BASRA, Iraq (Reuters) - Officials in Iraq's southern oil hub Basra are trying to cancel a $17 billion (10 billion pounds) Shell gas deal because they want a bigger say, highlighting the pressure on central government to ease its control over the provinces.
Basra, where dozens of international oil companies signed up to develop some of Iraq's largest oilfields, is increasingly restless with the slow pace of development in the province and wants more control over its natural resources and revenues.
Demands for more provincial power have simmered for years in Iraq, split by ethnic, sectarian and tribal tensions. But the Basra push and an autonomy drive from Salahuddin province threaten to stir tensions as the last U.S. troops withdraw.
The final contract with Royal Dutch Shell and Mitsubishi to capture flared gas in three southern Iraqi oilfields was signed on November 24 despite objections from the Basra local council that it was not included in talks or the deal's signing.
Officials from the Basra Provincial Council filed a lawsuit against the Iraqi Oil Ministry on November 25 demanding the cancellation of the gas agreement.
"In principle, we don't have any problem with developing the gas but when the contract is signed, there has to be an article that shows the provincial council has agreed ... Unfortunately, we did not know anything about this contract," said Sabah al-Bazouni, head of the Basra Provincial Council.
"Basra is the most suitable province to become an autonomous region."
Regional autonomy would give the province more power over finances, administration and laws, and an upper hand in supervising public property, which could loosen Baghdad's grip on the oil and gas sector.
The legal case is unlikely to deter Shell and delay the project, but it raises concerns about future disputes over oil and gas rights in Iraq, which is struggling to rebuild after years of violence just as Washington prepares for a full troop withdrawal by the end of December.
"Just as the constitution gave rights to the region, it also gave similar rights to the producing provinces ... Today, the Kurdish region signs a deal with ExxonMobil and the central government objects, it is double standards," said Bazouni.
Minority Kurds in the north of Iraq have enjoyed semi-autonomy for years since Western powers imposed a no-fly zone after the 1991 Gulf War. The Kurdish north is now seen as a model for other regions seeking more autonomy.
Iraqi Kurdistan was able to attract foreign investment and provide its residents with better security and living standards than in the rest of Iraq, where bombings and power cuts are a part of citizens' everyday lives.
But the Kurdistan Regional Government (KRG) and Baghdad are locked in a row over land and oil. The central government has objected to a recent deal between the KRG and U.S. oil giant ExxonMobil to explore for oil in the northern region.
Despite that, officials in Basra look to the KRG's experience and blame the lack of progress on political wrangling in Baghdad and rivalry among the Shi'ite Muslim, Sunni Muslim and Kurdish parties, each jostling for more power.
"Part of what drove us to demand regional autonomy is that political problems are usual in Baghdad not in Basra, where the governing parties are a known quantity," said Ghanem Abdul-Amir al-Maliki, a member of Basra Provincial Council.
"It is clear that the Kurdistan region is stable to a large degree because the governing parties there are a known factor ... In Baghdad, everyone is trying to please his own party on the account of others. We want to get rid of the political infighting in Baghdad by setting up a region."
SHARE OF OIL WEALTH
Provinces need a public referendum and parliamentary approval to attain regional autonomy. Prime Minister Nuri al-Maliki, who took part in writing the constitution in 2005, supports powerful central government.
His government has tried to quieten the autonomy movement, partly out of concern that it could lead to instability as the U.S. troop withdrawal picks up pace. The remaining 10,000 troops are scheduled to leave before December 31.
In October, the mainly Sunni Salahuddin province symbolically decided to declare the area autonomous. The move was criticised by Maliki.
In the mainly Shi'ite oil hub of Basra, autonomy talk has bubbled for years. Basra sent a formal request for autonomy more than a year ago, but has had no response from Baghdad.
The southern city used to be called "The Venice of the Middle East," but now, Basra's crisscrossed canals are filthy pools of stagnant water filled with heaps of rubbish.
Roads are damaged and only a few hours of electricity are provided every day.
Most of Iraq's oil exports come from the fields around Basra, but residents are fed up with shortages of power, water, jobs and housing. They complain they have seen little benefit from the oil wealth.
"Federalism is the solution. It has been eight years and Basra is still the same. The central government was not able to solve the problem of the electricity, water and other services in Basra," said Raied Khoudair, 34, a government employee.
"Until when Basra will remain the cow that Iraq milks for everything, and gets nothing from Iraq? We see the development in the Kurdistan region and the prosperity they live in, we are no less than them."
(Additional reporting by Aref Mohammed; writing by Rania El Gamal; editing by Elizabeth Piper)