International oil companies, oil service companies, and other contractors in Iraq are at risk of major disruptions — including payment delays and problems moving personnel — due to newly enforced government policies.
The oil sector has long enjoyed a de facto exemption from some Iraqi regulations, including Ministry of Labor requirements associated with social security and work permits.
But in September 2020, the government started requiring foreign oil contractors to comply. Companies without the required paperwork can suffer a range of consequences, as their payment invoices and visa applications get caught in bureaucratic limbo.
To learn more about these problems, Iraq Oil Report spoke with Steve Rahola and Mustafa al-Janabi, two key leaders of New Frontiers Business Consulting.
For more than a decade, New Frontiers — which is also known by its Kurdish-language name, Asteki Nwe — has been on the ground navigating Iraq's bureaucracy, gaining the experience and relationships necessary to help foreign companies. Rahola and Janabi discussed the new regulatory challenges and how they have been providing companies with solutions.
Iraq Oil Report: The regulatory landscape in Iraq always seems to be shifting. What are the latest changes that companies in the oil sector need to know about?
Steve Rahola: Companies have always had to deal with Iraqi bureaucracy. For example, to bring personnel into the country, you obviously need to get visas, and there are different requirements that fluctuate based on nationality and other factors.
But there have also been a series of regulations that are officially on the books but haven’t been enforced, especially in the oil sector. Recently we have seen the Ministry of Labor gain some influence and assertiveness, and now oil companies and oil service companies need to comply with these requirements, too.
IOR: Yes, over the years the Iraqi government has tried to attract oil investment by cutting some red tape. But it seems like this was largely achieved by administrative orders rather than a change in laws. So what are some of the key requirements the Ministry of Labor is now enforcing?
SR: One example is work permits. There's been a regulation since 1987 that says if you want to do business and work in Iraq, you need work permits. Even if you're a government contractor or supporting government services.
For a long time, on a practical level, it was sufficient for many companies to get work visas. But technically, that just gives a worker the legal right to enter the country. Permission to start working — that requires a work permit, and the only entity that can give you that permission is the Ministry of Labor.
Just recently, around September of 2020, they've started to apply this regulation to companies working in the oil sector.
IOR: Are there other regulations the Ministry of Labor has started to enforce?
Mustafa al-Janabi: The work permits are the tip of the iceberg.
I won't bore you with the technical details, but one of the most central issues is social security. Companies need to ensure social security payments are being made for both local and expat employees — and if the payments for expats are being made in their home countries, you need to supply proof of payment.
Another aspect of social security is the local employment requirement. At least 50 percent of your workforce has to be Iraqi citizens. Or you need to get an exemption from the Ministry of Labor.
If you aren't in compliance with social security, there's a lot of other paperwork you can't get. For one thing, the Ministry of Labor won't issue work permits.
IOR: What happens if companies don't comply?
SR: Our clients haven't suffered. They've been in compliance because we had already completed all of their requirements. But we are seeing other companies suffer right now.
MJ: One major problem is payments. Basra Oil Company and Missan Oil Company have withheld some payments from both oil service companies and oil field operators because they were missing required paperwork from the Ministry of Labor. That can also hold up security permits for employees to access oil sites.
Another potential problem is that companies could be disqualified from tenders. To apply for a new tender, you need a clearance letter from the government's General Committee on Taxation (GCT) saying you are in good standing with your corporate taxes. And if you haven't done your social security…
IOR: Then you don't get the approval of GCT, and then you're not qualified for tenders. Right. So it's all inter-connected. And complicated.
SR: This is where we come in. On one level, Iraqi bureaucracy is very complicated, and compliance is really difficult — unless you have a high degree of local knowledge, experience, and relationships. But on another level, we make it simple for our clients. From their perspective, it's a turnkey solution: they hire us, and we take care of it.
IOR: Iraqi bureaucracy is notoriously difficult. What's your secret?
SR: There's no big secret. But one of the biggest factors behind our success is that we combine the best of Iraqi local knowledge and western business practices.
We're a local registered company, with a significant footprint on the ground in Baghdad, Basra, and Erbil, including a presence at the airports. And we have an excellent local staff, who have good relationships in all of the government offices that matter. They know the lay of the land.
But also, our staff also includes expats such as myself, and the owner is an expat, which means we approach our clients with a western mentality. In addition to Iraq, we have a presence in the U.S., Europe, and the UAE. We really understand what international companies need, and we approach solutions with a compliance mindset.
You need to have both the Iraqi and the expat perspective.
MJ: When it comes to compliance, some business advisory services cut corners. Either they don't know everything they need to do, or they don't stay up to date on the latest changes, or they make ethical compromises.
But if you know how the bureaucracy works, and if you have friends in government offices who will keep you up to date on the latest procedures, you don't have to cut those corners. That's why it is essential to have the local Iraqi presence.
SR: At the same time, international companies often hesitate to work with a local company because a lot can get lost in translation. We stand out, I think, because we have not only expats but also bilingual and trilingual local staff who can interface with our clients. They like that they can sit down and have a clear conversation and their concerns will be fully understood.
IOR: If a company wants your help, how does it work? How long does it take to bring a client into compliance?
SR: Whenever we get a request from a client, we first do a compliance assessment. Are there any red flags to work on? This allows us to give a time frame for achieving the client's goals.
In general, we can get things like visas and work permits within a really competitive period of time. But of course this can fluctuate from client to client depending on so many factors — whether they have other, unresolved compliance issues, the location where they're working, which departments they interface with. Once we understand the client's situation, we can give them a road map.
MJ: It's also important to note that, while we do specialize in immigration services, we also support international companies on the ground in Iraq in many other ways: entity formation, real estate, dispute resolution and legal services. Also, we work hand-in-hand with our sister company, FronteraSky, which provides travel solutions for companies transporting personnel in and out of Iraq.
IOR: Thank you for taking the time to speak with us.
MJ: It's our pleasure.
SR: I hope your readers will feel free to contact us if they have any questions about Iraq's latest regulatory and compliance challenges. We'd certainly be happy to help.
This interview was sponsored by New Frontiers and produced by Iraq Oil Report's advertising division.