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Niqash - economy - Profits and Loss


Profits and Loss

Today, shareholders are converging in London and The Hague for Shell's annual general meeting. As investors hobnob in the Champagne Suite of the Hammersmith Novotel, those working in the oilfields that the company seeks to control are ready to strike over an oil law that Shell has helped to craft.

The focus is the culmination of four years campaigning by the Iraqi Federation of Oil Unions (IFOU). Demands range from bread and butter issues such as land allocation, unpaid wages, holidays, health and safety and full-time status for temporary workers, to wider political issues which have been the founding bedrock of the union: protection of Iraq's oil wealth from foreign companies and a say in the future of the oil industry. Shell is one of the companies that the union has cautioned against entering Iraq "under the guise of so-called production sharing agreements."

Yet Shell has had a say and a proposed stake in the future of Iraq's oil industry for as long as the union has been organising. Whereas the demands of the union have been ignored, Shell, through doors blown open by the war and occupation, has accessed government decision makers and lobbyists on a regular basis.

Shell has been positioning itself to sign long-term exclusive contracts with the Iraqi government for the past four years. Ever since Shell misled investors over its reserves to the tune of 4bn barrels, it has been seeking replacement reserves. With 115bn barrels of proven reserves, occupied Iraq is where the prize still ultimately lies.

February saw the Iraqi cabinet approve a controversial hydrocarbon law. The law will grant foreign companies the dominant role in developing Iraq's reserves. If approved by parliament, foreign companies will have access to the largest reserves open to private control on the planet.

Neighbouring Saudi Arabia and Iran (first and second in the world oil-wealth stakes) do not have production-sharing agreements, the type of contract that the oil law proposes. They use technical service agreements, or buyback contracts, that leave decision-making powers including development, rates of production and extraction, to the state. Private oil companies there act as contractors rather than controllers.

The current Iraqi oil law will allow foreign companies to control production, with potentially unlimited profits in Iraq's undeveloped fields - accounting for two-thirds of Iraq's known reserves. This is to be done by production-sharing agreements - defined by critics as a form of privatisation by stealth. Under production-sharing agreements, foreign companies will put capital upfront to explore for oil and shoulder the risk if none is to be found or it is difficult to extract.

Iraq, however, is home to some of the easiest oil to access. Known as "low hanging fruit" by the industry, extraction costs range from $1-$1.50 per barrel. Under terms to be agreed by contract, the state would then relinquish a fixed percentage of profit to oil companies for a period of up to 30 years. The terms and conditions agreed in 2007 - under conditions of war and occupation - could last a generation until 2037, with virtually no opportunity to renegotiate.

Companies like Shell would expect concessions to offset the risks of working in a dangerous country like Iraq. Risk, as with all capital ventures, presents opportunity. The risk represented by massacres in Haditha and Fallujah, the car bombings and terror on the streets of Baghdad, military air raids, sieges, walls of separation, kidnappings and assassinations all figures into the balance sheets of companies like Shell.

Shell was a key player in moulding the current oil law. Shell representatives, along with those of eight other oil majors, the US and UK governments and the International Monetary Fund, saw the law just weeks after it was written in July 2006. It would be eight months before the law would be presented to Iraqi MPs. Shell commented upon and influenced the law throughout its drafting process.

Since July 2006, the British government has worked earnestly to influence the law, repeatedly consulting with Shell on the type of contracts it would like to obtain. Through the oil industry lobby organisation International Taxation and Investment Centre, Shell - along with six other major oil companies - has been pressuring the Iraqi government to grant long-term contracts that would give them exclusive rights to extract Iraq's oil. The British government, through the Foreign Office, has been helping, delivering a report strongly advocating production-sharing agreements to the Iraqi government.

Shell's involvement in shaping domestic economic policy in Iraq stretches back to March 2003. Just days before the bombing of Baghdad, senior Shell managers met at 10 Downing Street to insist that Iraq's oil should benefit not just US companies, but European companies too. A month later, 100 worker activists from the Southern Oil Company formed the Southern Oil Company Union, with the explicit aim of securing workers rights and defending Iraq's oil from privatisation. American companies were shown the door by the union when they tried to work in the fields. The Union faced down British soldiers in protests over three months of unpaid wages and won. Membership leapt from 100 to 3,000.

From February to September 2003, former Shell CEO Philip Carroll worked with the Coalition Provisional Authority on plans to restructure the Iraqi oil industry. Meanwhile, Iraqi oil workers embarked on a reconstruction effort - rebuilding drilling rigs, pipelines and refining and port equipment.

Union leaders also deconstructed Bremer's Order No 30 wage table - arguing that Iraqi oil workers needed more than the occupation set minimum wage of 69,000 Iraqi Dinar (approximately £30) per month. After threatening to shut down exports, the union succeeded in eliminating the last two categories of the wage table and won a new minimum rate in the oil sector of 102,000 ID (£45) per month. Membership and confidence swelled.

In 2004, Shell hired a Dubai-based exploration and production executive to act as its "country chairman" for Iraq - the most senior overseas post in the business. To assist the new chairman, Shell sought an Iraq lobbyist, advertising for "a person of Iraqi extraction with strong family connections and an insight into the network of families of significance within Iraq." In the same year, workplace elections were held in the Maysan, Basra and Dhi Qar provinces, creating the General Union of Oil Employees (GUOE). Candidates with strong connections and credentials among the workforce were chosen to lead in nine oil and gas companies. The establishment of the GUOE significantly strengthened networks of influence and organisation for working people in the southern oil sector and their communities. Union membership now stands at 26,000 across four governorates in the south.

So the view of a black gold rush that may have glittered from The Hague and London just got hazier. The organisational strength of the IFOU could be a major spanner in the works of Shell's lobbying and legal mechanisms. The IFOU has repeatedly warned companies like Shell to keep out of Iraq's oil fields. Union president Hassan Juma'a recently said of the strike: "The federation calls on all unions in the world to support our demands and to put pressure on governments and the oil companies not to enter the Iraqi oil fields."

Questions will be asked both inside Shell's AGM and outside, through a peaceful protest, about the ethics of its policies in Iraq. Likewise, through the efforts of Iraqi unions, the debate in Iraq will expand on who really does have the right to control Iraq's oil. Who will decide the fate of the resource that accounts for 95% of government revenue? And who should have a say in the future of Iraq's economy - Shell or the people of Iraq?

Ewa Jasiewicz


22 May 2007

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