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With most Middle East stock markets having been dragged down by the turmoil unleashed by the Arab spring and a sputtering global economy, some adventurous fund managers have started exploring opportunities in the tiny Iraqi market, according to a report from Bloomberg.

The Iraqi Stock Exchange, or ISX, says its main market index has surged some 65% so far this year, making it one of the world's best-performing markets. Though many doubt the accuracy of the ISX's main index, fund managers who follow the country agree that Iraqi share prices have risen about 15% in 2011—still outperforming most global peers.

Investors have been attracted by the relative political stability following the formation of Prime Minister Nouri al-Maliki's coalition government last year, as well as the promise of higher oil revenues and the reconstruction of the economy. The International Monetary Fund estimates that Iraq's economy will grow at 9.6% this year and likely expand by 12.6% in 2012.

"Foreign buying has picked up in the past 18 months or so with inflows estimated at about $130 million in this period," said Shwan Ibrahim Taha, chief executive of Rabee Securities, whose weekly stock market reports are published by Iraq Business News.

"The fact that it is one of the best performing markets this year, with further potential upside as the economy develops, is definitely whetting investor appetite," he said.

The Iraqi bourse's gains this year compare well to the performance of other indices in the region. Saudi Arabia, the Middle East's biggest market, is down some 7% so far this year. Egypt, the most open market in the region, has dropped 38% in the wake of the January revolution that toppled former President Hosni Mubarak.

Last week Erbil hosted for the fourth time the Project Iraq construction trade exhibition, together with the Elenex Iraq energy and electricity show. This year's construction fair was the largest so far, attracting exhibitors from 20 countries and thousands of visitors.

Project Iraq 2011, the 4th International Trade Exhibition for Construction & Environmental Technology for Iraq, was held concurrently with Elenex Iraq 2011, the first exhibition entirely dedicated to energy, taking place at the Erbil International Fairground from 19-22 September.

At the opening of the exhibitions, the Kurdistan Regional Government (KRG) ministers for Housing and Reconstruction and for Electricity welcomed all the participants. Minister Kamaran Ahmed Abdullah and Minister Yasin Sheikh Abu Bakir Mawati said that they were delighted that the trade shows are betting bigger every year, attracting visitors from all over Iraq.

The speakers at a press conference to launch the trade show included Engineer Nahro A. Assadi, deputy Minister, Ministry of construction & Housing, Mr. Hama Amen Hawramy, Advisor of the Minister of Electricity, Mr. Aziz Abdo, Director General of Trading in the Ministry of Trade and Industry , Mr. Fady Jreissati, representing IFP Iraq, The conference was attended by a number of government representatives, diplomats and business leaders, and enjoyed strong media coverage.

Mr. Jreissati gave an overview of the exhibitions and their importance, praising government efforts towards economic development and accelerated growth all over Iraq and in the Kurdistan region particularly. He expressed his gratitude to the representatives of the Kurdistan Regional Government, in particular the Ministries of Electricity and Construction and Housing, for their support to the company's events, and commended the management of Erbil International Fairground, proudly underlining its cooperation with IFP Iraq.

Iraq’s extensive rebuilding requirements could make it “the next Saudi Arabia” for contractors and suppliers, according to an executive at MAN Trucks.

Construction Weekly reports that Dave van Graan, vice president of sales at the German heavy vehicle giant, said the gradual pick up in demand for machinery to help develop Iraq has already given the company “four-fold” what it had earned in income in the previous five or six years, with a lot more potentially to come.

“We see a number of the long-awaited government spending projects come to fruition, and those companies that stood the test of time that maintain the infrastructure, they are the ones that will be with the boom,” he told an audience at a construction industry round table in Dubai last week.

Saudi Arabia is currently the chief market for the truck maker on the back of high construction activity from state-sponsored programmes to build new airports, housing projects, financial centres and economic cities along with a rise in private-sector development.

Van Graan said the country’s size, population density and oil reserves created an ongoing pipeline of projects, and these attributes can be applied to Iraq.

“Saudi will be very strong but the next that follows will be in that region, purely by way of population density and it is a rich country; [Iraq] has money to spend,” he said. “If you’re developing a pipeline and you have the staying power to handle the economical and political challenges there, then obviously you will benefit. So it’s [a question of] how long you’re strategically thinking: is it six months, or five years?”

Contractors, consultants and suppliers across the Gulf have been divided as to the potential and reality of working in the Iraq market, which has many billions of dollars worth of projects planned in the wake of the international conflict in the country since 2003 that has stymied development. Infrastructure such as ports and airports, as well as hotels and shopping centres make up an active market, though concerns remain about the security costs.

Demand for trucks and other vehicles remains high. Earlier this year the country extended its $42m deal made in 2008 with vehicle giant Scania to include the production of 5,000 trucks and buses over a five-year period. Further deals with Mercedes and Renault mean that Iraq has boosted both its vehicle production and parts manufacturing industry in the past 12 months, and hopes to produce trucks domestically within the next ten years.

(Source: Construction Weekly)

Tamimi Global will pay $13 million to settle U.S. criminal and civil allegations that it paid kickbacks to a KBR employee and improper gratuities to a U.S. Army sergeant, according to a report from Bloomberg.

The Dhahran-based unit of the Saudi Arabian construction and manufacturing Tamimi Group, gave kickbacks to get Army logistical support subcontracts from Houston-based KBR for work in Iraq and Afghanistan, according to the U.S., and improperly gave the gratuities to Sergeant Ray Chase in Kuwait, the U.S. said.

The company, through its lawyers, entered a deferred prosecution agreement with the U.S. in a hearing in Illinois.

“Kickbacks and collusion in military contracting corrode the process of supplying our men and women in uniform with the quality supplies they need and deserve,” Assistant U.S. Attorney General Tony West said in an e-mailed statement.

Tamimi will pay $5.6 million as part of that pact and, separately, agreed to pay $7.4 million to settle claims it paid kickbacks to obtain favorable treatment in the awarding of a Baghdad Palace dining facilities subcontract.

The misconduct took place more than five years ago, and the company says that it has adopted new compliance protocols.

(Source: Bloomberg)

The FMG Iraq Fund continues to outperform world stock markets. The fund was up some +2.0% in the month of August and it has risen by +25% since its launch in May 2010. The current size of the fund is now $20 million under management.

FMG offers a retail share class for a minimum investment in the three share classes of US $10,000, (CHF) Swiss Francs 9,000 or GBP Sterling £6,000. Investment into the Iraq Fund is an attractive proposition for UK investors, as gains will be taxed as capital gains at 28% and not as income tax rate at 50% as the fund has H.M. Revenue & Customs “Reporting Status”.

Henrik Kahm, fund manager of the Iraq Fund, said: “FMG’s Iraq fund is sensibly positioned to benefit from the Iraqi growth story and fuelled by a growing confidence in the country's stability”.

Iraq has the third largest oil reserves in the world. The country is one of the least explored in the region and oil experts say the country probably has 200-300 bn bbl of oil i.e. at par with Saudi Arabia. Iraqi oil is easy to access and costs only a few dollars per barrel to extract. The Iraqi government signed 11 oil contracts in 2009 with IOCs such as SINOPEC, Petronas, Shell, Exxon, ENI, Sonagol with the aim to explore and develop oil fields. Over 90% of oil revenues go to the Iraqi government, one of the highest royalty rates in the world. Value of the oil in the ground can be estimated to $10 trillion. World market capitalization is around $50 trillion. Iraq Stock Exchange market capitalization is $4bn. FMG thinks this is the most undervalued stock market in the world.

The proceeds from oil will be used by the Iraqi government to improve infrastructure and other related projects. FMG’s Iraq fund is carefully positioned to benefit from that new money coming into government and consumer spending, with exposure to a diverse range of Iraqi quoted stocks.

The amount of new foreign investment deals is on track to double this year, according to a report by Dunia Frontier Consultants. In just the first half of this year, Iraq attracted $45.6 billion in foreign investment, $3 billion greater than the total for the whole of 2010. On the macro side FMG has noticed that Iraq's oil revenues surged by 62 percent to $41.3bn in the first six months of 2011 compared with $25.4bn in the first half of 2010, according to a report published by Arab Oil and Gas. The massive revenue increase was attributed to both higher oil prices and a significant increase in volumes.

(Source: FMG)

Aberdeen City Council has announced a new initiative to encourage North-east companies to explore business opportunities in Iraq.

Upper Quartile, an Edinburgh-based economic development consultancy, will manage the programme, which will target the oil and gas sector, academic institutions and other contractors.

Seminars will be held over the coming months to inform firms of the economic, political and security issues they need to consider before developing a presence in Iraq. Companies will be invited to attend meetings with Upper Quartile’s experts and get the chance to meet key officials from Scotland and Iraq.

Iraq produces two million barrels of oil per day and aims to increase to 12 million within seven years to propel them to second place among the world’s oil-producing nations. Capital spending in oil-field services in 2011 is estimated to be five times that of Saudi Arabia, Bahrain, the United Arab Emirates, Oman, Qatar and Kuwait combined.

In 2010, foreign firms and investors reported over $42 billion in investments, service contracts and commercial activities across Iraq – up almost 50% on 2009. The top sector was new housing, which accounted for 33% of all foreign commercial activity in 2010, followed by transportation infrastructure, electricity and industry, and oil and gas production. Contracts on offer are expected to push the oil services market to $8 billion by 2014.

Aberdeen City Council Enterprise, Planning and Infrastructure director Gordon McIntosh said: “Aberdeen-based companies have a long history of innovation in the oil and gas business and of developing oil and gas production abroad. Their unrivalled experience, therefore, coupled with committed investment can play an important part in rebuilding an economy, whilst also offering profitable business opportunities in the medium and long term.”

Gavin Jones, co-founder and managing director of Upper Quartile, said: “Iraq possesses vast hydrocarbon reserves, but it lacks the infrastructure and expertise to support large-scale commercial extraction and export. It is therefore an ideal time for established Scottish companies to use their skills to help unlock the country’s enormous potential.”

Iraq’s business marketplace remains in post-conflict phase, characterised by few entrants and risk aversion, but companies which can build relationships with senior Iraqis can expect significant rewards.

Iraq has 16 oil sector companies. Oil exports account for 96% of the country’s economy and in the first seven months of this year Iraq earned more than $48bn in revenue.

Production is set to increase substantially over the next few years. In the short term, however, infrastructure is unable to support this growth and Iraq needs to invest in its export terminals, ports, ageing pipelines, storage capacity, and water and power supplies.

For further information on Aberdeen City Council’s new initiative visit http://www.aberdeencity.gov.uk/iti

Dow Jones reports that Iraq and BP have not yet reached agreement on reimbursement of costs to build a multi-billion-dollar oil field water injection scheme in southern Iraq.

ExxonMobil was chosen to lead the project on behalf of foreign oil companies rehabilitating Iraqi oil fields.

Nihad A. Moosa, head of the State Company for Oil Projects (SCOP) told Dow Jones Newswires that international oil companies (IOCs) interested in the common water injection project include Lukoil and Shell, which is expected to join later.

"BP wants to start reimbursing the costs of the project when foreign firms increase output from these fields by 10%, while the ministry wants to pay back costs when they boost output by 20%," Moosa said.

But a BP spokesman said that it "strongly supports the common seawater project, the terms for which are defined in the Rumaila Technical Service Contract", and that it is "working with ExxonMobil and the government of Iraq to move it forward."

BP is developing Rumaila oil field, Iraq's largest, which is producing around 1.3 million barrels a day. Under the service contract it signed with Baghdad in 2009, BP would start reimbursing its costs when it increases output from the field by 10%.

ExxonMobil, Shell, Eni and Lukoil have no problem with agreeing to the payment terms of the project, Moosa said.

Foreign companies had suggested the cost would be a little more than $3 billion to build the first stage of the project which is designed to produce 4 million barrels of water a day, she said.

"We rejected the proposed cost of the project as the ministry can build the project at half that price," she added.

The oil ministry is also considering another solution, namely hiring a separate company to build the project, Moosa said. The ministry has approached a company that has built similar projects in Saudi Arabia, she added, without naming the company.

The foreign firms are, however, "adjusting and reviewing their position" in order to address all these concerns and they reassured the ministry that they are still committed to the project, she added.

The water injection project aims to provide water to maintain reservoir pressure to fields such as, Rumaila, West Qurna Phase 1 and 2, Zubair and Majnoon in southern Iraq.

(S0urce: Dow Jones)

Hilton Worldwide is set to open its first hotel in Erbil, the flourishing capital city of Iraqi Kurdistan, under a management agreement with New York based real estate developer The Claremont Group. Comprising of 200 serviced apartments, DoubleTree Suites by Hilton Erbil is expected to open at the end of 2013.

The new hotel will be strategically located on Erbil's central thoroughfare, close to the recently expanded Erbil International Airport and the Ainkawa district, one of the city's main retail and entertainment centres.

Rob Palleschi, global head, DoubleTree by Hilton brand said, "I'm delighted to be bringing our brand to such an important city in the Middle East. DoubleTree by Hilton has built its success on providing high standards of service and quality facilities in gateway cities, which makes it the ideal choice for Erbil's thriving community."

Tailored for the needs of long-staying guests, the hotel will feature a business centre, health club, swimming pool, eight meeting rooms, two restaurants and a lobby lounge and bar. Around 200 jobs will be created at the hotel and the company's focus will be on employing people locally.

"Erbil's commercial status is increasing year on year and the city has a growing reputation as an up and coming tourist destination. We have every confidence that the DoubleTree Suites by Hilton Erbil will prove popular with the growing number of business and leisure travellers,' commented Rudi Jagersbacher, area president, Middle East & Africa, Hilton Worldwide

National Geographic recently listed Kurdistan, Iraq, amongst their Top 20 best trips describing it as 'an oasis of peace and stability with ancient cities, snowcapped mountains and bustling bazaars' and the New York Times travel section also listed Kurdistan in their 41 places to visit for 2011 saying 'the biggest lure is the opportunity for authentic cultural encounters'.

Stephen Lari, Principal of The Claremont Group, said 'There is so much potential in Kurdistan and particularly the city of Erbil. We've seen travel to the region grow considerably over the past couple of years. If that trend is going to continue then further infrastructure is required to support the industry. Hotels are key to that, and with Hilton Worldwide we know we have the right brand and management partner to make this hotel an integral part of the travel industry in the region'.

He added: "We'd like to commend the leadership of the Kurdistan Regional Government for fostering the secure and pro-investment environment that has been the catalyst for the region's steady growth and prosperity. By making the first major American-sponsored investment in the region's hospitality sector, we are firm believers in the Kurdistan success story"

Hilton Worldwide currently operates 53 properties across the Middle East and Africa and has 36 hotels in the development pipeline. So far this year the company has signed a total of 14 new hotels into the pipeline across the UAE, Saudi Arabia, Qatar and now Iraq.

(Source: Hilton Worldwide)

ONGC Videsh Ltd (OVL), the overseas arm of the Indian state-owned Oil and Natural Gas Corp (ONGC), may invest over $ 1.5 billion in exploring for oil in Iraq in a block that was awarded to it by the regime of Saddam Hussein, according to a report in the Economic Times.

“We are nearing finality on the contract for Block-8. It is likely to be signed in next six months,” an official said.

Block-8, located in the western desert in southern Iraq, bordering Saudi Arabia and Kuwait, was awarded to OVL in November 2000. However, the government formed after the US invasion in 2003 sought re-negotiation of the contract which has now been concluded.

The post-Saddam Hussain regime had initially agreed to the signing of a Production Sharing Contract (PSC), where OVL would have got ownership of the oil it produced from Block-8. But the success of post-war licensing rounds, where global majors committed to develop oilfields for a small fee, has reportedly seen Baghdad change track and offer a service contract to OVL.

The block already has a discovery and is estimated to hold 645 million barrels of in-place reserves, of which 54 million are recoverable, he said, adding OVL has committed investing $86 million in two phases of exploration and $ 1.45 billion in development of the reserves thereafter.

The contract would be a service contract whereby OVL will be paid about 18 per cent return on its investment. The company holds a 100 per cent interest in the block.

“We are currently agreeing on finer details of the contract,” the official told the Economic Times.

The service contract now being drawn would be similar to the one China National Petroleum Corp (CNPC) had signed recently for developing Al-Ahdad oilfield in central Iraq.

Baghdad has, however, refused the Tuba oilfield, for which OVL, in consortia with Reliance Industries and Algeria’s Sonatrach, were in negotiations before the US attack on Iraq.

(Source: Economic Times)

The following article was published by Reidar Visser, an historian of Iraq educated at the University of Oxford and currently based at the Norwegian Institute of International Affairs. It is reproduced here with the author’s permission. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The newswires began reporting this item yesterday and today it has been generally confirmed: Prime Minister Nuri al-Maliki has appointed the culture minister, Sadun al-Dulaymi, as acting minister of defence. Dulaymi held the same portfolio in the Ibrahim al-Jaafari government in 2005-2006.

The significance of the appointment relates to two levels. Firstly, in terms of the architecture of the second Maliki government, it means Maliki could be seen as moving towards consolidating a situation in which no regular parliament appointments may take place for some time with respect to the security ministries: In early June he appointed Falih al-Fayyad of the Jaafari wing of the Daawa movement as acting minister of state for national security, whereas Maliki himself continues as acting interior minister. This is a different scenario from what happened in 2006, at which time it was precisely the security ministries that held up the completion of the government after the first posts had been allocated in May, but a solution was subsequently found and the full cabinet was approved by parliament in June.

Secondly, at the political level, the latest move is a clear rebuke to the secular Iraqiyya, which has lately signalled unhappiness about the direction in which the second Maliki government is evolving. Whereas Dulaymi may technically belong to the Unity of Iraq faction (which has technically been enrolled in Iraqiyya recently), it is very clear that Dulaymi is not the candidate of the leadership of Iraqiyya. In other words, he is what Maliki sometimes describes as a “Sunni candidate” rather than an Iraqiyya candidate. The more this kind of sectarian logic gets reified in the Iraqi government, the more we get back to the political atmosphere of 2006 when sectarian violence was at its height.

The problem with what Maliki is doing is that he continues to act as a strongman with a parliamentary majority in a context where it has been proved time and again that he doesn’t. Firstly, he seems to think White Iraqiyya (a small breakaway faction of Iraqiyya) can provide him with a “secular” cover and Dulaymi can do the same thing in terms of “integrating Sunnis”, but the numbers just don’t add up. Secondly, he keeps forgetting that the all-Shiite National Alliance rarely exists as a true united force in parliament, with the Sadrists, ISCI and other elements frequently disagreeing with Maliki. Indeed, many of Maliki’s own moves to maintain focus on his own, smaller State of Law bloc undermine the idea of a unified Shiite alliance. It indicates a complete lack of realism when Daawa members call the Dulaymi nomination a “move to stop regional influences in the defence ministry question”, which effectively means they dismiss all the 9 named Iraqiyya candidates for defence as stooges of Saudi Arabia and other Gulf states.

By circumventing a parliamentary vote, Maliki is trying to consolidate his own power despite his narrow parliamentary support base. The question is how long the other parties will tolerate this. Iraqiyya has already been talking about new elections for a while, though mainly with reference to the stalling process to establish a national council for high policies. Arguably, the defence ministry is a far better issue on which to bring matters to a head: A defence minister from Iraqiyya would deepen its integration into the government, whereas the strategic council is likely to remain a paper tiger. As usual, the swing vote will rest with the Kurds, who have been unhappy about lack of progress on their many demands to Maliki for joining the government, but who at the same time support the conceptual framework of ethno-sectarian quota arrangements that lies behind the Dulaymi appointment.

One potentially positive outcome of the appointment of Dulaymi would be the incentive to get rid of the useless culture ministry altogether and maybe merge the three education-related ministries into one: That at least would be in line with the latest signals from the Iraqi public who want an effective government fast.