VZCZCXRO5715
PP RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3906/01 3491321
ZNR UUUUU ZZH
P 141321Z DEC 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 0847
INFO RUCNRAQ/IRAQ COLLECTIVE PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 0548
RUEHEG/AMEMBASSY CAIRO PRIORITY 0272
RUEHKO/AMEMBASSY TOKYO PRIORITY 0078

UNCLAS SECTION 01 OF 02 BAGHDAD 003906 
 
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 00003906  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