WORLD BANK MEETS DONOR COUNTRY REPRESENTATIVES

UNCLAS SECTION 01 OF 03 BAGHDAD 001045

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SUBJECT: WORLD BANK MEETS DONOR COUNTRY REPRESENTATIVES
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1. (SBU) Summary: On April 7, Daniela Gressani, World Bank Vice
President of Middle East and North Africa Region, recently discussed
her organization's Iraq strategy and exchanged views on the Bank's
role in Iraq with donor country representatives. Donors requested a
larger World Bank presence to more effectively monitor its programs
and provide analytical and technical advice to the government of
Iraq (GOI). The drop in oil prices has created a greater sense of
urgency for the GOI to seek foreign investment in Iraq. Gressani
later met separately with EMIN Wall and indicated that she faced
difficulties recruiting senior World Bank officials with the right
skills to come to Baghdad. PM Maliki has sent the World Bank a
letter requesting assistance with developing a national energy
strategy and in reforming the institutional framework for its oil
and gas sector. End Summary.

World Bank VP Visits Iraq
--------------


2. (SBU) World Bank Vice President of Middle East and North Africa
Region Daniela Gressani discussed her organization's new Iraq
strategy with donor country representatives based in Iraq on April

7. Gressani was accompanied by World Bank Executive Director Merza
Hasan, Multilateral Investment Guarantee Agency (MIGA) CEO James
Bond, International Finance Corporation (IFC) Middle East and North
Africa Department Director Michael Essex, and Iraq Country Director
Hedi Larbi. The World Bank's goal over the next two years is to
assist Iraq in reaching its next phase of development by supporting
a strong framework for private sector development, private
enterprise and joint-venture establishment.

Donors Urge Stronger
World Bank Presence
--------------


3. (SBU) EMIN said that the World Bank's focus on the private sector
and public finance management is the right approach, welcomed the
involvement of the International Bank for Reconstruction and
Development (IBRD),IFC, and MIGA, and urged a stronger World Bank
presence with more staffing in Iraq. All donor representatives
concurred with his call for a larger Bank presence. Italian
Ambassador Maurizio Melani suggested MIGA and the IFC engage with
Iraq to help it develop its infrastructure. He commented that the
World Bank's commitment of $500 million loans for investment
projects for FY 09-FY11 was too little. World Bank officials
responded that they based this decision on the fact that $850
million in the Iraq Trust Fund has not yet been disbursed. This
raised the issue of Iraq's absorption capacity. If Iraq were to
draw down those funds and the $500 million, the Bank would have a
case to increase its lending. Ilkka Uusitalo, EC Mission Head to
Iraq, expressed concern over the World Bank's slow start of its
Public Finance Management Program.


4. (SBU) Danish Ambassador Mikael Winther, speaking as the IRFFI
Chairman, said donors and the World Bank should engage more with the
GOI and help define GOI policies on donor assistance. The World
Bank needs a stronger presence to lead the way in discussions with
the GOI on coordinating donor assistance. Australian Ambassador Bob
Tyson echoed the call for a robust World Bank presence and the need
for the GOI to rely more on the private sector rather than public
service sector.


5. (SBU) Richard Hogg, Head of the UK Department for International
Development (DFID) Office in Iraq, said that the GOI now seeks
concessional financing and will look towards the World Bank for
assistance. Moreover, Hogg continued, Iraq not only needs the World
Qassistance. Moreover, Hogg continued, Iraq not only needs the World
Bank's analytical and intellectual skills, but will look to the
World Bank to play a role in donor coordination.


6. (SBU) Japanese Minister Counselor Kansuke Nagaoka said that
despite progress in its political and economic development, Iraq
still lacks basic services in many areas. In March 2008, Japan
signed its first project, the Umm Qasr Port Rehabilitation Project.
Since establishing a monitoring committee with participation of the
Prime Minister's office, progress has been swift. He noted that
Japan anticipates disbursing $100 million for the project this year.
Nagaoka pointed out that the improved security situation has led to
an expansion of its presence, including a senior Japan International
Cooperation Assistance (JICA) official joining Japan's mission this
month and a JICA office opening in Erbil.

No Timeline Given
--------------


7. (SBU) Gressani responded that the World Bank has over 30 staff,
including Iraqi locals, working in Iraq but that most of them work
outside Baghdad. She acknowledged that the security situation has
improved and that the GOI is focusing on long-term plans. She said
that the World Bank will eventually increase staff in Baghdad, but

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provided no timeline and remarked that overall World Bank staff is
limited.

World Bank: Current Role in Iraq
--------------


8. (SBU) Hedi Larbi, Country Director for Iraq, said that in
addition to focusing on developing capacity building and the private
sector, the World Bank will analyze four ministries and come up with
an action plan to improve their capacities. This process will take
time, but Larbi predicted that it would lead to concrete results.
The Bank's Third Interim Strategy Note (ISN) identifies agriculture,
electricity, public financial management and bank restructuring as
priority sectors on which the World Bank will focus. Larbi
mentioned that the World Bank's two agricultural projects are
progressing rapidly. The World Bank has already disbursed $10
million on its electricity project, but remains unsure whether to
continue in this area. Larbi noted that the World Bank just
negotiated the Banking Restructuring Project, which he expected to
be signed in two to three weeks. It also expects to negotiate a
Public Financial Management Project on April 18 with a signing
possible in May.


9. (SBU) Larbi said that given the limited capacity of the Iraqi
government, a monitoring committee for all the donors may be needed
to examine the implementation of programs. Jean-Michel Happi,
resident World Bank Country Manager, added that the GOI is creating
a single National Development Plan and that the first critical
element is to align the World Bank's program with the GOI's National
Plan. Donor coordination should be led by the GOI, and the World
Bank should facilitate donor coordination.

More Investment Needed
--------------


10. (SBU) EMIN said that the GOI is interested in attracting foreign
investment and that the oil and gas sector and the financial sector
have particular promise. He noted prospects for investment from the
Middle East, including Iraqi expatriate funds. He cited the
potential for investing in independent electricity generation, but
this needs further clarification from the GOI. Italian Ambassador
Melani suggested investment in areas of agribusiness, food
processing, and manufacturing but noted that Iraq's transportation
infrastructure still needs rehabilitation. Italy has financed an
agriculture and irrigation project via a soft loan of EU 100 million
($133 million). The project is making progress.


11. (SBU) Australian Ambassador Tyson mentioned that Australia and
Iraq recently signed several Memoranda of Understanding (MOUs),
including one on investment in Iraq's trade sector. DFID's Hogg
added that Lord Mandelson led an investment delegation recently to
Iraq, which included construction, architectural, and financial
companies. Japan's Nagaoka said that Japanese investors are
interested in rehabilitating facilities, such as refineries, that
they had constructed in Iraq in the 1970s. He noted that
state-owned enterprise reform seems more difficult as investors
cannot ensure their profitability after investing in the companies.
World Bank Executive Director Hasan said that there is a growing
interest in investing in Iraq, but the GOI must better communicate
its investment strategy to potential investors.

Export Credit Insurance
--------------


12. (SBU) James Bond, CEO of the Multilateral Investment Guarantee
Agency (MIGA),said that his agency supports private sector
development and provides insurance against political risk. Since
Iraq became a member of MIGA last year, MIGA wants to support
QIraq became a member of MIGA last year, MIGA wants to support
private business in Iraq. Bond said that export credit insurance
can be supported by either MIGA or the IFC; MIGA provides assistance
for those seeking coverage for more than a year while the IFC
provides for less than a year. MIGA also extends assurances for
Iraqi joint-venture companies who have partners in the region.
IFC's Essex warned that the joint-ventures must be viable and
sustainable to qualify for financing. Since the World Bank is
sensitive to corruption, the financing cannot go to projects or
companies that involve political leaders or "politically exposed
persons."

Staffing and National Energy Strategy
--------------


13. (SBU) In a separate meeting with World Bank officials on April
7, EMIN asked Gressani about the Bank's staffing difficulties.
Gressani responded that the World Bank is aware of donors' concerns
about staffing and has a new strategy supported by the Board of
Directors. Gressani acknowledged that World Bank staff are
interested in coming to Iraq, but she faced difficulties finding

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senior people with the right networking capability and maturity
skills. She plans to send more senior high-level missions to Iraq,
and hopes this will attract more qualified senior staff to take
positions in Iraq.



14. (SBU) Gressani said that the World Bank avoided engaging Iraq on
its oil sector in the past because it is expensive, time-consuming
and the GOI did not seem interested in the type of market-oriented
advice that the Bank would provide; however, things now seemed to
have changed. Country Director Larbi added that Prime Minister
Maliki sent a letter requesting the World Bank's assistance on
developing a national energy strategy. (Comment: World Bank Senior
Public Sector Specialist Yahia Said told emboffs on April 15 that in
the letter, the GOI asked for World Bank assistance to "reform
everything." End Comment.) The GOI asked for assistance in
reforming the institutional framework for its oil and gas sector,
re-establishing the Iraq National Oil Company, and technical
assistance in ending natural gas flaring which would make additional
gas available to meet Iraq's power generation needs.


15. (SBU) MIGA's CEO Bond noted that the oil sector policy is not
focused, and that the electrical power sector requires tariff reform
before investors will come. So far, the GOI is only focused on the
technical side and not on the institutional framework, impeding
investor interest. Executive Director Hasan commented that only
partnerships with foreign oil companies will give Iraq the
technology it needs to extract the oil and repair the damage to its
oil reserves. The Bank is not yet sure that GOI officials
responsible for this sector have grasped that essential fact.


16. (SBU) Comment: The GOI's invitation to the World Bank to
assist in developing a national energy strategy comes out of the
internal debate underway on the GOI's approach to developing the oil
and gas sector. We hope the World Bank will move quickly to take
advantage of this opening. We also hope it will take steps to
respond to the concerns of donors here to play a stronger role in
Baghdad. End Comment.

Butenis