International Finance Corporation (IFC), the private sector arm of the World Bank Group, has said renegotiating contracts between the Kurdistan Regional Government’s (KRG) and independent power producers (IPPs) could negatively affect future investment in the region.

“If two parties to a contract sit together and renegotiate a contract that both are happy with, this is not a problem,” said Ziad Badr, the International Finance Corporation’s Iraq Country Manager.

“But if the KRG tries to put pressure on investors to renegotiate their existing contract under duress that will definitely affect the reputation of Kurdistan and of Iraq and will affect their ability to attract foreign investors.”

The IFC’s comments come amid speculation that KRG plans to renegotiate power purchase agreements (PPAs) could exacerbate concerns about the sanctity of contracts in Iraqi Kurdistan and impact the region’s ability to attract foreign investors.

On 12 October, the KRG Deputy Prime Minister Qubad Talabani told MEED the regional government is looking to renegotiate contracts with independent power producers as part of a reform programme designed to cut costs for the government.

Speaking to MEED in an interview, Ziad Badr said he believed the KRG understood the sensitivity of the issue and would tread carefully to avoid scaring away future investors.

“The KRG’s track record shows the government has been very responsible in the decisions it makes,” said Ziad Badr, International Finance Corporation’s Iraq country manager,” he said.

“The decisions the KRG are making right now will have serious consequences. Renegotiating contracts may save some money in the short term but, if this isn’t handled well, the cost in the long term could be much higher.”

IFC has committed to investing in two major power projects in Iraqi Kurdistan and says its total investment in the Iraqi power sector is expected to exceed $1bn, including investments in projects in Kurdistan, Baghdad and Basra.