VZCZCXRO6920
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #0222/01 0281348
ZNR UUUUU ZZH
R 281348Z JAN 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 1444
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 02 BAGHDAD 000222 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EINV IZ
 
SUBJECT: UPDATE ON IRAQ STATE OWNED ENTERPRISE JOINT VENTURE 
PROGRESS 
 
REF: A. 09 BAGHDAD 0152 
      ¶B. 08 BAGHDAD 3924 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY. 
 
¶1. (SBU) SUMMARY: The Iraqi Ministry of Industry and Minerals (MIM) 
has completed two tender rounds for joint venture (JV) arrangements 
between MIM and private investors in its state owned enterprises 
(SOE).  While progress has been slow, SOE investment commitments 
from investors from Japan, Germany, Romania, Egypt and the U.S. now 
total over 800 Million USD (Reftel A).  END SUMMARY 
 
A SOLUTION FOR TODAY'S IRAQ 
--------------------------- 
¶2. (SBU) In a recent meeting with Fawzi Hariri, Minister of Industry 
and Minerals, (Reftel A) the Minister was generally upbeat on the 
overall progress, noting continued international investor interest. 
This progress and continued interest is noteworthy given MIM's 
structuring of the JVs, in which the GOI maintains ownership of the 
SOE, while the international investors take over management and 
operations in order to share in a negotiated percentage of SOE 
output. 
 
Working closely with MIM, DOD's Task Force for Business Stability 
Operations (TFBSO) has also served as the critical link between GOI 
offerings for JV projects and the private investor community.  TFBSO 
has provided consulting, training, and in some cases, factory 
refurbishment in preparation for production.  The GOI requirements 
that payroll levels be maintained has proved a significant barrier 
to investor interest, but the GOI continues to believe this is a 
necessary step to prevent exacerbating the unemployment problem and 
possibly triggering civil unrest. (Reftel B) 
 
Current Status of Investments 
----------------------------- 
¶3. (U) JVs have been signed and executed for the following SOE 
investments: 
 
      - Cement Plant, Kirkuk.  150 Million USD, German/Iraqi 
consortium, 15 year term, consortium to receive < 65% of production, 
must maintain payroll at current level and provide power generation 
for plants. 
 
      - Al Qa'im Cement, Anbar.  150 Million USD, Romanian/Iraqi 
consortium, 15 year term, consortium to receive < 65% of production, 
must maintain payroll at current level and provide power generation 
for plants. 
 
¶4. (U) SOE JVs approved by Council of Ministers (COM), awaiting 
contract signing: 
 
      - Diyala Electric, Diyala.  80 Million USD, Egyptian/Iraqi 
Consortium (Al Suwidi group), 15 year term, consortium to receive 
85% of production, must maintain payroll at current level and 
provide power generation for plants. 
 
      - Beiji Fertilizer, Salah ad Din.  210 Million USD, 
Japanese/Iraqi Consortium (Marubeni group), 15 year term, consortium 
to receive 61.5% of production, must maintain payroll at current 
level and provide power generation for plants. 
 
      - Falluja White Cement, Anbar.  25 Million USD, German/Iraqi 
Consortium (IM Consulting and Michael Peters), 15 years term, 
consortium to receive 78% of production, must maintain payroll at 
current level and provide power generation for plants. 
 
¶5. (U) The following SOEs have JV agreements pending cabinet 
approval and contract signing: 
 
      - Kubaysa Cement, Anbar.  150 Million USD, German /Iraqi 
Consortium, 15 year term, consortium to receive < 65% of production, 
must maintain payroll at current level and provide power generation 
for plant. 
 
      - Sinjar Cement.  100 Million USD, Japanese/American/Iraqi 
Consortium, 15 year term, consortium to receive < 65% of production, 
must maintain payroll at current level and provide power generation 
for plant. 
 
¶6. (SBU) The following notable SOE JV agreement is under 
negotiation: 
 
      - Steel Plant, Basra.  1 Billion USD, ArcelorMittal. 
Q      - Steel Plant, Basra.  1 Billion USD, ArcelorMittal. 
(Agreement in near term at the level of financing previously 
discussed is unlikely, given decreasing global demand for steel and 
steel products and the overall global economic slowdown) 
 
¶7. (SBU) COMMENT:  Some sectors of the international investment 
community find that the SOE JV model does not fit their investment 
strategy, or more simply put, they do not want to go in to business 
 
BAGHDAD 00000222  002 OF 002 
 
 
with the GOI.  Still, progress is measurable and interest from 
investors continues.  While not an ideal market solution in the long 
term, the SOE JV program is a pragmatic step in the near term that 
addresses the political and security concerns stemming from a rapid 
rise an unemployment that would occur if SOEs were shut down or 
downsized.  The embassy, together with TFBSO, will continue to work 
with both the GOI and potential investors to bring new capital and 
expertise to Iraqi firms and to prepare for eventual privatizations. 
 END COMMENT 
CROCKER