MUTHANNA: IRANIAN IRON AND STEEL INVESTMENT

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003492

SIPDIS

E.O. 12958: DECL: 11/03/2018
TAGS: EFIN ECON PGOV IZ IR
SUBJECT: MUTHANNA: IRANIAN IRON AND STEEL INVESTMENT
NEGOTIATIONS IN FINAL PHASE

Classified By: Deputy Political Counselor Greg D'Elia for reasons 1.4 (
b) and (d).


1. (U) This is a PRT Muthanna Reporting Cable.


2. (C/REL) SUMMARY: Muthanna Provincial Investment
Committee (PIC) Chairman Adel Dakhel al-Yasiri told local
media that the PIC has nearly completed negotiations with an
Iranian company to build a 100 million USD iron and steel
plant near the provincial capital of Samawah. These
negotiations demonstrate continued efforts by Iran to
influence the economic and political landscape in Muthanna
and southern Iraq more generally. It is questionable,
however, whether a heavy industrial plant of this nature
could really be built or rehabilitated for this sum without
considerable additional infrastructural investment. End
Summary.

PIC Chairman Discusses Iranian Investment
--------------


3. (SBU) As reported October 20 in the local weekly
Al-Samawah newspaper, Muthanna,s Provincial Investment
Committee (PIC) Chairman Adel Dakhel al-Yasiri said that the
PIC has nearly completed negotiations with an Iranian company
to build a 100 million USD iron and steel plant near the
provincial capital of Samawah. The chairman characterized
the negotiations with the Samah Iranian
Industrial Company as "in the final phase," and indicated
that a contract will be signed soon. Based on the
information in the article and PRT follow-up contacts with an
independent member of the Provincial Council, the plant will
most likely be near Combat Outpost 6 (COP6). When fully
operational, the plant would reportedly produce some 500,000
tons of iron per year for a variety of industrial and
commercial purposes.

Local Leaders Not Surprised
--------------


4. (C//REL USA, GBR, AUS) PRT discussions with Abu
Cheffat, the influential sheikh from the Albu Hassan tribe,
confirm these ongoing negotiations. Abu Cheffat noted that
Iran has worked slowly for many months to encourage small
business development, and has attempted to co-opt certain
tribal leaders and other influential individuals in the
province through financial incentives and promises of
investment. The recent newspaper announcement, therefore, is
not terribly surprising to him. This article only
reinforces what many locals have known for some time now --
that Iran has been trying to both encourage business
development and promote the idea that it is doing so.

Negotiations May Not Bring Real Investment
--------------


5. (SBU) The news article discussed not only the Iranian
investment, but also a broad assortment of other negotiations
for investment in Muthanna. In total, the PIC chairman
indicated that he is in negotiations with China, Saudi, and
Kuwaiti companies interested in investment opportunities. He
claimed that these projects under negotiation reportedly
would total some 1 billion USD. Negotiations do not equate
to actual investments, however, and the PRT assesses that
only a fraction of these
negotiations will become signed contracts in the future.


6. (SBU) In addition, the generic 100 million USD sum
mentioned by al-Yasiri raises questions about the
project's viability. It is questionable whether or not an
efficient iron- and steel-producing plant -- even a small one
-- could be built or rehabilitated from a currently existing
factory for only 100 million USD. Also, the article makes no
mention of an associated power plant investment that would be
necessary for the factory, as Muthanna would not be able to
provide sufficient power, based on the current provincial
allocation. Therefore, an iron factory would almost
certainly take a far greater
investment in order to be economically viable.


7. (SBU) Finally, it is unlikely that Muthanna,s
investment committee would be able to finalize such an
investment without at least the tacit approval from Baghdad.
PICs, generally speaking, must seek ratification of projects
above 250,000 USD from the National Investment Committee
(NIC). PRT staff will be scheduling a meeting in the coming
few weeks with the PIC to determine how the Muthanna PIC and
the NIC can interact more closely on large investment
projects.

Locals Increasingly Wary of Iranian Influence
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8. (SBU) In Muthanna, increased Iranian influence would
not be generally seen in a positive light. Sensitive
research indicates that about 65 percent of Muthannans view
Iran,s role in Iraq,s economy negatively, higher than the
50 percent average nationwide. An even higher proportion of
Muthannans believe that Iran plays a negative role in Iraq,s
internal politics. Given these trends, it is not
surprising that the proportion favoring a strengthened
relationship between Iran and Iraq has dropped in Muthanna
from just under 50 percent early this year to approximately
20 percent this past summer. In comparison, the nationwide
rate has remained steady this year at about 30 percent in
favor of strengthened ties with Iran.

Iran Using Soft Power To Influence Iraq
--------------


9. (C//REL USA, GBR, AUS) Comment: The PRT believes that
Iran is continuing to use its soft power, in the form of
investment promises, to influence the coming provincial
elections scheduled for January. In doing so, Iran hopes to
consolidate its influence in both political and economic
circles. Even though the iron factory project would take at
least two to three years to build, the discussions
themselves show a level of economic activity in Muthanna. It
is an open question whether the project will actually be
built, or whether Iran's efforts will ultimately be
successful. The PRT anticipates the level of Iranian
economic activity -- both large and small -- to increase in
the near future. End Comment.
CROCKER