Negotiators are hammering out a new draft Iraq oil law after previous versions stalled, and as Parliament is moving forward on two new laws, one reconstituting the state oil company and another cracking down on oil and fuel smuggling.

"Shortly, we'll see a new draft which there is more common ground," said Abdul-Hadi al-Hasani, deputy chair of the Iraqi Parliament's Oil, Gas and Natural Resources Committee, which has already seen four versions of a draft oil law. The latest draft is based on "good dialogue" between the central and Kurdistan region governments, he said, and the Council of Ministers will soon approve it and send it to his committee.

A new oil law has officially been in the works for two years, and sources United Press International spoke to both echoed Hasani's optimism as well as said a divide over the law remains too large.

The law is one piece in a four-part package of legislation aimed at modernizing Iraq's oil sector.

Another is a law re-establishing the Iraqi National Oil Co., the state company dissolved as Saddam Hussein consolidated power over Iraq's oil via the Oil Ministry. Hasani told UPI in a telephone interview from Baghdad that the INOC law has been passed from the Council to his committee.

"We are going to discuss it next week," he said, calling it "one step in the right direction."

Hasani said INOC would incorporate all state companies operating in the oil and gas sector.

The remaining legislation -- a law reorganizing the role of the Ministry of Oil and a revenue-sharing law, which decides how oil sales are captured and redistributed -- both remain with the Council of Ministers.

"We've been asking for it and we're waiting on it," Hasani said. "These two laws if they come in will really prepare good ground to be able to pass the hydrocarbons law, which everybody is waiting for."

Iraq has the third-largest oil reserves in the world but was the world's 15th largest producer in 2006, according to the U.S. Energy Department's data arm, the Energy Information Administration. Production has increased from nearly 2 million barrels per day to around 2.4 billion bpd. It has sizeable natural gas reserves, which are underdeveloped.

The reserves have been controlled by the central government since the 1960s in a nationalized oil sector popular with most Iraqis. Saddam used the oil to line his regime's pockets and mismanaged the fields. That damage was compounded by U.N. sanctions preventing modern equipment and training, as well as wars in the country in each of the last three decades.

To fix and move forward Iraq's 80-year-old oil industry, tens of billions of dollars of investment is needed. The oil law debate is stuck on two main issues: whether to open up the oil sector to private and foreign investment (and if so, to what extent) and whether the strategy for exploring and developing the sector should be managed by the central government or the producing provinces and regions.

Hasani said a new law targeting smugglers has already received a first reading. It comes after last week's Iraqi Security Forces siege on Basra and still ongoing but smaller targeting of smuggling operations in the country's oil capital, as well as black-market clouds that hang over Iraq's largest oil refinery, Baiji, in the north.

Hasani said the law would set penalties for smugglers and tighten the borders. It would also create a certification for how oil and fuel can be transported -- be it on land or water -- and set container mandates.

The totality of Iraq's smuggling problem isn't known, but it rears its head in various ways: fuel and oil tankers diverted; refineries and loading terminals over- or under-filling; and simply boring holes in pipelines.

The total cost to Iraq's federal budget is no more than $3 billion a year, said Yahia Said, Middle East and North Africa director for the Revenue Watch Institute. That's decreasing as fuel subsidies are decreasing and meters are being installed throughout the sector. He said there's still work to be done to cut illegal activity in Baiji. The refinery is considered a funnel for insurgency funds.

"There's a disconnect between output and sales," he said. "The rest is politics."

Hasani said smuggling is more of a problem in the north of Iraq than in the south.

Prime Minister Nouri al-Maliki, however, is targeting Basra. The New Sabah newspaper reports Iraqi Security Forces are "to sink all the boats that are used for smuggling and empty the public buildings and lands occupied by smugglers in no more than one month."

The Addustour newspaper reports the Iraqi army has taken control over security and control of the Khor al-Zubair and Umm Qasr ports.

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