Iraq draws up plans for privatisation gold rush
London Telegraph | July 3, 2007
The Iraqi government has begun preparing the groundwork for what could be one of the biggest privatisations of state-owned assets.
The Sunday Telegraph has learned that officials from the government have recently held talks with banking and legal advisers in London. City sources said Iraq's minister for industry, Fawzi Hariri, was looking to appoint advisers to draw up a memorandum of understanding to sell off the country's non-oil assets, ranging from petrochemical plants to construction companies, hotels and airlines, as early as this month.
The privatisation proposals could also include a massive extension of foreign participation in the oil industry. Sources close to the foreign ministry said the government believed it had struck a deal on the long-awaited hydrocarbon law which could see Parliament vote the legislation through in two weeks' time. If the legislation is passed, arrangements to allow foreign oil majors to enter into production-sharing agreements with Iraq's national oil company could then make it into the memorandum.
An executive at one of the smaller Western oil companies operating in Iraq said: "As you would expect, most of Iraq's non-oil assets are outdated and in pretty bad shape. But this would give people who wanted to operate in Iraq an opportunity to get in." The source added that Iraq's nationalised cement industry could be particularly attractive because the country's reconstruction will require a building bonanza.
However, sources cautioned that the move could simply be a sop to the American administration. The US Congress will consider a report on progress in Iraq in September and a privatisation programme could be presented as some kind of progress in lieu of any real improvement in the security situation. City sources said any instruction would be complicated by factionalism within Iraq's fragmented government. Hariri, while not ethnically Kurdish, is a member of the Kurdish democratic party.
Experts said investor appetite for Iraqi assets was relatively limited and was likely to remain so until the country's security improved considerably. But if attempts to privatise Iraq's non-oil assets went hand in hand with moves to open up the country's oil sector to foreign investment, they would have much greater appeal. The long-awaited passage of the hydrocarbon law is seen as critical to attracting foreign investment.
Smaller, maverick oil companies have already invested in Kurdish-controlled areas of Iraq, but the bulk of the oil is in the south and no oil major would consider investing without a reliable legal regime and a significant improvement in security.
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