MONTREAL, Canada – With the Kurdistan Regional Government (KRG) beginning its first large oil sales and working to advance its energy sector, while Baghdad has been holding back the region’s budget, Rudaw looked at Canada as an example of how natural resources are managed at federal and provincial levels.
The French province of Quebec, which resembles Kurdistan and attempted to separate due to its cultural and linguistic differences, still received more than 30 percent of the federal budget support for the current fiscal year from the federal government in Ottawa.
The principle in Canada is that money flows, for the most part, from the federal government to the provinces because the federal fiscal capacity -- in other words the federal capacity to raise money through taxes – “is greater, more robust and stronger than the ability of most provinces to raise money through taxes,” Patrick Fafard, Associate Professor of Public and International Affairs at the University of Ottawa, told Rudaw.
In January, tensions between Erbil and Baghdad reached new highs when the government of Iraqi Prime Minister Nouri al-Maliki suddenly decided to freeze the autonomous region’s monthly budget over political disagreements with the Kurds.
But according to Fafard, that is not the case in Canada, where the budget would not stop “at the whim of the central government.”
He said that federal-provincial budget transfers are entrenched in the Canadian constitution and take place through a fair and transparent formula.
“The government of Canada cannot wake up tomorrow morning and decide to cut the equalization transfers. That would be unfair and there would be a huge fight.”
Baghdad’s excuse for freezing Kurdistan’s budget was that the region had taken charge of its own oil sales, even though the lion’s share of the revenues would go to the central government, as stipulated in the constitution.
In response, Kurdish leaders say they are working to offer better public services in Kurdistan than the rest of Iraq, despite their small budget, which is vulnerable to blackmail from Baghdad.
According to Fafard, the federal government provides the funding to the provinces in order to provide the same standards of services to their population.
“The federal government will transfer money to you to allow you to offer more or less the same basket of government services, assuming that you tax at more or less the same rate,” he said.
The strain caused by Baghdad’s attitude is not unique to the Kurdish government in Erbil. Even in Canada’s much larger and richer provinces the same could happen if the federal government stopped local budgets.
“If the federal government were to unilaterally stop, it would be a violation of the constitution, it would be a crisis,” said Fafard.
Kurdish leaders say that Maliki has no regard for the constitution and that he is acting above the law, which Fafard says is unlikely to happen in Canada, because “Canada is a country where we take the rule of law very seriously.”
The Kurdistan Region is entitled to 17 percent of Iraq’s annual budget, though Kurdish authorities say that Baghdad has always sent close to 11 percent. The KRG has compensated for the loss by relying on its savings and income generated from customs and trade.
Unlike Baghdad, the government in Ottawa seems to take into consideration whether or not Quebec can fully fund itself.
“Quebec does not have the ability to raise through its own taxation system money commensurate with its expenditures, even though it has natural resources, oil and gas, but also minerals and hydro electricity,” explained Fafard.
Erbil says that Baghdad’s demand for the Kurdish region to produce 400,000 barrels of oil per day is not fair, while the central government itself creates endless political obstacles for Erbil.
On the contrary, Canada recognizes that, even though some provinces have natural resources, they have not yet been able to exploit to the full those resources, and therefore qualify for a fair share of the budget.
By way of reassuring Baghdad, the Kurdish government proposes it would keep its 17 percent share of any oil and gas sold and send the rest to Baghdad. In this case, the central government would not have to worry about funding the three autonomous provinces.
This sounds like the system practiced in Canada, where oil-rich provinces tend to handle their revenue from natural resources and keep the federal government in the loop about it.
“Natural resource revenues are the jurisdiction of the provinces, and those revenues factor into the equalization formula,” Canada’s finance ministry told Rudaw in an email interview. “No separate agreements exist with individual provinces.”
Yet another similarity between the Kurdistan Region and Quebec is that in the 1970s and 80s, Ottawa got into a dispute with the oil province of Alberta, where it tried to interfere with oil and gas prices.
Baghdad also blacklisted all oil companies that dealt with Erbil and encouraged them to move to oilfields in Iraq’s south.
“The government of Canada wanted to influence the price at which oil and gas was sold and wanted to have an influence on where the resources developed, to try to encourage oil companies to spend less money in Alberta and more money elsewhere,” said Fafard.
“People in Alberta, where the oil and gas was at the time the most developed, could not get world prices for their oil and gas if that oil and gas was sold inside Canada. Needless to say, the people in Alberta fought back, just like the Kurds now,” he added.
Fafard believes that “the government of Canada learned a hard political lesson,” out of the dispute with Alberta.
“Because Canada is a federation, provinces literally own the natural resources. That is to say, any minerals or oil and gas or any sub-surface wealth are literary owned by the provincial government,” Fafard said.
