The production sharing contracts signed between the Kurdistan regional government and international oil companies regulate almost all aspects of the companies' operations in Kurdistan.

Overview

In accordance with the terms of the contracts, a management committee must be established within 30 days of the effective date of each contract and must consist of two representatives from the oil company and two representatives from the Ministry of Natural Resources. The committee is chaired by one of the two Ministry of Natural Resources representatives, who will generally have the final say in all matters where a unanimous committee vote is not required under the provisions of the contract.

Subsequently, the oil company must submit its suggested procedures for the procurement of equipment, materials or services to the management committee for comment and review. The procedures will be considered final following a unanimous vote by the committee or where no amendments are requested within 30 days of submission.

Further, the oil company must present a yearly work programme and budget to the management committee, based on which all costs are approved, with only a small amount of non-budgeted expenditures (usually 10% of the initial budget) allowed. The management committee must unanimously approve all additional costs.

Unified requirements

The above requirements are stipulated in each contract, but the Ministry of Natural Resources has, in practice, managed to unify the procurement procedures for all operating oil companies to a large extent, which can be summarised as follows:

  • A threshold generally ranging between $100,000 and $500,000 is agreed with each oil company. Any contract with a supplier surpassing the set amount must be tendered out. All direct contracts with a value below the threshold must be notified to the management committee with a justification for the choice of supplier and proof that the supplier is registered with the Ministry of Natural Resources as an approved vendor.
  • Each oil company's procurement department must submit an official request to the Ministry of Natural Resources whenever a contract needs to be put out to tender. The request must detail the scope of the work set out in the contract and its budget, along with other details, and ask the Ministry of Natural Resources to provide the procurement department with a list of approved vendors for the related scope of work.
  • Consequently, the oil company can choose to send out the tender documents to some or all of the approved vendors. The list of vendors receiving the tender documents must be presented to the Ministry of Natural Resources. If the company conducts a pre-qualification process, the list of approved vendors that successfully pre-qualified must be submitted to the Ministry of Natural Resources before releasing the tender documents.
  • Following the timely receipt of participants' bids, the management committee will meet to open all received submissions. After this meeting, the oil company can proceed to a thorough examination of the technical and commercial components of every bid in order to reach a decision regarding its order of preference for all bids. The assessment process usually follows a points system in order to provide the management committee with a ranked list of bidders, along with a justification and explanation for the provided order of preference.
  • Afterwards, the management committee will deliberate on the tender and the ranked list provided by the oil company in order to choose the winning bid, which is the sole right of the management committee, regardless of the oil company's order of preference. Nevertheless, considering that each of the four members of the committee holds only one vote and the chair has the casting vote, the oil company representatives have an essentially advisory role, in which their opinions and votes can influence but not decide the winning bidder.

For further information on this topic please contact Alain Hannouche at Hannouche Associates by telephone (+964 771 444 7447) or email (ahannouche@hannouchelaw.com). The Hannouche Associates website can be accessed at www.hannouchelaw.com.

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