Restoring the basics
On 20 June 2011, the day before a devastating bomb blast in Diwaniyah, Iraq’s Deputy Minister of Industry and Minerals, Adel Karim, awarded Istanbul-based Partner Tecknik the contract to renovate a cement plant as part of government plans to rehabilitate the dilapidated state industries following several years of wars and sanctions. The Turkish company, together with its Iraqi partner, will spend about US$110 million to rebuild the plant, which is located in Samawa, 230 km south of Baghdad. Just a few days before, Iraq’s cabinet approved a US$692 million contract for the construction of a new cement plant in Diwaniyah province, 150 km south of Baghdad. The contract was awarded to a joint venture group involving an Iraqi company and an Italian firm. The government has set a target of US$30 billion for total investment this year, mostly for energy, housing and agriculture. This follows the National Investment Commission’s investment plan of 750 projects, valued at US$600 billion, to rebuild Iraq. Its five-year plan totals US$186 billion, of which US$86 billion will come from foreign and local private investments.
Lafarge is generally regarded as one of the pioneers of investments in Iraq. It entered the market through the acquisition of Orascom Cement at the beginning of 2008, and became the principal shareholder in the Bazian (2.7 million tpa) and Tasluja (2.3 million tpa) cement plants. Last year, after five years of preparatory work, the private equity group, MerchantBridge, teamed up with Lafarge to take on the full operations and management of the Karbala Cement plant from the government under a 15 year lease agreement. The partners will increase production from 300 000 tpa to 2 million tpa over the next two years. The cost to rehabilitate the 27-year old plant is estimated to be about US$220 million.
In August 2010, China National Building Material Co. began construction of a US$270 million plant in Muthanna and at the end of December 2010, Sinoma International Engineering’s subsidiary Sinoma (Suzhou) Construction Co., Ltd won a US$112.5 million contract through the Iraqi investment company Mass Iraq, for the construction of a 5300 tpd plant to be built in Sulaymaniyah. Completion is scheduled for mid-2013.
Simon Cox, a director at Howe Robinson Shipbrokers, estimates that the country’s current cement capacity is 20 million t and says that most probably it will be heavily cement dependent for about 20 years. Over the next three years imports are expected to be approximately 3 million t, mainly from Turkey and Iran, with a small amount coming from Syria. However, new regulations introduced in May involving a standards document and an authorisation certificate for Turkish exports to Iraq could harm the flow of cement and other construction materials into the country. Turkey’s exports to Iraq have increased by 126% over the past five years. Last year these brought in a revenue of US$6 billion. It will not be so easy for Turkish companies in the future as they will have to compete more with Chinese and Iranian companies.
Demand for building materials is increasing as the country rebuilds its infrastructure and homes after the chaos of the past few years. Iraq faces an acute housing shortage, but large-scale housing projects have been agreed with UAE and South Korean backing. In June, the Iraqi government reported that it had allocated US$2 billion to build low-cost housing for ‘limited income families’. The country’s Minister of Reconstruction and Housing, Mohammed Al Daraji, said that the country would need approximately 2 million new housing units. The low-cost housing project is expected to begin in 2012, provided that the Iraqi cabinet determines the distribution mechanism. From this, it is easy to see that housing is a major priority for Iraq and some reports suggest that 3.5 million housing units are required over the next five years. One of the largest engineering and construction companies in South Korea, Hanwha Engineering & Construction, has signed a US$7.25 billion deal with the Iraqi National Investment Commission (NIC) to build 100 000 housing units as a complete neighbourhood east of Baghdad. Harlow International, a UK engineering company, worked closely with Hanwha and the Iraqi government in expediting the signing of the deal. The project is the beginning of a 1 million housing unit scheme throughout Iraq. Elsewhere, the Basra Investment Commission recently announced that it had received an offer to build 5280 housing units in the new ‘Basra City’, at a cost of US$939 million. The offer came from the al-Saqr al-Jareh company. In April, it was reported that the Sunni Endowment had offered opportunities to build 100 000 housing units throughout the Iraqi provinces, on land it owns, within three years, as part of the previously mentioned national strategy to build 1 million houses. In a similar vein, the NIC has said that it will undertake unprecedented investment projects in the near future. In Baghdad alone, these investments will exceed US$30 million. The national investment plan will include the construction of 1000 hospitals and medical clinics, 1000 schools and universities and around 3 million houses. Investment in constructing airports, roads and railways is also included in the plan.
Here come the hotels
As mentioned earlier, Harlow International is a UK engineering company that was set up to establish an active presence in Iraq, supporting clients through the provision of contracting services in the International Zone in Baghdad and the Command Operating Base in Basra. Its most recent project involved an EPC contract to refurbish the prestigious Al Rasheed hotel in Baghdad to raise its standard to a five-star rating. The plan was to have it completed in time for the Arab Nations Summit earlier this year, but due to the Middle East crisis the summit was cancelled.
Range Hospitality’s CEO Munaf Ali reported in June that construction of the US$100 million, 12-storey Al Rawdatain hotel in Karbala had begun. The main contractor is Tadbir Construction and Development (TDC) Group. While there are a lot of local building materials available, many more will need to be imported during the construction process. The owners have opted for a steel-framed structure and the sections for this will be imported from Dubai and pre-assembled on site.
In the north of Iraq, the number of tourists visiting the Kurdistan Region has risen from around 380 000 in 2007 to 1.3 million in 2010. Kurdistan Region Tourism Minister Samir Abdullah Mustafa, speaking in London recently, said there were plans to build 2500 new hotels to accommodate another 1.35 million visitors annually by 2015! The number of hotels, resorts, restaurants and beds available has grown exponentially. Much of the current growth has been from within Iraq and Kurdistan itself. The new international airports at Erbil and Sulaimania, together with plans for a new airport at Bohuk, will boost international tourism.
The US banking giant, Citibank, is very upbeat about Iraq. It is predicting that once it shrugs off the current turmoil it will emerge as one of the world’s fastest growing economies over the next 40 years. UN population statistics suggest that Iraq’s population is expected to grow from 31 million in 2010 to 64 million by 2050. Over that period its population of working age is expected to grow by a massive 143.4%, and this represents a big challenge. Post-conflict reconstruction can occur very rapidly as long as there is political stability, openness to trade and no acute scarcity of foreign exchange. If an enduring political compromise can establish peace and even some measure of trust between the Shia, Kurdish and Sunni communities, it suggests that a reconstruction dividend-come-peace dividend would reinforce the normal catch up and convergence dynamics. If the vast oil and gas resources of the country can be exploited sensibly, resources for infrastructure investment, human capital formation and the wider reconstruction efforts ought to be amply available.
Here, then, is the other face of life in Iraq, one that is progressive and ambitious, even though as this is being written two more bombs have exploded, resulting in a great number of casualties. One hopes that the life of this ancient country that has survived countless wars and occupation for thousands of years will not be crushed.
This is an abridged version of the full article from Paul Maxwell-Cook, which was published in the August 2011 issue of WORLD CEMENT. To read more download the issue now (subscribers only).
Read the article online at: https://www.worldcement.com/africa-middle-east/27072011/rebuilding_infrastructure_foundations_in_iraq/