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Cablegate: Update On Investment in Iraq

VZCZCXRO7651
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2727/01 2380736
ZNR UUUUU ZZH
P 250736Z AUG 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 9042
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY

UNCLAS SECTION 01 OF 02 BAGHDAD 002727

SIPDIS

E.O. 12958: N/A
TAGS: EINV ETRD IZ
SUBJECT: UPDATE ON INVESTMENT IN IRAQ

REF: A. BAGHDAD 2299
B. BAGHDAD 2267
C. BAGHDAD 2501

1. (SBU) SUMMARY. Over the recent months, Iraq has seen some
early but significant successes in attracting foreign (and,
to a lesser extent, domestic) investment. The Ministry of
Industry and Mining has moved several SOEs toward point of
sale or joint venture status and received 56 JV bids. The
National Investment Commission is finding its mission and has
announced a handful of fairly big-ticket investments,
especially in the hospitality sector. As security improves,
Iraqi officials are cautiously optimistic that these small
early successes will lead to additional investment inflows,
as investors -- particularly from Asia and the Middle East --
begin to believe the security gains are for real and start to
"smell the money." END SUMMARY.

INDUSTRY MINISTRY REPORTS 56 BIDS FOR SOE JOINT VENTURES
--------------------------------------------- -----------

2. (SBU) On July 31, the tender period ended for bids on
joint venture (JV), production-sharing agreements with 36
state factories, with the Ministry of Industry and Minerals
(MIM) reportedly receiving some 56 bids. Munqith Al-Baker,
adviser to Industry Minister Fawzi Hariri, told us that more
than 160 companies had purchased MIM investment files. In
the end, 56 investors bid on agreements to rehabilitate,
manage, and capture a share of the production from these
factories. The factories open for such JVs included cement,
steel, petrochemicals, food, tobacco, and textiles. The
greatest number of bids were placed on cement factories, with
Ninewa's Sinjar and Badoosh cement factories attracting
eleven and five bids, respectively; the Karbala Factory
receiving ten bids; and the Fallujah Factory six. Ninewa's
Mishraq Sulfur State Company received six bids; the Beiji
Fertilizer State Company received four; and the Basrah Iron
and Steel Factory received two, including one from
multinational steel giant ArcelorMittal.

3. (SBU) According to Al-Baker, MoIM will now evaluate the
bids and shortlist firms. MIM plans to sign agreements
during the last quarter of 2008 (Comment: We are not quite as
optimistic. End comment). In April, MIM signed two joint
venture, production-sharing agreements worth approximately
150 million USD each with a Romanian and German consortia for
cement plants in Anbar and Kirkuk provinces. Management of
the factories is scheduled to formally transition on August
22.

PROGRESS ON NIC-LICENSED PROJECTS
---------------------------------

4. (SBU) The National Investment Commission (NIC) has also
licensed significant projects. On July 17, the Summit Group
laid the foundation stone for a USD 120 million hotel in the
International Zone. The deal, signed in April 2008, was the
first foreign investment to be licensed and approved through
the NIC. In June, the NIC granted a 248 million USD
investment license to a Kuwaiti company for the construction
of 8,000 apartment units in Najaf. In July, the NIC granted
the Iraqi Investment Company a USD 21 million investment
license to develop a luxury hotel in Baghdad's al-Utifiya
district, and a second USD 5 million license to the same firm
for development of a commercial mall in Rustafa district.
The NIC reports the hotel project is aimed at supporting
religious tourism and pilgrimages to Buratha Mosque and the
shrines of the seventh and ninth Shiite Imams. In addition,
the NIC granted a 50 million USD license to Kuwaiti firm,
Al-Aqeelah, to further develop Najaf International Airport
(Reftel A).

INCREASING INTEREST IN ASIA, THE MIDDLE EAST, EUROPE
--------------------------------------------- -------

5. (SBU) On July 2-3, the Government of Japan sponsored the
First Annual Japan-Iraq Business Forum in Amman, Jordan,
bringing together more than two hundred participants. Senior
Vice Minister of Economy, Trade and Industry (MITI) Masashi
Nakano and Vice Minister for Foreign Affairs Osamu Uno led
the Japanese delegation, while Minister of Industry and
Minerals Fawzi Hariri led the GOI delegation. Executives
from more than 100 Japanese companies attended, including
heavyweights in trading, oil and gas, cargo, construction,
and heavy industry. The agenda addressed political,
economic, and security developments, with a focus on
infrastructure, oil and gas opportunities, and the investment
climate. Japanese interlocutors told us the security
situation remains the largest obstacle to Japanese investment
in Iraq, but Japanese companies are keenly interested in
revitalizing business relations.

6. (SBU) In June, the Government of the Republic of Korea

BAGHDAD 00002727 002 OF 002


also sponsored a trade delegation, including executives from
Hyundai Industries. The conglomerate is interested in
setting up a vehicle manufacturing facility in Iraq to supply
GCC neighboring countries. Press reports indicate Kia is
also considering such investment. Likewise, at the request
of German investors, the German Government recently concluded
an Investment Promotion Agreement with the GOI that protects
investors against government interference and confiscation
and includes dispute resolution mechanisms (Reftel C).
Former German Interior Minister (now an MP) Otto Schilly
accompanied a group of businessmen from the IT, energy and
construction sectors on a visit to Iraq August 20-22.

7. (SBU) On June 29-July 1, an Omani delegation of 19
government officials and business executives, led by the
Secretary General of the Ministry of National Economy
Mohammed bin Nasser al Khusaibi, visited Baghdad to discuss
investment protocols to facilitate public-private sector
joint ventures and partnerships, including a bilateral tax
agreement. The delegation reportedly met with the Iraqi
Ministers of Finance, Trade, and Housing and Construction;
Deputy Ministers of Industry and Minerals; and the Prime
Minister, Deputy Prime Minister Barham Salih, and one of the
GOI's Vice Presidents.

STEADY STREAM OF POTENTIAL INVESTORS VISIT IRAQ
--------------------------------------------- --

8. (SBU) Deputy Undersecretary of Defense Paul Brinkley's
Task Force for Business and Stability Operations - Iraq
(TFBSO) has provided logistical support for several visits by
marquee multinational companies exploring investment
opportunities in Iraq. In July, Lakshmi Mittal, the CEO of
ArcelorMittal, the world's largest steel company, visited
Iraq to meet with Minister Hariri, Minister of Finance Bayan
Jabr, Vice President Tariq Hashimi, Vice President Ala Abd
al-Mahdi, Minister of Electricity Karim Walid, and the PM's
spokesman Ali Dabbagh. ArcelorMittal expressed interest in
developing the steel industry in Iraq, citing examples of
their work in developing or post-conflict countries in
Central Asia, Africa, and Eastern Europe. The company
reportedly bid on a joint venture, production-sharing
agreement with Basra State Steel Company.

9. (SBU) In July, senior executives from Hyatt Hotels,
fertilizer producer CF Holdings, and Morgan Stanley traveled
to Baghdad to meet with senior GOI officials and explore
business and investment opportunities (reftel B). Fertilizer
producer CF Holdings expressed interest in establishing a
fertilizer plant to utilize large quantities of flared
natural gas, and, over the longer term, Hyatt Hotels is
considering hotel management contracts. Praising the
improved security situation, the executives also said they
wanted to become goodwill Ambassadors between Iraq and the
United States. Other companies interested in various levels
of operation in Iraq include Daimler AG, which signed an MOU
with the PM in July that will pave the way for truck and bus
assembly at a state-owned factory in Iskanderiya, as well as
Caterpillar and General Motors, which plans to open a spare
parts dealership on Camp Victory to source Coalition Forces.


COMMENT
-------
10. (SBU) As the security situation continues to improve we,
like many Iraqi officials, are becoming more hopeful that
these early investment successes will build toward greater
future success. Indeed, the signals are positive and should
strengthen as the NIC further defines its mission and gains
confidence, and as the range of potentially profitable SOEs
move toward sale over the medium term. Challenges, in
addition to security, of course remain, to include a long
list of legislation that must be enacted in order to bolster
investor confidence and move Iraq toward WTO compatibility.
Still, as slow as that process may be, potential investors
from Europe, Asia and the Middle East are beginning to smell
the money that can ultimately be made in Iraq. End Comment.
BUTENIS

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