Iraq’s projects market is now larger than Qatar’s, making it a centre for investment activity in the region
In the months that followed the US-led invasion of Iraq in 2003, the region’s project market was busy gearing up for a once in a lifetime bonanza of opportunities – the reconstruction of Iraq.
But years of volatile security and political wrangling slowly eroded contractors’ and investors’ confidence in the Gulf’s only republic, and most preferred to look for safer and easier opportunities in the GCC.
Now though, the global economic crisis has made business opportunities in markets such as the UAE and Qatar less attractive. Meanwhile, the security situation in Iraq has become more stable, investors are once again showing interest in the reconstruction plans.
The 7 March general election was held in relative calm, and construction companies, financiers and businessmen tell MEED that the country is being given an increasingly higher place on their agendas. “If things continue to improve as they have over the past five years or so, then Iraq will become the next place to be, and, who knows, Baghdad may well become the next boom town,” says a senior executive at one oil and gas engineering firm.
The statistics have begun to reflect this improved sentiment. In November 2009, the value of construction schemes planned and under way in Iraq overtook the total in neighbouring Qatar, according to regional projects tracker MEED Projects. And at the start of April, Iraq had $230bn of projects or more in the pipeline, compared with $221bn in Qatar.
This should not come as a great surprise, however. Iraq’s basic economic fundamentals are far stronger – its population of 31 million is much larger than Qatar’s 1.6 million. With the world’s second largest oil reserves, it has the wealth to kickstart development. Latest estimates suggest Iraq has in excess of 115 billion barrels, compared with Qatar’s 27.3 billion.
And unlike Qatar, three wars in 30 years and more than a decade of economic sanctions mean that Iraq’s crippled infrastructure needs rebuilding fast.
Oil & Gas
Iraq’s first priority is its oil and gas sector. Income from hydrocarbon exports contributed 88 per cent of total revenues in 2009, according to the Washington-headquartered International Monetary Fund (IMF), and it is these revenues that will be used to rebuild the country.
Baghdad plans to increase oil production to drive its reconstruction efforts. In 2008, crude oil production averaged 2.4 million barrels a day (b/d). Iraq wants to boost production by 4.7 million b/d by 2016 and is targeting total output in excess of 12 million b/d by 2020.
With oil prices expected to top $100 a barrel over the next decade, this would create a nominal income of $12bn a day for the country, which has run consistent budget deficits since the early 1990s. To meet its production targets, Iraq has a total of $126bn of oil and gas schemes either planned or under way, according to MEED Projects. Revenue-generating upstream oil and gas production forms the majority of the work, with $115bn worth of projects in the pipeline.
These projects are widely expected to move ahead as planned following the award of contracts to international oil companies to develop 11 oilfields.
Work has already started at the giant Rumaila field, which has reserves of 17 billion barrels of crude. The UK’s BP and China National Petroleum Company has awarded more than $800m of drilling contracts. China’s Daging Oil Field Company and its joint venture partners, the US’ Schlumberger, state-owned Iraq Drilling Company and the US’ Weatherford will drill 49 wells, while Turkish Petroleum International Company (TPIC) won a $318m drilling contract for 45 wells.
Another $5bn of oilfield developments are in the exploration stage, mainly in the semi-autonomous Kurdistan Region in the north of the country. The largest of these is Chinese National Petroleum Corporation’s $4bn contract to develop the Ahdab field in central Iraq, signed in 2008. Seismic surveys and exploration wells have been completed at the field and production is expected to begin in 2011.
Other planned oil and gas projects include South Oil Company and UK/Dutch oil major Shell’s planned crude oil export terminal at Basra valued at an estimated $5bn, and a $150m contract to build a pipeline from Basra’s oilfields to the Abadan refinery in Iran.
Away from the oil fields, Iraq has $5.6bn of power developments in the pipeline, but it needs more. In 2003, the Washington-headquartered World Bank estimated Iraq would need an injection of $20bn into the electricity sector to meet its population’s demands. And in 2006, the Electricity Ministry said the figure had risen to $27bn. Now that number will almost certainly be higher.
So far the progress on projects has been slow. The ministry has launched a host of independent power projects and government-funded schemes, but the country still suffers from blackouts for much of the day. To make matters worse, most of Iraq’s power plants run on imported diesel fuel and Baghdad spends around $1.2bn a year on imports just to fire up the country’s utilities.
The most progress in pushing through new power plants has been made in Iraqi Kurdistan. In the absence of investment from international players, local developer Mass Global Investment Company recently opted to develop 1,750MW of gas-fired capacity on its own.
The company’s confidence has grown following the start of operations at its 500MW power plant at Erbil, and a 750MW power plant at Sulaimaniyeh. It also has a 500MW plant nearing completion at Dohuk.
In the rest of the country, the largest investment in power generation capacity made to date is the 1,200MW Wasit crude oil-fired power plant 150 kilometres south of Baghdad. The project will cost about $1bn to build.
Iraq hopes these projects are just the start, and that more schemes will move forward once the new government has improved the regulations governing power projects. “Iraq has complex contractual arrangements [on electricity projects],” says John Dempsey, general advisor to the Iraq Transition & Assistance Office. “The system would work better with framework agreements and this will be the first order of business when the [new] Council of Representatives is seated.”
For Iraq’s general infrastructure, Baghdad is planning a huge spending programme, with $150bn earmarked for new projects by 2025.
With urban areas devastated by the 2003 invasion and subsequent attacks by insurgent groups, housing is a key priority and the government plans to build one million new homes by 2015, at an estimated cost of up to $50bn.
The country’s National Investment Commission aims to add a further $20bn of new infrastructure projects across the country, including roads, water, sewage, electricity and telecommunications facilities. The commission is planning additional construction work in regions that require schools, hospitals, offices, retail and hospitality buildings.
Baghdad is planning a huge spending programme, with $150bn earmarked for infrastructure projects
The transport sector is also receiving heavy investment with more than $17bn of projects already under way.
For air travel, a new $3bn international airport is being built at Karbala. It will be supplemented by domestic airport projects that include the $250m Hawler airport close to Erbil and the $140m Salahaddin airport.
The airports will support the country’s growing tourism sector, for which the Tourism Ministry is planning to build 113 hotels and redevelop 38 cultural sites, including the ancient ruins of Babylon and Ur.
To bolster sea trade, a $1bn expansion of the country’s deep sea port at Umm Qasr is underway, together with the $6bn Grand Faw port development scheme. Domestic travel will be led by rail projects that include a $3bn metro in Baghdad, the rehabilitation of the country’s existing railway network, and the upgrade of 44,000km of roads and highways.
In the industrial sector, $10.7bn of projects are planned to support the reconstruction effort. As the country starts to rebuild its infrastructure, the demand for cement and steel in Iraq is expected to soar.
Since 2005, Baghdad has been opening up the country’s cement sector to foreign investors in the hope of increasing domestic capacity to 25 million tonnes a year (t/y). The government sold 19 licences for cement plants in 2005 alone. Among the winners of the auction were France’s Lafarge Ciments and the UK-based Merchant Bridge, which is building a new cement plant at Karbala; it will have a capacity of 2 million t/y of cement. Lafarge is building a 2.7 million t/y facility in northern Iraq with local partner Asiacell.
The world’s largest steel company, ArcelorMittal, is investing in steel production. The company is planning a major refurbishment of an existing steel facility in Basra, and, in March 2010, the Luxembourg-based company signed a joint venture agreement with Turkey’s Dayen Dis Ticaret for the construction of a new steel mill at Sulaimaniyeh in the north of the country.
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