SWORDS INTO PLOWSHARES: EMPLOYEES RESURRECT ANBAR

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 003215

SIPDIS

SIPDIS

E.O. 12958: DECL: 09/24/2017
TAGS: ECON PHUM IZ
SUBJECT: SWORDS INTO PLOWSHARES: EMPLOYEES RESURRECT ANBAR
INDUSTRIAL PARK

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Classified By: Classified by EPRT Falluja Team Leader Stephen Fakan for
reasons 1.4(B) and (D)


1. (C) SUMMARY. Just outside the Anbar town of Faris, the
employees of a state-owned (SOE) steel plant stepped up
after the 2003 Gulf War and, completely on their own, kept
the shop running. Today, against the odds, they continue to
produce an array of high-quality steel products and may soon
be in the running for Department of Defense contracts.
While lagging demand, power provision, aging equipment and
unrest remain obstacles to returning the plant to full
capacity, procurement initiatives and technical expertise
provided by Department of State embedded Provincial
Reconstruction Team (ePRT) and Department of Defense Civil
Affairs Groups (CAG) leave management and employees
optimistic they can expand production, attract investment
and ensure a stable source of skilled employment for the
Fallujah area. END SUMMARY.

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Background
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2. (C) In 1982, the Iraqi Ministry of Industry founded the
Al Ilka,a Industrial Park to manufacture high-quality 122
mm artillery for Saddam Hussein,s Army. The four-factory
complex was designed to process military-grade high and
medium alloy steels, particularly chromium molybdenum
alloys, and produced all the weapon's components, including
combat optics. It was the only factory of its type in Iraq
and, at its peak in the mid-1980s employed 1,700 people and
assembled approximately 100 guns yearly, with the capacity
for double that number. The Iraqi Ministry of Defense was
the plant's sole end-user; apparently none of the weapons
was ever exported.


3. (U) During the First Gulf War, Coalition AIR strikes
destroyed the plant's buildings but spared the machinery,
which management had ordered moved into the surrounding
countryside. After the war, the complex was completely
rebuilt only to be partially destroyed again during the 2003
Gulf War. Management blames much of the damage done during
the latter conflict on what they describe as the Marine's
heavy-handed billet at the plant.

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The Town of Faris
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4. (C) Located near the banks of the Euphrates River 20
kilometers south of Fallujah, the town of Faris (current
population 45,000) was significantly improved under Saddam,
s regime to provide a comfortable standard of living to the
management and technical staff of the nearby armaments
factory. Although located in predominantly Sunni Anbar
province, Faris had a mixed Sunni/Shi,a population and the
current Managing Director, Akram Shakir, is quick to note
his two predecessors were both Shi,a. He adds that all had
worked together to refurbish the Al Ika,a plant after the
Second Gulf War. This peaceful coexistence ended after the
February 2006 Samarra Mosque bombings when most of Faris,
Shi,a population fled the violence that engulfed Al Anbar.

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The Employees Take Over
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5. (C) After the end of the Second Gulf War, on their own
initiative employees elected senior managers, refurbished
approximately 70 percent of the plant's aging and
weather-worn equipment and set the complex on a peacetime
orientation. Today 90 percent of plant production, which
includes industrial conveyor belts, stainless steel cooling
towers, industrial hoppers, cam shafts and heavy duty
sprockets is destined for the domestic cement industry.
Refurbishing heavy machinery accounts for the balance of the
firm's business, which Managing Director Shakir says amounts
to USD 150,000 monthly. He adds the factory breaks even
despite the fact that, in addition to paying its 1,300
full-time employees, under Iraqi law it must also provide a
type of unemployment compensation called a "Basic Salary" to
3,000 individuals previously affiliated with the complex.
According to Shakir, the plant operates at 10 percent
production and 20 percent employment capacity. He adds that
the Ministry of Industry and Minerals still owns the Al
Ilka,a complex, but the factory has not received a penny in
state support in four years. (NOTE: In a process not known
for its transparency, The Ministry of Industry and Minerals
apportions a mere USD 33 million among Iraq's 250
parastatals. It may be that that Al Ilka,a is simply being
overlooked. END NOTE)


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Challenges--Inadequate Power Supply and Lagging Demand
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6. (C) Electricity provision remains the single biggest
challenge to the firm's growth. The Fallujah Central Power
Station is the plant's primary power source, and the firm
uses two aging diesel generators, with a combined 2.25
megawatt capacity, to provide back up. Typically the firm
cannot rely on its primary power because distribution is
centrally controlled from Baghdad and allocations are often
made without regard to actual local requirements. Another
problem is that Iraq's s electrical infrastructure is tapped
by countless private users who siphon off power, and
allocations that are made often arrive at their destination
with as little as 20 percent of the initial voltage. Al
Ilka,a spends much of its time operating on back-up power
in "brown out" conditions.


7. (U) Four cement factories located in Al Anbar province
are the firm's principal end-users. Managing Director
Shakir complained that the central government has not
encouraged cement producers from other parts of Iraq to
purchase and refurbish machinery through the Al Ilka,a plant
and added these orders often go abroad, needlessly.


8. (U) On the day the Fallujah ePRT visited Al Ilka,a,
employees staged a short strike in support of 720 Provincial
Security Forces (PSF) members from the Farris-Ameriyah area
who were being laid off by the Iraqi Ministry of the
Interior after five months of service. PSF were recruited
based on tribal affiliation but the Iraqi Ministry of the
Interior provided equipment, basic military training and a
USD 1200 stipend during the PSFs final two months of duty.
Tribal imperatives and bureaucratic incompetence in Baghdad
ensured that more fighters than necessary were retained.
Because the Coalition Forces (CF) provided support for the
program, the view among many Al Ilka,a employees is that CF
can ensure the young men continue as PSFs. International
Relief and Development (IRD) a local USAID contractor, has
offered the young men employment opportunities maintaining
canals and roads. None accepted this offer, but the group
sent the IRD representative a letter stating they would
consider working on tree planting projects. If employment
opportunities are not forthcoming, management and staff fear
these young men may join insurgent groups and threaten the
area's fragile stability. Shakir, a previous chairman of
the Ferris-Ameriyah city council, was particularly concerned
he would be singled out for reprisals. (PSF issues reported
septel.)

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ePRT Support--Equipment and Expertise
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9. (U) In a late July meeting, ePRT Fallujah and Regional
Combat Team 6 CAG outlined initiatives designed to increase
and diversify production, modernize the plant,s energy
supply and boost the number of skilled employees. EPRT
members will submit through the Commander's Emergency Relief
Program (CERP) discretionary funds controlled by the
combatant commander) a funding request, based on competitive
bidding conducted by Al Ilka,a, for twin 2 Megawatt
generators. The additional power will accommodate advanced
welding stations necessary for anticipated growth and any
excess power can be re-directed into the Faris electrical
grid. The generators will operate using heavy fuel oil (a
byproduct of the refining process) which the Al-Bayji
refinery, located near Kirkuk, can provide at extremely
competitive cost. Al Ilka,a management will maintain the
generators, transport the fuel and store it.


10. (U) At the meeting, ePRT members also explored the
plant,s structural steel production potential and concluded
they were excellent. With minor capital upgrades, Al Ilka,
a could produce high-demand structural steel items like
bridge components, radio towers and highway guardrails.
EPRT experts estimate this could create hundreds of new
skilled jobs at the factory and that the US Department of
Defense could become a client. Management also asked ePRT
personnel to press the Ministry of Industry and Minerals for
a firm commitment to provide Al Ilka,a a "first refusal" for
any supply and refurbishment work cement producers in other
parts of Iraq require.

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Comment
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11. (U) In the four years since the end of the Second Gulf
War, Al Ilka,a management and employees have done an
extraordinary job of remaining operational and re-orienting

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plant production toward peacetime demand. Al Ilka,a has
capabilities unique in Iraq and should be able to adapt its
technology to facilitate reconstruction efforts and
jump-start growth in industries up and down the production
stream. In this respect, EPRT and CAG support arrives at a
crucial time and may be the key to ensuring the plant,s
future success. The team's local and professional expertise
allowed it to recognize the enterprise's potential, reach
out to plant management, provide guidance across a range of
disciplines (from metallurgy to bookkeeping) and tap USG
resources to facilitate future growth. The synergy of USG
expertise and the "self starter" attitude at Al Ilka,a are
the best hope for creating skilled employment opportunities
that are the key to a stable future for Fallujah.


12. (C) Al Qaeda Iraq (AQI) and insurgent groups remain
operational throughout the province and a resurgent Al
Ilka'a could be a target for infiltration and other
operations. But the dramatic improvement in security and
the need to build on these gains through economic
development projects suggests this is a risk worth taking.
To date Coalition Forces report no AQI activity at Al Ilka'a
and the EPRT is looking at ways to ensure this continues,
perhaps by linking USG support with regular output
inspection and a requirement that current and future
employees receive background checks.
CROCKER