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