OREANDA-NEWS.   The Ministry of Natural Resources (MNR) of the Kurdistan Regional Government (KRG) is pleased to announce that the KRG’s second sale of piped crude oil export via the port of Ceyhan was safely delivered to the buyers.

This second sale of oil from the Kurdistan Region, which also consisted of around one million barrels of crude oil, was safely transported by a tanker-ship chartered by MNR.

We are proud of this milestone achievement, which was accomplished despite almost three weeks of intimidation and baseless interferences from Baghdad against the tanker-ship owners and the related international traders and buyers.

We are also proud to announce that the third and fourth tanker-ships are now in Ceyhan for loading with Kurdistan Oil for other buyers.

The KRG wishes to declare and clarify its legal authority to the benefit of all

General
1. The KRG is acting fully within its authorities under the Constitution of the Republic of Iraq that entered into force in 2005 (“the Constitution”), and fully within Kurdistan Region law, to export and sell oil produced in the Kurdistan Region.

2. In interfering with the exports of oil from the Kurdistan Region, the federal government is acting grossly outside its limited authorities under the Constitution. Iraq’s “Ministry of Oil” (MoO) and “State Oil Marketing Organisation” (SOMO) are not mentioned in the Constitution.

3. The export of oil from the Kurdistan Region is taking place by the KRG, under the authority of the Oil and Gas Lawof the Kurdistan Region – Iraq (Law No. 22 – 2007) and the Kurdistan Region Financial Compensation Law No. (Law No. 5 – 2013).

4. Article 3 Paragraph Fourth of the Kurdistan Region Oil and Gas Law requires the KRG to “oversee and regulate all Petroleum Operations”, which by definition (Article 1 Paragraph 18) includes the “export of Petroleum”.

5. The Kurdistan Region Financial Compensation Law No. (Law No. 5 -2013) permits the KRG to retain the proceeds of sales of petroleum in circumstances where the federal government is not sharing revenues in accordance with the federal Constitution.

Iraq’s federal constitution
6. The rights and responsibilities of the KRG and the federal government are determined by the Constitution.

7. The constitution describes a federal, decentralised system of government for Iraq in which sovereignty is shared between the federal government of Iraq, the Kurdistan Region (which is recognised in Article 117 of the Constitution) and the various provinces or “governorates” of Iraq. The decentralised nature of Iraq’s federal system applies to oil and gas. The federal government, as a consequence, does not have exclusive authorities in respect of oil and gas.

8. The Constitution only grants the federal government a few, limited, exclusive powers (set out in Article 110), which does not extend to oil and gas and grants no exclusive powers over oil and gas to the federal government. The balance of all powers, including in respect of oil and gas, are either reserved to the regions (and in some cases the governorates) under Article 115 of the constitution, or shared with the regions (and in some cases, the governorates) under Articles 114 and 112 of the Constitution.

9. There are three provisions of the Constitution that are relevant to the regulation of exports, from Iraq, of oil and gas:

(a) Article 110, on the exclusive authorities of the federal government;
(b) Article 112, on the management of pre-2005 old producing oil and gas fields;
(c) Article 115, on post-2005 new field and on the relationship between the exclusive authorities of the federal government and the authorities of regions and governorates.

10. Any powers that the federal government may have in respect of the regulation of the export of petroleum from the Kurdistan Region are:

(a) in the case of all contract areas in the Kurdistan Region, displaced by the KRG's reserved powers under Article 115; and
(b) in the case of any other fields elsewhere in Iraq, shared powers which do not impair the KRG's right to regulate the export of petroleum or petroleum products from the Kurdistan Region.

11. Article 115 of the Constitution provides for the priority of Kurdistan Region law.Article 115 of the Constitution states that “all powers not stipulated in the exclusive powers of the federal government belong to the authorities of the regions and governorates that are not organized in a region”. In these circumstances, the management of oil and gas extracted from fields in the Kurdistan Region is, according to the general principles of the Constitution, an exclusive power of the Kurdistan Region.

12. This means that the Kurdistan Region has an unfettered discretion: (a) to authorise, regulate, and manage the export of petroleum and petroleum products from the Kurdistan Region;
(b) to build, own, regulate, and manage petroleum and product pipelines in the Kurdistan Region, including pipelines that connect to pipelines at an international border with the Kurdistan Region; and
(c) to enter into agreements with foreign government authorities for the regulation and connection of international pipelines, for the sale of petroleum produced by the KRG, and for the transportation of petroleum and petroleum products owned by the KRG.

13. The federal government has no authority under the Constitution to limit the foregoing rights of the Kurdistan Region.

14. Any pre-2005 laws of Iraq in contradiction to the constitution are specifically rendered void under Article 130 of the Constitution. To the extent that the federal government is threatening potential buyers based on old laws that contradict the Constitution, the federal government is establishing the weakness of its authority and affirming the lack of express authority under the Constitution.

15. There are no relevant post-2005 laws of Iraq. Any proposed new law of Iraq will, pursuant to Article 13 of the Constitution, be void to the extent that it contradicts the Constitution. By contrast the KRG has organised its legal system consistent with the Constitution and enacted Law No 22 – 2007 and Law No. 5 – 2013 to invalidate the old Iraq law in the Kurdistan Region and to exercise the KRG’s rights granted under the Constitution.

Federal “policy”
16. The exclusive federal power in respect of trade described in Article 110 First of the Constitution is limited to formulating “policy”. The federal government is granted no further authority in respect of oil and gas from the Kurdistan Region and there is no requirement for the Kurdistan Region to recognise policies of the federal government.

17. Nothing in the Constitution, or the drafting history of the Constitution, suggests that the federal power to formulate trade “policy” determined under Article 110 First carries with it any exclusive authority to enact related legislation or any exclusive authority to issue regulations or decrees in furtherance of any expression of policy of the federal government. The word “policy” was inserted specifically and purposely throughout Article 110 as a limitation of federal power. There is no provision in the Constitution that might provide the means to invalidate a law (as distinct from a policy) of the KRG on foreign sovereign trade on the grounds that the law is inconsistent with federal policy.

KRG’s rights in relation to present (pre-2005) and future (post-2005) fields
18. Article 112 governs the circumstances of “the management of oil and gas extracted from present fields”.

19. The expression “present fields” is given a precise meaning under Kurdistan Region law. Article 1 of the KRG Oil and Gas Law defines a present field (or “current field” in the terminology of the English translation of that law as published by the KRG) as “a Petroleum Field that has been in Commercial Production prior to 15 August 2005”. The meaning of “present fields” is not clear under Iraqi law outside the Kurdistan Region.

20. There is, today, no export production in the Kurdistan Region from “present fields”. All export production is from new fields (which the 2007 KRG Oil and Gas Law calls “future fields”). Further, all exports from the Kurdistan Region are, today, from two “future fields” with respect to which contracts were signed before the constitution entered into force.

21. Because those two contracts were signed before 2005, they are specifically ratified by Article 141 of the constitution.

22. The federal government is not distributing revenues in accordance with the revenue sharing condition set out in Article 112. Therefore, any power of the federal government under Article 112 (in relation to even the pre-2005 present fields) would not apply. In those circumstances, any post-extraction oil and gas management of “present fields” in the Kurdistan Region must become an exclusive power of the KRG.

23. The management of oil and gas extracted from future fields is clearly not an exclusive power of the federal government enumerated under Article 110 of the Constitution, and is not identified as a shared power under Article 112. It follows that, in respect of future fields, the general principles of the Iraqi Constitution apply and the KRG has the exclusive right to manage those fields. The KRG has this right whether or not the contracts governing those fields are the subject of the ratification provision of Article 141 of the Constitution.

Failed federal attempts to constitutional amendments
24. After the Constitution entered into force in 2005, there were efforts made by the federal parliament to initiate a set of amendments to Article 110 of the Constitution, including paragraph First, so that the federal government’s policy-making powers would be legislative in nature, and to include authority on oil and gas.

25. Those efforts were documented in the 2007 record of deliberations of the parliament’s Constitution Review Committee. Those efforts did not succeed. However, those efforts do constitute clear evidence that the federal government itself understands the limitations of its powers in respect of oil and gas under the constitution as set forth above.

KRG warning
26. To the extent third parties are intentionally assisting SOMO to prevent or discourage potential buyers of oil from the KRG, the KRG may take the view that those parties are assisting in an illegal and prosecutable conspiracy.

27. The unconstitutional and baseless monopolistic attempts by SOMO have no place in the new Iraq and SOMO’s attempts, guided by some power grabbing individuals in Baghdad, are clearly putting the very unity of the country at risk.

28. Once again the KRG calls upon SOMO and SOMO’s advisers and associates to stop their futile interferences with KRG’s legitimate oil sales process. The KRG strongly advises Baghdad to authorise SOMO to accept KRG’s invitation to join us in Ceyhan and work with us hand in hand to increase oil exports from all of Iraq and to maximise oil revenues to benefit of all of Iraq.

29. The KRG’s objective has remained unchanged since the entry into force of the constitution and KRG’s 2007 Oil and Gas Law. The KRG’s objective is to maximise revenues for all of Iraq, and for the KRG to directly receive its full 17% constitutional entitlement from Iraq’s overall oil revenue, without cuts, disruptions or controls by Baghdad.