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Cablegate: The Need for Opic Financing of Projects in Iraq

VZCZCXRO8604
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3949 3521522
ZNR UUUUU ZZH
P 171522Z DEC 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 0906
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHINGTON DC PRIORITY

UNCLAS BAGHDAD 003949

SIPDIS

NEA-I ECON PLEASE PASS TO OPIC

E.O. 12958: N/A
TAGS: EINV ECON IZ
SUBJECT: THE NEED FOR OPIC FINANCING OF PROJECTS IN IRAQ

1. (U) SUMMARY AND ACTION REQUEST: Embassy Baghdad strongly
urges the Board of Directors of the Overseas Private
Investment Corporation (OPIC) to increase its participation
in projects in Iraq. Specifically, the Board should consider
on an urgent basis debt financing for the Summit Group's
hotel development project in Baghdad's International Zone. A
five-star, business-friendly hotel is crucial to private
sector development in Iraq. We make this strategic
recommendation regarding OPIC's involvement based on the
factors detailed below. END SUMMARY.

THE SUMMIT GROUP'S PROPOSAL
---------------------------

2. (SBU) In March 2008, the Goverment of Iraq's (GOI)
National Investment Commission (NIC) announced that it had
issued a license to Summit Group for the construction of an
international standard, five-star hotel with 300 rooms in
Baghdad's International Zone (IZ). This project was the
first major investment license to be signed by the NIC,
following an arduous inaugural licensing process involving
several different GOI ministries. The Defense Department's
Task Force for Business and Stability Operations (TF BSO)
provided extensive logistical and procedural support to
Summit Group representatives. In addition, both the former
and current commanding generals of Multinational Forces -
Iraq lauded the project for its strategic and intrinsic value
to the Iraqi economy. Marriott was initially to manage the
hotel upon completion, but declined further involvement
following the bombing of its hotel in Islamabad in September.
The Emirati hotel chain Rotana, however, quickly stepped in
and now plans to manage the hotel.

3. (SBU) Hotel options for business executives, foreign
government officials, and others that visit Iraq are
extremely limited and require improved security and
infrastructure. There is currently only one hotel in the
International Zone (Al Rasheed), and its physical condition
is deteriorating. The chairman of a five-star US hotel chain
recently told the Ambassador that even though his firm is not
involved in the Summit Group's deal, he fully supports the
endeavor because many foreign investors will not even
consider entering Iraq's market until they have a business
class hotel to serve as a base of operations.

THE TIME IS NOW
---------------

4. (SBU) More generally, the Iraqi economy is at critical
juncture. Hard-earned security gains have created
unprecedented opportunities for investment and for the Iraqi
private sector to take its first meaningful steps toward
development. These gains are fragile, however, and private
investment is needed in order to solidify the improved
security climate and diversify the economy. The importance
of private investment is even greater today with the fall in
oil prices, which has reduced GOI budget resources and
underscores the need for investment-led growth in non-oil
sectors. In addition, last month's signing of the U.S.-Iraq
Strategic Framework Agreement and an impending multi-billion
dollar sale by GE to the GOI for 56 generators and turbines
that could double Iraq's energy capacity both offer an
excellent opportunity for OPIC to further strenghten our
bilateral commercial relationship.

A STRONG SIGNAL
---------------

5. (SBU) The long-term success of our efforts in Iraq depends
on economic revitalization, which, in turn, relies on private
investment. By acting now on the Summit Hotel deal, OPIC
will send a fundamental signal that investors and companies
Qwill send a fundamental signal that investors and companies
can do business in Iraq. At the same time, OPIC financing
can directly contribute to a project that will pay dividends
by opening doors to other foreign direct investment. We
strongly urge the OPIC Board to act now on its decision to
finance the IZ hotel project and consider increasing its
level of participation in other projects in Iraq.
CROCKER

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