Lack of Iraq government seen frustrating foreign investors

BAGHDAD (Reuters) - Foreign investors eager to win contracts to rehabilitate Iraq's idle factories are delaying decisions due to a lack a government five months after an election, a deputy industry minister said on Tuesday.

Iraq is trying to shake off the legacy of years of violence, sanctions and economic decline by opening up its financial and industrial sectors and luring foreign investment and expertise to help it rebuild.

The country's Ministry of Industry and Minerals said it was in talks with many foreign firms to rebuild its factories.

"Unfortunately, the delay of the formation of the Iraqi government has negatively affected the process of investment, and in attracting investors to the Iraqi market," Adel Karim, a deputy minister of industry and minerals, told Reuters.

Iraq's political factions have been locked in fruitless talks to form a new government since the March 7 general election produced no outright winner. That has raised fears of a return to widespread violence and alarmed investors.

Despite the political stalemate, Karim said the ministry had awarded the rehabilitation of a cement factory in northern Iraq to a Turkish company.

The factory, which lies in the town of Sinjar, 390 km (240 miles) northwest of Baghdad, within the restive Nineveh province, was set up in the 1980s and designed to produce 2 million tonnes of cement annually. It currently only produces a quarter of that level.

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Karim said the contract, in which 36 percent of revenue will go to Iraq under a production-sharing deal, would be signed within days. The Turkish firm is expected to spend at least $150 million over the next 30 months to get the factory up to its designed capacity.

"This confirms that Iraq is an investment attracting country. The investment revenues are huge, which makes them (investors) put aside the security issue," said Karim, adding he expected many more investors once a government had been formed.

Earlier this year, the ministry awarded a $200 million contract to France's Lafarge SA for Kerbala cement factory.

Many of Iraq's 240 factories were looted in the aftermath of the 2003 invasion, or are outdated or located in areas still controlled by Islamist insurgents. Sectors open for investment range from construction, engineering, petrochemicals and fertilizers to food, drugs and textiles.

Oil the mainstay of the Iraqi economy and Baghdad awarded a series of oilfield development contracts last year to major firms such as Shell and BP.

Karim said the ministry increasingly wanted to implement production-sharing agreements as it looks to privatize more of its factories.

Production-sharing deals would help the ministry move toward privatization of factories while ensuring workers and technicians are not dismissed, Karim said. Iraq's official unemployment rate is 18 percent.

"The administration of the companies and factories should be run by the private sector and the owner and trader should be from the private sector," he said. "The state has been an unsuccessful trader."

(Editing by Serena Chaudhry and Jon Hemming)