The provincial council of Basrah in southern Iraq has decided to mount a legal challenge against a multi-billion gas deal between the central government and Shell, saying the project does not guarantee enough benefits for the province, officials said Thursday.
The Basrah Gas Company, a joint venture between Shell, Japan's Mitsubishi and the state-run South Gas Company, will be formalized on Sunday, when a final agreement is signed at the Oil Ministry in Baghdad.
"This lawsuit claim is a constitutional right because of the risks to Basrah," said council member Farid Khalid, who is also head of the energy committee. "We ought to get some concessions from the two companies such as health services and social development projects and others."
Local officials have argued that they have not been included in key talks about the project, which will gather and utilize natural gas that is produced in association with southern oil fields and is otherwise flared.
The Iraqi constitution "makes the province a partner in charge of oil policy," said deputy provincial council chairman Ahmed Sulaiti.
The project, which Iraqi officials say carries a $17 billion price tag, will process 2 Bcf/d of associated gas produced from southern oil fields and supply the domestic market. Any surplus gas will be exported in the form of LNG.
The South Gas Co. will have 51% in the consortium, Shell 44% and Mitsubishi 5%.
The newly formed company would be tasked with capturing associated gas currently flared at the Rumaila, Zubair and West Qurna 1 oil fields, currently totaling 700,000 Mcf/d but rising as incremental oil is produced from the fields being developed by consortia led by BP, ExxonMobil an Italy's Eni.
The legal challenge is the latest snag to hit the gas project since the heads of agreement was signed with Shell in September 2008 -- Mitsubishi joined the project later. Some Iraqi politicians have criticized the 25-year agreement because it was negotiated directly with Shell rather than by competitive tender.
In keeping with local investment concessions that foreign oil companies have made as part of their oil field development work, the provincial council wants guarantees of projects such as healthcare, said Farid Khalid, chairman of the Basrah council's energy committee.
"We had a number of proposals for both Shell and Mitsubishi regarding projects for the benefit of Basrah," he said.
It is not clear what the lawsuit will demand and where it will be filed. However, it is unlikely to prevent Sunday's signing.
The move by the Basrah council is the latest example of local councils demanding more authority from Baghdad. Salahaddin province last month voted to start the process to form their own region.
"I support the chairman of the provincial council in this endeavor," said Basrah governor Khalaf Abdul Samad, a member of Prime Minister Nuri al-Maliki's party.
"Raising a complaint against the Oil Ministry is a proper step," he said.
