VZCZCXYZ0001
PP RUEHWEB

DE RUEHGB #0816 0841526
ZNR UUUUU ZZH (CCY ADX 004719D5 MSI7875)
P 251526Z MAR 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC PRIORITY 2382
INFO RHMFISS/HQ USEUCOM VAIHINGEN GE PRIORITY
RHMFISS/HQ USCENTCOM MACDILL AFB FL PRIORITY

UNCLAS BAGHDAD 000816 
 
C O R R E C T E D  C O P Y (ADDED CAPTION) 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EIND EINV IZ
SUBJECT: PRT KIRKUK: FAILURE TO PRIVATIZE LAYLAN CEMENT 
FACTORY 
 
REF: BAGHDAD 222 
 
This is a PRT Kirkuk reporting cable. 
 
¶1. (SBU) SUMMARY:  The Laylan Cement Factory, a State Owned 
Enterprise Joint Venture (SOE JV)recently lost its contract 
with the GOI Ministry of Industry and Materials (MoIM).  GOI 
officials cited of lack performance and inability to meet 
contractual obligations for terminating the relationship with 
the investor.  The termination of the SOE JV contract at 
Laylan Cement leaves one MOIM SOE JV currently in production. 
(Reftel A) END SUMMARY. 
 
¶2. (U) The Laylan Cement Factory is one of 17 state owned 
cement producers in Iraq.  On 20 August 2008, the GoI 
Ministry of Industry and Materials (MoIM) and Kirkuk Cement 
Company  Ltd. (KCC) executed an agreement for refurbishment 
and operation of the former Laylan Cement Factory in Kirkuk 
Province which provided for operation of this state owned 
enterprise (SOE).  MoIM retained ownership of the factory 
under the agreement and KCC, a partnership consisting of 
German, Iraqi and Middle Eastern investors, took over 
operation and production in exchange for an estimated 60% 
share of factory output.   PRT conducted discussions with the 
current and former managers of the factory to gather 
information regarding the status of the agreement and factory. 
 
¶3. (U) The current factory manager (as of 8 February 2009) 
confirmed that MoIM terminated its agreement with KCC as of 5 
February 2009, due to KCC,s default and failure to perform 
contractual obligations.  Principal performance deficiencies 
included failure to meet the milestones related to 
refurbishment of factory operations.  The Manager provided 
copies of official MoIM correspondence to KCC citing 
performance deficiencies, lack of progress, and failure to 
provide a monthly allotment of 30,000 metric tons of cement 
to MoIM per contract agreement.  He further stated that KCC 
failed to meet any of the 31 specifically identified progress 
milestones up to the time of their termination.  Four 
resident representatives of the German investors at the 
factory have now departed. 
 
¶4. (SBU) According to the Manager, factory output continued 
to decline after implementation of the agreement, due to lack 
of technical maintenance and spare parts.  He further alluded 
to worker unrest during the "German tenure" due to lack of 
payment for overtime wages and expected bonuses.  He noted 
that workers would demonstrate their dissatisfaction by 
turning off machinery in order to negatively affect 
production output. 
 
¶5. (SBU) The previous manager claims his supervisors at MoIM 
initiated his removal because of potential legal initiatives 
MOIM may pursue against KCC.  He confirmed KCC's contractual 
termination and mentioned the partnership's lack of 
investment in the factory, lack of performance and lack of 
initiative as the principal reasons for their termination. 
He used the phrase "wrong people for the wrong job" to 
characterize KCC, and opined that they did not understand the 
business or operation they had contracted to undertake. 
 
¶6. (SBU) The previous manager also mentioned that the two 
remaining investors in the partnership initiated discussions 
with MoIM with the intent of negotiating a restructuring of 
the contract and are currently seeking a 60 day grace period 
within which to develop a restructured deal with MoIM.  He 
believes MOIM is close to providing approval for the 60 day 
grace period. 
 
¶7. (SBU) COMMENT:  The Laylan Cement Factory is one of two 
SOE joint venture initiatives to move into production and at 
this juncture, it appears to have been unsuccessful.  From 
Qthis juncture, it appears to have been unsuccessful.  From 
the perspective of MoIM, responsibility is attributable 
solely to the private sector partnership.  PRT has not been 
able to reach the German investors to hear their perspective, 
but it seems that MoIM's expectations of production 
improvements in the factory were overestimated.  PRT will 
continue to monitor activity at the factory and work with the 
GoI and any future investors as applicable. END COMMENT. 
BUTENIS