Protesters took to the streets of Iraq in mid-February with two major demands, for services to improve and for corruption to be eliminated. Prime Minister Nouri al-Maliki responded by setting his ministries a 100-day deadline to improve. But for Iraq’s public sector, the pressure will be felt for longer than this. The greater challenge lies in delivering the country’s $185bn five-year development plan.
We don’t feel we can work [in Iraq], for fears that we will become embroiled in corruption allegations
Risk director at a UK consultant
Unlike many countries in the region, Iraq does have the money to invest in improving basic services. The World Bank has a portfolio of projects in the country in water, roads and education worth $1bn. The number of contracts awarded in the country grew by 147 per cent between 2009-10, from $7.9bn to $19.6bn in 2010, according to regional projects tracker MEED Projects.
Projects planned or under way ($m)
22 March 2010: 228, 076
23 March 2011: 360,549
Source: MEED Projects
The power sector dominated the awards as the electricity ministry pushed ahead with new investment in new power plants. The Sadr City reconstruction scheme, which will see 75,000 housing units and associated infrastructure built by the end of 2014, also kept the market busy.
Shortage of expertise
Its real struggle lies in finding the expertise to deliver the projects. “The real issue is not financing, it is the implementation capacity and the planning of this infrastructure. That lies with the public sector,” says Hedi Larbi, regional director of the World Bank. “Looking at the current assets and the investments of the last 20 years compared with the demand, you see a gap at every level.
“The main issue is the capacity of the public sector itself to hire consultants and plan and prepare the bid documents, engineering studies and supervise. That capacity is not there. What would be better is to have joint ventures between local and international companies.”
Although there is a need for infrastructure in every sector it is electricity and water services that are most in demand. UK consultant Parsons Brinckerhoff calculates that electricity shortages are costing the country $40bn a year. The country needs to invest $86bn over the next 20 years to meet demand for electricity and to rehabilitate its grid.
Peak demand for power is estimated to be about 12GW. Installed capacity is recorded to be 9,197MW, although the actual output is much lower than this owing to the poor state of the country’s power plants. Parsons Brinckerhoff’s estimates put current capacity at 6.740MW. If this is the case, Iraq is only meeting two thirds of demand.
In the water sector, massive opportunities exist for engineering companies. The current statistics on drinking water and sanitation are worrying. Only 3 per cent of rural areas have adequate sanitation, compared with 75 per cent in urban areas. Drinking water provision is better, but the country is still suffering from dire shortages. Cities have 95 per cent coverage, while rural areas have just 65 per cent.
Harnessing the potential supply from the Tigris and Euphrates rivers is a challenge. As an alternative, a water budget is being developed by the water ministry. This is expected to establish policies for investing and managing the country’s water resources, including establishing a centralised unit for managing and maintaining the water storage system.
The country has 33 billion cubic metres of storage, built to prevent flooding, store water and drive hydropower stations, but more is needed. An additional nine dams are to be constructed to join the nine already in operation.
Establishing this budget is particularly critical as Syria and Turkey implement their own irrigation projects that will see millions of hectares of land supported by the Euphrates and Tigris. The five-year development plan states these neighbouring projects will lead to a 43 per cent reduction in the water available for Iraq. It calls for a diplomatic approach “for the countries that share the rivers with Iraq to work with Iraq through agreements and strategic treaties based on mutual interests”.
Transport links from Iraq
In the transport sector, Iraq’s development plan includes the addition of 2,157 kilometres of new railway by 2014 – ambitious for even the most developed construction markets. Plans involve lines to Syria, Iran, Jordan and Kuwait, with a new 284km central section through Baghdad.
The transport ministry is understood to be in discussions with Turkish and Iranian contractors for the 430km line to Iran and the connection to Syria. One of the biggest projects in the country’s aviation sector is the expansion of Baghdad airport. The Civil Aviation Authority (CAA) says the current 7.5 million a year passenger capacity is too low and the airport will need to be capable of handling 15 million passengers over the next five years. The CAA estimates revenues from the expanded airport to be $2bn a year and it is seeking foreign investors to manage the project in the long term.
The exact structure of such an agreement has not yet been decided. Former director general of the Iraqi CAA, Adnan Blebil says the project can only move forward once financing has been sought.
“We are looking for finance from a company that can invest and bring in a team of administrators to run the project,” says Blebil. “We need someone who has excellent experience with their own airport, an operating company that is experienced and responsible. They will be investing their money and so it will be their risk.”
Iraq’s five year-plan also identifies the need for 40 new docks by 2014. These include the $6bn port at Al-Faw in the south of the country. The 17-metre-deep facility is being designed by an Italian-led consortium and invitations to bid are scheduled for the end of 2011.
Fighting corruption in Iraq
Perhaps the biggest problem the country faces is corruption. Transparency International’s Corrupt Perceptions Index ranks Iraq as the fourth-most corrupt nation in the world. The diversion of funds and fears of becoming linked to corruption allegations is deterring some international firms from entering the country.
Both China and the UK have recently updated anti-bribery legislation, imposing tough new sanctions on firms found to have bribed foreign officials. For the UK, this includes any associates found to have committed bribery. “We have had a lot of new enquiries from Iraq, but we don’t feel that we can work there, for fears that we will become embroiled in corruption allegations,” says a risk director at a UK consultant.
Larbi says Baghdad is working to address these issues. “The state has a governance plan to mitigate and reduce corruption. The problem is whether the public sector has the capacity to implement these policies and to ensure transparency is the rule of the game. The government is trying its best. It is really about the pace of government to implement these policies and to increase the capacity of its public sector, so it can fight corruption,” says Larbi.
Iraq needs international companies to enter the market to help it deliver the services it needs. Before this happens, it needs to stamp out corruption preventing contractors and consultants bidding for projects. The country has the funds and the foresight to carry out its five-year development plan, but until an effective anti-corruption programme is in place, contractors remain wary of entering the market.