World Bank guarantee arm MIGA visits Iraq
WASHINGTON (Reuters) - The World Bank's private sector guarantee arm has visited Iraq, signaling to the Iraqi government interest from international firms and the need to move quickly to lay the groundwork for investors to go in.
During six years of war in Iraq investors have waited patiently for signs that the country is ready to accept increased foreign investment.
"We have real expressions of interest in Iraq," said James Bond, chief operating officer at the Multilateral Investment Guarantee Agency, or MIGA, who was part of the delegation that traveled to Baghdad last month.
"We have several companies talking to us closely about Iraq," Bond added.
"There is a firm interest in not-so-critical areas and a huge interest in what everyone sees, both the government and investors, as having huge potential, which is oil, gas and electric power sector," he said.
However, he said enthusiasm has been tempered by investor concerns over how secure their investments will be in a country where the political and security environment is still fragile.
In addition, there is nervousness about the outcome of Iraqi elections in December and planned withdrawal of between 92,000 and 107,000 U.S. troops over the next 18 months.
In many ways that is why MIGA was established in 1988 -- to promote foreign direct investment in developing countries by guaranteeing the safety of projects through political risk insurance.
Bond said the World Bank delegation had pressed the Iraqi government to resolve an impasse over an oil law, which is needed to fully exploit Iraq's vast oil reserves and rebuild after years of war.
Oil companies hope the law will define the distribution of oil revenues between the provinces and the central government, and also permit production-sharing agreements.
Especially sensitive is a Kurdish quest for control of disputed areas like the strategic oil city of Kirkuk, which they see as their ancestral homeland and want to include it in the semi-autonomous region of Kurdistan.
While upfront investment costs of going into Iraq could be heavy, Bond said pay back of investment could be rapid, for example within 18 months.
"These are not your conventional projects with a 15-year pay out," he said.
Even as violence drops sharply in Iraq, the wave of foreign investment that U.S. officials envisioned after the 2003 invasion to oust Saddam Hussein has not yet materialized.
Much of Baghdad remains in tatters while major infusions of cash -- along with expertise and technology -- are needed across the country to modernize roads and hospitals, create jobs and fend off renewed violence.
While security concerns have kept away investors for most of the war, there are also concerns about an untested legal framework for investors and a thick, often unwieldy bureaucracy.
Investment is taking place in the oil sector, the jewel of the Iraqi economy, and the government has offered long-term contracts to the world's biggest oil firms.
Yet even there, insiders have privately complained of unfavorable terms of those contracts and doubts about making multibillion investments in the absence of national oil and gas legislation.
"The business climate is not yet there," Bond said. "The two big things we have to wait and see is the reduction in U.S. troop numbers and the outcome of elections."
"All of MIGA's instruments would be very applicable here in the Iraqi context and we would price it appropriately, Bond added.
Last week, MIGA extended its coverage to include guarantees for investors who are hesitant to commit to projects because they fear lengthy arbitration if a government should fail to honor a contract.
Among other changes, it has also extended its breach of contract" coverage to credit-worthy state-owned enterprises whose obligations the government may not be legally liable for but are still controlled by the state.
(Additional reporting by Missy Ryan in Baghdad)
(Reporting by Lesley Wroughton)
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