Crises and protests curb Iraq PPPs

29 August 2020
Iraq has faced an economic crisis and protests since Baghdad approved a draft law on public-private partnerships in August 2019

In August 2019, Iraq’s cabinet approved a draft law on public-private partnerships (PPP) that had been developed to strengthen cooperation between government agencies and the private sector.

Since then, the country’s government has been hit by a series of significant problems including economic crisis and a mass protest movement.

Usually after a draft is approved, there are at least two readings in the parliament and it is then passed in parliament and published in the gazette, but none of these later steps have occurred.

The civil unrest and economic problems in the country have pushed many other issues that were previously priorities to the side, and making progress with PPP law is one of the priorities that has seen little progress over the past 12 months.

“There has been no progress with this legislation under the current government,” says an associate at law firm Al-Tamimi, Ali al-Dabbagh.

“It is also unlikely that there will be progress with this legislation under the current government. Nothing is happening with the PPP law because we have much bigger problems.

“This has moved nowhere and I cannot see any progress happening during the lifetime of this government.”

He adds: “Passing the law also requires some level of cooperation between the government and the parliament and right now this is not the case – the parliament is divided in many ways.”

Nothing is happening with the PPP law because we have much bigger problems
Al-Tamimi, Ali al-Dabbagh law firm

Hurdles to PPP

The economic crisis that Iraq faces is mainly due to the Covid-19 pandemic and the related drop in oil prices that occurred earlier this year, as prices slumped from more than $70 a barrel to less than $40.

Iraq’s fragile political situation was highlighted when mass protests broke out in October 2019, sparking a bloody crackdown.

The political tensions were further ramped up in January when Iranian major general Qasem Soleimani of Iran's Islamic Revolutionary Guard Corps (IRGC) was assassinated by a US drone strike near Baghdad International airport.

Untapped potential

Iraq, home to 12 per cent of the world’s proven oil reserves and a population of about 40 million people, holds much untapped potential for economic development that some experts say could be unleashed through projects using a PPP model.

“They have been privatising in many sectors for a long time in Iraq,” says Al-Dabbagh. “The power generation sector especially has seen a lot of partnerships between the private sector and the public sector.

“There are a lot of partnerships that were already functioning prior to the law coming into force. They are just working under general rule of contract – civil law and so on.

“Other sectors that have seen higher levels of PPP activity include the healthcare sector and strategic industrial projects like cement factories.”

The Baghdad government is becoming increasingly enthusiastic about the model as its economic problems mount up

Slightly different attitudes towards PPP in Iraqi Kurdistan have meant that the structure has been used more frequently than in Federal Iraq, so far – but the Baghdad government is becoming increasingly enthusiastic about the model as its economic problems mount up, according to experts.

“So far, Iraqi Kurdistan has seen much more activity in the form of companies using PPP structures to execute projects than in Federal Iraq – but things are changing rapidly,” says Al-Dabbagh.

The Multilateral Investment Guarantee Agency (MIGA), an international financial institution that offers political risk insurance and credit enhancement guarantees, is one entity that is interested in supporting PPP projects in Iraq.

As of March 2020, MIGA’s outstanding gross exposure in Iraq stood at $75m, according to a World Bank report published in May this year.

Past MIGA-supported projects in Iraq include a water bottling plant in Baghdad, a telecom sector project in Kurdistan and a port logistics project in Umm Qasr port.

In the 2019 financial year, MIGA guaranteed a capital optimisation project in Iraq on behalf of the BBAC bank of Lebanon.

In its report, the World Bank said: “The recent deterioration in Iraq’s political, macroeconomic and security spheres may constrain the entry and operations of the private sector, potentially limiting foreign investor appetite to invest in Iraq and therefore limiting demand for MIGA’s risk mitigation products.”

The World Bank added that it is continuing to work closely with MIGA and the International Finance Corporation to identify opportunities.

It said MIGA remained interested in supporting PPP projects and projects such as the 755MW solar independent power producer programme and the potential expansion of Umm Qasr port.

As a fragility, conflict and violence (FCV) country, Iraq is eligible for its projects to be supported under MIGA’s Conflict-Affected & Fragile Economies Facility (CAFEF).

Progress on a PPP law is only likely to occur when the country becomes more political stabile, according to Al-Dabbagh.

“The legislative processes are likely to start when we have a new parliament and there is less division amongst Iraq's politicians,” he says.



 

> Algeria: PPP framework fails to modernise
> Bahrain: Manama ramps up its PPP plans
> Egypt: Mixed results for Egyptian PPPs
> Iraq: Crises and protests curb Iraq PPPs
> Jordan: Construction sector eyes PPP opportunities
> Kuwait: Corner turned on water and power schemes
> Lebanon: PPPs offer route to recovery
> Morocco: Rabat reforms legislation to spur PPPs
> Oman: Muscat risks PPP confidence loss
> Saudi Arabia: Riyadh refocuses PPP plans
> Tunisia: PPP plans draw broad support
> UAE: PPPs expected to take off in UAE
> Other GCC: Gulf state bolsters legislation to drive PPPs

 

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