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explanatory memorandum for the draft petroleum act of the kurdistan region of iraq 22 october 2006

................................................. article 20 – strategic policy formation................................... ............................................................................. 9 and 11: the minister................................................................................... articles 7....................... ......................................................................................................................................................................................................................................... 8................................. chapter iv – revenue management and special allocations................................................ ...................................................................... ............................................................. chapter i – definitions and general provisions................................... .............................. .......... article 21 – revenue sharing............................................................. recent changes................. ................................................ article 23 – regional role of federal institutions................. article 22 – restructuring of the industry in iraq. contract evaluation committee.................................................................................................................................................. the draft act – specific provisions................................................................................... article 3 – territorial scope of the act...................................... unlicensed handling of information and data...................... table of contents introduction...................................................................... chapter iii – the public entities......................... .................................... chapter v – co-operation with federal authorities....................................................................................................................................... .... article 4 – material scope of the act............................................................................................................................................................................. . chapter ii – the ministry.............................. revenues............................................. ... preamble.......................................................... ................................................................................................................................................................................................ disputed territories...................... .............................................................................. the right of regions and governorates to regulate petroleum operations.......................................... the draft act – general principles......... cooperation with a future iraqi petroleum framework..................................................... articles 14 and 15: komo and kodo......................................................................... articles 12 and 13: kepco and knoc............................ ..................................................................................................................................................................................................................................................................................... article 18 – petroleum revenue management act.......................................................................................................................... .......... ......................................... revenue management principles...................................................................................................................... article 6: infrastructure and downstream activities:......................................... article 24 – conditional cooperation..................................................................................... chapter vi – anti-corruption provisions.... article 17: koto.................... models for this act.................................... article 19 – special allocations.......................................................... article 5 – title to petroleum and government rights........... ....................... ....................................................................

................ article 58: unitisation of reservoirs within the kurdistan region................................. chapter xv – penalty provisions................................................................................................................. chapter xii – resolution of disputes....................................... chapter xvi – final provisions.......................................................................................................................................................................... chapter x – local participation.... articles 30........... annex a: revenue sharing............. ..... article 80: transitional provisions: government of iraq agreements....................................................... .............................................................. article 46.................................................................................................................... article 60: unitisation of reservoirs across international borders............................................................................................................ approvals.................. 30..................................... disputed territories..... article 38......................................................................................................... chapter viii – conduct of petroleum operations................................................................................................................................................................ article 47..................................................... article 34 – invitations and awards..... ......... production sharing contract terms.. chapter xiv – regulations and directions.......................................... article 33 – contract evaluation committee........................ chapter xi – unitisation........................ chapter vii – authorisations......................... article 49................................. articles 29......................................................................... natural gas.............. ................................................................... article 79: transitional provisions: kurdistan region agreements...... 31 ............................................................................................................................................................................ ................................................................................................... ... introduction this is an explanatory memorandum and set of drafting notes to identify the main points of the draft of a petroleum act for the kurdistan region of iraq (“the draft act”) which is now under consideration by the kurdistan region council of ................... chapter xiii – public information...................................................................... ........................................................... unlicensed handling of data... taxation......................................... ........................................authorisations............................................................................................................................................................................................................................. ................ ............. annex c: regional role of federal institutions................ annex b: restructuring of the industry in iraq...................... article 51................. article 59: unitisation of reservoirs across a kurdistan region border.................................... exploration and development............................................. chapter ix – contract terms..................... ....... article 41........................ within iraq..............................................................................

the contract evaluation committee may have a representative of the federal government as a member. and for the natural environment of the kurdistan region. and is not a legal document. and without prejudice to the position of the krg in relation to iraq constitutional and petroleum matters. many of those comments have been incorporated in this draft. this explanatory memorandum is for information purposes only. the intention of the krg to bring civil and criminal legal proceedings only a last resort. revenue management principles another change is the inclusion of a statement of general principles of kurdistan region petroleum revenue management. the new draft creates an offence of holding. but does not give the minister the power to administer petroleum operations in the disputed territories except by agreement with the government of iraq. appointed by parliament. license such dealing. those general principles include a commitment to transparency and the establishment of special revenue allocations for citizen dividends. unlicensed handling of information and data finally. this memorandum updates an earlier explanatory memorandum published on the krg website on 7 august 2006. provided that a copy of such data is provided to the minister.ministers. transferring or receiving data or information regarding petroleum in the kurdistan region except pursuant to an authorisation from the minister. the creation of a parliamentary committee to advise the minister on proposed production sharing contracts. for those citizens of the kurdistan region who suffered as a result of the previous regime in iraq. by agreement. and wherever possible. to review any production sharing contract that the minister proposes to conclude – the contract evaluation committee. the outline of revenue management principles. contract evaluation committee the new draft requires the minister to receive the report of a committee. and the creation of an offence of unlicensed handling information and data. for a long-term investment fund. for the special needs of ethnic and religious minorities. . the krg is grateful for the many individuals and organisations in the kurdistan region. the purpose of this provision is to provide an additional safeguard on the probity of kurdistan region petroleum contracts. that accompanied a draft petroleum law published on the same date. the same provision provides a means for those holding historical data – meaning data produced prior to the entry into force of the act – to receive a licence to deal in such data. disputed territories the current draft requires the minister’s approval for petroleum activities in the disputed territories to be recognised at such time as disputed territories become part of the kurdistan region. the purpose of this provision is to prevent the rights of the people of the kurdistan region and iraq from being exploited by those who may have received such information as a result of looting and other illegal activity. second draft law was published on the krg website on 9 september. it is published by the kurdistan regional government (krg) without prejudice to the final form of the kurdistan region petroleum act. a revised. iraq and abroad who commented on the earlier drafts. recent changes the major changes between the earlier drafts and the current draft include the treatment of disputed territories.

80. for a more comprehensive statement of these policies. the framework is intended to be simple and clear. the right of regions and governorates to regulate petroleum operations the right of iraq’s regions and governorates to regulate petroleum operations in their territory was agreed in the constitutional negotiations of 2005 and is set out clearly in the iraq constitution. cooperation with a future iraqi petroleum framework the krg recognises the obligation of all regions and governorates to cooperate with any future petroleum framework for .org. the first part also establishes a general framework for kurdistan region petroleum revenue management. 2. consistent with the iraq constitution. it reflects and implements the extent of the kurdistan region’s constitutional right to regulate petroleum development in its territory. which requires a region to jointly manage. the act has a two-part structure. ashti a. to be administered by the krg and its ministry of natural resources. regional law takes priority in the case of dispute. incorporating the first 24 articles – and three annexes – deals with iraq constitutional and federal matters. and iraq.the draft act – general principles the act will establish a modern petroleum framework for the kurdistan region of iraq. the first part. the krg believes that. “extracted” petroleum from “current fields” and to formulate “strategic policies” for petroleum development. and enjoy revenues from. the right is qualified only by article 112. hawrami. according to article 115. with the iraq federal government. see the interview with minister for natural resources. setting out regional rights and obligations. second. and to provide appropriate returns to the people of the kurdistan region. and strategic petroleum policies more generally. are powers that are shared between the federal government and any regional government. to be elaborated by the krg in subsequent legislation. there are final transitional provisions (articles 79. investor-friendly iraq petroleum regime. the act is designed so as to anticipate cooperation with an iraq petroleum regime. if they can meet the krg’s standard of democracy. transparency and accountability. available at www. but to be self-sufficient if such a regime. or cooperation under that regime. published by the kurdistan regional government on 13 june 2006. in accordance with international standards. all of iraq’s regions and governorates should be able to manage.krg. which omits petroleum from the list of exclusive powers of the federal government. 2. that regime meets two imperatives. the regulation of post-extraction petroleum from current fields. for the benefit of all the peoples of iraq. the right is implied by the combined operation of article 110. first. this act is designed deliberately to serve as also as a model for a future. their oil and gas resources. “oil and gas rights of regions and governorates”. it is designed to function in a cooperative and complementary way under the iraq constitution with a future petroleum regime for the whole of iraq. 1. and as a model for other producing regions and governorates in iraq. 1. which gives all other powers to regions. the second part of the draft act contains the provisions of modern standard petroleum legislation. in circumstances where. the krg is a firm believer in the value and attractiveness of a decentralised iraq petroleum sector which is characterised by mutual cooperation throughout iraq. and article 115. is not forthcoming. thus. and to private investors. and 81) which touch on both areas. dr.

the third paragraph also sets out the intention of this act. all iraqis must benefit from iraq’s petroleum infrastructure. with the production sharing contract (psc) as the standard investment vehicle. and requires that any such agreement secure the rights of all of iraq’s regions and governorates. elaborated in chapter iv. a dividend for citizens who suffered greatly under the . that part of the kurdistan region’s petroleum revenues – approximately twenty percent – be set aside for special purposes: an annual cash dividend for citizens of the kurdistan region. the elected representatives of the people of the kurdistan region. the kurdistan region also has a constitutional right. often on the advice of international financial institutions. unless there is an agreement in place with the government of iraq under which the kurdistan region receives a proportionate share of revenues and compensation for damage and denial of petroleum revenues by the previous regime. including a commitment to “market principles” and the encouragement of investment. the krg believes that it is right and proper. the draft act proposes the key terms of such an agreement. to be reflected in krg policy more generally. the third paragraph sets out the goal of the krg for the kurdistan region petroleum regime to be exemplary in its transparency and accountability. to directly receive revenue from “current fields” and retain a share of that revenue. revenues the draft act elaborates on the distinction made in the iraq constitution between current fields and other fields. the draft act – specific provisions preamble the second paragraph of the preamble recites the relevant principles from the iraq constitution. the ministry has referred closely to the general principles of petroleum management established by the world bank. always accountable to the people. and to the regimes of petroleum producing countries that have recently prepared petroleum legislation. no iraq-wide petroleum framework is yet in place. in addition to that obligation. models for this act in preparing the act. implied by article 112. the krg is well aware of the dangers that petroleum development in impoverished countries poses to good governance and public probity. a special fund for the future to ensure that the kurdistan region has income when the petroleum resources of the kurdistan region and iraq are in decline. kepco and knoc. is that the krg parliament must oversee all petroleum revenues. and iraq’s petroleum markets. that obligation is set out in article 112 of the constitution. and to ensure that there is reciprocity with iraqi state-owned petroleum companies. the krg believes that heavy state participation in petroleum developments will not maximise returns for the people of the region and other parts of iraq. these principles require all iraqi jurisdictions to maximise the benefits of private sector investment in iraq’s petroleum industry. the kurdistan region has a constitutional right to directly receive the revenue from future fields. the ministry has referred to a number of federal regimes around the world. are the best custodians of the kurdistan region’s petroleum wealth.iraq. in the view of the krg. for all levels of government in iraq to cooperate with each other on petroleum matters. is to permit limited government participation in petroleum development for future fields and current fields respectively. named in the act as “future fields”. the existence of two krg-owned petroleum companies. and in the interest of the kurdistan region and other parts of iraq. it is an underlying principle of the draft act for that the kurdistan region’s petroleum sector will be driven by private sector investment. the overriding principle in the draft act.

and funds to restore the natural environment of the kurdistan region.” this provision clearly implies that the people of a region have ownership rights as . and the obligation to cooperate with other parts of iraq. kirkuk. the fact that this act does not apply to the disputed territories is without prejudice to the historical and legal claim of the kurdistan region to those territories. a defined term that encompasses a wide range of upstream and downstream activities related to petroleum. the act will apply to the “disputed territories” where the kurdistan region is a party to the dispute. in the regulation of petroleum operations in the disputed territories. section 4 of the article clarifies the fact that the kurdistan region law of investment does not apply to petroleum operations. the act does not apply to those disputed territories prior to the referendum. diyala and neneveh. the term applies only to such activities in the kurdistan region. the krg reserves the right in the disputed territories that become part of the kurdistan region to invalidate any agreement related to petroleum that had not received prior approval from the minister. gas. the kurdistan region acknowledges that the extent of those disputed territories needs to be defined. arbil. meaning the territories that were administered by the krg on 19 march 2003 in the governorates of dohuk. if and when those fields become part of the kurdistan region after the referendum. for the time being. the region recognized in article 117 of the constitution of iraq and article 53 of the transitional administrative law. approximately eighty percent of the kurdistan region’s petroleum revenues will be capable of appropriation by parliament in the normal way. or any expensive or heavy mineral resources. subject to joint regulation with the government of iraq after the point of extraction (“delivery point”) and subject to the constitutional regime of revenue sharing. meaning. will signal parliament’s recognition that the kurdistan region has certain moral obligations that should be guaranteed by law. article 18 of that law states that investors under that law “shall not be allowed to own plots of land that contain oil. to be overseen by parliament. section 3 states that only kurdistan region law applies to petroleum operations. cultural and governmental services. spelled out in article 112. section 1 of the article indicates that the act applies equally to private sector and public sector investors. by definition. separately from the day-to-day business of appropriating funds. the federal government will recognize an obligation to consult with the kurdistan region.previous iraqi regime. sulaimaniya. article 4 – material scope of the act the act applies to petroleum operations. the krg expects that. chapter i – definitions and general provisions article 3 – territorial scope of the act the act applies to the territory of the kurdistan region. at such time as those territories become part of the kurdistan region following the referendum required by article 140 of the constitution of iraq. and are therefore. unless the kurdistan region otherwise agrees. these special allocations.” article 5 – title to petroleum and government rights section 1: ownership: article 111 of the constitution of iraq states that “oil and gas are owned by all the people of iraq in all the regions and governorates. including kirkuk. funds to support the requirements of the kurdistan region’s ethnic and religious minorities to provide their own social. the fourth and fifth paragraphs set out the twin imperatives of this draft act: the supremacy of kurdistan regional law by virtue of article 115 of the constitution of iraq. without favoritism. the kurdistan region accepts that the kirkuk fields will remain ‘current fields’ within the terms of the iraq constitution.

participation by the public sector in petroleum activities. 8. pursuant to article 112 of the constitution of iraq. this is the case for revenue both from current fields and future fields. the draft law simply states that. the krg does not. be received directly by the government of iraq under a revenue sharing agreement as part of an article 24 agreement and as set out in annex a to the act. this section also states that the regional government shall share revenue according to the constitution of iraq and the petroleum act. has authority. article 6: infrastructure and downstream activities: the minister is the sole authority for the regulation of infrastructure used for petroleum operations in the kurdistan region. section 3: regulation of marketing: this section states that the minister is the sole authority for marketing the krg’s share of petroleum – and that a contractor under a production sharing contract has responsibility for the marketing of their share of petroleum. including the negotiation of authorisations. for petroleum in kurdistan. article 111 applies. chapter iii – the public entities the purpose of this chapter is to establish. this article also imposes an obligation on the krg to share infrastructure with the government of iraq and other producing regions and governorates of iraq. in law. the intention of the act is that the minister’s powers are exclusively regulatory in nature. where it is necessary. the krg acknowledges that the federal government. the draft constitution of the kurdistan region states this principle more generally in relation to natural resources. and that the ministry will not itself engage in petroleum operations. 9 and 11: the minister these articles identify the minister of natural resources as the competent krg official to oversee all aspects of petroleum operations. alternatively. for the purposes of the respective petroleum administrative and revenue sharing responsibilities of the kurdistan region and the federal government. and to make pipeline capacity available. will be carried out through the public entities. advance ownership as an issue.citizens of that region to oil and gas resources. including production sharing contracts. this is typical of the way in which federal states treat the question of natural resource ownership. the purpose of this provision is to make clear that ownership by the people of the kurdistan region of petroleum in the region does not affect the obligations of the kurdistan region to share petroleum with other parts of iraq. section 4: receipt of revenue: this section states the general principle that the krg shall directly receive its share of all revenue from petroleum operations. however. if revenue sharing agreements pursuant to article 112 of the constitution of iraq are in place. the question of ownership does not need to be resolved. the krg will then share surplus revenue with other parts of iraq pursuant to article 112 of the constitution of iraq. chapter ii – the ministry articles 7. and downstream activities. in the draft act. public entities for specific purposes in relation to petroleum . to regulate the marketing of petroleum extracted from current fields in the kurdistan region. that revenue may. section 2: regulation of petroleum operations: this section states the general principle that the minister is the sole authority for regulating petroleum operations in the kurdistan region. and that the minister has the power to authorize non-state actors to engage in petroleum operations.

the central principle of this revenue management framework is parliamentary sovereignty and accountability to an elected parliament. with the rapid development of the kurdistan region’s petroleum sector. the krg wishes to confirm its commitment in the petroleum act to principles of transparency. all petroleum revenues are subject to parliamentary and public scrutiny. komo. the krg envisages limited public sector involvement in petroleum operations. by law. by agreement. each of these entities is subject to the same company law principles as private sector investors. it will need an appropriate regulatory and administrative framework for managing the revenues. . that involvement is primarily driven by the need to maintain some consistency and correspondence with iraqi public petroleum institutions. article 18 – petroleum revenue management act this article requires the creation of a parliamentary committee to make recommendations for a petroleum revenue management act. to be supervised by the parliament and with oversight from the minister. and scale of involvement. articles 12 and 13: kepco and knoc for upstream petroleum operations. and the way in which koto accounts to parliament. chapter iv – revenue management and special allocations the purpose of this chapter is to establish the general parameters for petroleum revenue management and allocation for the kurdistan region. transparent revenue management framework for the kurdistan region. article 17: koto koto is a public trustee for the petroleum revenues of the kurdistan region. their day-to-day functioning will be independent of the ministry. and the possibility that some petroleum revenues should be allocated on a permanent basis. though the minister has responsibility for determining the scope of activities of these institutions. a representative of the government of iraq may sit on the boards of the two institutions. to provincial and local government in the kurdistan region. the board members of these institutions are confirmed by parliament and independent of the ministry. of a petroleum revenue management law. the provisions for kepco and knoc envisage that. of these institutions to a minimum. kepco and knoc are the vehicles. articles 14 and 15: komo and kodo kodo is the vehicle for downstream activities. for the time being. the krg recognizes that.operations. the krg intends to establish a world-class. the krg also envisages that the petroleum revenue management act will address the need for appropriate decentralization within the kurdistan region. in advance of the establishment. the ministry of finance. and koto is required to function in a matter consistent with the principles and criteria of the extractive industries transparency initiative (eiti). and komo is the marketing body. chaired by the minister. by that act. the krg will keep the size. and long-term financial planning. the krg envisages that the petroleum revenue management act may provide detail on the operation of koto. and with the public entities (kepco. social and environmental equity. for future fields and current fields respectively. and the way in which koto interacts with the ministry of natural resources. and kodo).

war and terrorism of the saddam regime. people in the villages are forced to cut down trees to burn for heating and cooking. some ethnic and religious minorities already exercise a degree of autonomy within the kurdistan region.article 19 – special allocations there are special moral obligations that the kurdistan region’s petroleum wealth places on the krg. to be drawn on when the petroleum revenues from iraq and the kurdistan region are in decline. deliver services such as education. funds will be allocated following a request from the elected representatives of minority groups so that they can. a first step towards reaching such an agreement would be for the government of iraq to promulgate petroleum legislation in similar terms to the kurdistan petroleum act. (c) those who suffered from previous regime: one point five percent (1. and must remain. a proportion should be set aside for the point in time – two or three decades away. the principle behind these special allocations is that parliament will oversee their operation but will not appropriate those funds. and supports the ancient and rich ethnic and religious heritage of the kurdistan region. celebrates. while the bulk of the revenue will be appropriated each year by parliament in the usual manner. but has suffered tremendous damage as a result of warfare and poverty: when fuel supplies are cut off to the kurdistan region. the krg wants to give special recognition. to the many kurdistanis whose lives were unjustly damaged as a result of the genocide. and petroleum regulation. (d) the environment: one point five percent (1. with parliament’s agreement. so that they can immediately enjoy the benefit of the petroleum economy of the kurdistan region and iraq. the natural environment of the kurdistan region is among the most beautiful in the world. while the kurdistan region will need the bulk of its petroleum revenues for early spending and poverty alleviation. this draws. the krg is willing to take all necessary steps to reach that agreement in the shortest possible time. be dedicated to certain “non-negotiable” areas of special obligation. the model for this allocation can be found in the kuwait fund and elsewhere. in part. it is. revenue sharing. the environment must be restored as part of the heritage of present and future generations. health and policing to their own communities. by law. for this reason the draft act requires that approximately twenty percent (20%) of the kurdistan region’s petroleum revenues be allocated by law. to the following: (a) annual cash dividend: ten percent (10%) as an annual cash dividend to every citizen of the kurdistan region: the krg believes that a proportion of the revenue should bypass the krg and go straight into the pocket of the citizen. amounts to be recommended by parliament will be earmarked for the kurdistan region’s diversity of ethnicities and faiths where those groups wish to deliver services to their people.5%) for the environment fund. (e) ethnic and religious minorities: allocations for the special social. on a permanent basis.5%) as an annual dividend for citizens who suffered. on the alaskan model. and to restructure its petroleum sector so as to create a federal petroleum committee and to begin to issue production sharing agreements to credible and experienced private investors. mirroring the language of the . and the annexes to this act represent the essential terms of such an agreement. extraordinary hardship at the hands of the previous regime in iraq. and it is appropriate for the krg. perhaps – when petroleum reserves no longer exist. or who suffer. article 20 – strategic policy formation this article requires the krg to cooperate with iraq on “strategic policy” formulation. a great strength of the kurdistan region that its kurdish muslim majority is respectful of. on an enduring basis. (b) future generations investment fund: seven percent (7%) for an investment fund. at the center of this proposed system of co-operation is an agreement under article 24 of this act between the krg and the government of iraq. cultural and governmental needs of ethnic and religious minorities. if they wish. to guarantee that a proportion of that wealth go directly to areas of special need. chapter v – co-operation with federal authorities this chapter establishes the parameters for krg cooperation with the government of iraq on strategic policy. the krg believes that this will be an effective way of boosting the spending power of the kurdistan region’s poorest citizens. and others wish for a greater degree. a certain proportion should.

the krg is prepared to share current and future fields revenues with other parts of iraq. these articles are self-explanatory. in due course. free from corruption. article 24 – conditional cooperation this is the most important provision of the first part of the act. to appoint a member to the boards of kepco and knoc. in short. stating that the preparedness of the kurdistan region to set aside its constitutional rights and cooperate in the manner described in articles 21. and the contract evaluation committee. article 23 – regional role of federal institutions this article makes co-operation by the krg in allowing federal upstream institutions an involvement in the krg’s petroleum activities dependent upon an article 24 agreement. more broadly. article 22 – restructuring of the industry in iraq this article requires the krg to co-operate with the government of iraq in the restructuring of the petroleum industry in iraq. the krg reserves the right to receive and share those revenues itself. in particular. it must demonstrate a commitment to a legal and fiscal regime that encourages new exploration and development in parts of iraq other than the kurdistan region. the krg views this process as requiring agreement regarding opec quotas and. the krg notes that the constitution of iraq does not require it to invite federal institutions to play any role in regional pre- extraction petroleum operations. issue a new act to revise and restate these laws. the krg notes that the constitution of iraq does not require it to share future fields revenues. if the government of iraq is to take responsibility for receiving and sharing future fields revenues. if the government of iraq does not so demonstrate. and will remain. article 21 – revenue sharing this article makes co-operation by the krg on revenue-sharing dependent upon an article 24 agreement and annex a to the act. one for current fields and one for future fields. chapter vi – anti-corruption provisions kurdistan’s petroleum regime is. the krg will permit representatives of two federal upstream institutions. if such an agreement is in place. a commitment to an investor-friendly iraq-wide petroleum regime with the sharing of petroleum infrastructure. . the krg is reviewing its laws regarding anti-corruption and may. but those funds may only be received directly by the government of iraq (or governments of other regions and governorates) where there is an equitable revenue sharing agreement in place. 22 and 23 is dependent on a fair and equitable revenue sharing agreement and the restructuring of the industry in iraq. and where the petroleum industry in iraq has been restructured and modernized under a federal petroleum committee with regional representation.constitution of iraq.

and must commit to the ten principles of the global compact. the krg wishes to encourage and enforce good corporate citizenship. it grants the exclusive right to conduct petroleum operations in the contract area. and the maximization of regional government revenue. the financial and technical abilities of a contractor. they are consistent with international petroleum industry standards. launched by the united nations on 26 july 2000. a contractor must demonstrate capacity and experience. which deals with the exploration and development of a field. 30. in order to be awarded a petroleum contract. the committee is mandated to review proposed pscs for transparency. this article also requires that an application for an authorization address the social concerns of health. they are consistent with international petroleum industry standards. the minister shall make public all invitations for authorizations. the krg practice and policy is to use production sharing contracts wherever possible. the report of the committee is not binding on the minister. in the view of the krg. the intention of this article is to provide a safeguard for large petroleum contracts. this article rules out petroleum contracts which guarantee to the contractor a fixed rate of return. in exchange for obligations to develop. articles 30. exploration and development this article establishes the principle that a petroleum contract may be based on a model production sharing contract. a petroleum contract may be a production sharing contract. a petroleum contract. . anticorruption. and an access authorization. article 33 – contract evaluation committee this article establishes the contract evaluation committee. and are therefore not in the interests of the people of the kurdistan region or of iraq.chapter vii – authorisations this chapter sets out general provisions for all authorizations. articles 29. chapter viii – conduct of petroleum operations this chapter sets out the general principles governing the conduct of petroleum operations. and the acquisition of local goods and services. before awarding any authorization that is a psc. safety and welfare. finally. which will usually be in the form of pscs. the training of locals. the most important of these is a petroleum contract. but may negotiate directly if it is in the interest of the public of the kurdistan region to do so. such contracts – sometimes known as “buy-back” contracts – deter private investment and risk taking.authorizations there are three types of authorizations: a prospecting authorization. article 34 – invitations and awards this article establishes that the usual method for awarding an authorization is by public invitation unless it is in the public interest to do otherwise. receive the report of the contract evaluation committee and also the approval of the council of ministers. 31 . this article also requires that the minister.

which excludes taxation from the list of exclusive powers of the federal government. there are no taxes generally payable for petroleum operations in the kurdistan region. natural gas this article delegates to a production sharing contract issues related to natural gas development. production sharing contract terms this article sets out some of the standard terms of a petroleum contract which is a production sharing contract. the kurdistan region is rich in gas and the krg wishes to establish a favourable environment for gas development. the krg expects that most petroleum contracts will be production sharing contracts. many of the terms of a production sharing contract do not appear in this article. in these circumstances. and article 115. unlicensed handling of data this article creates an offence of unlicensed handling of data regarding petroleum in the kurdistan region. exploration and development. at such time as the krg may choose to impose taxes. or to undertake an obligation to pay krg taxes on behalf of a contractor. the krg intends to make the fiscal regime for petroleum investment attractive to investors. including terms which. which gives all other powers to regions. the petroleum operations taxation act. and gives priority to regional law in the case of dispute. chapter ix – contract terms article 46. petroleum operations in the kurdistan region are liable only to applicable kurdistan region taxes. sections 3 and 4 of the article specify that the standard terms may be varied for particularly risky. article 47. for instance. including pricing and transportation. . identify cost recoverable items or which deal with gas pricing. approvals this article delegates to the terms of an authorization (including a production sharing contract) the requirement of notification and approval regarding agreements concluded by an authorized person. and may choose not to impose taxes. or risk-free. currently. the krg will follow international best practice and describe all applicable taxes in one piece of legislation. the terms are set out in the act to provide a clear and early indication to potential investors of the fiscal environment of the kurdistan region for petroleum operations. article 110 of the iraq constitution.article 38. the power to tax is a regional power. article 41. article 49. taxation in the kurdistan region. and provides a means for those who may hold such data that was received prior to the entry into force of the act to receive a license to handle the data.

the minister shall attempt to conclude a unitization agreement with the government of iraq or with the concerned region or governorate. article 58: unitization of reservoirs within the kurdistan region if a reservoir straddles two contract areas. chapter xi – unitization these articles provide internationally recognized means by which the unitization of a petroleum field can be handled between contract areas. the minister may decide the unitization. article 59: unitization of reservoirs across a kurdistan region border. disputed territories this article permits the minister to enter into joint regulatory arrangements with the government of iraq in relation to petroleum activity in the disputed territories in advance of the referendum. chapter xii – resolution of disputes these provisions give the ministry broad powers to resolve disputes between persons engaged in petroleum operations. subject to arbitration if the contractor does not agree with the minister’s decision. if a reservoir lies straddles a contract area and an area not part of a contract area. or the matter may be resolved otherwise under the relevant terms of the petroleum contract. between the kurdistan region and another part of iraq. subject to arbitration if the contractors do not agree with the minister’s decision. and there is no agreement between the contractors. the minister may decide the unitization. article 60: unitization of reservoirs across international borders if the reservoir straddles an international border. they provide for standard international arbitration procedures for a dispute between and person and the minister himself or herself. and there is no agreement between the contractor and the minister. this article also states that unless the minister approves of an agreement for petroleum activities concluded by the government of iraq in the disputed territories. within iraq if the reservoir straddles a kurdistan region border with iraq. and such an agreement may involve joint administration. and may assign rights to the government of iraq to represent the kurdistan region in concluding such an agreement.article 51. such an agreement may be invalidated by the minister following the referendum if the disputed territories in which those activities take place become part of the kurdistan region. . chapter x – local participation the krg is committed to developing local skills and the local economy. the minister shall attempt to conclude a unitisation agreement with the neighbouring country. and between the kurdistan region and a foreign country. the krg believes that joint administration is the correct legal and political way to manage this activity.

. at its discretion. all previous krg production sharing contracts have now been approved by the minister. will receive those revenues and apportion a share to iraq according to the constitution of iraq. article 80: transitional provisions: government of iraq agreements article 71 provides that the krg may. those decisions include petroleum agreements. if those terms are not met. represented by koto.chapter xiii – public information in the interests of transparency and anti-corruption. annex a: revenue sharing pursuant to the terms of the general agreement required by article 24 of the act. those minimum terms include the receipt by the kurdistan region. the minister is under an obligation to make all relevant documents. provided that they are approved by the minister. chapter xiv – regulations and directions the minister has a broad power. if these terms are met. and the natural environment. this annex spells out the minimum terms of revenue sharing agreements between the kurdistan region and iraq in respect of current fields and future fields revenue. available to the public. the validity of krg agreements prior to the entry into force of the constitution of iraq are supported by article 141 of the iraq constitution. the purpose of these provisions to protect life. on a renewable basis. property. kurdistan. health. the agreements are to have duration of five years. which states that all decisions issued by the krg since 1992 remain in force. permit prior agreements of the iraq government in the kurdistan region to remain in force. the intention of the provisions in this chapter is to make the petroleum regime of the kurdistan region as transparent as possible. this power is consistent with international best practice. chapter xvi – final provisions article 79: transitional provisions: kurdistan region agreements this article states that all previous krg agreements. of their fair share of petroleum revenue under article 112 of the constitution. the krg can agree that the iraq government (represented by the “state oil trust organization”. and consistent with international standards. chapter xv – penalty provisions these provisions are self-explanatory. to make regulations and to direct persons. regulations are to be published. and by other regions and governorates. and justification for certain decisions. under this act. soto) may receive revenues from petroleum operations directly. remain in force following the passage of this act.

annex b: restructuring of the industry in iraq pursuant to the terms of the general agreement required by article 24 of the act. reviewing proposed future fields petroleum contracts. investor-friendly regime that is consistent with the constitution of iraq and is likely to generate future fields revenue for iraq-wide sharing. and data exchange. . a more limited role for the iraq ministry of oil and the creation of dedicated federal entities for future fields and current fields. and appointing members to regional institutions including kepco.these provisions are mirrored by similar provisions in the draft petroleum act for iraq which the ministry has proposed to the government of iraq. petroleum export. reviewing field development plans. to jointly approve petroleum contracts for current fields. under the terms of five year renewable agreements. annex c: regional role of federal institutions pursuant to the terms of the general agreement required by article 24 of the act. this annex lists the maximum role that iraqi federal institutions may have in the petroleum sector of the kurdistan region. this annex lists the minimum krg requirements for the restructuring of the iraq petroleum industry into a modern. agreements on free foreign exchange. the ministry will attempt to reach agreement with the federal government regarding the undetermined percentages and figures in article 16 and 17 prior to the passage of the acts. including the allocation of opec quotas and the power. that role is largely advisory. knoc and the contract evaluation committee. with regional representation on those federal entities. in certain respects the role will be more robust. the key requirements include the establishment of a federal petroleum committee. especially in relation to the preparation of model authorizations.