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Cablegate: Update On Investment in Iraq

VZCZCXRO5693
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3904/01 3491200
ZNR UUUUU ZZH
P 141200Z DEC 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 0843
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 0546
RUEHEG/AMEMBASSY CAIRO PRIORITY 0270
RUEHKO/AMEMBASSY TOKYO PRIORITY 0076

UNCLAS SECTION 01 OF 02 BAGHDAD 003904

SIPDIS

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

REF: A. BAGHDAD 2727
B. BAGHDAD 3527
C. BAGHDAD 3398
D. BAGHDAD 3628
E. BAGHDAD 3579

SUMMARY
-------

1. (SBU) The Ministry of Industry and Minerals (MIM) has
successfully concluded negotiations with a Japanese and an
Egyptian consortium on joint venture (JV),
production-sharing agreements for two state owned
enterprises -- Beiji Fertilizer and Diyala Electric. MIM
senior officials are confident they will conclude
negotiations with other international investors on six
similar JV deals for cement, glass, and sulfur plants, but
the prospects of a billion dollar JV deal with steel giant
Arcelormittal are not as certain. National and Provincial
Investment Commissions (NIC / PICs) signed 26 investment
licenses In October and November, totaling 1.8 billion USD
in potential investment -- despite the firing of the NIC
chairman. Local developers have begun construction in the
International Zone on a 120 million USD hotel project,
financed by the Summit Group, a consortium of American
investors. The Defense Department Task Force for Business
and Stability Operations in Iraq (TFBSO) provided extensive
support for the joint venture (JV) investment opportunities
with Beiji Fertilizer and Diyala Electric and other State
Owned Enterprises (SOEs) being considered as well as with
construction licensing and approvals for the IZ hotel
project. End Summary.

JAPANESE AND EGYPTIAN INVESTORS WIN SOE JV CONTRACTS
--------------------------------------------- -------

2. (SBU) In early November, MIM successfully concluded
negotiations with a Japanese consortium on JV
production-sharing agreements for the Beiji Fertilizer
Company, an SOE. The ministry wrapped up a similar deal
with an Egyptian consortium for a second SOE, Diyala
Electric. Both 15 year contracts must still win the
approval of Industry Minister Fawzi Hariri and the Council
of Ministers (COM). Under the terms, the investors provide
for capital upgrades, assume all operational costs, and
take over management of the factories, capturing a
guaranteed share of production in return. The consortium
in the Beiji Fertilizer deal, which include Japanese
trading company Marubeni and Iraqi investors, will receive
85 percent of production. For the Diayala Electric JV,
Egyptian company Al-Suwidi and a group of Iraqi investors
will receive 61.5 percent of production. Under the terms,
the consortia must maintain all payrolls at current levels
and provide independent electricity generation for the
plants.

MIM OFFICIALS SEEK 6 MORE JV DEALS
----------------------------------

3. (SBU) MIM officials anticipate soon concluding
negotiations
with other international investors for six similar JV deals,
including three state-owned cement factories, ceramics and
glass production lines, and a sulfur plant. The cement
factories include Sinjar Cement Plant in Ninewa Province,
the Karbala Cement Plant, and the Kubaisa Cement Plant in
Anbar Province. The State Company for Ceramics and Glass
and the Mishraq Sulfur Company under negotiation are located
in Anbar and Ninewa provinces, respectively (Reftels A, B, C).

BILLION DOLLAR JV WITH ARCELORMITTAL STILL PENDING
--------------------------------------------- -----

4. (SBU) Of the 56 bids MIM received for 36 SOE JV tenders
in July (Reftel A), the largest one -- from steel giant
Arcelormittal for the Basra State Company for Steel and
Iron -- remains in negotiation. The Defense Department's
Task Force for Business and Stability Operations (TFBSO)
QTask Force for Business and Stability Operations (TFBSO)
provided extensive logistical support for Arcelormittal's
due diligence visits to Iraq. While some MIM officials are
still cautiously optimistic they will conclude a deal
estimated at over 1 billion USD, Arcelormittal's losses
from the global financial crisis, combined with a drawn-out
negotiating process by MIM, could threaten the deal's
prospects.

NIC and PICs Ink Deals Despite NIC Chair's Sacking
--------------------------------------------- -----

5. (SBU) On November 1, senior USG and GOI officials,

BAGHDAD 00003904 002 OF 002


American and Iraqi business executives, and the World Bank
participated in the Iraqi-U.S. Dialogue on Business and
Investment (DBIC) to candidly discuss challenges to doing
business and investing in Iraq (Reftel D). The next day,
the COM voted to dismiss National Investment Commission
(NIC) Chairman Ahmed Ridha, in part because of his bitter
public allegation (made at the DBIC) that the COM's
inaction was holding up some 68 billion of the 74 billion
USD in investments the NIC had "attracted" to Iraq over the
past 10 months (Reftel E).

6. (SBU) Yet in spite of Ridha's dismissal, the NIC and all
Provincial Investment Commissions (PIC) are up and
running. As of November 7, they have signed 26 investment
licenses totaling 1.8 billion USD in potential investment.
In October and November alone, various PICs signed 15
licenses representing a potential 1.2 billion USD. The
Najaf PIC issued a license for a 105 million USD tourism
project to Kuwaiti firm Al-Dashti. The Muthana PIC signed
seven licenses for Iraqi and Turkish firms to develop 338.5
million USD worth of projects, including a hospital,
casinos, cement factories, and a commercial mall. In
Karbala, the PIC signed six licenses totaling 674.4 million
USD to Iraqi, Kuwaiti, and Turkish firms to develop a date
palm factory, a plastics factory, two housing projects, and
one health care facility. Investment authorities in Basra
issued a 30 million USD investment license to an Iraqi
company for a poultry production facility. In addition, an
Iraqi company has reportedly begun construction on two
Diwaniyah PIC-licensed projects, a brick factory and
asphalt plant, worth 1.6 million USD.

IZ Hotel
--------

7. (U) Finally, local developers have begun construction in
the International Zone on a 120 million USD hotel project,
financed by the Summit Group, a consortium of American
investors. The project was the first to be licensed by the
NIC, in April 2008. Although Marriott originally planned
to manage the hotel, a large Emirati hotel chain will now
take over operations upon completion, estimated in two
years. TFBSO support for the IZ hotel project consisted of
facilitating relevant GOI land lease and investment license
for the project. This was the first investment license
issued by the NIC.

COMMENT
-------

8. (SBU) While encouraging, the projects approved by the
NIC and the PICs do not necessarily reflect an overall GOI
stragegy for attracting investment, and some may never even
reach the stage of implementation. As noted, TFBSO support
has been crucial to moving the SOEs to the point at which JVs
are feasible -- demonstrating the need for continued
USG involvement until such time as the GOI is ready to
implement its own investment strategy. End Comment.

CROCKER
CROCKER

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