IRAQ TO OFFER (ANOTHER) ROUND OF JOINT VENTURE

UNCLAS BAGHDAD 000970

SIPDIS

E.O. 12958: N/A
TAGS: EINV IZ
SUBJECT: IRAQ TO OFFER (ANOTHER) ROUND OF JOINT VENTURE
INVESTMENT OPPORTUNITIES

REF: A. 09 BAGHDAD 222

B. 09 BAGHDAD 816


1. (SBU) Summary: Iraqi Minister of Industry and Minerals
Fawzi Hariri recently announced a third round of Joint
Venture (JV) opportunities in Iraq's state owned enterprises
(SOE) (Reftel A). The current bid round will include 15 SOEs,
representing the construction, engineering,
chemical-petroleum, food-drug and textile sectors.
Measureable progress on the SOE JV program has been slow over
the past year, and some JVs have recently experienced
investors withdrawing from the process (Reftel B),leaving
only one JV currently in operation. While Hariri has put
together a diverse basket of companies for the current round,
the viability of the JV concept as it is currently structured
remains in doubt. If the GOI is to improve the performance of
the SOE JV program, the Ministry of Industry and Minerals
(MOIM) will need to offer stronger financial incentives via
more attractive contractual terms in order to attract greater
interest and participation from viable international
investment groups. End Summary.

14 Companies in Current Round
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2. (U) Iraqi Minister of Industry and Minerals Fawzi Hariri
recently announced a third round of SOE JV opportunities.
According to Hariri, the JV offers will be structured the
same as the previous rounds,(Reftel A) with MOIM maintaining
ownership and the investor taking over day to day management,
payroll expenses, marketing and production costs; both sides
will continue to split a negotiated percentage of the
production output, typically 60% or more for the investor.
The current bid round will include a diverse group of 15
SOE's in 5 sectors:
--Construction- State Company for Northern Cement (Badoosh
Cement and Hammam Al Alil Cement Factories),State Company
for Construction Industries (Plastic Pipe factories in
Baghdad and Misan).
--Engineering- Ur State Company for Engineering Industries
(Aluminum Factory and Cable Factory),State Company for
Electrical Industry, Al Zawraa Company
--Chemical and Petroleum Products- Al Furat State Company for
Chemical Industries (Starch and Dextrin Factory) Al Sawry
State Company for Chemical Industries (Rock Wool and Fiber
Glass Factory) Abug Al Khaseeb Fertilizer Factory, State
Company for Petrochemical Factories.
--Food and Drug- State Company for Tobacco and Cigarettes
(Baghdad and Al Nasir Factories),State Company for Drugs and
Medical Supplies, State Company for Dairy Products (Abu
Gharib Dairy),State company for Vegetable Oils (Baghdad and
Al Mua'atasem)
--Textile Sector- State Company for Woolen Industries, State
Company for Leather Industries

Watching What is Done, Not What is Said
--------------

3. (C) While Hariri continues to publicly champion the SOE JV
process, he privately acknowledges the limitations of the
offers and laments the lack of GOI political will to offer
meaningful incentives to international investors. Hariri's
former deputy, Dr. Sami al Araji, currently Chairman
designate of the National Investment Commission, has made
similar comments about the SOE JV's as well, asking one USG
official in a private meeting, "How can I sell these?" (Note:
All SOE JV agreements must be ratified by the Council of
Ministers; it is possible that Hariri does not want to be
perceived as giving too much contractual ground to foreign
entities. End Note) It is worth mentioning that despite
concerted efforts by MOIM, only one JV is currently in
operation while six others remain in various states of
negotiation, approval, or lack of investor commitment.
Anecdotally, some potential investors have disengaged from
QAnecdotally, some potential investors have disengaged from
their SOE JV commitments due the stress of the current global
financial situation.
BUTENIS