REVENUE SHARING CASE STUDY

Oil and Gas

Revenue Sharing
in Iraq
María Lasa Aresti

July 2016
Contents
SUMMARY................................................................................................................................................................ 2
INTRODUCTION...................................................................................................................................................... 5
I. DECENTRALIZATION AND LOCAL GOVERNANCE..................................................................................... 6
II. HISTORY OF REVENUE SHARING.................................................................................................................. 9
III. REVENUE COLLECTION AND SHARING...................................................................................................11
IV. EARMARKS AND USE OF REVENUE..........................................................................................................19
V. IMPACT OF REVENUE SHARING..................................................................................................................23
VI. DISCLOSURE OF REVENUE SHARING......................................................................................................23
FINAL REMARKS...................................................................................................................................................25

This case study is part of a series of country case studies describing how resource revenue are shared by national
governments with subnational authorities.

Table of relevant Iraqi laws

LEGISLATION NO. NAME/DESCRIPTION YEAR OF PUBLICATION

Law of Administration for the State of Iraq for the Transitional Period 2005

Constitution 2005

Law No. 22 of 2007 Oil and Gas Law of the Kurdistan Region-Iraq 2007

Law No. 21 of 2008 Law of Governorates Not Incorporated Into a Region 2008

Law No. 18 of 2010 Law of Dissociation of the Ministry of Labor and Social Affairs’ Local 2010
Departments

2010 State Budget Law 2010

2013 State Budget Law 2013

2015 State Budget Law 2015

Oil and Gas Revenue Sharing in Iraq

Summary
This study provides an overview of Iraq’s oil and gas revenue sharing, that is,
the revenue that the Iraq national government earns from extraction and then
redistributes to subnational—provincial and regional—governments. It outlines
the country’s attempts at fiscal decentralization and provides an overview of how
resource revenues are collected and then shared with subnational governments.
The study also provides information on any statutory earmarks on the revenue, and
the level of transparency surrounding the revenue sharing system. It is primarily
intended to inform policy debates on revenue sharing in Iraq and other countries, as
well as to assist researchers interested in further exploring key issues related to this
topic. It forms part of a broader set of country case studies on revenue sharing.

In 2015, Iraq had 144 billion barrels of proven oil reserves, the fifth largest in the
world,1 and almost 112 trillion cubic feet of proven natural gas reserves, the 12th
largest in the world.2 The country is highly dependent on oil production: in 2015,
the Iraqi federal government (hereafter referred to as the IFG) estimated that USD
67.8 billion (or 84 percent) of its total budgeted revenue for that year would come
from the oil and gas sector.3

Iraq is a federal country comprising 18 governorates. Fifteen governorates are

administered by provincial governments and three are administered by the
Kurdistan Regional Government (hereafter referred to as the KRG). The country’s
largest oil reserves are located in the governorate of Basrah4, the disputed
governorate of Kirkuk5 and the autonomous region of Kurdistan.

The amount of revenue shared is determined annually through the country’s

state budget law (SBL) and thus subject to yearly modifications and approval by
the parliament. Oil revenue is combined with other revenues in the budget, but
distribution to subnational governments takes derivation6 into account through
petrodollar allocation. Other than the country’s budget law, which is drafted
annually, there is no separate statutory system for sharing oil revenue with
subnational government, although the KRG collects payments from the production
sharing contracts (PSCs) it enters into.7

1 OPEC Iraq Country Profile (OPEC Annual Statistics Bulletin 2014), and Resource Governance Index,
Iraq Country Profile (Natural Resource Governance Institute, 2012). The four largest oil reserves in the
world are in Saudi Arabia, Venezuela, Canada and Iran.
2 U.S. Energy Information Administration, Iraq Country Overview (January 30, 2015), available at http://
www.eia.gov/countries/cab.cfm?fips=iz.
3 Based on an estimated oil price of USD 56 per barrel and an export volume of 3.3 million barrels a day.
Source: 2015 Iraq State Budget Law
4 Recently, Basrah has moved to partial autonomy by earmarking revenues from two oil fields for
projects in the province. For details see http://www.iraqoilreport.com/news/basra-pushes-toward-
financial-autonomy-18400/?utm_source=IOR+Subscribers&utm_campaign=c99ff94598-Email_
Update&utm_medium=email&utm_term=0_f9870911e6-c99ff94598-192870637
5 Under Iraq’s constitution of 2005, the political status of the disputed governorate of Kirkuk was
scheduled to be formally resolved by the end of December 2007 by census and referendum “to
determine the will of their citizens.” This deadline has been postponed and the issue has never been
resolved, although the constitutional obligation to resolve the issue remains in place. The key dispute
is around whether Kirkuk should be part of an enlarged autonomous region or Kurdistan, which the
KRG and Kurds support; Arabs fear this would de facto disintegrate the country and pave the way for
an independent Kurdistan.
6 Applying a derivation mechanism to resource revenue sharing means that the amount of oil and gas
revenue allocated to subnational governments is a function of their production levels.
7 KRG oil sales are made in defiance of Baghdad, which says that independent oil sales undermine the
sovereignty of the country.

3
Oil and Gas Revenue Sharing in Iraq

Overall, the main sources of revenue for the governorates are the Regional
Development Program (RDP) transfers, petrodollar allocations and KRG transfers.
The RDP, which has been part of the budget since 2010, is distributed among
the 18 provincial governments (including those within the KRG).8 Allocations
are based on governorates’ population.9 The purpose of the RDP is to finance the
reconstruction and development of projects in all the governorates of Iraq. Between
2011 and 2015, the RPD allocations have fluctuated substantially year-on-year.

The petrodollar allocation introduced in 2010 and implemented from 2011, was
amended in June 2013 as part of the provincial law providing a USD 5 allocation per
barrel for each producing region. This was translated in the most recent budget year
of 2015 to an allocation of USD 2 to governorates for each barrel of oil produced,
for each barrel refined, and for each 150 cubic meters of natural gas produced, of
which the equivalent amount of the USD 1 will be transferred and the other half
will be contingent of getting additional revenues.10 The 2015 SBL article stipulates
that an accounting regularization will be made in 2016 to secure the remaining
share of USD 3 for each producing governorates. Excluded from this allocation are
the governorates of the KRG, who benefit from a separate share allocated to the
region, as well as non-producing governorates of Diyala and Karbala.11 Overall,
since they were first introduced, petrodollars allocations have been relatively more
stable year-on-year than RDP transfers, but they are uneven in per-capita terms
and disproportionately reward oil and gas producing and refining areas such as the
governorates of Basrah and Kirkuk. (See Table 1.)

Transfers to the KRG have been part of the budgeted expenditure since 2008 (with
the exception of 2014, when the IFG halted payments to the region following
disputes with the KRG government) and are supposed to be 17 percent of the total
budget. This corresponds to the share of KRG population in Iraq at the time the
KRG share was negotiated with the IFG.

Other than intergovernmental transfers, governorates do not levy direct taxes on

oil and gas operations, with the exception of the KRG. Through PSCs, the KRG
exports and commercializes part of its oil independently and collects receipts from
oil sales as well as payments—such signature bonuses, corporate income tax and
royalties—from operators active in the autonomous region.

Overall, excluding federal ministries, the KRG is the entity that benefits the most
from the IFG’s yearly budgeted expenditures.12 But there are important gaps of
information on the amount received by the region and methodology used to share
with its provinces.

8 Since Halabja is not recognized as a separate governorate by the IFG, it does not receive an allocation
as part of the RDP but is supposed to receive revenue indirectly through Sulaymaniyah.
9 2015 SBL, Article 2.D.
10 2015 SBL, Article 2.E.
11 Ahmed Mousa Jiyad (2015), 35
12 UN Iraq Joint Analysis Unit, Low Oil Prices Put Iraq’s Budget Under the Guillotine: A comparative
Analysis of the 2013 Federal Budget and the Approved Budget for 2015 (Analysis Paper) 14-15.

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Oil and Gas Revenue Sharing in Iraq

Table 1. De jure Regional Development Program and petrodollar allocations in 201513

2011 Petrodollar Per capita

population RDP allocation Per capita RDP allocation petrodollar
Governorate Area in sq. km estimate* (USD million) allocation (USD)* (USD million) allocation (USD)
Ninewa 37,323 3,270,422 307 93.87 13 4.0
Kirkuk 9,679 1,395,614 120 85.98 213 152.6
Diyala 17,685 1,443,173 130 90.08 - 0.0
Anbar 138,288 1,561,407 139 89.02 1 0.6
Baghdad 4,555 7,055,196 657 93.12 39 5.5
Babil 5,119 1,820,673 160 87.88 8 4.4
Kerbela 5,034 1,066,567 97 90.95 - 0.0
Wasit 17,153 1,210,591 108 89.21 82 67.7
Salah al-Deen 24,075 1,408,174 121 85.93 108 76.7
Najaf 28,824 1,285,484 119 92.57 7 5.4
Qadisiya 8,153 1,134,313 104 91.69 8 7.1
Muthanna 51,740 719,069 68 94.57 6 8.3
Thi-Qar 12,900 1,836,181 172 93.67 49 26.7
Missan 16,072 971,448 92 94.70 75 77.2
Basrah 19,070 2,531,997 231 91.23 896 353.9
Dohuk 6,553 1,128,745 92 81.51 - 0.0
Erbil 15,074 1,612,692 136 84.33 - 0.0
Sulaymaniyah 17,023 1,878,764 151 80.37 - 0.0
Total 435,052 33,330,510 3,004   1,505  

*In 2015, the total amount budgeted for the petrodollar allocation was USD 3 billion. USD 1.5 billion of that
amount was only to be transferred to governorates if the IFG received additional funds, i.e. contingency
budget.13

There is very little transparency at the national, regional and governorate levels on
amounts transferred and spent. At the national level, the only information publicly
available is the annual state budget law, published at the beginning of each year.
This discloses the formula for transfers, but the actual amounts to be transferred are
unavailable at the national level. At the subnational level, provincial governments
and KRG do not systematically disclose data on transfers received by the IFG and
how the funds are spent.

This makes it difficult to ascertain receipt, use and impact of revenue at subnational
levels.

There are earmarks on the use of RDP (i.e., for reconstruction and development
projects) and petrodollar allocations (i.e., environmental management and meeting
provincial economic and electricity import needs). There are also directives on
some of KRG spending that is set in the IFG budget. (In 2015, these included
apportioning funding for the newly created governorate of Halabja and prioritizing
areas adversely affected by the production and refinement of oil, as well as to
environmental protection and construction projects.) Yet, without information on
amounts shared and spent, it is difficult to determine if earmarks are followed and
to determine what impact they have.

13 Ahmed Mousa Jihad, Iraq Extractive Industry: Legal, Fiscal, and Revenue Allocation and Management
Issues (2015), 35; http://www.geohive.com/cntry/iraq.aspx.

5
Oil and Gas Revenue Sharing in Iraq

Introduction
As of January 2015, Iraq held about 18 percent of proven crude oil reserves in the
Middle East and almost 9 percent of global crude oil reserves.14 Some of the foreign
companies operating in the country are BP, China National Petroleum Corporation
(CNPC), Shell, Petronas, Total, ExxonMobil, Petrochina, Lukoil, Eni, China National
Offshore Oil Corporation and Japex.15 Iraq’s State Organization for Marketing of Oil
(SOMO) is the country’s national oil company, in charge of collecting and exporting
the country’s oil.

The most significant oil fields in Iraq are in the north (in the autonomous region of
Kurdistan and in the Kirkuk governorate), and in the Basrah governorate, located in
the southeast part of the country. Except for the governorates of Diyala and Karbala,
all governorates produce oil or gas. (See Figure 1.)

Figure 1. Governorates
Dahuk
of Iraq and the KRG

Arbil
Ninawa

At Tamim As Sulaymaiyah

Salah Ad Din

Diyala

Baghdad

Al Anbar

Babil Wasit
Karbala

Al Qadisiyah
Maysan

An Najaf
Dhi Qar

Al Basrah
Al Muthanna

n Oil- or gas-producing governorates of the IFG

n Non-producing governorates of the IFG
n Governorates of the KRG (all oil- and gas-producing)

14 U.S. Energy Information Administration, Iraq Country Overview (30 January, 2015), available at http://
www.eia.gov/countries/cab.cfm?fips=iz
15 A full list of companies operating in Iraq can be found at Iraq Country Overview

6
Oil and Gas Revenue Sharing in Iraq

Management of oil fields and distribution of oil revenue are often the subject of
debate between ethnic, religious and political groups in the country. Provincial
governments do not have real authority or control over oil revenue and are highly
dependent on federal government’s revenue transfers. Even the Kurdistan Regional
Government (KRG), with its semiautonomous status, continues to largely depend
on the Iraq Federal Government (IFG) for its budget.

Oil and gas revenues constitute the majority of Iraq’s fiscal receipts. In 2015,
the Iraqi Federal Government (hereafter referred to as the IFG) estimated that
USD 67.8 billion (or 84 percent) of its total budgeted revenue for that year would
come from the oil and gas sector.16 The IFG shares revenues with governorates
through the national budget, relying on three instruments: a petrodollar allocation
distributed based on the oil and gas produced and refined in each governorate,
except those in the KRG; the KRG share that is calculated on the basis of KRG’s
population; and Regional Development Program (RDP) transfers, which finance
reconstruction and development projects. The KRG is the only subnational
authority that directly collects revenues (such as royalty and tax payments and
signature bonuses) from the production sharing contracts (PSCs) it signs.

Sections I and II briefly describe the process of decentralization and local governance
and associated history of revenue sharing in the country. Section III maps the
details of how oil and gas revenue is collected and shared in the country. Section
IV investigates how this revenue is supposed to be spent and, when information
is available, how it is actually spent. Section V looks into impact of the sharing.
Finally, Section VI is a study of the level of transparency around the revenues shared
with subnational governments.

16 Source: 2015 Iraq State Budget Law, based on an estimated oil price of USD 56 per barrel and an
export volume of 3.3 million barrels a day.

7
Oil and Gas Revenue Sharing in Iraq

1. Decentralization and
local governance
The 2005 constitution established a parliamentary system of government with a two-
tier federal system: a central government headed by the prime minister and his cabinet
of appointed ministers and a subnational system of government with 18 provincial
governments, three of which form the autonomous region of the KRG.17 Governorates
comprise districts and sub-districts, but these are merely administrative units.

Law No. 21 of 2008 defined provincial councils as “the highest legislative and over-
sight authority within the administrative boundaries of the governorate” and gave
them power to issue local legislation within the boundaries of their respective gover-
norate.18 Article 3 in the law requires members of the provincial council to be elected
directly by the citizens of the province.

Despite the de jure federal structure, in practice all provincial governments—includ-

ing to a lesser extent the KRG’s provincial governments—depend significantly on the
central government and serve as de facto administrative units of the federal govern-
ment, working alongside the IFG local ministerial departments.19 Budget and expend-
iture decisions are made by the federal government and a large percentage of the staff
delivering the main public services such as education and health at the governorate
level are central government employees.20

Law No. 18 of 2010 (Law of Dissociation of the Ministry of Labor and Social Affairs’
Local Departments) and Law No. 20 of 2010 (Law on the Dissociation of the Ministry
of Municipality and Public Work’s Local Departments) both aimed to devolve from the
IFG to governorates a number of directorates and related competences around social
welfare, as well as water and sewage management. They were drafted by the national
parliament in 2010. The Supreme Court, however, declared these laws unconstitutional
on the basis that the national parliament can only propose laws, not draft them.21

THE KURDISTAN REGIONAL GOVERNMENT (KRG)

Article 117 of the constitution recognizes Kurdistan as a federal region having an
autonomous government, the KRG. The KRG has its own parliament and min-
istries. The IFG and KRG share policymaking on health, education and water.
Decisionmaking on all other public services is decentralized to the KRG.22

Kurdistan is composed of three governorates: Erbil, Dohuk and Sulaymaniyah. In 2014,

the KRG recognized Halabja as a fourth governorate, separate from Sulaymaniyah.
However, the national parliament has not yet recognized Halabja as an official governorate.

Kirkuk is another territory with conflicting claims. Article 140 of the constitution sets a
deadline of December 2007 (and later June 2008) for a referendum to be held for Kirkuk
citizens to decide whether or not to join the KRG. The referendum has not taken place. In
June 2014, taking advantage of the chaos following the spread of ISIS, the Peshmerga mili-
tary forces of the KRG seized Kirkuk. The IFG does not recognize Kirkuk as part of KRG.

17 Richard Forster and Nick Michell, Decentralization in Iraq. Challenges and Solutions for the Federal and
Local Governments (U.N. Habitat, 2011), 21.
18 Article 2 of Law No. 21 of 2008.
19 Forster and Michell (2011), 22.
20 Ibid., 22.
21 Ibid., 23.
22 Ibid., 21.

8
Oil and Gas Revenue Sharing in Iraq

2. Revenue sharing

Figure 2. Key events in

Iraq’s recent oil and gas
revenue sharing history
March
Though unrecognized
by IFG, Halabja separates
from Sulaymaniyah and
becomes the fourth KRG
governorate.
U.S. Establishment of Basrah first requests USD 1 Parliament February
invasion the Iraqi interim per exported barrel of locally suggests June Formation of
and ending government produced oil. amendments to Kirkuk seized by KRG a special com-
of Saddam Law No. 21 of military mittee to pre-
Hussein’s 2008 (inclusion December pare the draft
mandate of petrodollar Oil export agreement be- amendment to
Multi-party Basrah request is met in 2009 allocation). tween Baghdad and the Law No. 21 of
Beginning elections; by Nouri al-Maliki (USD 0.5 per KRG (through SOMO) 2008
of the Iraq constitutional exported oil barrel from Basrah) End of Failure to agree on 2014
War referendum Iraq War Annual State Budget Law

2003 2004 2005 2007 2008 2009 2010 2011 2013 2014 2015

2005 Constitution Oil and Gas Law Law No. 21 on the 2010 Annual State 2013 Annual State 2015 Annual State
• Article 111: of the Kurdistan Governorates not Budget Law Budget Law Budget Law
“Oil and gas are Region-Iraq Incorporated Into Article 43: first Pet- • USD 3 billion
owned by all the Allocation of over a Region rodollar Allocation for the Regional
people of Iraq in 20 contracts to Establishes the Law No. 18 of Development
all the regions a variety of small legal framework for 2010 (later de- Program
and governor- companies to the relationship be- clared unconstitu- • USD 3 billion for
ates” explore for oil in tween the central tional) the petrodollar
• Article 112 on the region government and Law of Dissociation program
oil revenue the 15 governor- of the Ministry of
ates not forming • 17 percent of
management Labor and Social actual expendi-
and sharing any region Affairs’ Local De- tures (excluding
partments sovereign
Law No. 20 of expenditures)
2010 (later de- for the KRG
clared unconstitu- under the new
tional) agreement
Law on the
Dissociation of
the Ministry of
Municipality and
Public Work’s Local
Departments

9
Oil and Gas Revenue Sharing in Iraq

Oil and gas revenue sharing with Iraq’s 18 governorates has always been a contested
issue in Iraq. Debates are mainly fueled by ambiguity in the provisions of the
country’s 2005 constitution.

Following the collapse of President Saddam Hussein’s rule in March 2003 and the
ensuing civil war, the United States and its coalition allies in June 2004 established
an Iraqi Interim Government as a caretaker entity until the approval of the new
constitution. Seven months later, in January 2005, countrywide elections were
held to create the national assembly. A 55-member constitutional committee
representing different parties and ethnicities drafted a new constitution, which was
approved in 2005. The majority of the drafters—in particular the Kurds—wanted
the new government to vest more power in the governorates and to allocate more
resources to them. Federalism and the management of natural resources were
among the most controversial elements discussed in the constitutional drafting
process.23

Oil ownership and management24 are governed by Articles 111 and 112 of the
2005 constitution. The constitution’s language is ambiguous in several key areas;
its meaning is subject to interpretation, with no apparent means of clarification.25
Article 111, for example, states that “oil and gas are owned by all the people in
Iraq in all the regions and governorates.”26 This is interpreted by some to mean all
Iraqis share equally in petroleum proceeds, regardless of where in Iraq oil and gas
are extracted.27 Yet, because of the lack of further clarifications and the contrast
to the previous 1970 constitution, which stated that natural resources and basic
means of production were owned by the people of Iraq, others—namely, KRG
representatives—have interpreted the new constitution to imply that Iraqis in each
region or governorate own the oil and gas within their region or governorate.28

Another source of debate comes from Article 112, which covers petroleum
management and resource revenue sharing. With respect to petroleum
management, the first clause of Article 112 states that “The federal government,
with the producing governorates and regional governments, shall undertake the
management of oil and gas extracted from present fields, provided that it distributes
its revenue in a fair manner in proportion to the population distribution in all
parts of the country, specifying an allotment for a specified period for the damaged
regions which were unjustly deprived of them by the former regime, and the
regions that were damaged afterward, in a way that ensures balanced development
in different areas of the country, and this shall be regulated by a law.” The
statement “the federal government, with the producing governorates and regional
governments […]”confers responsibilities on oil and gas management to both IFG
and regions and governorates, without delineating how these responsibilities are
shared.29 This creates room for conflicting interpretations on the authority issuing
licenses or in charge of petroleum sector management.30 Additionally, the word
“present fields” could restrict the applicability of this article to existing fields,

23 Nicholas Haysom and Sean Kane, Negotiating natural resources for peace: Ownership, control, and
wealth sharing (Briefing Paper, Centre for Humanitarian Dialogue, 2009), 32.
24 For a more detailed discussion on oil ownership and management see Mishkat Al Moumin, The legal
framework for managing oil in post-conflict Iraq: A pattern of abuse and violence over natural resources
(High-Value Natural Resources and Peacebuilding, ed. P. Lujala and S. A. Rustad, 2012), 420-424.
25 Keith Myers, Breaking Iraq’s oil-law stalemate (Petroleum-Economist, 2011), 12.
26 Even though Iraq currently has only one region (the KRG), the constitution mentions the word regions
in plural as governorates have the right to form regions.
27 Myers (2011), 12.
28 Ibid.12; and Al Moumin (2012), 420.
29 Myers (2011), 12.
30 Ibid. 12.

10
Oil and Gas Revenue Sharing in Iraq

creating more confusion over the entity that would manage future discoveries,
fields and the revenues they generate.31

As a result of this confusion, several disputes between the IFG and the KRG—and
between the IFG and the other governorates—have emerged over time around
ownership and management.32 For example, from the IFG’s point of view, Article
111 ensures that ownership of oil and gas lies with the people of Iraq and not with
any faction, sect or ethnicity. Thus, when the KRG unilaterally passed Law No. 28
of 2007 (entitled the Oil and Gas Law of the Kurdistan Region-Iraq),33 awarding
over 20 new contracts to petroleum companies, the IFG maintained that the KRG
had breached its constitutional obligation to act jointly with the federal government
in oil and gas matters.34 The oil ministry ruled these contracts illegal and the IFG
blacklisted companies that had been awarded contracts by the KRG prohibiting
them from competing in future oil tenders.

Further disagreements on revenue sharing arise from the lack of definition on

what constitutes “fair” redistribution or “damaged regions.” Lack of clarity has
led to competing claims from different groups for a larger share of the petroleum
revenue.35

While confusion arising from language in the constitution persists, successive

state budget laws (SBLs) and related negotiations advanced national practice
in matters of resource revenue sharing. The IFG 2010 SBL36 introduced a new
provision whereby the IFG would deliver USD 1 to oil-producing governorates
for each barrel of oil produced, each barrel of oil refined, and each 150 cubic meters
of natural gas produced. This derivation provision finds its root in a request made
in 2007 by the Basrah branch of the Al-Fadhila Party to the central government to
put aside a USD 1 fee per locally produced barrel of oil and transfer it to a special
fund. This request was not met until 2009, when former Prime Minister Nouri
al-Maliki announced a special agreement with the provincial government of
Basrah. The concession consisted of deducting USD 0.50 from every barrel of oil
exported from Basrah, and setting aside these funds for special purposes such as
financing the governorate’s economic and environmental costs of extraction.37 This
led the provincial government of Kirkuk—the second-largest producer—to ask
for the same treatment. As a means to make the concession valid for all producing
governorates, the 2010 SBL38 for the first time included what is now known as the
petrodollar allocation.

31 Baker, J. A. et al., The Iraq Study Group report (United States Institute of Peace, 2006), 22.
32 For some examples of these conflicts, see Al Moumin (2012), 421-423.
33 Law No. 28 of 2007 can be found here: http://cabinet.gov.krd/uploads/documents/Kurdistan%20
Oil%20and%20Gas%20Law%20English__2007_09_06_h14m0s42.pdf.
34 Ben Holland, Are Kurdistan’s oil contracts constitutional? (Energy in the Middle East, Petroleum-
Economist, 2012), 28.
35 Al Moumin, 424.
36 Article 43 of 2010 SBL.
37 The half-dollar difference between the 2007 proposal and the 2009 concession was largely attributed
to the falling oil prices.
38 Article 43 of the 2010 SBL.

11
Oil and Gas Revenue Sharing in Iraq

In 2007, when the KRG started to independently sign contracts with international
oil companies (IOCs) in line with its own oil and gas Law No. 28 of the same
year, the IFG demanded that the KRG manage its oil exports to the federal oil
export system. In exchange, the federal government offered a 17 percent share of
the total budget allocation to the KRG every year. After years of tense relations
between the IFG and KRG, the IFG inserted punitive language into the 2013 and
2014 budgets withholding monthly budget transfers to the KRG if Iraq’s State
Organization for Marketing of Oil (SOMO) did not receive the prescribed volumes
of oil from the autonomous region.39 When the KRG failed to contribute, the IFG
halted its monthly payment from the SBL to the KRG at the beginning of 2014. For
most of 2014, the IFG and the KRG negotiated a revenue sharing arrangement.40
In November 2014, Iraq Minister of Oil Adil Abdul Mahdi and KRG Premier
Nechirvan Barzani firmed up an agreement whereby KRG would help export 150
thousand barrels per day through its pipeline system from Kirkuk oil fields in
exchange for a one-time payment of USD 500 million to the KRG.41 Then, a second
agreement was signed in December 2014, a diluted version of which was included
in the 2015 SBL.42

The December 2014 agreement established an oil export deal between the IFG
and the KRG and became effective January 2015. The new agreement required
the KRG to provide 250,000 barrels per day of the KRG’s export blend to SOMO,
which SOMO would then sell on using the same mechanisms used for selling oil
from any other federally administered oil field. The agreement also required the
KRG to facilitate SOMO’s export of 300,000 barrels per day from the federally
administered Kirkuk oil fields via KRG’s secure internal pipeline network to
Turkey.43 The combined exported amount would therefore be 550,000 barrels per
day. In return, the IFG would allocate 17 percent of the SBL to the KRG. It would
also allocate a percentage of the budget for the federal ground forces of the Iraqi
army to the Peshmerga to help in the fight against the Islamic State of Iraq and the
Levant (ISIS).44

39 Michael Knights (3 December 2014).

40 Ibid.
41 Ahmed Mousa Jiyad, Midyear Review of the State Budget and Oil Export Revenues (2015).
42 Ibid.
43 Michael Knights (3 December 2014). Such oil cannot reach export terminals via federal territory due to
security risks and lack of good infrastructure between Kirkuk and Mosul.
44 Mousa Jiyad, The Balance Sheet of the Recent IFG-KRG Oil Deal in Iraq (2014).

12
Oil and Gas Revenue Sharing in Iraq

Several Iraqi oil professionals, parliamentarians and politicians expressed their

opposition to this deal, in part claiming that the share that the KRG would receive
from the IFG was disproportionately high compared to its delivery obligations
of 550,000 barrels per day. Others expected the deal to be mutually beneficial in
that it allowed the IFG to retain its northern export route for Kirkuk crude and the
Kurdish regional government to finance increasing expenses related to fighting
ISIS. However, the KRG did not meet its delivery quotas to SOMO during the first
quarter of the year, arguing that the budget commitment of 550,000 barrels per
day was an annualized base and could be paid anytime during 2015.45 There was
significant increase of the KRG’s deliveries to SOMO in April and May, but it still
did not reach the budgetary commitment. (See Table 2.) In June, the KRG drastically
reduced oil deliveries through SOMO to only 165,000 barrels per day, calling for
a new deal.46 At the same time, available data on the KRG’s independent exports
reveals a marked increase during the second quarter of 2015, from 28,000 barrels
per day in April to 421,000 in June 2015.47

Table 2. KRG’s oil delivery

A. Yearly commitment for delivery to IFG 550,000 barrels per day commitment and
through SOMO (2015)
implementation for the
period January to June
B. Cumulative actual delivery to SOMO 53,742 million barrels
(January-June 2015) 201548

C. Deficit in cumulative actual delivery to 46,358 million barrels

SOMO

D. Daily actual delivery to SOMO (January- 296,000 barrels per day

June 2015)

E. Deficit in daily actual delivery to SOMO 253,000 barrels per day (A-D)

F. Average export price of actual delivery to USD 54.39 per barrel

SOMO

G. Monetary value of actual delivery to USD 2,923 billion (BxF)

SOMO

H. Deficit in export revenues due to non- USD 2,398 billion

delivery to SOMO

I. Budget-equalising delivery requirement around 800,000 barrels per day

for July-December 2015 (A+E)

45 Mousa Jiyad, Midyear Review of the State Budget and Oil Export Revenues (2015).
46 Ibid..
47 Ibid. The monthly export reports can be accessed in the following links: http://mnr.krg.org/images/
monthlyreports/EXPORTs/April%202015%20-%20Export%20Report%20-%20Compressed%20
Final.pdf (April 2015), http://mnr.krg.org/images/monthlyreports/May%202015%20Monthly%20
Export%20Report.pdf (May 2015), http://mnr.krg.org/images/monthlyreports/2015.07.02%20
June%20Monthly%20Export%20Report%20ENGLISH.pdf (June 2015).
48 Mousa Jiyad, Midyear Review of the State Budget and Oil Export Revenues (2015), 7.

13
Oil and Gas Revenue Sharing in Iraq

3. Revenue collection and sharing

with subnational governments
Iraq has two types of contracts with IOCs: technical service contracts (TSC) usually
used by the IFG and production sharing contracts (PSCs) usually used by the KRG.
The most notable differences between the two types of contracts are in the cost
and profit provisions.49 Under the TSC model, the IOC operates as a contractor to a
regional oil company.50 The IOC bears all the costs and financial risk for undertaking
upstream activities and in return obtains a fixed remuneration fee per barrel.51
The IOC is entitled to recover all its petroleum and supplementary costs, up to a
maximum of 50 percent of petroleum revenue. The PSC model used in the KRG
implies that IOCs share revenue and operating costs with the KRG’s Ministry of
Natural Resources (MoNR).52 IOCs enter into a contract directly with ministry.
They finance and carry out all exploration and production operations and receive
a certain amount of oil or gas for the recovery of costs, along with a share of the
profits. The duration of TSCs in Iraq is 20 years extendable to 25 years. PSCs in the
KRG last 25 years and are extendable to 30 years.53

The major components of the IFG and the KRG fiscal regimes for oil and gas
activities can be seen in Table 3.54 The IFGs Ministry of Oil (MoO) collects most of
the revenue from oil and gas (except revenue from general taxes) and then transfers
it to the IFG’s General Taxation Commission (GTC). The KRG’s MoNR collects the
revenue accruing to KRG and transfers it to the KRG Ministry of Finance.

49 Ernst & Young, 2015 Global Oil and Gas Tax Guide, Iraq (2015), 260-268.
50 Regional oil companies in Iraq are the North Oil Company (NOC), the South Oil Company (SOC), the
Midland Oil Company (MDOC), and the Missan Oil Company (MOC).
51 Ernst & Young, 2015 Global Oil and Gas Tax Guide, Iraq (2015), 260-268.
52 The Ministry of Natural Resources is the sole entity that is authorised to sign production-sharing
agreements with companies willing to invest in the exploration of hydrocarbons and mineral
resources in the autonomous region of Kurdistan. The ministry is also the authority that awards
licences for transportation and storage infrastructure, hydrocarbons and minerals production
operations as well as refining, petrochemicals and retail operations. (Ministry of Natural Resources,
available at: http://mnr.krg.org/index.php/en/the-ministry/about-the-ministry2).
53 Ernst & Young, 2015 Global Oil and Gas Tax Guide, Iraq (2015), 260-268.
54 For a comprehensive overview of the IFG and the KRG fiscal regimes and a full list of their components,
see Ernst & Young, 2015 Global Oil and Gas Tax Guide, Iraq (2015), 260-268.

14
Oil and Gas Revenue Sharing in Iraq

Jurisdiction of Base of Authority

Table 3. Revenue streams
Revenue stream application calculation Rate collecting it in the oil and gas industry
in Iraq55
Signature bonus IFG and KRG fixed for IFG; variable for KRG MoO (IFG) ; MoNR
(KRG)
Corporate income IFG and KRG Taxable income 35 percent; 15 MoO (IFG) ; MoNR
tax percent for the (KRG)
KRG
Withholding tax IFG only Taxes from 7 percent GTC (IFG) ; MoNR
payments made (KRG)
to subcontractors
Capital gains IFG and KRG Gains derived 35 percent; 15 MoO (IFG) ; MoNR
from the sale of percent for the (KRG)
fixed assets KRG
Royalty PSCs in KRG only Oil and 10 percent MoNR (KRG)
non-associated

gas produced and

saved from the
contract area

OIL AND GAS REVENUE SHARING

Revenue sharing can occur by granting subnational authorities direct taxation
powers on extractive projects or through intergovernmental transfers of resource
revenues.

The KRG is the only subnational entity in Iraq that collects revenues directly from
PSCs with oil and gas operators. In addition to exporting through SOMO, the KRG
obtains revenue by selling its oil directly to IOCs. The KRG’s oil sales are carried out
through the MoNR, which is also responsible for sharing oil and gas revenue with
the KRG’s provincial governments. However, no information is available on how
oil and gas revenue is shared within the KRG. Provincial governments outside the
KRG obtain revenue from oil and gas operations only through the transfers from
the IFG and do not levy or collect taxes from the oil and gas sector.

The vast majority of revenues flowing to provinces and the KRG are through
intergovernmental transfers of oil and gas revenue, which are determined yearly
through ad hoc allocations in the SBL. Since 2010 SBL, the main mechanisms for
sharing revenue with provincial governments and the KRG are the petrodollar
allocation, the KRG share and the RDP.

55 Ernst & Young, 2015 Global Oil and Gas Tax Guide, Iraq (2015), 260-268. In 2010, the Iraqi parliament
ratified a tax law for foreign oil and gas companies. As per this 2010 oil and gas income tax law, the
income tax rate applicable to income earned in Iraq from contracts undertaken by foreign oil and
gas companies and by contractors working in the fields of production and extraction of oil and gas
and related industries is 35 percent. Companies, branches or offices of oil and gas companies and
service companies, and subcontractors working in fields of production and extraction of oil and
gas and related industries are all subject to the law. In late December 2011, the Ministry of Finance
finalized instructions aimed at clarifying the applicability of this law. The Iraqi tax authority will deem
a minimum taxable income percentage; a taxable income percentage of 20 percent was deemed
upon the oil and gas sector, which will be subject to the tax rate of 35 percent, resulting in a deemed
income tax liability of 7 percent of revenues (Ernst & Young, 2013).

15
Oil and Gas Revenue Sharing in Iraq

The petrodollar allocation is derivation based and the amount transferred is

directly proportional to the oil produced or refined in each governorate. In general,
petrodollar allocations have been relatively stable across years since they were
first introduced in 2011. (See Table 3.) As per the 2015 SBL, the first tranche of
petrodollar transfer amounted to USD 1.5 billion and was shared with the oil-
producing governorate of Basrah, which received 60 percent of the total allocation
(USD 354 per capita), and to a lesser extent Kirkuk, which was allocated 14 percent
of the total petrodollar transfer amount (USD 153 per capita). (See Table 4.) Other
producing governorates such as Salah Al-Din, Missan and Wassit benefitted from
the petrodollar allocation to a smaller extent. The only governorates that were not
allocated petrodollars were the two non-oil- and gas- producing governorates
(Diyala and Karbala) and the governorates of the autonomous region of Kurdistan
(Erbil, Dohuk, and Sulaymaniyah). An additional petrodollar tranche of USD
1.5 billion was conditional on additional revenues from increased oil prices or
international funding. (At the time of writing, it is unclear if this second tranche
was paid.)

A second mechanism through which the federal government shares oil revenues is
the special arrangement with KRG. Since 2008, as a result of a political agreement
between then-Prime Minister Eyad Alawwy and KRG Premier Nechirvan Barzani,
the KRG has a separate revenue sharing arrangement with the IFG.56 Based on a
United Nations estimate that Kurds made up 17 percent of Iraq’s population, the
revenue share for the KRG was set at 17 percent of the 2008 Iraqi state budget.57
Every budget law contains a provision for this share to be recalculated based on
the region’s population census. This is to ensure that any new census count is
considered in the calculation.58

It is important to note that the 2015 SBL—unlike the 2013 budget59—required

the KRG payment to be calculated on actual expenditures and not budgeted
expenditures.60 This meant that the share will be subject to a decrease proportional
to any reduction in the country’s actual expenditure with respect to the budgeted
expenditure.61 In addition, the 2015 SBL required the KRG to be paid once the IFG’s
sovereign and governing expenditures were paid, contrary to what the Kurdish
politicians and the minister of finance had publically stated their preference for.62
This resulted in the share for the region in the 2015 SBL to be lower and is in the
around 12.2 percent of the budgeted expenditure.

56 The statement by Barzani can be found on the website of the KRG, in the following link: http://cabinet.
gov.krd/a/d.aspx?s=010000&l=12&a=19508
57 Michael Knights, Making the Iraqi Revenue-Generating Deal Work (PolicyWatch 2341, The Washington
Institute, 3 December 2014), available at: http://www.washingtoninstitute.org/policy-analysis/view/
making-the-baghdad-krg-revenue-generating-deal-work
58 Mousa Jiyad (2015), 35.
59 In 2014, parliament failed to agree on the federal budget bill. Mousa Jiyad, Iraqi State Budget 2015-It
Deserves Careful Reading But Needs Serious Revision (30 December 2014).
60 Mousa Jiyad, Iraqi State Budget 2015 (2014).
61 Mousa Jiyad, Iraqi State Budget 2015 (2014).
62 Mousa Jiyad, Iraqi State Budget 2015 (2014).

16
Oil and Gas Revenue Sharing in Iraq

The final mechanism to share resource revenues is the RDP program. (See Table
4 for 2015 figures.) The purpose of the RDP is to finance the reconstruction and
development of projects in all the governorates of Iraq, including those within the
KRG. Allocations are based on governorates’ population (the largest RPD transfer is
for the highly populous province of Bagdad).63 RPD amounts have fluctuated more
noticeably than petrodollar allocations since 2010. (See Table 5.)

Ongoing debates on petrodollar allocation

In 2013, parliament voted on amendments to Law No. 21 of 2008. A new provision would
have allowed producing governorates to be allocated USD 5 for each barrel of oil pro-
duced, for each barrel of oil refined and for each 150 cubic meters of processed natural
gas. The amendment, however, was not enforced because former Prime Minister Maliki
filed a case at the Supreme Court to block it. Newly appointed Prime Minister Haider
al-Abadi recently withdrew the case from the Supreme Court in order to “re-examine” the
amendments.64 The council of ministers decided on 3 February 2015, to form a special
committee chaired by Abadi to prepare a “draft amendment to Law No. 21.” The draft was
still under preparation at the time of writing.
If provisions similar to those voted on in 2013 were introduced at the end of the drafting
process, a fixed petrodollar allocation could be enshrined in the country’s legal frame-
work and replace the current system of hoc allocation decided by the Ministry of Finance
through the SBL. While this move would recognize that governorates are entitled to re-
ceiving a fixed share of their oil and gas production, it would reduce the flexibility enjoyed
by the IFG in adjusting allocations to changing commodity price and budget circumstanc-
es. A fixed petrodollar provision may adversely impact the IFG budget in an environment
of persistently low oil prices and oil and gas revenues.65

Table 4. De Jure RDP and petrodollars (in USD billion),* 2010-2016

 
Budget proposal Budget Law Budget Law Budget Law Budget Law Budget Law
2016 2015 2013 2012 2011 2010
 

Percentage Percentage Percentage Percentage Percentage Percentage

of budget- of budget- of budget- of budget- of budget- of budget-
USD ed expen- USD ed expen- USD ed expen- USD ed expen- USD ed expen- USD ed expen-
billion diture billion diture billion diture billion diture billion diture billion diture
RDP 1.5 1.5 3.0 2.9 6.2 5.2 5.3 5.3 2.3 2.8 2.3 3.1
allocation**

Petrodollar 1.5 1.5 1.5 1.5 1.1 1.0 1.4 1.4 1.4 1.7 No NA
allocation specific
amount
is stated
in the
budget
Source: Iraq Budget laws 2010,2011,2013,2015 and Budget proposal 2016
*Note: Budget law 2014 is missing because no budget law was passed in 2014
** Includes KRG share of RDP. In 2015, KRG share of RDP amounted to USD 379 million

63 2015 SBL, Article 2.D.

64 Mousa Jiyad (2015), 34.
65 Mousa Jiyad (2015), 34.
17
Oil and Gas Revenue Sharing in Iraq

Table 5. De jure Regional Development Program and petrodollar allocations in 201566

2011 Petrodollar Per capita

Area in sq. population RDP allocation Per capita RDP allocation petrodollar
Governorate km estimate* (USD million) Allocation (USD)* (USD million) allocation (USD)
Ninewa 37,323 3,270,422 307 93.87 13 4.0
 Kirkuk 9,679 1,395,614 120 85.98 213 152.6
Diyala 17,685 1,443,173 130 90.08 - 0.0
Anbar 138,288 1,561,407 139 89.02 1 0.6
Baghdad 4,555 7,055,196 657 93.12 39 5.5
Babil 5,119 1,820,673 160 87.88 8 4.4
Kerbela 5,034 1,066,567 97 90.95 - 0.0
Wasit 17,153 1,210,591 108 89.21 82 67.7
Salah al-Deen 24,075 1,408,174 121 85.93 108 76.7
Najaf 28,824 1,285,484 119 92.57 7 5.4
Qadisiya 8,153 1,134,313 104 91.69 8 7.1
Muthanna 51,740 719,069 68 94.57 6 8.3
Thi-Qar 12,900 1,836,181 172 93.67 49 26.7
Missan 16,072 971,448 92 94.70 75 77.2
Basrah 19,070 2,531,997 231 91.23 896 353.9
Dohuk 6,553 1,128,745 92 81.51 - 0.0
Erbil 15,074 1,612,692 136 84.33 - 0.0
Sulaymaniyah 17,023 1,878,764 151 80.37 - 0.0
Total 435,052 33,330,510 3,004   1,505  
*In 2015 the total amount budgeted for the petrodollar allocation was USD 3 billion, out of which
USD 1.5 billion was only to be transferred to governorates if the IFG receives additional funds, i.e. a
contingency budget.

66 Sources: Ahmed Mousa Jihad, Iraq Extractive Industry: Legal, Fiscal, and Revenue Allocation and
Management Issues (2015), 35; http://www.geohive.com/cntry/iraq.aspx

18
Oil and Gas Revenue Sharing in Iraq

4. Earmarks and use of revenue

by subnational governments
There are guidelines and earmarks for all three revenue allocations to regions and
governorates. These are normally specified in SBLs.

For the 2015 SBL, the directives on use of RDP and the petrodollar allocations are
specified in Article 267 and are as follows68:

• RDP USD 3 billion should be used for reconstruction and development projects
in all governorates, including those of the KRG.

• The governor in each governorate must first submit a development plan for
the governorate to the Ministry of Planning (including its districts and sub-
districts. This plan has been ratified by the provincial council.

• Once the Ministry of Planning approves the plan, it shares the RDP with the
governorate. The internal allocation by the governorates is based on districts
and sub-districts’ relative population size. The governor implements the
development plan while the provincial council monitors implementation.

Provincial governments are mandated to use the petrodollar allocation to manage

economic and environmental costs related to oil and gas extraction. Article 2 of
the 2015 SBL states “the governments must use no more than 50 percent of the
petrodollar allocation to import electricity or provide services to the governorate,
and must take care of the environment and the current expenditures based on the
governorate needs.”

In terms of KRG allocation, the 2015 SBL required the KRG to allocate a portion of
its received payments to the newly created (yet still unrecognized) governorate of
Halabja based on its population.69 The 2015 SBL also required that priority be given
to the KRG’s areas most affected by the production and refinement of oil, as well as
to environmental protection and construction projects.70

67 First clause; paragraph D for the RDP, and paragraph E for the petrodollar allocation.
68 U.N. Iraq Joint Analysis Unit, Low Oil Prices Put Iraq’s Budget Under the Guillotine: A Comparative
Analysis of the 2013 Federal Budget and the Approved Budget for 2015 (2015), 18.
69 Article 51 of the 2015 SBL.
70 Ibid..

19
Oil and Gas Revenue Sharing in Iraq

Figure 3. Implementation
rates of the RDP across
2009 governorates and region,
2009-2011 (in percentage
implemented)71

2010

2011

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

There isn’t comprehensive information on receipt and spending of resource

allocations. While there is no information available on KRG spending, information
on implementation rate of the RDP funds reveals it was quite high in 2009 at 92
percent, and subsequently went down to 67 percent and 56.6 percent in 2010
and 2011, respectively.72 While data on petrodollar utilization at the provincial
government level is unavailable, there is evidence of low absorptive capacity: the
Supreme Auditing Board, a government entity, raised concerns in 2015 about
provincial governments’ capacity to “even spend the USD 1-petrodollar.”73

71 Ministry of Planning, National Development Plan 2013-2017.

72 Mousa Jiyad (2015), 35.
73 Ibid..

20
Oil and Gas Revenue Sharing in Iraq

5. Impact of revenue sharing

In January 2013, about 60 percent of all Iraq households were suffering from lack of
access to at least one of these: improved drinking water source, sanitation, regular
electricity and food.74 Researchers cite two reasons why Iraq’s government budget
cannot translate fully into development. First, funds allocated are insufficient
to meet to development needs. Second, execution of the investment budget
by governorates remains low: it amounted to only 50 percent in 2011 for the
mentioned sectors.75

Also the type of revenue sharing itself—derivation-based sharing through

petrodollar allocation and special shares to KRG—is bound to create inequalities
across provinces and region. Beyond these observations, it is difficult to ascertain
the impact of revenue allocations to subnational governments in absence of data on
actual transfers.

74 JAU Iraq, Iraq budget 2013, Background Paper, 2013.

75 JAU Iraq, Iraq budget 2013, Background Paper, 2013.

21
Oil and Gas Revenue Sharing in Iraq

6. Disclosure of revenue sharing

Revenue transparency is a crucial requirement for governorates and regions to
know what they are owed, to resolve conflicts and to ascertain impact. There is
little disclosure of revenue transfers either at the national or subnational levels of
governments.

Although the constitution mandates the establishment by law of a “public

commission” to “verify the ideal use and division of the federal financial resources,”
to “guarantee transparency and justice in appropriating funds to the governments of
the regions and governorates […] in accordance with the established percentages,”
and even to “verify the fair distribution of grants, aid and international loans
pursuant to the entitlement of the regions and governorates that are not organized
in a region,”76 the establishment of such a commission was delayed by the IFG. In
2011, the government approved a draft law for the “Public Commission to Audit
and Appropriate Federal Revenues.” However, as of 2015, the draft law had not
been discussed in parliament.77

Disclosure of transfers by the national government

The Ministry of Finance publishes the annual SBLs on its site.78 Although they
contain all the yearly provisions for intergovernmental transfers, they do not
contain information on the actual amounts to be transferred and the amounts
transferred.

Disclosure of transfers by subnational governments

Within the KRG, the MoNR publishes monthly reports that contain information
on the volume of oil and gas exported; however, these do not contain information
on total export revenue or the export price for the independently exported oil.79
This makes it difficult to assess the importance of KRG oil exports in the region’s or
the country’s economy.80 Moreover, the text of the December 2014 deal between
the IFG and the KRG has not been published, and according to Minister of Finance
Hoshyar Zebari will not be published. The minister has not provided an explanation
on why the document won’t be publicly available.81

Provincial governments and the KRG do not publish data on revenue received from
the IFG. Also the KRG does not disclose any information on how it shares revenue
with its governorates.

76 Article 106
77 Mousa Jiyad (2015), 33-34.
78 These are available at the following link: http://www.mof.gov.iq/pages/ar/FederalBudgetLaw.aspx
79 These are called monthly export reports and are available here: http://mnr.krg.org/index.php/en/
press-releases.
80 Midyear Review of the State Budget and Oil Export Revenues (2015).
81 Mousa Jiyad, The Balance Sheet of the Recent IFG-KRG Oil Deal in Iraq (2014).

22
Oil and Gas Revenue Sharing in Iraq

Final remarks
Iraq’s oil and gas revenue sharing arrangement is embedded in the country’s SBLs,
and is therefore subject to yearly modifications and approval by the parliament. The
process of determining shares, especially for the KRG, is highly contentious and
linked to ongoing national debates on decentralization and autonomy. Insufficient
guidance on interpreting the constitution or even the budget laws creates a large
degree of contention.

RDP revenue is allocated to all governorates based on their population, while

petrodollar allocation provides additional revenue to oil- and gas-producing
governorates (except the governorates of the KRG). Baghdad receives the largest
share of the RDP, while Basrah and Kirkuk receive the highest petrodollar
allocation.

KRG has received payments every year since 2008 except for 2014, when the
IFG halted payments to the region. The December 2014, an agreement between
the KRG and the IFG reactivated the 17 percent transfer in favor of the KRG,
conditional on the region contributing roughly 550,000 barrels to the country’s oil
export system per day.

Based on the allocation formulas used—derivation-based sharing through

petrodollar allocation and the large KRG share, with no equalization to compensate
less well-off provinces—the revenue sharing mechanism seems to reinforce
inequalities across provinces.

The SBLs are usually disclosed. However, there is very little transparency both at
the federal and governorate levels (including in the KRG) on revenue shared and
received. Piecemeal information on utilization of RDP and petrodollars suggest low
capacity of governorates to absorb the funds.

23
 ACKNOWLEDGEMENTS
María Lasa Aresti is an NRGI consultant. The author wishes to thank reviewers Ahmed Mousa
Jiyad, Nadine Abou Khaled, Patricia Karam, and Mohammed Kirkukly for their valuable
comments and inputs.

The Natural Resource Governance Institute, an independent, non-profit organization, helps people
to realize the benefits of their countries’ oil, gas and mineral wealth through applied research, and
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Learn more at www.resourcegovernance.org