Friday, December 22, 2006

"Nevertheless, the draft law lays the ground work for private oil companies to take large stakes in Iraq's oil. The new law would allow the controversial partnerships known as 'production sharing agreements' (PSA). Oil companies favor PSAs, because they limit the risk of cost overruns while giving greater potential for profit. PSAs tend to be massive legal agreements, designed to replace a weak or missing legal framework -- which is helpful for a country like Iraq that lacks the laws needed to attract investment. It's also dangerous. It means governments are legally committing themselves to oil deals that they've negotiated from a position of weakness. And, the contracts typically span decades. Companies argue they need long-term legal security to justify huge investments in risky countries; the current draft recommends 15 to 20 years."