News On Iran & Its NeighboursIraqIraq awards contracts to Iran and China

Iraq awards contracts to Iran and China


New York Times: Iraq has agreed to award $1.1 billion in contracts to Iranian and Chinese companies to build a pair of enormous power plants, the Iraqi electricity minister said Tuesday. Word of the project prompted serious concerns among American military officials, who fear that Iranian commercial investments can mask military activities at a time of heightened tension with Iran. The New York Times

Published: October 18, 2007

BAGHDAD, Oct. 17 — Iraq has agreed to award $1.1 billion in contracts to Iranian and Chinese companies to build a pair of enormous power plants, the Iraqi electricity minister said Tuesday. Word of the project prompted serious concerns among American military officials, who fear that Iranian commercial investments can mask military activities at a time of heightened tension with Iran.

The Iraqi electricity minister, Karim Wahid, said that the Iranian project would be built in Sadr City, a Shiite enclave in Baghdad that is controlled by followers of the anti-American cleric Moktada al-Sadr. He added that Iran had also agreed to provide cheap electricity from its own grid to southern Iraq, and to build a large power plant essentially free of charge in an area between the two southern Shiite holy cities of Karbala and Najaf.

The expansion of ties between Iraq and Iran comes as the United States and Iran clash on nuclear issues and about what American officials have repeatedly said is Iranian support for armed groups in Iraq. American officials have charged that Iranians, through the international military wing known as the Quds Force, are particularly active in support of elite elements of the Mahdi Army, a militia largely controlled by Mr. Sadr.

An American military official in Baghdad said that while he had no specific knowledge of the power plant contracts, any expansion of Iranian interests was a concern for the military here.

“We are of course carefully watching Iran’s overall presence here in Iraq,” the military official said. “As you know, it’s not always as it appears. Their Quds Force routinely uses the cover of a business to mask their real purpose as an intelligence operative.”

“This is a free marketplace, so there’s not much we can do about it,” the official said.

At the same time, it is possible to view Iranian and Chinese investment as giving those countries a stake in Iraqi stability. The power plants could also boost a troubled reconstruction effort in Iraq. An American Embassy spokesman said, “We welcome any efforts to help develop Iraq’s energy infrastructure.”

“These proposals reflect the ongoing business opportunities that are arising in Iraq that American firms should be competing for,” said the spokesman, who asked not to be named because of standard protocol at the embassy.

It was unclear whether any American firms had tried to win the work, although Mr. Wahid said the projects had been submitted for bids. The embassy spokesman said, “We are unaware of any violations of principles of open and fair bidding.”

The agreements between Iraq and Iran come after the American-led reconstruction effort, which relied heavily on large American contractors, has spent nearly $5 billion of United States taxpayer money on Iraq’s electricity grid. Aside from a few isolated bright spots, there was little clear impact in a nation where in many places electricity is still available only for a few hours each day. Because the power plants are in largely Shiite-controlled areas, it is possible they may not face the same sectarian violence that crippled so many American rebuilding projects.

Mr. Wahid did not say how much the plant between Karbala and Najaf would cost, but at standard international prices a plant of the scale he described would be worth roughly $200 million to $300 million.

The outlines of all three agreements were confirmed by Thamir Ghadban, an expert on energy who is also director of the committee of advisers to Prime Minister Nuri Kamal al-Maliki. But Mr. Ghadban said that the granting of the huge projects to rivals of the United States was not an indication that American companies were being excluded from consideration now that Iraqi oil revenues, which provide the basis for the Iraqi government’s budget, are largely paying for the reconstruction of the grid.

“There is no preference to the Iranians,” Mr. Ghadban said, citing the most obvious potential point of sensitivity for the United States. “There is no opposition or stance from the Iraqi government to bar American or Western companies. It is the other way around,” Mr. Ghadban said, indicating that he urged American contractors to bid for work in Iraq.

Of the two new projects Iraq has agreed to finance, Mr. Wahid said, the largest is a $940 million power plant in Wasit to be built by a Chinese company, which he said was named Shanghai Heavy Industry. That project would pump some 1,300 megawatts of electricity into the Iraqi grid. For comparison, all of the plants currently connected to Iraq’s grid produce a total of roughly 5,000 megawatts.

He said that Iraq had already spent $12 million leveling the ground in preparation for the Chinese plant. The Sadr City project, which will include a small refinery, will cost $150 million and be built by an Iranian company, Sunir, Mr. Wahid said. That plant is expected to produce about 160 megawatts of electricity.

The Iraqi Electricity Ministry, which Mr. Wahid heads, is one of the few in the central government that has received praise for successfully spending much of the money allocated to it in the Iraqi budget for reconstruction projects. Because of security problems, a shortage of officials who are skilled at writing and executing contracts, and endemic corruption, many of the ministries have either left their rebuilding money unspent or poured it into projects that have had a marginal impact on the quality of life for Iraqi citizens.

Asked how he had managed to make progress within the bureaucratic morass of much of the Iraqi government, Mr. Wahid said he had simply learned to go it alone. Aside from financing, his main need from the central government was guarantees that Iraqi security forces would protect his workers and the electricity infrastructure.

“Do not annoy me,” Mr. Wahid said was his main message to the government. “Let me do my work.”

Whether officials outside his government will be entirely pleased with the deals is a separate question. An international energy expert involved in Iraq’s electricity sector said he understood that the Sadr City project had originally been an Iranian initiative and that the Electricity Ministry had shown little interest at first.

The expert also said that the Iraqi Commission on Public Integrity, which investigates corruption, had already signaled that it would be investigating the project. Officials at the commission could not be reached for comment on Wednesday evening.

Mr. Wahid said the new power plants were part of a sweeping plan to increase electricity production on the grid, whose output has been creeping upward in recent weeks. He said that the ministry was in discussions on building another large power plant, one that would produce 600 megawatts, within the city of Karbala.

And the minister said that the first installment of another initiative he had long discussed, bringing diesel-powered generators into selected Baghdad neighborhoods, was close to having an impact.

Some 14 of the generators, each expected to produce 1.75 megawatts, should be arriving in the capital within weeks, Mr. Wahid said.

Alissa J. Rubin and Ahmad Fadam contributed reporting from Baghdad.

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