November 24, 2011Basra lawsuit challenging the imminent, multi-billion-dollar joint venture between the Iraqi Oil Ministry, Royal Dutch Shell and Mitsubishi ...
The Basra Provincial Council on Tuesday voted to file a lawsuit challenging the imminent, multi-billion-dollar joint venture between the Iraqi Oil Ministry, Royal Dutch Shell and Mitsubishi.
Officials said they wanted more local involvement in the contracting process, particularly in determining compensation policies.
It is one of several key demands that delayed the deal's approval for more than three years, following a Sept. 22, 2008, signing of a Heads of Agreement in Baghdad.
Iraq's Cabinet gave final approval to the contract on Nov. 15. The companies, which include the state-run South Gas Company, are to finalize the deal and formally launch the joint venture Basra Gas Company in Baghdad this Sunday, Nov. 27, according to ministry and Shell officials.
"The monopoly of the Oil Ministry over oil policy is unacceptable," said Basra governor Khalaf Abdul Samad, "It is not reasonable to have this marginalization and exclusion, and we will raise our voices high against this."
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The deal would aim to eliminate the economically wasteful and environmentally disastrous practice of flaring at three of Iraq's largest oil fields. Along with their crude oil output, the Rumaila, West Qurna 1, and Zubair fields currently produce more than 1.2 billion standard cubic feet per day (scf/d) of associated gas, 700 million scf/d of which is currently burned rather than processed and sold.
That output will increase as the fields jump on development by BP, Exxon Mobil and Eni, which are leading projects to bolster the fields, three of the largest in the country.
But now, Iraqi flaring continues, clogging the air and rating Iraq one of the world's worst offenders of gas flaring.
The Basra Gas Company would have a 2 billion standard cubic feet per day capacity, and it is estimated to have a $17 billion investment requirement over the life of the 25 year contract, officials said.
Local and national officials and oil experts have criticized the deal on technical criteria and for being negotiated in a no-bid process, behind closed doors, and without the participation of Basra officials.
"The law clearly calls for a political partnership between the province and the ministry," Samad said.
Ahmed Sulaiti, the deputy chairman of the provincial council, said the council's legal case was based on Article 112 of the Iraqi Constitiution, which grants authority to both the federal and provincial governments in setting policy and managing the oil and gas sector.
The semi-autonomous Kurdistan Regional Government (KRG) has cited the same constitutional provision while it has pursued oil policy at odds with Baghdad.
The controversy over the Shell deal had appeared to be dissipating. Recent negotiations yielded changes in the deal's terms, and many of the technical critics who had opposed the deal came on board – especially because the ministry had no apparent Plan B, which meant the only alternative to the deal was continued flaring.
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