Skip to content

Iraqi Reconciliation-Economic Proposal: Hydrocarbon Revenue Sharing

This was a proposal I crafted in 2008 to address the dispute over equitable distribution of Iraqi hydrocarbon revenues.

Goal of Proposal:

This proposal seeks to address the issue of the equitable management of the Iraqi hydrocarbon sector, and the equitable distribution of the revenues generated therein.

Overview:

The government of Iraq will form a national corporation, referred to in this proposal as “IOG” (Iraqi Oil and Gas) for the management and exploitation of hydrocarbon resources, and for the national distribution of revenues. IOG will be managed and accountable similar to other hydrocarbon corporations; it will be audited regularly by international, corporate auditing firms such as Deloitte, and will answer to IOG’s stockholders, the citizens of Iraq. IOG, as a public corporation, will allow for the same types of freedom of information and transparency as characterize other such corporations, and will report to stockholders annually, with admission to the stockholder’s meeting based on a national raffle. The vast majority of people who are not selected via the raffle will be able to watch the stockholder’s meeting on live television, and will also be able to vote on proposals and officers via regular telephones, cell phones, the Internet, or for those without access to telecommunications and televisions, on paper ballots in town-hall style meetings where the meeting will also be broadcast[1].

In conjunction with the creation of the IOG, an Iraqi Oil Stock Exchange will be established to enable citizens to buy and sell IOG stock as their needs and desires dictate (the only caveat being that only Iraqi citizens can own such stock; foreign buyers are not allowed).

Implementation

The government of Iraq will establish a corporation (IOG) for the management and exploitation of hydrocarbon resources and for the distribution of revenues to stockholders (the Iraqi citizenry). IOG stock will be issued to address the concern for the equitable distribution of hydrocarbon resources. 100 shares of IOG stock will be issued to each Iraqi citizen over the age of 18 who registers in the initial stock offering, at which time the census will be updated and corrected[2]. The details of the stock distribution are as follows:

As Iraqis turn 18, they will each be issued 100 shares[3], provided they:
register for the stock;
meet any civic responsibilities such as mandatory military service…etc.
Blocks of citizens such as the Kurds will be able to buy IOG stock on the Iraqi Oil Stock Exchange to obtain more control (up to a pre-set ceiling to prevent monopolistic control), while reimbursing citizens at fair market value.

IOG Corporate Management Team:

The officers of the corporation will be elected by a vote of the stockholders. Candidates for these top positions will be evaluated by one or more independent organizations familiar with the hydrocarbon industry (such as OPEC or an internationally respected investment house such as UBS) and a report and score card will be written up on each candidate and provided to stockholders, detailing their fitness for the position for which they have been nominated or seek. Reports and scorecards based on the officers’ performance will be updated annually by this (these) same independent, international organization(s).

These corporate officers will be answerable to stockholders and can be replaced should the stockholders vote them out of office at annual meetings.

Hydrocarbon Revenue Distribution

Distribution of revenues from Iraq’s oil and gas production will be in the form of dividends issued annually to IOG stockholders. The process whereby such dividends are determined and generated is as follows:

Prior to issuing the annual dividend, an audit of the process whereby the dividend was determined will be conducted by an independent, international auditing firm such as Deloitte, to ensure that the dividend is proper;
After certification of the legitimacy of the dividend by this audit, the dividend will be established for distribution to stockholders;
This dividend will be subject to whatever profit percentage is earmarked for reinvestment in the corporation, and whatever percentage is earmarked for rebuilding war-torn infrastructure. Note: both percentages will be voted on by stockholders.

Kurdish Region:

Kurdistan clearly demands a lion’s share of revenue from the oil production in their territories, and other regions and minorities may make similar demands. The solution proposed in this model is the establishment of subsidiaries.

Kurdish Subsidiary: Kurdish Oil and Gas (KOG)

Kurdistan will exercise control over their oil fields as a Kurdish subsidiary of IOG (“KOG” for the purposes of this proposal). Such control will include exploration and development deals with international oil and gas corporations, without ‘parent’ corporation (IOG) interference, given the following requirements:

Any such deal must be submitted to the entire body of stockholders[4] for a vote. This will be a safeguard to make sure the proposed partnership is presented to the stockholders, giving opportunities for analysis and questions. This process will help keep those making such deals accountable.
KOG must allow audits by IOG to ensure:
* proper profit reporting;
* proper dividend generation;
* proper percentages set aside for future investments;
* that no corruption or fraud will be perpetrated against IOG and KOG stockholders;
Since the dividend for ALL Iraqis is in part determined by the performance of KOG, IOG stockholders (i.e. all Iraqi citizens, not just Kurdish) vote for the KOG management team, based on the same process of independently generated candidate reports and score cards as implemented for IOG management elections.
In order to secure Kurdish participation in such a plan, under this proposal the Kurdish citizens of Iraq will be issued 100 shares of stock as of their 18th birthday, as with the rest of the Iraqi citizenry, but dividends to registered Kurdish stockholders will reflect a larger percentage based on the ratio of Kurdish oil to non-Kurdish oil produced in Iraq in a given year. Furthermore, Kurds, through KOG, will be allowed a greater, but firmly established, percentage of profits for investment in their infrastructure and future development needs, provided KOG allows regular, unhindered audits by IOG’s auditing firm.

KOG stock will be traded on the Iraqi Oil Stock Exchange and ALL Iraqis will have the right to purchase KOG stock at fair market value, up to a pre-set ceiling to prevent monopolistic control by non-Kurdish entities.

Contentious issues addressed by this proposal

Outside investment in Iraq’s Oil and Gas Sector:

By making the operation of Iraq’s oil and gas sector more like a recognizable corporation, international investors would be more likely to invest in Iraq’s oil infrastructure, given the accountability and transparency such a structure implies.

By commissioning internationally recognized oil consortium(s) or investment house(s) to write reports and scorecards for corporate officers and candidates, international corporations and investors would be more likely to trust the legitimacy and expertise of the management team.

Such a corporation would contribute to, if not complete, the process of reversing the nationalization of Iraq’s oil and gas sectors which would, in turn, contribute to the attractiveness of international investment in Iraq.

Revenue Sharing

By issuing stock to Iraqis 18 and over, an equitable distribution of revenue to the Iraqi public should be possible. With officially offered stock and the controls which go along with such an offering (serial numbers, anti-counterfeiting techniques…) corruption and fraud should be mitigated.

Article 110 of the Iraqi Constitution:

Commercial trade across regional and governorate bodies

A corporation in which all Iraqis felt they had a vested interest might help bypass some of the complex constitutional issues involved with inter-region/inter-governorate commerce.

Kurdish and other minority subsidiaries

By creating a Kurdish subsidiary, the Kurds would have more of the control they desire over their oil and gas fields and exploration decisions, and would in turn receive a greater share of the revenues from their oil, while at the same time allowing ALL Iraqis to share in:

the revenues from Kurdish oil and gas
the selection of the KOG management team
decisions regarding the international exploration and partnership contracts considered by KOG.

This KOG subsidiary is a national compromise which would be accomplished without forcing the Kurds to relinquish ownership of the Kurdish oil and gas fields and associated revenues, thereby preserving the national unity of Iraq in terms of its hydrocarbon resources. This should also make the tensions regarding Kirkuk much less intense, in that this proposal creates an equitable solution for the distribution of revenues and management of oil and gas in contested areas, and bypasses the contentious issues of ownership.[5]

Corruption

By engaging internationally recognized auditing firms such as Deloitte, problems of corruption as have been already detected in oil revenue distribution would be mitigated, as would the problems of inadequate metering on some oil fields[6]. Furthermore, by establishing a corporation as proposed above, the corruption and weak financial controls of the governmental ministries responsible for oil revenue distribution would be eliminated.

Security

By making corporate officers responsible for not only the performance of the company but also the security of the oil transport via pipelines…etc., the fraud currently taking place with regards to oil transport might be better controlled.

[1] Funding for the establishment of such nationwide video and voting access in the town-hall meetings will come from a fund set up by IOG.

[2] The idea behind issuing 100 shares is to make the price per share low enough to stimulate trading of IOG stock among Iraqis on the Iraqi Oil Stock Exchange, giving citizens the option to buy and sell such stock as needed.

[3] Note: while this continual offering of stock to Iraqis as they turn 18 will lower the overall value of the stock certificates, this decrease in value reflects the overall, continued distribution of hydrocarbon revenues to all Iraqi citizens; as the population grows, individual distributions will decrease regardless of which system of revenue distribution is chosen.

[4] A mechanism, whether it be a set, quarterly stockholder meeting, notifications by mail or television announcement, will need to be determined for alerting stockholders to upcoming meetings where such proposals will be submitted to stockholders for a vote. Annual meetings will not suffice in these situations due to the need to move relatively quickly on new business opportunities…etc.

[5] Of course an agreement would need to be worked out as to whether or not Kirkuk revenues and management would fall under KOG and the associated dividend percentages.

[6] As part of the auditing process, proper metering and associated controls would be installed on the Iraqi wells that currently lack such equipment.

Kevin Banks

Geopolitical analyst with extensive background in languages and information technology.

Leave a Reply

Select Language
Scroll To Top