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By John Lee.

Shell is reported to be still in the process of evaluating the viability of the $11-billion Nebras petrochemical complex in Basra.

The project was designed to produce 1.8 million mt/year of various petrochemicals, using naphtha as a feedstock.

Last year, Reuters reported that Saudi Basic Industries Corp (SABIC) was in talks to join the project, but according to S&P Global Platts there has been no update on the progress of these talks.

(Source: S&P Global Platts)

By Mustafa Saadoun for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News.

Riyadh woos Iraqis with security talks, economic projects

Falih al-Fayadh, head of the Popular Mobilization Units and Iraq's national security adviser, visited Saudi Arabia Jan. 31 in a sign of the new and improved ties between the two countries.

As Fayadh is close to Iran and widely viewed as a pro-Iran candidate for interior minister in the government of Prime Minister Adel Abdul Mahdi, his visit aimed to reassure Riyadh that the PMU will target neither it nor its interests in Iraq.

A few days before Fayadh’s visit to Saudi Arabia, Riyadh renewed its support for Baghdad, especially in terms of security, in a Jan. 24 phone call between Saudi Crown Prince Mohammed bin Salman and Abdul Mahdi.

In light of the tension prevailing over the region, the phone call emphasized Riyadh’s desire to make up for the past and create a positive relationship with Iraq.

Click here to read the full story.

By Omar al-Jaffal for Al Monitor. Any opinions expressed here are those of the author and do not necessarily reflect the views of Iraq Business News.

Saudi media group MBC announced in early February that it will launch a new TV channel — MBC Iraq — aimed at Iraqi viewers. Soon after the announcement, a number of angry responses emerged in the Iraqi media and among political figures, which led MBC to defend its plan.

The MBC group generally produces entertainment shows and social content, which will also be aired on MBC Iraq that is scheduled to launch on the evening of Feb. 17.

MBC’s television operations are funded by Saudi businessmen, many of whom are close to the Saudi royal family.

Click here to read the full story.

By John Lee.

A delegation from the Saudi Arabian government reportedly arrived in Baghdad on Saturday to discuss the construction of a 100,000-seater football stadium.

Saudi Arabia’s King Salman promised last March to build a football stadium in Iraq.

According to some reports, it was later announced that Saudi Arabia would increase the number of seats to 135,000.

(Source: Xinhua, Al-Monitor)

In connection with the UK Serious Fraud Office (SFO)’s ongoing investigation into Petrofac Limited and its subsidiaries (“Petrofac”), on 6 February 2019 David Lufkin, 51, a British national, and previously Global Head of Sales for Petrofac International Limited, pleaded guilty at Westminster Magistrates’ Court to eleven counts of bribery, contrary to sections 1(1) and 1(2) of the Bribery Act 2010.

These offences relate to the making of corrupt offers to influence the award of contracts to Petrofac worth in excess of USD $730 million in Iraq and in excess of USD $3.5 billion in Saudi Arabia.

The charges included the following:

• Badra, Iraq

Payments of approximately USD $2.2 million were ultimately made by Petrofac to two agents in respect of a USD $329.7 million Engineering, Procurement and Construction (“EPC”) contract on the Badra oilfield in Iraq (the “Badra Phase One EPC contract”) awarded to Petrofac in February 2012.

Corrupt offers of payments were also made to an agent to influence the award of contract variations to the Badra Phase One EPC contract, and for the extension of the Badra Operations and Maintenance (“O&M”) contract.  Petrofac was unsuccessful in obtaining these contracts and no payments were made to the agent.

• Fao [Faw] Terminal, Iraq

Payments of approximately USD $4 million were ultimately made by Petrofac to an agent in respect of an O&M contract on the Fao Terminal project in Iraq (the “Fao Terminal O&M contract”).  The Fao Terminal O&M contract, awarded to Petrofac in August 2012, together with yearly extensions awarded in 2013, 2014 and 2015, was worth approximately USD $400 million to Petrofac.

• Saudi Arabia

Payments of approximately USD $45 million were made by Petrofac to its agent in respect of the following contracts awarded to Petrofac in Saudi Arabia, between July 2012 and November 2015:

• Payments of approximately USD $5.8 million were ultimately made by Petrofac to its agent in respect of EPC contracts for the Petro Rabigh Phase II Petrochemical Expansion Project awarded in July 2012 and worth approximately USD $463 million;
• Payments of approximately USD $21.4 million were ultimately made by Petrofac to its agent in respect of EPC contracts for Jazan Refinery and Terminal Project awarded in December 2012 and worth approximately USD $1.7 billion; and
• Payments of approximately USD $19.5 million were ultimately made by Petrofac to its agent in respect of the EPC contract for a sulphur recovery plant as part of the Fadhili Gas Plant Project awarded in November 2015 and worth approximately USD $1.56 billion.

Corrupt offers of payments were also made to its agent for the award of other contracts at the time. Petrofac was unsuccessful in obtaining these contracts and no payments were made to its agent.

David Lufkin will be sentenced at a later date.

The SFO’s investigation into Petrofac’s use of agents in multiple jurisdictions, including Iraq and Saudi Arabia, is ongoing.

Individuals with information potentially relevant to this investigation are encouraged to contact the SFO through our secure and confidential reporting channel.  When providing information please quote ‘Petrofac Investigation’.  Please note that it would be of particular assistance if you could provide your contact details for any further queries or questions that we may have.

(Source: UK SFO)

By John Lee.

Docomo Digital, part of Japan's NTT Docomo, has said it is launching a mobile gaming platform with Zain Iraq, giving more than 16 million subscribers the ability to access hundreds of titles using direct carrier billing on monthly phone bills.

Zain Games' GamEmpire is a bundle of native and HTML5 games that can be streamed directly to mobile phones or tablets.

Docomo Digital and Zain, a leading mobile operator in the Middle East and Africa, signed the initial agreement in early 2018 at the Mobile World Congress in Barcelona. The partnership allows Zain's 46.9 million customers to access mobile content from Docomo and have it billed monthly through the carrier.

Zain, which operates in eight countries in the region, has already launched the service in Saudi Arabia,  Kuwait and Jordan. Additional rollouts are scheduled for Bahrain and Lebanon over the next few months.

Hiroyuki Sato (pictured), Docomo Digital CEO, said:

"Launching our games platform in Iraq marks yet another important milestone in our important partnership with the Zain Group, and our first such partnership in Iraq.

"We are committed to expanding our footprint across the Middle East and we hope to bring our latest suite of content and billing services to Zain's subscribers across the region."

(Source: Docomo Digital)

Fitch Ratings has assigned Trade Bank of Iraq (TBI) a Long-Term Issuer Default Rating (IDR) of 'B-' with Stable Outlook.

According to Saudi Gazette, this makes TBI the first bank in Iraq to get B- from Fitch.

IDRS AND VIABILITY RATING

TBI's IDRs are driven by the bank's Viability Rating (VR) and underpinned by potential sovereign support.

TBI's VR of 'b-' is constrained by the operating environment in Iraq, which can be volatile and challenging, and where TBI generates 85% of its business volume (on- and off-balance sheet exposure). Therefore, the operating environment and broader country risks influence TBI's standalone risk profile.

TBI's company profile is a relative strength for the rating. It captures the bank's important trade finance role, as Iraq's primary bank for financing imports, leading market share in Iraq (30% of sector assets), and largely government-led business in terms of lending, off-balance sheet transactions and customer deposit funding.

TBI was set up in 2003 by the Coalition Provisional Authority (the transitional government of Iraq at the time) with the support of a consortium of 13 major international banks from 13 countries, which provided technical and operational expertise. TBI is now fully operational and is systemically important to Iraq.

TBI's key strategic objectives are to build a universal banking franchise in Iraq (with growth in domestic retail banking and project finance) and expand regionally through acquisitions. The latter is partly driven by the government's efforts to reintegrate Iraq in the international financial markets. This also opens the bank to significant execution risks if the expansion is not managed adequately. The bank currently has a representative office in Abu Dhabi and has recently been granted licence to open a branch Saudi Arabia.

Asset quality is a rating weakness. TBI has a very high impaired loan ratio (41% at end-2017). Most impaired exposures were originated during 2014-2015 in a period of political turmoil and heightened security risks with the rise of ISIS in Iraq. Recent impaired loan generation is attributable to the drop in oil prices given the high oil dependence nature of the Iraqi economy (oil accounts for more than 50% of GDP). TBI's impaired loans include both cash loans and trade finance facilities that got impaired (moved onto balance sheet). Under new management, TBI has made strong strides in recoveries, which total USD640 million to date in 2018 (2017: USD210 million).

TBI has a satisfactory funding and liquidity position, helped by substantial government deposits. Profitability is also satisfactory, with core net interest income growing in 2017 despite slow business volume growth due to conflict and low oil prices.

Capitalisation is a relative strength, with TBI reporting very strong regulatory Basel I total capital adequacy ratio and Fitch Core Capital ratio of 67% at end-2017. At the same time, these strong metrics should be viewed in the context of 0% risk weightings applied to all of TBI's sovereign and government exposure. TBI is expected to report regulatory capital ratios under Basel III in 2019.

For now, TBI's leverage, as defined by the bank's tangible common equity/tangible assets ratio, which was a satisfactory 16.7% at end-2017, is a more reasonable measure of capitalisation in our view.

TBI has around USD3.7 billion equivalent of Iraqi dinar deposits trapped in the Kurdish region due to a political dispute with the central government, which would eliminate TBI's equity if deducted. TBI expects to recover this amount due to ongoing discussions between both parties. These deposits are excluded from TBI's reported liquidity ratios (Basel III liquidity coverage ratio of 186% and net stable funding ratio of 162% at end-9M18), which are very healthy.

SUPPORT RATING AND SUPPORT RATING FLOOR

TBI's Support Rating of '5' and Support Rating Floor of 'B-' reflect Fitch view that sovereign support, while possible, cannot be relied upon.

Fitch believes that the authorities would have a strong propensity to support TBI in case of need. This considers the role played by TBI on behalf of the government, the bank's systemic importance, as well as its 100% state-ownership. Nevertheless, Fitch's view is that sovereign support cannot be relied upon given Iraq's own creditworthiness (as indicated by the sovereign's 'B-' IDR) and potential delays in providing timely and sufficient support due to country risks including an uncertain political environment in Iraq.

RATING SENSITIVITIES

IDRS AND VR
TBI's IDRs and VR are sensitive to a change in the Iraqi sovereign rating. They are also sensitive to further asset quality deterioration or an increase in country risk, leading to more challenging operating conditions. Finally, the VR is also sensitive to TBI making a major acquisition abroad that could materially change its overall risk profile.

SUPPORT RATING AND SUPPORT RATING FLOOR
TBI's SR and SRF are also sensitive to a change in the Iraqi sovereign rating. They could be downgraded/revised if Fitch views that the state's willingness to support the bank is diminishing, for example in the event of a change in TBI's role or a material reduction in government ownership.

The rating actions are as follows:

Trade Bank of Iraq
Long-Term IDR assigned at 'B-': Outlook Stable
Short-Term IDR assigned at 'B'
Viability Rating assigned at 'b-'
Support Rating assigned at '5'
Support Rating Floor assigned at 'B-'

(Sources: Fitch, Saudi Gazette)

By John Lee.

Iraqi President Barham Salih has told an international conference in Rome that Iraq will remove any impediments to Iraqi and foreign private sector companies, as well as international financial institutions, donor countries and sovereign wealth funds, to invest in major infrastructure projects in the country.

He added that these projects may include deep port facilities in Basra, a highway network, new railways, airports, industrial cities and dams, and irrigation projects in the Nineveh Plain, Garamian, Erbil, as well as land reclamation in the south.

The following is the full text of the speech delivered by His Excellency President Barham Salih at the Conference of the Mediterranean Dialogues on Thursday afternoon, November 22, 2018:

Excellencies,
Distinguished Guests,

First of all, I’d like to thank the Italian Ministry of Foreign Affairs and ISPI for organizing this conference and the opportunity to address this distinguished audience. I also want to thank His Excellency President Sergio Mattarella and His Excellency Prime Minister Giuseppe Conte for their kind invitation to Italy.

Many may say there is nothing unique about the present day Middle East — we are living through yet another phase of conflict— as we have been plagued by conflict and powers struggles for much of our contemporary history.

However, the military defeat of DAESH and the formation of a new government in Baghdad may well represent a turning point not only for Iraq, but also potentially for the wider Middle East. Iraq has been the epicenter for change in Middle East- for millennia, Iraq has often been the catalyst, the precursor regional order— or disorder!

I dare say that there is now an opportunity to reorient Iraq’s trajectory and propel the country towards prosperity and stability. This will require embarking on fundamental internal reforms, both political and economic.

As such, Iraq is in need of an internal dialogue to address the underlying structural flaws at the crux of the post-2003 political order. Iraqis are indignant at years of conflict and the failure to deliver services. Restoring basic services like water and electricity, reconstruction of the devastated communities by the war with DAESH and repatriation of our IDPs to their homes is an urgent challenge. Corruption and abuse of public funds undermine the viability of the Iraqi state and sustains the cycle of conflict and terrorism. It is imperative to dry up the swamp of corruption.

The defeat of ISIS was undeniably a monumental challenge and impressive success for Iraqi armed forces— the Army, Police, Hashd Al Shabi mobilized by the fatwa of Ayatollah Sistani and Peshmerga forces fought side by side and have become battle hardened. In this context, we are grateful for the help rendered by our allies in the international coalition, led by the United States and which comprised many nations including our generous host Italy. The task ahead is to enhance our defense and intelligence capabilities, integrate our armed forces within the framework of our national defense institution and affirming accountability of all armed forces to the state.

There remain issues of contention between the Kurdistan Region and federal government— time to resolve these issues in a fundamental way through adhering to the constitution. There is renewed hope as the our new PM Dr Adil Abdul Mahdi and the Kurdistan leadership have pledged to move on to resolve these outstanding issues. The recent agreement to resume oil exports from Kirkuk to Ceyhan is a welcomed gesture in this context.

However, ending the crises that plague Iraq also require a reconstruction of the current political order to restore citizen trust in the government. A reformed political order must be based on the protecting constitution, the civil state that strengthens civic values, supports the role of women and their rights, and ensures a commitment to human rights.

A most important and consequential challenge for Iraq today is economic reform and regeneration. Iraq is endowed with immense natural resources, water and fertile land— and an indispensable geopolitical position that can become the hub for regional trade and economic integration. Yet decades of war, sanctions, conflicts, economic mismanagement and corruption have tuned Iraq into an extreme rentier state. This is unsustainable— we are today a 38 million population, and increasing at a rate of one million each year— youth unemployment is rampant— this is a profound security, social and development challenge.

The new government, led by Adil Abdul Mahdi, a pragmatic reformer and economist, is pursuing an ambitious economic restructuring agenda based on empowering the private sector and promoting investment. The unity of Iraq and its security is crucially dependent on strengthening infrastructure links within Iraq and with the neighborhood. This is imperative to bind the country together and to promote common interests with the neighbors and to ensure job opportunities for our youth.

Iraq will be eliminating impediments to Iraqi and foreign private sector companies, as well as international financial institutions, donor countries and sovereign wealth to invest in major infrastructure projects. These projects may include deep port facilities in Basra, a highway network, new railways, airports, industrial cities and dams, and irrigation projects in the Nineveh Plain, Garamian, Erbil, as well as land reclamation in the south. Similar experiences can be seen in Thailand, Vietnam and India, which attracted investment funding from sovereign wealth funds in Japan, China and the Gulf.

In addition to local economic growth, these projects could also contribute to regional economic prosperity. Iraq is an important strategic hub that joins the Arab world with Iran and Turkey and connects the economies of the Gulf and Europe. These could connect the countries of the region so that Iraq could become the heart of a new Silk Road to the Mediterranean.

But for Iraq to succeed and stabilize, it requires a regional order that can embrace and nurture its stability. Iraq has been the domain for regional power struggles— the rivalry over Iraq, and within Iraq, among regional and global actors have sustained and deepened Iraqi crisis. For the last forty years, Iraq has been moving from a war to a war, sanctions and terrorist onslaught and condemned to en ever deepening cycle of crises. This is got to end. It is time Iraq’s stability and prosperity is turned into a common intertest in the neighborhood. Iraq is an important country in the Arab world— This Arab anchor for Iraq is vital economically and politically, and we are emphatic about fully developing our relations with our Arab and Gulf neighbors. Our relations with Iran is also important, we share a border of 1400 km, and much social and cultural bonds — and it is in our national interest to promote good relations with Iran and alike with our northern neighbor, Turkey, which is undeniably an important economic geopolitical actor.

I just come back from a tour to our neighbors in Kuwait, UAE, Jordan, Iran and Saudi Arabia— our message was that Iraq is adamant to protect its independence and sovereignty— our priority is economic regeneration and jobs for our youth— and that we want Iraq’s stability, sovereignty and prosperity to be shared interests for the neighborhood. I made the point that Iraq’s prospects for success is real, but remains precarious, so it should NOT be burdened with further tensions and escalations in the neighborhood. The Middle East needs a regional order based on shared security interests in the face of violent extremists and also rooted in economic collaboration and integration. As in the past, sovereign Iraq with its geopolitical, cultural and economic relevance can be a catalyst for such an order.

I am sure many of you will consider this as too ambitious— perhaps mere wishful thinking. Europe did it after two devastating World Wars— many other regions of the world have moved away from decades of conflict. We must pursue this agenda for our region with vigor and determination— it is primarily our responsibility in the region— and our people deserve better. However, legions of unemployed youth, millions of IDPs in camps— poverty and conflict are the incubators for terrorism, extremism and yes immigrants fleeing our fertile an rich lands to come to the shores of Europe— this should also be shared global interest— certainly a European interest.

This conference theme is about youth and women empowerment. The agenda of reform in Iraq, and the vision for a durable regional order in the Middle East, is what will defeat violent extremism through providing education, meaningful job opportunities for our youth and prioritizing human development as a core aim for our governments and for the global powers.

Thank you.

(Source: Office of the Iraqi President)

By John Lee.

Saudia Airlines has announced that it will start direct services to Erbil in October.

The service will offer three flights per week from Jeddah.

(Source: Saudia Airlines)