Baghdad's Service Contracts.

Unlike the KRG, the central government is only offering service contracts to IOCs for development of major oilfields already discovered. These are officially called Exploration Development Production Risk Service Contracts (EDP-RSCs).

Shahristani on June 10 said his ministry was to announce on June 29-30 which IOCs had been awarded such contracts to work in the country. He assured IOCs their investment plans would not be scuppered. Shahristani said: "Of 120 candidate companies, we pre-selected 35 to work and invest in six major oilfields and two gas fields. On June 29 and 30, we invite the press to witness the opening of the envelopes".

The contracts to be awarded differ from the EPSAs in the North which allow for profits to be shared between IOCs and the KRG. The Baghdad shortlist was first announced in June 2008 and includes global energy giants ExxonMobil, Shell, BP, Chevron, Total and Sinopec, as well as large Iraqi state-owned operators.

Shahristani has come under fire from MPs who charge that delays in developing these and other fields have resulted in $10 bn in lost revenues for a federal budget projected to go into deficit. He has also been accused of taking an ultra-nationalist approach, insisting that oil wealth and profits cannot be shared with foreign companies. But Sharistani moved to assure IOCs that the stalled petroleum law would not hamper investment from abroad. He said: "If it is going to be delayed for any reason, then the existing laws allow the Oil Ministry to approve these contracts", insisting that the oil would remain under Iraqi control. He added: "The companies selected will have to pay [a 35%] tax on their revenues".

PM Nuri al-Maleki on June 10 held talks with Total's CEO Christophe de Margerie and invited him to attend the contracts announcement at the end of the month. The oilfields to be developed under service contracts are spread across the country, with three in the southern province of Basra, two in Kirkuk in the north, and one in Maysan, in the south-east bordering with Iran. The two gas contracts are for fields in Anbar province, Akkas, which is close to the Syrian border, and Mansouriya in Diyala province, north-east of Baghdad bordering with Iran.

The Oil Ministry-owned South Oil Co. (SOC), through its Director-General Fayad al-Nema, is opposed to the service contracts. SOC produces most of Iraq's crude oil. Nema on June 11 said he opposed Baghdad's plan to auction off oilfield service contracts, joining an apparently broad revolt against the country's first major foreign oil deals in 30 years. Nema said the service contracts were "detrimental to the Iraqi economy" and asked Shahristani to cancel the first tender results.

The protest by senior executives in the state-run industry added to growing discord around Shahristani, who faces criticism from parliament for not having boosted Iraq's oil output to beyond the level it was at before the 2003 US invasion. Nema said: "We in the South Oil Company, all of its leadership, reject the first bidding round becausethe service contracts will put the Iraqi economy in chains and shackle its independence for the next 20 years. They squander Iraq's revenues".

Nema said he had sent a memo to Shahristani explaining his opposition and that his two predecessors, Jabbar al-Lu'aibi (now deputy oil minister) and Kifah Nu'man, had done likewise. Nema was only appointed to lead the SOC in May, and was perceived as being loyal to Shahristani. Another senior SPC executive, chief engineer Mahmoud Abbas, said he was collecting signatures from other engineers opposed to the tenders. He said more than 100 had already signed the protest and it would be sent to PM Maleki.

Nema said he preferred engineering, procurement and construction (EPC) contracts, such as ones the Oil Ministry has been inviting select global oil companies to bid for in the Nassiriya and Nahr Umr oilfields. Nema said the model devised by the Oil Ministry for the service contracts contained dangerous ambiguities, adding: "The devil is in the details and foreign companies, after signing the contracts, will face serious issues, which would take years to resolve".

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