VZCZCXRO0612
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0088/01 0130223
ZNR UUUUU ZZH
R 130223Z JAN 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 5185
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 000088 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EIND ECON EFIN IZ
SUBJECT: THREE STATE-OWNED ENTERPRISES FIND STRATEGIC PARTNERS 
 
¶1. (SBU) SUMMARY: Three cement plants in Iraq have found joint 
venture partners in consortia built in each case from different 
European firms joining with separate Iraqi partner companies.  The 
deals are not final -- negotiations may take several more months -- 
and are to be developed around production-sharing contracts and 
equity investments, thus are not privatizations, in that the 
Ministry of Industry and Minerals retains ownership.  But the 
consortia will be responsible for management, purchase of inputs and 
payment of employee salaries in exchange for a specified share of 
the physical output over a 10- to 15-year term.  To make the deals 
work, each of the consortia must make substantial (multi-million 
dollar) investments in plant and equipment modernization.  The 
production sharing model should allow the companies to recover that 
investment in 3-4 years.  END SUMMARY 
 
¶2. (SBU) Minister of Industry and Minerals (MoIM) Fawzi Hariri told 
EMIN on January 9 that the Ministry was finalizing a short list of 
joint venture projects to be announced imminently. The Ministry had 
begun in May 2005 with basket of 13 state-owned companies thought to 
be able to generate operating profits if they could attract a 
strategic partner for a joint venture.  The basket was culled after 
several meetings with prospective partners to four state-owned 
enterprises (SOEs) in the cement sector.  Hariri reported to EMIN 
that a meeting in Jordan to finalize preliminary partnership 
agreements, to finish January 10, would likely settle on two, 
possibly three handshakes that would then proceed to negotiations 
for the final terms of the joint venture agreements. 
 
THE COMPANIES 
-------------- 
 
¶3. (SBU) Per the Minister's information, it appears that cement 
plants in Al Anbar, Kirkuk (At Tamim), and Al Muthanna provinces are 
a step further toward productive joint ventures.  Three consortiums 
are the "selectees".  the first is a partnership between an Iraqi 
firm, Al Jawhara Al Khalijiyah, and a Romanian partner Uzen.  They 
are to partner with the MoIM to restart the cement plant at Al 
Qa'im, at the Syrian border in Al Anbar.  In Kirkuk it is a 
partnership among the Iraqi company Al Sharq Al Awsat and an 
unidentified German company.  Last, in Al Muthanna, the partnership 
is between the German firm KHD and an Iraqi company called the 
Economic Group.  While the Minister had briefed that different 
consortia seemed headed toward getting the nod in Al Muthanna -- he 
had pointed to a Swiss-led consortium -- and had expected a French 
firm to partner in Karbala, in the event Karbala seems to be left in 
the cold, and Al Qa'im -- initially thought to have been the hardest 
to move -- has found a suitor. 
 
THE DEAL 
--------- 
 
¶4. (SBU) Minister Hariri set out the essential terms of the joint 
ventures as follows:  The strategic partner would enter into an 
agreement in which the financial benefit comes from a contract for a 
share of production -- these will NOT / NOT be deals in which the 
partner takes an equity position.  The strategic partner could take 
up to 65% share of the production -- subject to negotiation -- with 
the Ministry retaining the balance.  The life of the production 
sharing contract would be 10 to 15 years. 
 
¶5. (SBU) The strategic partner for its part would invest on the 
order of $100 million in the SOE, the Minister said.  The partner 
would also be responsible for employee salaries and -- critically -- 
company management.  These terms as described are the framework for 
the deals.  Once the announcement of the selectees is made, a 
negotiation process would begin, with the agreements to be finalized 
over the next several months.  Minister Hariri said that the 
consulting firm of Grant-Thornton, part of DOD Deputy Under 
Secretary Brinkley's Task Force to Improve Business and Stability 
 
SIPDIS 
Operations in Iraq (TFBSO), is to provide legal technical assistance 
in the negotiations toward final contracts. 
 
THE ANNOUNCEMENT 
----------------- 
 
¶6. (SBU) The Minister said he expected the two, possibly three 
selectees to be determined at the end of the January 9-10 meeting in 
Jordan.  He would present the joint venture concept to the Council 
of Ministers (CoM) on Monday, January 14, and make a formal 
announcement at a press conference the following Tuesday. 
 
WHAT'S NEXT 
------------ 
 
¶7. (SBU) Minister Hariri said the next phase of his efforts to 
restructure the SOE sector would be to build another basket of 
target companies -- this time as many as 30 -- that may become 
attractive targets if they first were to receive an infusion of 
investment from the capital budget.  He provided EMIN with a list of 
some 21 companies that were his priority recipients for up to $300 
mn in total capital investment in 2008 (emailed to NEA/I-ECON).  He 
explained that, in deciding between whether to divide the $300 mn 
 
BAGHDAD 00000088  002 OF 002 
 
 
evenly among provinces, or to focus funds on SOEs with greatest 
turn-around potential, his list reflects the latter option. 
 
¶8. (SBU) Hariri said he was ready to issue 16 tenders just as soon 
as the CoR has approved the national budget.  He has made it his 
goal to have all $300 mn committed by August 31, in order to be well 
placed to request a budget supplemental for the SOE sector. 
 
CROCKER