Session Report
Management and Sharing of Water, Oil, Gas amd other Natural Resources
Who owns and who manages what, and on whose behalf?
The problem-solving and flexibility possible when designing a federal system is reflected also in the range of arrangements that have been found to manage issues pertaining to natural resources, including ownership and management as well as management of revenues generated and the redistribution of the resulting wealth.
Ownership
In many countries, the issue of resource ownership appears to be a formal aspect that does not need to be explicitly addressed when regulating competences related to the management of natural resources intended to generate revenue to benefit citizens. Participants pointed out that one reason certain constitutions do not make such specifications is that one of the options envisaged is private ownership is. In the Iraqi Constitution, however, article 108 states that resources are “the ownership of all the people of Iraq in all the regions and governorates” but also that their management need to be regulated in order to “achieve the highest benefit”.
The Indian Constitution (article 297) is specific with regards to ownership only in the case of natural resources “(…) underlying the ocean within the territorial waters (….) of India” which are then of the Union. For natural resources on the Indian mainland, ownership is not addressed, but the competence of regulating their management (art 39b) is distributed to the regions which shall “direct its policy towards securing (…) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good.”
The Canadian Constitution (in article 92 of Laws respecting non-renewable natural resources, forestry resources and electrical energy), while not entering into the issue of ownership, distributes to the provinces competence over natural resources as well as the right to make laws in relation to:
- exploration for non-renewable natural resources within the province;
- development, conservation and management of non-renewable natural resources and forestry resources in the province;
- development, conservation and management of sites and facilities in the province for the generation and production of electrical energy.
These points led into a thorough discussion about the possible interpretations of article 108 of the Iraqi Constitution. Regardless to the interpretation, of to whom to assign ownership country examples show that this leaves than open the competence of the management of resources. The same goes for the decision of deposits discovered in the future.
Some participants suggested that there is a need to empower the central government to allow Iraq to preserve central will and protect federalism, while simultaneously establishing a parliament or second chamber to act as a check and balance. Whether the majority of competences and responsibilities are held by the federal or the regional governments, overlaps in ownership are inevitable and therefore it is essential to put into place mechanisms for cooperation and coordination.
Certain participants suggested that a centralised approach should be adopted, as regional responsibility might act against national unity. The Constitution seems to attribute control of resources to the central government with some powers being delegated to the regions, and many participants felt that more power should go to the regions. It was also mentioned that in Kurdistan more than in other regions resources had been over-exploited during the past regime, and that regional ownership or responsibility might prevent the reoccurrence of such abuses. While some participants felt that the wording of the Constitution is ambiguous, others consider that the language on resource ownership is clear.
However, some participants suggested that the Constitution’s general, rather than specific, definition of central government competences is perhaps intentional, particularly when it comes to management of petroleum resources, due to a wariness regarding such issues as a result of past experiences. Some responsibilities belong to the central government and some to regional and provincial governments. However neither level has legal power on its own to establish an oil industry, which may be a deliberate attempt to ensure cooperation as well as the harmonisation of legal rules. It was felt that some people may still be under the influence of a previous paradigm and therefore serious consideration should be given to explaining the principles of freedom and rights given that the population has been oppressed for decades. To avoid mistrust and lack of understanding and allay these doubts and fears it would be prudent to educate Iraqis about how federal democratic systems can operates.
Most Iraqis seem to favour a reading of the Constitution in which all Iraqi people have ownership over natural resources, both current and future. Resources should thus be the subjects of concurrent responsibilities of federal and regional governments, though the definition of ‘joint responsibilities’ should be clarified. Ownership should be interpreted as being held by the population at large, not the government of the day. Some participants noted that it could also be interpreted as ‘owned’ according to location. Some participants suggested that provincial councils could manage oil extracted in areas of Iraq, which would give provinces a greater right to participate in the management of the operations.
In the course of the discussion on mechanisms for intergovernmental relations, the visiting expert from India mentioned the use of an Inter-state Council to resolve differences between federal and regional entities. The Indian model provides an example of success in overcoming differences as well as an illustration of many cultures living together in relative peace.
Management of resources
The constitutions of most federal countries skip over the issue of ownership of natural resources and instead directly address management and exploitation, that is, whether resources are under exclusive authority of the federal government, exclusive authority of the regional government, or both.
Natural resources, particularly hydrocarbons, are abundant in Iraq; there are oil reserves throughout the country, though some areas are more plentiful than others. It is estimated that known oil reserves amount to 110 billion barrels, while unknown reserves are believed to be approximately 212 billion barrels.
The Constitution grants management of resources to the central government in collaboration with regional governments, though it has been suggested that more control should be placed with the regional government. However, even if regional governments are awarded more responsibility, the central government is charged with ensuring that all regions can develop in an equal balanced way. This is at present a controversial topic, and participants discussed tensions between Sunni and Shiite Arabs resulting from the process of definition of regions. It was pointed out that Sunni Arabs are concerned that the Southern regions of Iraq, with large Shiite Arab populations are rich in natural resources, while predominantly Sunni areas are lacking in such resources, a fact that led some to oppose the federal system. Some participants suggested that in the interest of national unity, the process of formation of regions should be undertaken prudently, and participants discussed the possibility that tensions may increase and diversity within each region might be discouraged if the regions are solely identified by ethnic or religious grouping.
The central government is be expected to provide strategic management, regulating commerce and addressing potential relations with the Organisation of the Petroleum Exporting Countries (OPEC) through a committee comprised of representatives of the central government, regional governments and others. It will however also be necessary to consider the role of private international oil companies. Natural resources should be exploited in such a way as to ensure that reserves remain stable for present and future generations. In order to protect oil reserves for future generations it could be useful to establish a ‘fund’, as has been done in Alaska and Kuwait. Although oil and gas are the most significant resources, all natural resources should be safeguarded. However, many participants suggested that the management of oil and gas should be separated from the management of other resources, to ensure that the central government be on an equal footing with other levels of governments when it comes to oil and gas, but not necessarily all resources.
Management of revenue from natural resources
Participants considered that mechanisms should be in place to prevent the central government from misusing wealth gained from natural resources and to prevent further division among regions. The percentage to be attributed to regions was not specified in the Constitution, and participants agreed that it should be specified by law, preferably in a flexible way allowing for subsequent amendments in light of changing circumstances. It was suggested that resources could also be earmarked based on the damage suffered by provinces under the previous regime. Another factor that should be addressed is the possibility of tensions arising if a valuable resource is discovered in a particular region. One way to ensure fairness among regions would be to establish a financial committee in which all regions are represented.
As a result of the previous regime’s policy of domestic repression and aggression, in which revenues derived from natural resources were not used to benefit the population, but rather ended up in the hands of dictators, people are understandably doubtful and uncertain in this transition, though many less developed areas now have hope for a better future.
Redistribution of wealth
Several countries provide useful examples of mechanisms for the redistribution of wealth. In Venezuela, revenue came directly to the national government with a dividend to be redistributed to the regions. Nigeria redistributed wealth by retaining 13% of revenues in the province, with the rest going to the central government to be redistributed on the basis of need. Problems may result not from the choice of a specific mechanism, but rather if during implementation parties don’t trust each other or don’t abide by their responsibilities. The state of Alaska owns the oil in its territory, and when it signs a contract with an extraction company, some of the profit goes into a special bank account from which every citizen receives a yearly check. This prevents misuse of those funds by the government and is deemed a successful system of redistribution. In Canada, resources are owned by the ‘people of the provinces’. As these resources are found predominantly within one province, it is experiencing a surge in population. Northern Canada has a number of resources off-shore and coastal provinces have benefited from revenues while sharing management with the federal government.
Article 109 of the Iraqi Constitution entitles regions that suffered damage and deprivation under the previous regime to benefit from current resources. Some Iraqis are concerned that while this article mentions redistribution of wealth derived from current oil and gas fields, there is no mention of fields yet to be discovered. Furthermore, if revenue from future fields will be attributed directly to the regions, there is a possibility that the fields might be exploited unevenly, preventing other regions from the benefits they are due. It would also be important to clarify Article 108, in light of the need to include future deposits, so as to avoid ambiguities. If responsibilities are indeed to be shared, regional governments should be fully aware of their role.
Main issues
- What is the interpretation of the wording of the Constitution on “ownership” of natural resources?
- Is there a need to give an interpretation to the issue of “ownership”?
- How concurrent can the management of natural resources be?
- What mechanism of cooperation and coordination can there be in this management?
- How does one address the situation in which an oil deposit is in an area that covers more than one region?
- Who should regulate export policy?
- How should Iraq attract foreign investments?
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