Vinson & Elkins: Iraqis already working on legal reforms

July 28, 2003
The Iraqi Governing Council already is working on legal reforms intended to attract foreign investors, promising new opportunities for international oil and natural gas companies, said attorneys with Vinson & Elkins LLC.

The Iraqi Governing Council already is working on legal reforms intended to attract foreign investors, promising new opportunities for international oil and natural gas companies, said attorneys with Vinson & Elkins LLC.

"Iraq is a frontier region, not in terms of reserves but in terms of law," Stephen D. Davis, a Vinson & Elkins partner, said during a July 17 presentation for clients in the law firm's Houston office.

Meanwhile, both oil companies and service companies are watching Iraqi developments and eagerly awaiting specifics on doing business there, he said. So far, Iraqi political and legal issues remain intertwined (OGJ, June 30, 2003, p. 30).

The Coalition Provisional Authority on July 13 appointed the 25-member Iraqi Governing Council, which includes Iraqis from diverse political, ethnic, and religious backgrounds.

Current Iraqi law prohibits non-Arabs from owning equity in Iraqi businesses, said James L. Loftis, another Vinson & Elkins partner.

He expects to see this law and other prohibitions on international investment amended. The question is whether the Iraqi Governing Council will amend Iraqi law or whether it will issue temporary suspensions of existing laws, he said.

Meanwhile, the legal status of contracts that might be signed under such temporary decrees remains unclear yet, Davis said.

An Iraqi legal system and a judiciary system exist but are nonfunctional, Loftis said, adding that Iraq has many legal professionals well-versed in existing international laws. He advises any foreign company interested in doing business in Iraq to first obtain assistance from Iraqis having local expertise in that company's particular business segment.

"What law governs in Iraq? It depends on who or what is being governed as to what law applies," Loftis said. "Iraq had a very strong legal tradition." But since 1979, many laws were amended by decrees, so the governing council now must work through those revisions and decide which ones still apply.

Oil production

The original yearend 2003 Iraqi oil production estimate was 2.5-3 million b/d, but that has been reduced to 2-2.5 million b/d, and it could be reduced again, said Loftis, who recently visited Iraq and talked with Iraqi authorities about the energy industry.

"There is significant downward pressure on the (oil) production number," Loftis said. "Rumors" are that interim Iraqi Oil Minister Thamer al-Ghadhban is considering lowering the target to 1.5-2 million b/d, although he is encountering political pressure against doing that, Loftis added.

Production is hindered by damaged and decayed facilities, sabotage, and power outages, he said (see related story, this page).

A shortage of electricity for cities has meant that power has been diverted away from oil and gas facilities, he said.

Significant development deals were signed during 1995-2001, but none made any progress because of international sanctions against Iraq and because of political conflicts within Iraq, he said.

Regarding prewar approved energy contracts that have yet to be implemented, Loftis said he believes that "a significant number" of these contracts will be put up for bid again.