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Iran must find ways to create lasting economic ties with Iraq amid fierce competition from other countries also seeking investment and trade opportunities there, Iran’s ambassador-designate to Baghdad said.

“Four to five years ago, we talked about starting exports to Iraq from scratch,” Hassan Danaeifar told business leaders at the Tehran Chamber of Commerce, Industries and Mines Tuesday. “Today, the challenge is to last in Iraq. This is what we are concerned with.”

Iraq is Iran’s main trade partner, taking one-third of the Islamic republic’s exports, Danaeifar said. Competitors also seeking to establish themselves in the Iraqi market include China, Turkey, India and Syria, said Yahya Ale-Eshagh, head of the chamber, who spoke at the same event.

Iran and Iraq fought an eight-year war that ended in 1988 and left 1 million people dead. Iran has strengthened ties with its western neighbor since the fall of Saddam Hussein’s Sunni Muslim-led regime seven years ago. Iran and Iraq both have Shiite majorities, and Iraq has been ruled by a Shiite-led government since the 2005 election.

Iraq’s economy is reviving after decades of sanctions and war, driven by revenue from the world’s third-largest oil reserves. Officials in Baghdad have called for stronger trade ties with neighbors and say the country needs about $800 billion in investment. Iran is facing fresh sanctions aimed at halting its nuclear program, with the United Nations due to vote on the measures Wednesday.

Within a year and a half of the U.S.-led invasion that ousted Saddam Hussein in 2003, 5,000 foreign companies had registered to do business in Iraq, Danaeifar said. That number has since doubled to 10,000, and only 100 of those companies are Iranian, he said.

“Having common borders does not solve the problems,” he said. “Having common religious beliefs and ethnicities is not enough. They cannot guarantee our economic relations.”

Turkey is Iraq’s biggest trade partner with a volume of nearly $9 billion. It also accounts for nearly 55 per cent of foreign companies registered in the region, according to the Iraqi National Investment Authority.

Iran’s exports to Iraq rose to $6.1 billion, of which about one-third was oil, in the 12 months through March 2010, from $790 million five years earlier, according to Danaeifar, who is due to be dispatched to Baghdad within weeks.

Iran has won projects worth $1.2 billion in Iraq, according to Danaeifar.

Two Iranian banks, Eghtesad Novin and Bank Melli, operate in Iraq, and Iran supplies one-sixth of the country’s electricity needs, he said.

Danaeifar, who is currently the secretary general of the Iran-Iraq Economic Development Center, said Iran should create joint ventures with Iraqi partners, ensure Iranian companies appoint representatives in Iraq, and register its companies in both Arab and Kurdish areas of the country.

“Iraq has huge potential for investment and trade for the world and the region,” Ale-Eshagh said. “It should be multiple times more for us.”

A Chinese company discussed on Wednesday with the Basra Investment Commission (BIC) implementing projects in electricity, agriculture and transport sectors, head of the BIC said.

“The projects include the establishment of a power plant with a production capacity of 600 MW to use it in the oil projects, which are being implemented by foreign companies in Basra,” Haidar Ali Fadel told Aswat al-Iraq news agency.

“The company expressed readiness to implement agriculture projects in south of Basra, as well as other projects in transport sector,” he added.

( Aswat Al Iraq )

100 percent increases in electricity charges are being received by Iraqis in an attempt to reduce power cuts.

Demand has risen since the 2003, but the national grid still only supplies a few hours of electricity a day. The Electricity Ministry announced that it would send invoices on June 1 for the previous two months based on a new scale by which the price increases based on usage.

"The price will be cumulative, so in order to avoid a high bill the consumer should decrease his consumption," said Deputy Electricity Minister Raad al-Haris.

The price has doubled from 10 to 20 Iraqi dinars per kilowatt/hour for the first 1000 kWh, or to the equivalent of less than $0.02.

The Iraqi economy is familiar with Five Year Plans. In the 1970s, such plans contributed to industrial, agricultural, housing growth and to the overall economic boom. The Ministry of Planning’s new Five Year Plan for 2010-4, which was ratified this month, has prompted economists to voice concern over the balance in the plan between the private and public sectors.

While the plan, which took two years to formulate and is the work of ten specialized committees, focuses on achieving ‘sustainable development’ in Iraq, there is fear that greater economic power will be vested in the central government at a time when Iraq is looking to decentralize and build a strong private sector.

The plan aims to increase GDP by 9.38 percent and to diversify Iraq’s oil-dependent economy. It also calls for a 46 percent share of the economy resting with the private sector and for a strengthening of the decentralization process.

Ragheb Ridha, President of the Iraqi Businessmen Union, sees the promises for a strengthened private sector as mere propaganda. The Five Year Plan may call for almost half the economy to be private but the Iraqi constitution itself also stipulates this and Ridha believes no tangible steps have been taken.

"Iraq might return back to the central system of planning and managing the Iraqi economy," he said. "There are no guarantees whatsoever that such thing would not happen and real guarantees need to be in place."

Under Saddam Hussein, Five Year Plans wrested the economy from the grip of the private sector and put it in the hands of the government. In the early 1970s, 75 percent of the Iraqi economy was private, dropping to 20 percent in the 80s and dipping as low as 13 percent in 2000. That year, the highest contribution to the private sector came from agriculture.

“The new plan did not indicate the means to reach the targeted 46% of the private sector contribution in the Iraqi GDP. It also failed to address how the two sectors will be merged. The annual budgets did not specify the contribution of the private sector,” continued Ridha.

“All these issues should have been specified and details and mechanisms should have been put in place. It is important that the state respects the transformation process into the market economy. It is a process that has proven its efficiency all over the world.”

The views of people like Ridha have done little to dampen the optimism of those who drafted the new plan but Ridha is not the only one who believes the plan is not based on solid grounds. Many cannot see how the plan can be implemented, given the dearth of basic services in the country.

“The main issue to be addressed now is that of electricity supply. Another very important one is the development of the Iraqi infrastructure," said Majid al-Souri, an Iraqi economist.

"If the state is really sincere about solving the economic problems of the country, it should have addressed these two major problems because no development until badly needed preparations is made in these areas. Despite good access to information on the problems, the government has failed in taking real steps towards a solution.

"The government has said many times that it will enhance the participation of the private sector but it hasn't any clear idea on how The government has not determined whether it should directly start its privatization plan or first provide support and rehabilitation and then start with privatization."

Munaf al Saegh, from the Institute of Economic Reform is also critical of the new plan.

“The Five Year Plan did not clearly address the issue of transformation to the market economy and the activation of the private sector role in Iraq. There are bits and pieces of ideas here and there but there is no detailed vision on how to achieve the aims," he said, warning:

"If the coming four years do not witness a participation of the private sector and the building of its capacities, we will fall into the same trap and there will be increased dependency on the state, thus the private sector will be marginalized again."
Iraq’s adoption of a market economy since 2003 has been chaotic at best. When the market there opened, goods from all over the world began to be dumped in the country. That the private sector’s share of the economy has reached 30 percent is due mainly to growth in commerce. No means were specified in the constitutional promise that Iraq would become market-oriented.

“Legislation still reflects the old central system and the routine is widely spread among government departments,” states al-Saegh. “It is not possible to transform the economy overnight but Iraq is yet to institutionalize a modern management basis in line with the needs of the modern era.”

Amir al-Baldaw, an MP and member of the economic committee, responded to the criticism, claiming that the plan does indeed consider carefully the role of the private sector.

“Private companies will partner the government in construction projects. There is also a role for civil society organizations,” she said, specifying that these would be “housing projects, projects related to the development of provinces and regions, and tourism and recreational projects."

She claimed that it was particularly in the housing field that the plan has focused on individual empowerment, adding that, unlike in previous Five Year Plans, this one will retain a focus on “care for marginalized and vulnerable groups, poverty alleviation, the achievement of the Millennium Development Goals, institutional reform and good governance."

While specific details of how the aims will be achieved remained sketchy, she also pointed to government expectations that between 3 and 4.5 million new jobs will be created as a direct result of the plan’s implementation. At the same time, she urged the private sector to “initiate activities without waiting for the government,” claiming there is "no need to wait for the state to give the private sector work to do. The private sector should also be creative in order to achieve real partnership," she explained.

However, al-Saegh believes this is not possible.

"The private sector cannot take the initiative without being supported. We need improved legislation and the activation of a private banking system, so that the private sector can benefit from loans,” he said. “All these points are missing in the new Five Year Plan.”

30 May 2010 - CNBC

China's top power equipment maker Shanghai Electric is moving ahead with a $1 billion power-generating plant to boost Iraq's electricity capacity by 1,320 megawatts, officials said on Saturday. The planned steam power plant in the town of Zubaidiya near the city of Kut, 150 km (95 miles) southeast of Baghdad, is seen as one of the biggest power projects in the country, where intermittent electricity is one of the public's top complaints. Seven years after the U.S.-led invasion, Iraq's national grid still only supplies a few hours of power each day.

Iraq's dilapidated infrastructure has been hit hard by years of war, insurgency attacks and underinvestment. The project, which includes purchasing and installing four steam turbines, each with a capacity of 330 MW, will provide Iraq with a big power increase over the next four years, both Iraqi and Chinese officials said. Work to install those units started earlier this month and the first unit is expected to operate after three years. "It is a big project, it is considered one of the biggest power plants in Iraq," said Hameed al-Ibrahimi, an official in the Iraqi Ministry of Electricity, who is in charge of the project. "Iraq is in need of (any) 100 MW," he told Reuters at the project's site.

The Ministry of Electricity puts Iraq's available power capacity at 9,000 MW, and installed capacity at 11,000 to 12,000 MW. Demand is estimated to be at least 12,000 MW. The idea for the project is almost 10 years old. When Iraq's first talks with China's Shanghai started, it was to build a factory to manufacture power turbines. The plan was put on hold for years due to economic sanctions imposed on Iraq followed by years of bloodshed unleashed by the 2003 U.S.-led invasion. As security conditions slowly improve across the country, Iraq has revived and revamped the project. It signed the contract with Shanghai in 2007, but it was again delayed due to security concerns and unavailability of land for the plant.

Now work is ramping up with a handful of Chinese engineers and staff already on the ground as a camp is being built to accommodate the expected influx of workers over the next few months. The plan is to get at least 100 more Chinese workers in the coming two to three weeks as the pace of work increases, said Cao Linjun, the site manager from Shanghai Electric, dismissing security concerns as an obstacle. "If I feel afraid, I will not come here," he said during a visit to the plant, which was protected by three security units, an emergency police unit, an army unit along with other guards. Iraq is trying to shake off the legacy of years of violence and economic decline by luring foreign investment and expertise to help it rebuild. Violence has fallen sharply in the last two years, but daily bombs and killings are still common.

28 May 2010 - Azzaman

Two new power plants are to be built in the southern provinces of Babel and Karbala, the Electricity Ministry said in a statement.
 
The statement said Electricity Minister Kareem Wahid laid down the foundation stones for both plants, which will cost nearly $170 million.
 
It will take the gas-driven plants 18 months to be completed and will add 250 megawatts to the national grid, the statement said.
 
Meanwhile, the statement said about 1000 Chinese experts and technicians were to arrive in Iraq soon to begin on work on the Wasit Power Plant, one of the largest electricity projects in the country.
 
The plant, which is also being built in southern Iraq, will take three years to complete and will add 1,300 megawatts to the national grid, the statement said.

Gavin Jones, Partner with Upper Quartile,writing for The EIC

Iraq is fast becoming the engine for the oil and gas industry and is likely to hold this position for the next 10 years at least.    I hope that this article will address the scale and speed of development of this market for the engineering industry.

The scale of the opportunity is difficult to put accurate numbers to but is always in the hundreds of billions.   BP, Shell, Petronas, ENI, Lukoil, Statoil, Gazprom, China National Petroleum, Sonangol and Total are all rolling out development plans for fields with reserves quoted in the billions and production in the thousands of barrels.

International oil companies will manage many billions of contract value but make relatively little.    The 1^st licence round in June 2009 was heavily criticised – Iraq had not allowed production sharing agreements, they were unreasonable in what they were prepared to pay, they were expecting the oil industry to do too much rebuilding.   The Wall Street Journal announced that the licence round had flopped.   BP was the only company to accept what was on offer at half of what they bid then paid $500 million as a signature bonus.    The 2^nd licence in December 2009 round saw all available licences taken up and fees reduced to between $1.49 and $1.15 per barrel for the big fields: a remarkable change from the $40+ demanded initially.    The Iraqi Government has commitments to produce 12 million barrels of oil a day and $2 billion in cash commitments from the oil industry – guaranteeing commitments and in May agreed to set up a National Oil Company to manage these relationships.    Oh …. And then the Government launched a 3^rd round of bids for 3 gas fields on the 19^th May.

What about the service industry?    The working environment, the structure of the licences and the obligations mean that most of the work is going to be subcontracted in large chunks – at least in the early years.    Work has already begun, accommodation camps are being built, airlines have started commercial flights into Basra, Al Faw Port is being refitted at a cost of $4 billion, BP announced $600 million of drilling and down-hole service contracts and in addition Iraq will have to build floating oil terminals, clear land at Greenfield sites, repair pipelines, rebuild terminals, set up water-treatment plants for well injection, build oil-processing plants, lay pipelines, install gas-gathering equipment and power generators, haul in water and truck out fuel until pipelines are built. Water and power infrastructure remain major constraints, considerable spend on skills and CSR is also anticipated.  Schlumberger started recruiting 600 staff in May and Petronas is recruiting “hundreds” of staff.   Capital spending on oilfield services in 2011 alone is estimated to be five times that of Saudi Arabia, Bahrain, United Arab Emirates, Oman, Qatar and Kuwait combined.

What about the problems?     Well there are plenty and they keep coming.    Currently in the election aftermath there are calls to revisit licence awards.   This will cause some discomfort but I think the licences will stay – they are an excellent deal for Iraq with about 98% of the oil revenue remaining in the country and the required laws will be passed when the internal deals are done.    There will be ongoing discussions with OPEC – Iraq will challenge the pecking order in OPEC and weaken Saudi dominance as the world’s “swing producer” (the single mega-producer has been able to tweak the global price of oil by adjusting its own production).   Iraq is on course to pass Iran as the Gulf’s second-largest producer causing a significant realignment of power in the region.  Any decision on OPEC will be postponed until Iraq is in a much stronger negotiating position – my guess - at around 4½ mbbd and increasing.   Security issues remain but are changing in objective, increasing in magnitude but decreasing in number.    Iraq remains a dangerous place but security services are improving.   The biggest problem is getting all this easy-to-produce oil out of the country and into the international markets – deals are being done with Turkey and Ports are being rebuilt.   The oil is easy enough to produce but you still have to get the stuff to the big consumers like China.    This is the next big phase.

And the money?   If Iraq hits their 12 million barrel target this should tip $222 billion into the coffers annually but is going to take a few years.   Meantime the Government have negotiated a World Bank loan – on condition that they privatise the 240 State companies –and have been told that they can manage the $180 billion oil-for-food fund that the UN was holding over from the old days of sanctions and of the $120 billion in debts $55 billion - and 80% of whatever they owed China - have been written off.     The current state owned infrastructure and services are unable to respond to existing demand, the systematic dismantling of the private sector under the previous regime means there is no prospect of increasing capacity quickly.

My view is that the Iraqi Government has been a great deal more astute than many of the Governments advising them – they have sorted out the critical pieces of infrastructure (airports and ports); they have sorted out their income generation (oil) at a pace that would embarrass most developed Governments; they have put the gas gathering on the back burner (important but does not generate income) and are now starting to focus on the infrastructure to export oil; the next will be the schools, roads, hospitals and electricity to keep its citizens content.    20:20 hindsight is wonderful – but we have come a long way since the world announced last years licence round as a flop

Gavin Jones

www.upperquartile.co.uk

Electricity Minister Karim Wahied on Monday laid the cornerstone of a gas-fired power plant in Hilla at a cost of $84 million.

“The plant will work with a total capacity of 250 MW and the project was referred to a Canadian company, which signed the contract a few days ago,” Wahied said at a press conference, attended by Aswat al-Iraq news agency.

“The company will start the project next month,” he added, noting that the project will be accomplished within 18 months.

( Aswat Al Iraq )

The Chinese deputy Foreign Minister, Zhaijob, told an Arab foreign ministers meeting in China that his country is now the third economic power in the world but it needs time to face the big challenges of restoration despite the fact that his country could double its domestic product.

.

Zhaijob said that China placed high hopes on the Chinese-Arab forum to face the challenges of the International financial and energy crisis and other problems. In reply to a question about the importance of the ministerial Chinese-Arab forum  Zhaijob said that this forum has special importance because it works on the formation of a strategic partnership and cooperation between China and the Arab world in order to start real joint development. He added that the fourth session of the forum which began in 2004 will boost Chinese-UAE relations and Chinese-Arab relations in the fields of energy and economy.

Shanghai Expo success

Zhaijob said China is the biggest developing country in the world with a population of 1,3 billion but it has special national conditions and some times it suffers from an imbalance of development. However the success of the Shangahi Expo in 2010 left a strong impression on the world that China has passed the global financial and economic crisis and is preparing to continue growth next year. He pointed out that this Expo represented a good opportunity for China to introduce itself to the Arab world and the rest of the world saying  ‘we are happy to share this big global event with UAE and the rest of the developing countries’.  His country put high hopes on the Chinese-Arab forum to face the challenges of global financial and energy crisis and the lack of food and climate change which both China and the Arab world endure.

Ten Mechanisms

They had  agreed to put ten mechanisms to work for cooperation between the two sides in the fields of media and culture, economic and political. He he pointed out that his country has diplomatic ties with all Arab countries and these ties are based on the historical relations which began hundreds of years ago in the era of the Silk Route .

In reply to question about the reasons for high growth in China, Zhaijob said that his country is a developing country and not in a perfect situation and that is why there are many fields that need reform and improvement. He emphasized the necessity for Chinese-Arab communication and said each side should get acquainted on each other’s affairs through our own media and not through western media which dominates all of us.

Economic co-operation

Regarding economic cooperation between the two sides Zhaijob said that the volume of commercial exchange between China and Arab countries reached 100 billion US dollars last year while China imported 90 million tons of oil from Arab states in the year of 2009 and he said that Arab countries are strong political and economic partners especially in the energy field and he refuted the presence of any political obstacles to stop the development of the ties between the two sides. He said that ‘there could be some difficulties but within our quest to boost cooperation we will overcome these difficulties’.

Much to do on human rights

Concerning human rights in China Zhaijob said ‘we give this matter big importance and as the biggest developing country China is interested in providing food and dignity for all Chinese peoples’. Zhaijob added that China is not paradise and also that America is not paradise because paradise is in heaven not here on earth. ‘We admit that there are tens of millions of Chinese people in the  middle and west of China without electricity and we admit that we have big development problems but we are working on improving the lives of our people. China is now the third economic power in the world but if we distribute our national income to 1,3 billion people then we would still be behind other advanced states’.

UN security council

In reply to a question about Chinese efforts to amend the international system Zhaijob said that the global financial crisis revealed the necessity to amend the international system and he emphasized his country’s quest to amend the (UN) security council because of the lack of representation of developing countries. The amending process will not take longer than one hour if the intentions were honest. And he said that the international system failed to manage the financial crisis because it is not a fair system.  He emphasised that there will be no financial or political reform without the participation of developing countries.

( Iraq Directory )

The Diala public Company for electrical industries provided a number of ministries and government departments with 310 electrical transformers last April, the Industry Ministry said on Thursday.

“The electricity departments in al-Sadr, al-Karkh, al-Shamal, al-Rusafa and Diala have been provided with transformers from the Industry Ministry at a cost of 2.183 billion dinars,” the general director of the company, Abdulwadoud Abdulsattar said in a statement received by Aswat al-Iraq news agency.

( Aswat Al Iraq )