State-Run Oil Company Is Being Weighed for Iraq

The Wall Street Journal ^ | Wednesday, January 7, 2004 | CHIP CUMMINS

[presidio9]

BAGHDAD, Iraq -- U.S. advisers and Iraqi oil officials, now studying how to organize Iraq's vast but dilapidated oil industry, are leaning heavily toward recommending the formation of a large state-run petroleum company. If adopted, the move could sharply curtail the role of international oil corporations for years.

[Shermy]

Bump.

Something like Venezuela's PVDSA?

[marron]

As you may guess I don't have a high opinion of state-run oil companies. But there probably isn't much alternative in this case, at this time.

If we were to impose private control of Iraq's oil industry we would be accused of stealing the oil, even if the shares were equally divided among all the Iraqi citizens. The US is the only oil producer in the world that I can think of with a tradition of private ownership of underground mineral deposits.

That doesn't close the door on private investment, though, anymore than it does anywhere else. What will happen is that the state oil company will manage the contracts. They will obviously run the plants and fields that are already in operation, and they will oversee the granting of private concessions. What typically happens is that a private company bids for the privilege of developing a field, with a 10 or 15 or 20 year concession. During that time they put up all the money, do all the work, pay a tax to the government and a share to the state oil company, and at the end of the contract all ownership of their investment reverts to the state oil company.

That obviously forces the investor to push his profit taking forward, and he has to have a pretty good idea what he has before he signs on the dotted line. But it works everywhere else, it will work there as well. It won't stop the paranoids from spinning their fantasies, but anyone who works in the industry will see that no one is stealing anything from anyone.

The down side of a state oil company is that it can become the repository of friends of the president, and all of his left-handed relatives, and it can be both a source and a reward for corruption. It doesn't have to be that way, but the tendency is there.