Mayer Brown Legal Update
On September 19, 2013, at a meeting of the US-Iraq Business Dialogue (the USIBD), the Iraqi Ambassador to the United States, Lukman Faily, discussed Iraq’s new National Investment Plan (2013-2017) (the Plan).1 The Plan was launched by the Iraqi Ministry of Planning (the Ministry) a few days earlier, after its ratification by the Iraqi Council of Ministers. The USIBD is a government advisory committee on Iraq business and investment policies created by the governments of Iraq and the United States.
The Plan builds on the Ministry’s prior national development plan, adopted in 2010, which set ambitious goals for development, but encountered serious obstacles, including political violence and uncertainty, bureaucratic inefficiencies and corruption. Despite these challenges, Iraq has experienced sustained economic expansion since 2010—with 8.4 percent GDP growth in 2012. Indeed, Iraq has successfully licensed several of its major oil fields for development and significantly increased oil and gas production, thereby increasing the nation’s annual budget.
But the country has failed to develop important industrial sectors, including electricity production, and unemployment remains intolerably high. Moreover, after decades of war and sanctions, Iraq’s national infrastructure is largely obsolete and in serious disrepair.
The new Plan seeks to address these issues. The good news—despite negative headlines on recurrent acts of violence in the country—is that with increased oil and gas revenues, Iraq has the wealth to implement the solutions outlined in the Plan. The test will be whether the political system will coalesce to implement the Plan.
Overview of the Plan
The Plan will invest $357 billion on infrastructure projects throughout Iraq, with a focus on developing Iraq’s industrial base, further boosting its oil and gas production and integrating environmental and social reform. While the Iraqi government has a keen interest in raising oil and gas production to increase budget revenue, the Plan seeks to lessen Iraq’s dependence on its oil production and diversify the national economy. This is consistent with the path taken by other countries in the Persian Gulf.
The Plan also emphasizes the role of the underdeveloped private sector in Iraq, by increasing public-private cooperation. Almost a quarter of the investments contemplated by the Plan will be contributed by the private sector (approximately 88 trillion Iraqi Dinars).
Focus on Infrastructure
The Plan emphasizes the following sectors for development.
Housing. The Plan pledges to provide better housing for the majority of Iraqis by placing greater reliance on organized urban planning and focusing on improving living conditions in rural areas. To that end, the Plan has set an ambitious target of building one million housing units over the next five years. While that is a significant number, it would still fall short of expected demand for housing, which is projected to be twice as high.
Oil & Gas. Iraq is already the world’s third-largest oil exporter. It has the resources and capability to vastly increase its production. The Plan identifies the following objectives for the industry:
- Increasing the level of crude oil production from 3.2 million barrels per day in 2012 to 9.5 million barrels per day in 2017.
- Increasing exports of crude oil from 2.6 million barrels per day in 2012 to 6 million barrels per day in 2017.
- Increasing the capacity of crude oil export warehousing gradually from 10.987 million barrels in 2012 to 30.057 million barrels in 2017.
- Increasing production of liquefied natural gas (LNG) from 880 metric tons in 2012 to 2,600 metric tons in 2017.
Ports. Iraq’s ports are another point of emphasis due to the country’s strategic location as a bridge between Asia and Europe. The Plan envisions Iraq becoming a major hub in the region and competing with nearby port cities, such as Kuwait City, Dubai and Doha. As part of its strategy to develop these capabilities, the Plan focuses on the Al Faw grand port in southern Basra, due to its immense importance to, and potential to improve, Iraq’s economy.
The Plan seeks to increase the Al Faw grand port’s container port capacity to 3 million tons per year by 2018 and 7 million tons per year by 2038, while also increasing general cargo capacity to 10 million tons per year in 2018 and 40 million tons per year in 2038. As a step to achieve these objectives, the Iraqi government has recently exempted foreign companies involved in the development of the Al Faw grand port from customs duties and various taxes.
Power. Iraq’s power generation capacity is underdeveloped. The Plan aims to raise power production significantly to meet the rising demand in the country. Some of the Plan’s objectives include:
- Increasing power production throughout the Iraqi power grid by increasing production to 25,000 megawatts per annum by 2017, which will exceed expected demand in 2017 by 5,000 megawatts.
- Increasing power consumption for each Iraqi citizen by an average of 1,800 kilowatts per annum in 2012 to 3,700 kilowatts per annum in 2017.
- Repairing and improving the Iraqi power grid to minimize disruptions and improve performance.
Water. A spokesman for the Ministry of Planning indicated that the Plan will increase the country’s water reserve capacity by 22 billion meters squared by sanctioning the construction of large dams, including permanent redevelopment of the Mosul Dam (the largest dam in Iraq and the fourth largest in the Middle East) and increasing water reclamation by 6.25 billion square meters over five years.
The Plan is an ambitious and comprehensive undertaking by the Iraqi government. In rolling out the Plan, senior Iraqi officials have expressed a keen interested in feedback from foreign investors (across industries) on the Plan and on the challenges they currently face doing business in Iraq.