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Thursday, April 26, 2007

Legal doings behind the scenes and the Iraq Oil Law

This gives a glimpse behind the scenes as the new Iraq Oil Law was drafted. It was drafted by and for the big international oil players. By the way there is no way that the bill will be passed this month. It is not even being debated unless that is happening in secret too! It may be passed next month before the big conference in Dubai which will enable the big international players to contact the puppet players in Iraq.

Oil Debate Fuels D.C. Lawyer's Role in Iraq
New law to be voted on by Iraqi parliament would open the country's oil industry to foreign investment
Daphne Eviatar
The American Lawyer
April 26, 2007

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This month, the Iraqi parliament is expected to vote on a new oil law.

Assuming that the government doesn't dissolve amid the chaos, the new law will determine how the country's highly coveted natural resource will be exploited for decades to come -- and who's likely to reap the profits. It will also influence when U.S. troops leave Iraq, since it's one of the key benchmarks set by the Bush administration.

That puts Ronald Jonkers in a tough spot. It's not just that the Washington, D.C., lawyer, now with Hills Stern & Morley (formerly with Clifford Chance), has to watch out for bullets and mortars on his way from his fortified trailer in the Green Zone to the U.S. Embassy in Baghdad. (Even the U.S. stronghold faces frequent attacks from insurgents.) But when he gets to his job as the American legal adviser to the fledgling Iraqi government, he has to perform a high-stakes juggling act.

The new law attempts to balance the interests of the warring Sunni, Shiite and Kurd factions, none of which necessarily correspond with those of the United States, nor those of the oil companies and law firms that make up a powerful U.S. constituency.

So it would be hard to overstate the delicacy of Jonkers' role. Neither he nor the U.S. Department of State would discuss exactly what Jonkers is doing in Iraq these days. The U.S. government would not even officially confirm that he's there, although sources ranging from watchdog groups to a family member have confirmed his role to The American Lawyer. Jonkers did not return repeated calls and e-mail requests for comment. David Foley, a spokesman for the State Department, would say only that "our guys are helping the Iraqis write their law and pass their law," and that "the hydrocarbon law is critically important."

Energy lawyers agree. "Pretty much all the major oil companies are taking a very close interest in the future potential in Iraq," says Mathew Kidwell, a partner in the Dubai office of Fulbright & Jaworski. "We have certainly had discussions with a number of our oil industry clients about the legal framework."

Ronald Jonkers is the son of the late Col. Roy Jonkers, a high-ranking military intelligence officer in the U.S. Air Force. Although raised largely in Europe, where his father's travels took him, Jonkers graduated from Stanford University and Hastings College of the Law. From 1992 to 2003 he was assistant general counsel for the Overseas Private Investment Corp., a U.S. agency that provides financing and political risk insurance to American businesses investing overseas, often in energy projects in high-risk, war-torn environments like Iraq's. For example, he advised the agency on the controversial Baku-Tbilisi-Ceyhan pipeline, which sends oil from the Caspian Sea in Azerbaijan across Georgia and Turkey.

His private practice has followed a similar path. As a project finance lawyer at Clifford Chance from 2003 to 2005, Jonkers structured energy projects in Russia and telecommunications systems in Bangladesh, among other deals. He did similar cross-border finance work at Hills Stern & Morley. (He's been on leave from the firm since heading to Iraq more than a year ago.) So Jonkers is well versed in the sorts of oil laws that American businesses and their lawyers hope will emerge in a new Iraq. "He has a terrific background for that," says David Evans, a partner in Clifford Chance's Washington office, who recruited Jonkers to join the firm. "At OPIC, he had a lot to do with that interstitial tissue between policy and legal matters. It's all well and good to say, 'here's the law you're going to use,' but you have to understand how it works at the political level."

Since setting passage of the oil law as a benchmark for the Iraqi government in January, President George W. Bush has emphasized that the draft law, which was only made public in March, would distribute oil revenues evenly throughout the country on the basis of population, rather than where the oil is produced. While that's widely seen as key to preventing factional conflict, that provision was already part of the Iraqi constitution, ratified in October 2005.

What's really new about the law is that it would open the Iraqi oil industry's doors wide open to foreign investment. Under Saddam Hussein, foreign investment was strictly limited, as it is in most major Middle Eastern oil-producing countries. Under the new law, the Iraq National Oil Company would have exclusive control of only about 17 of Iraq's approximately 80 known oil fields.

The law would also allow the government to negotiate different kinds of exploration and production contracts with foreign oil companies, including Production Sharing Agreements, or PSAs. Energy lawyers favor these because they allow oil companies to secure long-term deals and book oil reserves as assets on their company balance sheets. A report on the future of Iraq's oil industry from the International Tax and Investment Center, an industry organization whose board includes senior officials of the world's largest publicly held oil and oil services companies, as well as partners from five Global 100 firms, confirms that's exactly what the energy industry has been pressing for.

So far, Fulbright's oil company clients are pleased with the draft law. "The consensus seems to be that, from what we've seen, it's a good first step," says Jeremy Sheldon, partner in Fulbright's London office.

But there is opposition to the law from a wide swath of Iraqi interests. Many fear it will hand over to foreigners too much control over Iraq's most prized natural resource. A group of Iraqi oil experts wrote an open letter to the Iraqi parliament complaining that the law's emphasis on quickly attracting foreign investment could lead the government, now weak from the ongoing war, to seal long-term deals with foreign companies that are not in the long-term interest of the country. Production contracts, for example, could remain in effect for decades. If a future government tried to change the law or terms of signed contracts, it could land in costly international arbitration, where conflicts over such contracts are usually decided.

The resurgent Iraqi trade unions have also come out against the law. The Iraqi Federation of Oil Unions, representing about 26,000 workers in the industry, could pose a serious obstacle by threatening to shut down oil production, something the federation has done three times since it formed in 2003.

Critics worry about the multinationals' commitment to the country (or lack thereof). Under the proposed law, foreign companies would not have to invest their earnings in Iraq, hire Iraqi workers or partner with Iraqi companies.

Critics also resent the secrecy surrounding the process. Not only were negotiations behind closed doors, but the proposed law wasn't publicly available until recently, although the British and American governments, and many oil companies, were given early drafts, says Greg Muttitt, co-director of Platform, a London-based oil industry watchdog: "Iraqi civil society has been excluded from the process. Even Iraqi MPs are seeing the law for the first time now."

Jonkers, on the other hand, has been a part of the process, though no one will reveal his precise role. David Evans of Clifford Chance says, with a tone of admiration in his voice, "All I know is, I saw a picture circulating of him riding to work in a Humvee with a helmet and a flak jacket on. Ron is quite an entrepreneurial guy. He's innovative; he likes being on the cutting edge."

It's an evaluation shared by Jonkers' brother Randall, CFO of Pervasive Software Inc. in Austin, Texas. "He's always liked that international side," says Randy. "And he can get a lot of good contacts."

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