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AFTER THE WAR

A Fund Could Spread Iraq's Oil Wealth to Its Citizens

Under a proposal backed by two U.S. senators, petroleum checks would go to every household.

May 01, 2003|Warren Vieth | Times Staff Writer

WASHINGTON — U.S. officials are weighing the merits of a provocative proposal to distribute a portion of Iraq's petroleum wealth to its 24 million citizens by sending periodic oil revenue checks to every Iraqi household.

Similar in concept to Alaska's Permanent Fund, which last year paid $1,540 to every man, woman and child who met residency requirements, the proposed Iraqi fund would represent a radical departure from traditional state control of oil revenue.

The revenue-sharing plan, which has been embraced by several members of Congress, would pump a portion of future petroleum earnings directly into the nation's cash-starved economy by putting it in the pockets of ordinary Iraqis.

"It's an economist's dream," said Robert Storer, executive director of Alaska's Permanent Fund. "You distribute money to each individual in Iraq, and they use it in whatever way best suits their purposes. It's a great way to deal with the rebuilding of the Iraqi economy."

If endorsed by the Bush administration, it also would underscore repeated U.S. assurances that Iraq's vast petroleum reserves are being held in trust for its people, not for big oil companies, international financiers or the next set of palace occupants.

"The worst thing for the United States as the steward of Iraq is to be seen as keeping all the debt-holders whole and pumping a lot of money back into oil refining, while the public gets nothing," said Steven Clemons, vice president of the New America Foundation, a centrist think tank that is promoting the concept. "That kills us on the hearts-and-minds side."

Bush administration officials stress that it would be up to the future government of Iraq to decide whether to establish an Alaska-style petroleum fund. But a favorable recommendation by Washington would carry considerable weight with a new U.S.-friendly administration and could help overcome objections by those who prefer other revenue distribution programs.

"The interesting concept that has been used in Alaska for so many years is under consideration," Secretary of State Colin L. Powell told lawmakers Wednesday. "We're looking at that."

Powell said Alaska lawmakers have "educated me over the years as to the merit of this approach to the use of oil ... to compensate the people in a way that they can make a choice as to how the wealth of the state is being used. And I think that's a concept that applies in the case of Iraq as well."

The proposal is certain to intensify an already heated competition for the rights to Iraq's future oil production. Oil sales are expected to generate $15 billion to $20 billion a year once production is restored to prewar levels, and the bounty could triple as Iraq's fields are developed to their full potential over the next decade.

But Iraq's revenue needs are immense, and any attempt to divert a portion of the proceeds beyond the government's control is likely to encounter considerable opposition.

Besides traditional government spending needs, Iraq is faced with postwar reconstruction expenses of as much as $100 billion over several years, as well as unpaid foreign debts and compensation claims exceeding $200 billion. Unless a significant portion of its obligations is suspended or forgiven, officials say, Iraq is in effect bankrupt.

Moreover, the revenue-sharing plan could upstage an equally radical option favored by some administration officials and outside analysts: the privatization of Iraq's oil industry, in which actual ownership of oil assets would be transferred to private hands.

"That would make a lot more sense than a trust fund," said Leo Drollas, chief economist at the Center for Global Energy Studies in London. "The whole point is to break up the industry and extract maximum value."

Even so, a privatized industry would not preclude payments to the public. The Alaska payments are generated by taxes the state collects from the oil companies that pump and sell the oil.

Advocates of the Alaska model say it would ensure that at least some portion of Iraq's oil bounty is enjoyed by ordinary citizens who so far have received few benefits from petroleum. It would limit the Iraqi government's ability to misappropriate oil revenue for the benefit of a select few or to use most of the money to build palaces and buy weapons.

Two U.S. oil-state senators, Mary Landrieu (D-La.) and Lisa Murkowski (R-Alaska), are pressing the Bush administration to consider an Alaska-style revenue distribution plan.

"Beyond allowing the Iraqi population to more broadly share in the wealth that's generated from natural resources, it would decentralize the control of those resources," said Landrieu's legislative director, Jason Matthews. "That decreases the incentives for corruption and dictatorial regimes."

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