CNPC urged to defend Iraq oil claim

PUBLISHED : Monday, 12 May, 2003, 12:00am
UPDATED : Monday, 12 May, 2003, 12:00am

A lawyer says the firm has legal recourse despite a deal made during a UN ban

China National Petroleum Corp (CNPC) should argue its oil concession in Iraq is valid even though the signing of the agreement contravened United Nation sanctions, according to a lawyer.

Peter Roberts, partner and head of the Asia energy practice of international law firm Jones Day, said that given the oil giant would probably be excluded from the first wave of investment to be allowed by the new Iraqi government, it should maintain a claim on the concession to improve its bargaining position.

CNPC, China's largest oil company and the most active in international investment, was awarded an agreement to develop the Al-Ahdab oilfield in 1997.

This was against UN sanctions and the introduction of the oil-for-food programme in 1996, which allowed limited oil development investment by foreign companies but banned the signing of concessions. Despite the ban, Russia, France, India, Malaysia, Vietnam and China, among others, negotiated with Iraq for concessions.

Only Russia's Lukoil and CNPC were granted concessions, while some memoranda of understandings were signed. Little or no development work was done for fear of contravening further UN sanctions.

While Russia and France were the most adamant in their opposition to the United States-led war in Iraq, China was less vocal in its resistance.

Still, China would be considered a member of the 'coalition of the unwilling and opposing' and concessions were likely to be granted mainly to US and British firms as a 'reward' for their countries' war effort, Mr Roberts said.

He said CNPC could argue the validity of its concession by claiming the continuity of Iraq as a legal entity.

'The Republic of Iraq continues to exist,' he said. 'The sovereign entities [of Iraq and its Ministry of Oil] have a perpetual existence and an independent legal personality.

'If you want to have an argument about the constitutionality of the concessions, you could equally have an argument about the constitutionality of the war.'

A CNPC spokeswoman said the company had not studied its legal options.

'We hope our concession will be recognised but there is no decision on any action,' she said, adding that CNPC staff who left Iraq after its office was closed due to the war planned to return soon.

Mr Roberts conceded a lawsuit at the International Court of Justice would take years to settle and by that time many new concessions would be granted.

But he said that even though CNPC might not be successful in its proceedings, they would deter other oil companies from signing concessions on the Al-Ahdab field.

Lukoil's concession in the West Qurna oilfield has estimated reserves of about 15 billion barrels, much larger than Al-Ahdab's 0.2 billion to 1.5 billion barrels.

But although CNPC's stake in Iraq was much smaller, Mr Roberts said China could use it as a bargaining chip with Russia, with which it was negotiating oil and gas fields investments in Siberia.

Russia, China and other countries which negotiated concessions in Iraq could join forces in a class action suit to claim validity of their various forms of investment agreements, Mr Roberts said.