Legal, Institutional, and Economic Reform of the Energy Sector in Iraq (Article) - Energy

Many of those interested in the energy file in Iraq (production and industry of oil, gas, electricity and renewable energy) have been focusing their proposals on discussing the technical aspect without looking at the challenges of the administrative, institutional and legal heritage, in addition to the absence of a discussion of the economic aspects and public policies of this vital and important sector in building The economic system of the country, compared to the successful economic systems in the world.

This article deals with the steps that must be implemented – in general – to reform the Iraqi energy sector, in order to meet the requirements of the federal state constitution of 2005, and to address the legal aspects and administrative contexts and the maturation of institutional work, to turn into productive and profitable, supportive of the democratic system, protector of civil peace and guarantor of the rights of generations.

Iraqi companies

Public companies in Iraq, ministries and government departments are the main operator of the working class in the country, as the percentage of their employees reaches 17% of the total population of 41 million people, according to the estimates of the Ministry of Planning for the year 2021, and this is a very large percentage compared to the global rates of democratic countries that depend on the economy The market is its platform.

Statistics also indicate that this working class will continue to increase in the coming years, in light of the continued growth of the population by 3%, according to estimates by the World Bank, which will burden public budgets and create pressure on the Iraqi economy due to the increased government support for these institutions and the depletion of most government imports from the treasury state without regard to profit and loss factors.

Most of the public companies associated with the ministries in Iraq are losers and deplete the state treasury, and are even dedicated to political quotas in all their facilities, property and financial allocations, and disrupt the role of the private sector, and thus are the main reason for the decline of the economy and the neutralization of the state’s sources of income.

Oil and gas in IraqChallenges of the energy sector in Iraq

As for the energy field in Iraq, the crisis lies in the fragmentation of this sector between 3 ministries (oil, electricity, and industry), the overlap of institutional work between regulatory agencies (ministeries) and those subject to regulation (public companies), in addition to the absence of a leadership role for this sector and the fragmentation of the roles of the successive ministers. These three ministries, as their number has reached about 30 ministers since 2003, contributed to the growing losses, lost opportunities, confusion and instability in vision and implementation, thus creating a failed work environment in which coordination is absent, and mismanagement, corruption and conflict of interests behaviors grow.

This comes in addition to the fact that government work and its bureaucratic contexts are based on centralized decision-making and socialist legislation (in effect according to Article 130 of the Constitution) that collide with the requirements of the Federal Constitution of 2005 in the absence of federal legislation that must pursue a market economy and decentralization in drawing the features of the federal state, institutionally. and economically.

All of these challenges led to an increase in (technical and commercial) losses in the electric energy produced to 55%, and a decrease in the efficiency of refineries by 50%, in light of ineffective government support for the energy file, which costs the state treasury in total for more than 25 billion dollars annually distributed among three ministries (Oil and electricity and industry), to fulfill its obligations towards the subsidized electricity tariff and the cost of gas and derivatives imported, produced and sold with government subsidies.

All this led to an increase in abuses on the national network and an increase in the crimes of smuggling subsidized derivatives, in addition to an increase in energy scarcity, or what is known as energy poverty, which costs the state industrial and commercial losses (named lost opportunities) ranging between 17 and 20 billion dollars annually (according to International Energy Agency estimates). Reducing the role of the private sector in light of the growing unemployment among young people, as well as disguised unemployment in government institutions.

Measures to solve the energy sector crisis in Iraq

The best solution to these challenges lies in legislating (discontinued) federal laws according to the 2005 Iraqi constitution, specifically the oil and gas law based on Article 112 of the constitution and the Federal Revenue Distribution Law, based on Article 106 of the constitution and the establishment of the Federal Energy Council, and the Federal Revenue Distribution Authority, based on To these federal legislations to create a promising energy sector that guarantees energy security locally, and makes Iraq a likely global producer of oil in global markets, and a regional carrier in electric energy markets.

Thus, the energy sector in Iraq is supportive and accelerating the reconstruction process in the country in various fields, establishing a correct start for the formation of investment and sovereign funds, with the aim of diversifying the state’s imports, accelerating the wheel of reconstruction and ensuring the rights of generations.

Legislative reforms must be accompanied by steps of good governance and the creation of a solid tax system and a promising private sector that is the main operator of the people, not the government.

It is not necessary to employ the people on government cadres and deplete oil imports to finance unproductive jobs and create disguised unemployment, because the task of employment will be the responsibility of the role of the private sector and sober international companies after creating a promising environment for long-term investments, so that the fate of oil imports ends in financing sovereign funds for the development of the state’s economy In a sustainable manner, protecting the rights of generations, ensuring stability for social protection networks, ending poverty and unemployment, and supporting health and education files with sound policies.

Iraq - Oil Sector - Iraqi OilSuggestions to solve the Iraqi energy sector crisis

We review the following proposals to solve the energy crisis in Iraq:

  1. Amending the Ministry of Electricity Law No. 53 of 2017 and disengaging the relevant public companies, so that they are independent in their work on the basis of profit and loss, and then gradually privatize them according to international standards to attract investments, provided that the Ministry or the Electricity Authority is a regulatory body.
  2. Legislation of a federal law for oil, gas and energy based on Article 112 of the constitution, in line with the requirements of global agreements related to the environment and technology and to be an alternative to Law 101 of 1976, and establishes the Ministry of Energy (regulatory) and separates public companies previously associated with the ministry to be independent of its executive work.
  3. Separation of public companies from ministries, to be independent operating entities subject to regulation by the regulator (the competent sectoral ministry), to work on the principle of profit and loss with self-financing and without any financial support from the government, and in the event of its loss, its assets are liquidated. The financial support on tariffs, fuels and derivatives will be canceled to be linked to limited financial allocations for those registered with social protection networks exclusively, collected from corporate and income taxes after adjusting the tax scale, specifically on the public sector.
  4. The ownership of the assets of public companies is determined by the Ministry of Finance and not in favor of the sectoral ministry, as the latter has a regulatory role.
  5. The sectoral ministry cooperates with a specialized international consulting company to restructure public companies as well as its boards of directors with international controls and standards, provided that its leaders enjoy specialized and professional individuals with high efficiency, international standards and strict conditions for selection, even if it is necessary to seek the assistance of foreign personalities if Iraqi competencies are not available to fill the void as happened In the Gulf countries, while reconsidering the identity of the members of their boards of directors to enjoy prominent personalities as is the case globally.
  6. Evaluating the assets of public companies through a specialized global advisory institution for the purpose of listing them in the stock market with an investment incentive package to attract and develop capital in the labor market by offering a percentage of its shares to investors.
  7. Retaining efficient cadres for public companies, transferring the surplus of its affiliates to professional and training centers, to qualify them to work according to international standards, reviewing the leadership, technical and commercial cadres, and replacing them with professional and efficient cadres with international standards.
  8. Ending the case of conflict of interest between public companies and the competent ministry, meaning that the minister and the ministry departments have no involvement in the work of the companies’ boards of directors, the selection of their members, or the interference with their contracts and executive contexts.
  9. As an initial stage before merging the ministries related to the energy file (oil, electricity, and industry), he made the position of Deputy Prime Minister for Energy Affairs a permanent position in the cabinet for two full and stable cycles without consulting any other ministry, to chair the Ministerial Energy Council with the membership of the ministries of Oil, Electricity, Industry, Finance and Planning, to focus on drawing up Public policies, presenting relevant bills to the House of Representatives, supervising institutional reforms for the ministries of oil, electricity and industry, and related formations of public companies, and setting a long-term energy strategy, provided that whoever holds this position is well versed in public policies and economics in federal systems and dealings with companies and institutions Global and International Relations.

Requirements for implementing repairs

All of these reforms need a political will that guarantees government support and non-interference in the economic reform process with obstructive moods that have nothing to do with the economy and state building. If this was achieved, the crisis of disguised unemployment, the depletion of the state treasury, the quota game, the “milk” story of ministries, the disruption of the formation of governments and the disruption of the legislation of budget laws would have ended, due to quotas on the revenues of the public treasury and its allocations, because the work of the ministries will be limited to planning, setting policies, organizing and implementing the government program away from tasks. Operational, which is not the duty of the government exclusively, but for companies (public, private or mixed) that are self-financed that operate on the principle of a market economy in profit and loss away from the scourge of government support.

Iraq needs a rescue moment in the field of economy and energy by adopting leaders with intellectual capabilities and global standards that are known and defined at the global level, who move away from the policy of exclusivity and factional tendencies and adopt institutional work and adopt a professional discourse that is a tool to attract international and local investments and investors to establish confidence, attract capital and develop The economy and ensuring a state of balance in creating solid partnerships with global markets, moving Iraq to the stage of self-sufficiency and the rank of influencer on the economies of global energy security.

This is the only guarantee that will push the international community to deal with Iraq as an important pillar to ensure its security and political stability. Otherwise, Iraq will be exposed to the dangers of political, security and economic collapse, and civil peace will be threatened before 2030.

* Dr. Louay Al-Khatib is an Iraqi politician who served as Minister of Electricity in the government of Adel Abdul-Mahdi.

* To contact the author:here).

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