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EXECUTIVE SECRETARIAT
COALITION PROVJSJON;\l AUTllOlUTY
INFO f\JEMO
FOR: Amb. Bremer
ORfGINATION: PSEC- Tom Foley
RE: Iraq's Oil Trust Fund
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Attached is Foley's paper on the Oil Trust Fund as promised in his memo
lhis moming .
. Also allachcd for your reference arc:
I. Govcmance, August 24 memo to the GC on Iraqi Oil Trust (TAB A)
2. McPherson, August 18 memo on Oil Heritage Trusl (TAB 13)
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AUachmcnl(s): As slated \C.~ i_a. ~ [
(Prepared by: Jeb Mason) ~ \,r.g......,W ·
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UNCLASSIFIED
COALITION I'ROVlSlONAL AUTHORITY
UAGHDAD
;;r?Fo MEMO
September 8, 2003 1600L
FOR: THE ADMINISTRATOR .. ,
FROM: Tom Foley, Director of Private Sector Development
SUBJECT: Iraq's Oil Trust Fund
Introduction
Iraq's oil wealth belongs to its people and this wealth should be equitably, pcnnanently and
directly heltl by them. The establishment of an Oil Trust for the People oflraq ("OTPI") that
serves this purpose should be a high priority for the CPA. An oil fund that permanently anti
broadly tlisLrilJutes Iraq's oil wealth among its citizens will help prevent inappropriate expansion
of the stale or the opportunity for a tyrant to seize and concentrate the wcallh of Iraq as Saddam
did. Furthermore, an oil fund shouhl build a capital <1sset to replace the oil resources as they arc
consumed, in order to provide a perpetual source of income to the Il·aqi people.
l\1 a jor Ob jcctivcs
The Office of Private Sector Development recommends that the structure of an Iraqi oil fund,
satisfy the following objectives: \
I) Irrevocably put Iraq's oil wealth directly in the hamls of the fraqi people;
2) _Cap !he amount of oil income available directly to !he governn]S!_ut at a I~!J;-~g!_!Lficautly
below the government's total need, thus requiring the government lo collect !axes from
the people to fund a major portion oflheir expenditures;
3) Create an enicicnt antlproJcss.iuwlllpuauagc_d_oiLoncralion;
4) Provitle for a high level of lrapsparency; and
5) Operate indcpcnllcnlly from tlirccl control oftr1c government. --·----
Proposed Structure
0~raq's oil production assets, including its oil reserves, should bc...donated to the OTPI. All
other oil-related businesses, including refining and oil field services, should be privatized. An
operating subsidiary ofthe OTPI should manage oil production operations with a management
lt:arn appoinlcd by the OTPI Uoard of Directors. The OTPt Uuard of Dircc_~?~ sho~Ju incluuc al
l~af;l-~cn-di.rccturs ami he elccteu by the public or app6iiitcul)flTlc-Prili1cMinistcr or Presiucnl.
In either case, directors should have staggered seven year terms. All of !ray's operating income
from oi 1 (revenues net of production costs, including uppropriale reserves for exploration and
UNCLASSIFIED

UNCLASSIFIED
other development costs) should be captured directly by the OTPI without any ability for the
government to intercept funds or pad the oil production company with patronage jobs. The OTPI
should distribute annually lhc following percentages of average annual operating income over
the previous five years: I
I) 2) l 0 percent to the government as general revenue;
I 0 percent in the form of a dividend distributed to all Iraqi citizens over the age of 18
who have liveuin the country for at least five years; and
3) The remainder into a reconstruction fund for the first five years of the OTI'I and
thereafter into a capital fund to be invested in perpetuity for the benefit of future
generations of Iraqis.
Lessons Learned
This proposal has features that have proven successful in other venues. First, it is generally
accepted that reprcsentati ve govc~nments arc _!:1]9~~~a_Q_~~~~~~~!.~!~~-sl..\-!.!".<.!.9..!.~ .. :Y.!~~~!.._~~~-~tj_sm' s
\Vcalth is broadly held and difficult to l"G.G..OJlC.<;;ntrale. Second, a govcrntucnt's size and po\vcr is llcl~l in balance \~hen it must directly tax its citizens for its funding needs. Third, we recommcm.l
the cnpilal fund have a struciurc sJmtmn<nllc~vcglan lio\;ci11i1t-~~l Pctrolc!:!.!)l Fund
("NGPF") .. In the NGPF, the Norwcgiangovernmei\lpra·Vl~ics-gc~cl:al o~ersight of the fund and
is responsible for making strategic investment decisions such as choosing the benchmark
portfolio and selecting the risk limits. llowcvcr, a money management finn handles to day-to-
day investment operations of the NGPF. The money manager's specific tasks include
implementing the investment strategy (as well as accounting and reporting functions), managing
risk and providing investment advice. In addition, the NGPF has geographical, company and
asset class restrictions that require the asset managers to remain properly diversified. Fourth, the
OTPl sl}arcs three fundamental princjplcs_\rillUhc Alaska Pennanent Fun<L.C.~£F.:)jncluding:
rccogni~h1g tllalthc oil resources q~_gj_qjlJG_p_cuple; ~lal;!iSi,ing cu~i.J:rcvQ.£~}Qk1r.'-.!;;t ami
specifying that its principal should be invested in pcq~cll!!!Y.~ and requiring that information
operations and investment activities be transparent ami readily available to the public.
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Comparison to the Iraqi Heritage Fund Proposed by the l\-'linistry of Finance
The staff of the l'vlinistry of Finance ("Finance") has proposed the Iraqi Heritage Fund ("JHF").
Their proposal properly recognizes the importance ofsctting aside Iraq's oil in a trust. The IUF
difTcrs rrom OTPI in tlwt the HIF docs nol ph!f£J.!.ill-L~-o_iLasse.ts_amiJllc_tjgb.!J.9~Ui!~(.§_oil
income direct! y_i_!!!yJhc lmn.d~ __ Qfthc.Iraqi p_c_opjc, and therefore docs nol \!!".ovide i_t~gJ:cable--,
[lFolccTioii ill"i·li-ihcsc assets and income will be rewncentralcd in the future by an individual or an
overly expansive government. Second, the II IF docs not provide for a vertical dccoupling and
privatization or the non-production assets of the slate-owned oil businesses.
Timing
The OTPl should be introduced soon. The first dividend payment from the fund should coincide
with a one-time rcmovnl of all subsidies on nil energy.
UNCLASSIFIED
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UNCLASSIFIED
ATTACHMENTS: [NONE]
UNCLASSIFIED

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UNCLt\SSIFII ~IJ
COt\ Ll'l'ION J'HOVIS ION!\ I. AUT I .I OR ITY
B i\ G liD 1\ I)
INFO MEMO
FOI\: TilE liOVEI{NING COUNCIL
FROrvl: TilE 1\l)fv!INISTR/\TOI{, Coalition l'wvisional i\utltorlty
SUBJI~CT: IIU\QI OIL TI{UST /
The natural weallh or Iraq has for far lou long been abu~cd and squandered hy irs leaders. H
is llii~h I ina~ I hal lhc riches of Iraq were used sokly rm th{~ hencrit of the Iraqi people. In
order Ill ;H:hicvc this, the. IICW Iraqi Oil Minister Cl)llld illlllllllllCC I he creal ion nr all Uil Trust.
Tlw cslahlishtllclll or an Jre~qi Oil Trust, inlo which a porti~ll\ or nil IC\'l'll\ICS \\'1)\dd he paid.
WOilfd h;IVC a 1\tllllhCr or ativanlagcs:
ll would enable oil revenues to be saved and used directly for the bcncl'il of lhc lraqi
people. This Call be c.lonc throu~;h direct Pil)'lllCII(S to <.:iti7.C11S in the rorlll nr
di,·idcnds, or hy 111anag.ing long lenll needs or I he stale. such ashy l'aying fpr
J!CilSIOIIS.
It would protect the slate againsl volatility in the global oil market. Saving a portion
or oil revenues would mean thai Lhe stale could draw upon financial rcscrn.~!' to ntcd
fiscal dcfidls caused lty a drop in oil prices.
It would create a lran~parcnl anti accountable means or Jllltnaging oil revenues aud
would he designed :111d managed according to internatio11al "hc~t practice".
ll would cn;iblc the slate to plan and illlpklllcnl econmnic goals for lhc ncar-lcrlll,
lllcdiuln-term, and long-term thereby allowing it to adtlrcsl' the diverse cconon1ic
needs of the counlry.
It would cultivate broad popular and social support among Iraq's population, lhrough
tile provi:>iouor much needed soda! benefit);.
In the ncar lcrm, due to the massive demands for rccollSlruclion expenditure not Jllltcll oil
revenue will be routed through the Trust. The only l'casiblc payments io the trusl will be
pension's paymcnls. But sourcing oil revenue into the Tru:;t, which will produce ckar
hclll.'f"il:; (o lrnqis ill IL'r!IIS of t!irccl Jl<l)'llleiiiS, will he a good IIIC<IIIS of tklliOIISirating to the
(ll.'opk. Lhallhcir livelihood is directly linkeu Lo oil production. Da111aging oil produclion \.viii
h;lflll their ruiiii"C (liOS)lC.dS.
UNCLJ\SSJFIED

COALITION l'I\OVIS.IONAL /\UTJlOIUTY
BAGillJ1\D
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TllECiOVERNINU COUNCIL
TilE 1\Dl'vllNISTR/\TOR, Alllha:;:;;Hior L. Paull3n:n!cr
ll. I ~uhtnitlo the Governing Council the following agenda for the Augusl 27 Incrting
I a111. /\~ llltcnliunnlto the Couucil on /\ugusl 2J, Atllba~satlor Dav.id Hich111oml
. l ('(··· l "IS l -1'"
ll':)~; I It' .I.- Ill Ill)' a ISC.IKC \IIIII •. cplt:lll lt'f' .
!lf the 1\ugusl 27 111ecling iudmlc:
I .
Iraqi Oil Tru:;l
l~slahlislllllCill ul' a fvlinistry or S<..:icncc ami Tcdmohlg)'
· tdur 1\ichmoml would of course also welcome tli:;cussion or any GC proposals.
ul over p;IJK.TS 011 these two topics lo the Uun:rning Council 011 Tuc!iday.
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0111:
:1te:
d'jcd:
1\ lllba;.:-;;uldr Kennedy
Colonel NurwoUtl
Peter Mcl'hcrsull
./\ugusl 18, 20CtJ
Executive Summary of lrnqi Oi\1 kri!agc Tr11sl
.,
II IJiock and l were asked by Ambassador IJrcmcr l.o provide a two page sunimary
:;cripiion or the Iraqi I krilage Trust l~>r translation. Please sec below. Thi:; dtlCIIIIICIII
lll;tin:; llHI(ksl rcvi:;iuus CtliiiJltll\.'d loa vcn:i«.lll f:uhntillnlla~:l mo11llt.
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H]i llc1·itagy_Trust- Executive Summary Vcrsiu11
• Iraq is ;111 oi·l-dolllina!cd ccottullty ;md tnusllltilllagc its oil resources carclirlly.
Tile early cs!ahlisluucnl of au "Iraqi llcri!agc Tr11st"' is un i111porlanl s!cp low;ml
cn:;urilllj !hallhc entire country hcnelils lh.1111 ils oil rc~:ourcc:; -·a 111ajor break
r1on1 p;,~;lpcdicics, wh~:11 only the 1\aa!lt Patty largely bcnclilnlli·om lr;~q'~ oil
re:;«lllln.::;.
• Fi11ancing for the Trust willue provided through foreign oil sales. Iraq's tmlional
hudgcl will be paid rrotll !he Tru:;l,lhcrcby assming long-lcnn liscal discipline
:11111 providing lran:;pan.:ncy lo I he pcopk tlr I he rounlry. In add ilion, !ltc Trw;!
would !Jill tC\'CiltiCS rrom oil sales in!O three li.111ll:; 1\c:;cri\Jc<l below (liiiSII;tll( !o a
prc-dclcrtllilll:tl limmrla aiiCI sliding scale.
• Although iniliallinancing for the Trust may be very Slllall, some t1pfronl "seed
111oncy'" 111ay he prlHicnl lo establish lhc inslilttlinna! slnwlurc and (lpcralions ftll.
ll1c T1 u~;t.
• For !he nexllwo yc:u· period oflin1e, and possibly longer, Iraqi pensions shouhl
he paid directly lhro\lgh \he Trust Fund (!he "Saving;, F111Hl"' --sec below) lo lwlp
c:;!;ihli:;l! lliis in:.;tihtlional slruclure.
• The Trust should, in lime, ue legally established in the Iraqi Constilulion, while its
exact opcra!ional struclurc :;huuld uc codified by statulc.
• The Trust will have a lllllllucr ofiJilportaul objectives:.
I) Full lransparcllcy, accouulabilily, and high pcdi..munncc slamlanls.
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1) Nc;n-\crm, nlediutll-ltnll, and lollg-knn cctmnmie objcdive:; thai will
;\~11\rc:;:; \he varit.lll5.eCtliiOIIlit: needs or the Ctlllll\ry (see \Jc\ow) .
.\) Tile rHIIi\';i\i\11\ orbro;~d p•>plllar am\ sot:ial support :1111\.lllg lmq'~;
(fl>Jllllalion. ·
<I) . lncoqwralion of intcrnalional"bcsl practices" in the Trust's ~lcsitjll,
ntanagcmcnl, and accouulahility.
The Tru~l will be COlllprisctl orlhrcc tlislind runtls: ' .; .
. , ) A "Divillclld Fuml"lhal.lllakes mmut~lilaymcn\s tlircclly \o all Iraqis .
. ··
lhi:; limd willlo ensure !hal Iraqis hcudit directly ti·um oil re\'rllltts, will
hdp to crcall~ h11pc antong the Iraqi popu\atillll, nud will help lo rn:auc
\hal oiltllallar,clllelll dccisitliiS hcnditthl~ entire co1111try.
2) t\ "Savings Fund'' that will help to mcd long-term needs oflhc c.o\mlry.
This l'llllll willltdp to ei\SliiC I hat r.ollle porl.iun ol' oilrcveuucs arc saved
li.H l'ulurc generations ami will he available. to lllccl key long-\crlll needs of
the cou11lry -·-fur inslancc, pcnsiow: and cduc:~lion.
J) !\ "Siabili/,aliull Fund" Lhal will inlJli'OVe nwcrocconulllic policic~;,
This fund will provide ;.ooll\ f(u· countcrcydicalli:;cal policies :llld,\,·ill
help to provide Iraq with a "c\tsllilm" agaiusl vo\:llilily in gloh;llllil prices
lh<1llt:1s caused hat dships fur other oit-·dontin;llcd ccuiHllllics.
• Each li.md will be separately managed and evaluated in tmkr \o strengthen
inn:nlives fi.>r :;\rong linaneial pcrl'l,rm:mcc. The 1\tlllls will invest in dilfcn.:n\
types or as:;dS {dclint:tl {Jy law) ;\11\l will :tl!al h;IVC :1 ltislingui:>hul inh:tllillioll;J!
;Hivisory board. .
• The atnounl of linanciug provitlcu lo each fund is an important decision for Iraq.
1\ laq,;c mnnbcr of co111hin:~lions arc possible lkpcmling on llw priority assigned
to m:ar .. [CIIll \'l:r:;w; hmg-lcnu pdurilics.
• llowcvcr, lo ensure Lhal each of the funds receives some r,uppurl, a clearly de lined
lllillilllal amount of linancinL~. or "floor," for cnch oflhc [umls should be kgally
c!;tahli:;hcd. In adtlilion, the amotllll paid into the f'unds should hc.tll-\•:nnincll in
part hy oil revenues liming a calcmlar period.
• Changes in allocalions among the rumls should be permissible only lhwuglt a
kgislalivc "super-majority" (e.g., lhrcc-fourlhs) :md l'rcsidcnlhtl cm1cuncncc in
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order In lirnil !he roo111 a\·ailablc lontauipulalc the li111ds ror sli(lfl-kmt l"llitical
Jill I pn:;c::.
Ckar CXjii:IHiilurc t
1 u\cs ami guidelines ror CCich or lhc runtls shtlllld he eslahli::hcd
.'.clearly dcfi11i11g lite cdmlilin11:; IIIH!t.:r which :"fH~ndillg is lo he pl"lllliflnl, the
;"1111111111( or:;pnulilll_~ thai is lo he pcnnitlcd.