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Iraq remains tough to sell

25 March 2024

Commentary
Jennifer Aguinaldo
Energy & technology editor

The economic trajectory of most GCC states over the past two decades starkly contrasts the decline in Iraq's fortunes since the 1990s.

Many projects in Iraq’s pipeline – from housing schemes to transport and water treatment plants – have not left the planning stage for close to 20 years.

Since the US invasion in 2003, post-war reconstruction efforts and deal-making have trailed the country's security and political upheavals. Contract-signing activities peak in periods of relative peace and taper off when deadly conflicts break out or the government leadership changes.

While previous false starts have eroded investor confidence in the country, there appears to be some hope that Iraq may have reached a tipping point leading to the most recent revival of projects.      

The country's National Investment Commission has recently revived the procurement process for a waste-to-energy plant and two metro public-private partnership (PPP) schemes.

The projects will require multibillion-dollar investments.

The plan for the Baghdad Metro, in particular, dates back to 2008, when the Baghdad mayoralty said it would put aside funds to carry out a feasibility study.

France’s Systra began preliminary engineering work on the project in 2012. In 2017, France’s Alstom signed a memorandum of understanding with the Iraqi government for the development of light rail projects in Baghdad and Basra.

Alstom is understood to have completed the design and consultancy studies for the project the following year.

In 2019, Iraq’s Transport Ministry and the Baghdad Provincial Council were reported to be considering taking the next step of preparing and issuing the tender for the construction of the project, which has so far failed to materialise.

Power play

There are also major planned and ongoing projects in the geopolitically strategic and energy transition-sensitive power sector.

The first phase of a project to interconnect the electricity grids in Iraq and the GCC states, designed to help wean Iraq off Iran's electricity imports, came online last year.

The project's $220m first phase has the capacity to transmit 500MW, which is less than a third of the overall project’s planned transmission capacity.

There has been an increasing number of government-to-government deals, which have seen top US and German companies committing to build new conventional power plants and substations in Iraq.

For example, on 20 March, Germany’s Siemens Energy and US firm SLB, formerly Schlumberger, signed a preliminary agreement with Iraq’s Electricity Ministry to explore the development of a power generation plant using flare gas.

If successfully implemented, this project will achieve a dual target of reducing gas waste and greenhouse gas emissions while expanding the country’s power generation capacity.

Backed by their governments, France’s TotalEnergies, PowerChina and Abu Dhabi Future Energy Company (Masdar) have signed agreements to develop solar photovoltaic plants in Iraq, although none of these projects are known to have started construction so far.

Meanwhile, other Chinese and local or regional contractors have ongoing work building new power plants or retrofitting existing ones.

“Iraq has some momentum and is the next regional market. As you have seen though, these are all government-to-government deals so far,” a UAE-based senior executive with a consultancy tells MEED.

The latest surprise initiative is Iraq’s nuclear energy programme, which it is discussing with the Vienna-based International Atomic Energy Agency.

The nuclear watchdog has said that the discussions revolve around “Iraq’s plans for a possible nuclear energy programme, including small modular reactors, with strict adherence to non-proliferation norms”. 

Substantial pipeline

According to data from regional projects tracker MEED Projects, an estimated $166bn-worth of contracts are in the pre-execution phase across the seven main sectors it monitors.

Oil and gas projects account for about one-third of that value, with transport accounting for 26% and construction 27%.

Projects worth $177bn are under execution, with oil and gas projects accounting for 40% of the total.

However, these figures generally require an additional level of guidance due to the difficulty of assessing the exact status of certain schemes, most of which are based on announcements made by clients or contractors that are eager to move projects forward.

Potential developers and contractors are split almost equally when it comes to participating in new projects in Iraq. 

“I doubt we will go to Iraq,” a senior executive with an international utility developer tells MEED, citing significant investment risks and the general lack of bankability of PPP projects in the country.

On the other hand, a senior manager with a Kuwait-based contractor says his company has an appetite to bid for new contracts in Iraq, but that appetite is dependent on many factors, mainly government support and the location of the projects.

Sustaining Iraq's project momentum, which has proven elusive in the past, will require political will on the side of the Iraqis and bold – but not foolhardy – decisions from investors.

https://image.digitalinsightresearch.in/uploads/NewsArticle/11625037/main5943.jpg
Jennifer Aguinaldo

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