Legal dynamics in Iraq

Iraq

Greg Hammond, head of international oil and gas at international law firm Eversheds, talks to TOGY about the changing legal environment in Iraq, the hurdles that international investors might face when entering its hydrocarbons market and the shifts in industry dynamics as a result of low oil prices.

What is the present state of the legal environment of Iraq’s oil and gas industry?
Iraq underwent fundamental political and legal change following the fall of the Saddam Hussein regime and the subsequent establishment of a democratic system of governance.
The combination of an ambitious hydrocarbons growth strategy and a developing legal system results in occasional delays and adjustments. For example, a new Hydrocarbons Law has still not been adopted.
In spite of this, Iraq has attracted the leading global international oil companies as well as mid-cap and small-cap investors to invest in major oil and gas projects across the value chain in less than a decade.
The country’s authorities have also been quite flexible in amending the terms of technical, as well as development and production services contracts in Iraq to adjust them to changing circumstances.

What are some of the primary obstacles that investors face in doing business in Iraq?
New laws and regulations in the country are written in Arabic, and many of these are not readily accessible or published.
Additionally, some of the newer regulations and instructions conflict with the older ones. For that reason, overseas investors working in Iraq should obtain high-quality legal advice for all aspects of their business.
Iraq was isolated during the Saddam Hussein era, so it continues to offer limited bilateral investment and other international treaty protections for investors. Investors should obtain legal advice in advance of making their investment, so they are in the strongest possible position should a dispute occur.

Has the bargaining relationship between the government and oil companies in Iraq shifted in favour of the state?
Iraq is unusual because it has two oil and gas regimes, one operating in the Kurdistan Region of Iraq and the other in the rest of Iraq.
The former operates under a classic production-sharing model while the latter is generally on a commission-per-barrel basis – so the commercial dynamics in each case are different. Low oil prices are putting pressure on all governments as well as oil companies.
However, Iraq continues to attract investors since the number of territories in the world with hydrocarbons assets of this quality and scale that are freely accessible to international investors is decreasing; and production costs in Iraq remain competitive.

What methods would you recommend to prevent corruption at Customs, tax departments and other sectors of the Iraqi economy where loopholes exist?
Each client has unique business operations and policies. The nature and level of corruption risk are different for each client, and the corruption risk determines the type of measures for anti-corruption a business should adopt.
We generally recommend that larger clients conduct an anti-corruption risk assessment in order to identify corruption risks existent throughout their business.
Depending on the results, a client can develop and implement a customised anti-corruption compliance programme targeting risks effectively and in a proportionate manner.

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