The Iraqi government is to pay for a crucial electricity contract out of existing revenues, after the country’s parliament rejected a $3bn bond issue the government wanted to use to finance the project.

The Finance Ministry has now stepped in to pay the US’ GE Energy for its work building up Iraq’s power generating capacity.

“We do not know the structure of the payments yet, but the GE contract will be paid,” says Sami al-Araji, chairman of Iraq’s National Investment Commission.

The government proposed two one-year bonds in early June, a first for $2.4bn and a second for $600m, with the first being used to help pay GE.

The bonds would have been the first issue of government paper in the post-Saddam era (MEED 5:6:09). However, MPs rejected the plan before departing for their summer holiday in early August.

At the time, Nouri al-Maliki, the Iraqi prime minister, claimed Baghdad could no longer afford to pay GE, and accused opposition groups in parliament of putting politics before the country’s needs.

In December last year, GE won a $3bn deal to provide gas turbines to produce 7,000MW of electricity.

The turbines will more than double Iraq’s electricity output from its current level of 6,000MW, providing power for an additional 5.4 million homes.

“We continue to work with the government of Iraq to deliver on this critical project,” says Joseph Anis, regional executive for the Middle East at GE Energy, adding: “We remain committed to Prime Minister Maliki’s efforts to revamp the electricity infrastructure of Iraq.”