI most
favoured by IOCs”. The paper concluded that “other options such as
debt/bond
finance and
joint ventures should also be considered”.
485.
The paper
stated that IOCs, including BP, Shell and other UK companies, were
not
currently
working in Iraq due to the security situation and the lack of a
foreign investment
law. BP and
Shell were engaged on technical studies of oilfields and were
providing
training to
Iraqi officials.
277
eGram
20961/05 Baghdad to FCO London, 16 December 2005, ‘Iraq: Elections:
Election Day’.
278
Minutes, 2
March 2006, DOP(I) meeting.
279
Paper IPU,
28 February 2006, ‘UK Objectives for Iraq’s Oil and Gas
Sector’.
446