Project Financing in Iraq: Weighing up the risks

Iraq is open for business and investors are lining up. Major infrastructure projects are springing up all over Iraq, as the country is recovering from decades of war, sanctions, and domestic unrest. There is a dire need for an array of infrastructure investments – particularly, in the areas of healthcare, housing, power, water, manufacturing, transportation, and telecommunications. Construction projects are being launched throughout Iraq, even in the most remote areas, for which significant foreign investment will be needed. Public entities in Iraq are finding it difficult to provide the large amount of funds and resources needed for these infrastructure projects and, as a result, foreign investors are expected to become important financiers.

But should a prudent foreign investor consider financing such projects? Under the current Iraqi investment law, there are several options available to foreign investors depending on the business needs and activities to be exercised in Iraq. However, the political reality seems to be a major discourager, perhaps only to those who do not perceive risk as opportunity.

Incentivising Foreign Capital

In 2006, Iraq enacted several investment laws at the federal, regional and governorate level in order to stimulate investment and development of infrastructure projects. These laws also aim at encouraging Iraqi and foreign private sectors to invest in Iraq, to create employment opportunities for Iraqis as well as to improve the balance of payments.

Investment Law No. 13 of 2006

Investment Law No. 13 of 2006 (the “Investment Law”) provides investment incentives and establishes the National Investment Commission (“NIC”) with the authority to grant investment licenses for projects determined to be of national and strategic importance. The purpose of the NIC is to serve as a single point of contact for investors who are interested to invest in Iraq. The remit of the NIC is to facilitate investment in strategic projects which include (a) projects of capital not less than USD 250,000; (b) projects related to the extraction of natural resources (excluding oil and gas); (c) projects arising from an agreement where the Republic of Iraq is a party therein; (d) petrochemical, pharmaceutical, or industry projects, involving the manufacture and production of vehicles; (e) transportation projects (roads, ports, airports, etc.); and (f) electricity projects of production capacity not less than 30 megawatts. Notably, projects with a minimum capital USD 1 billion are generally considered as strategically important by the NIC.

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