* Iraq orders electricity minister out - source
* Government cancels two contracts, reviews Korean deal
(Adds reaction from electricity official)
By Waleed Ibrahim
BAGHDAD, Aug 7 Iraqi Prime Minister Nuri
al-Maliki has dismissed his electricity minister after the
government said an investigation had uncovered irregularities
in power contracts with two foreign companies, a source in
Maliki's office said on Sunday.
The electricity ministry also said it had asked the cabinet
to rule on a $2.76 billion power plant construction contract
with a unit of South Korea's STX Group after saying the company
risked missing a deadline to meet one of its contract terms.
The dismissal of Electricity Minister Raad Shallal, which
under Iraqi law parliament has to approve, could complicate
urgent government efforts to bring in investors to tackle
chronic electricity shortages that infuriate Iraqis looking to
rebuild their economy after years of war and sanctions.
"The prime minister has ordered his resignation and now the
parliament should vote on it," the source in Maliki's office
A government ombudsman said on Saturday that Iraq had
cancelled power plant contracts worth $1.7 billion with a
Canadian and a German company after finding "manipulation and
misleading information" about their finances or their ability to
carry out the work.
"The electricity ministry ordered these contracts cancelled
immediately. There was no financial loss because payments were
over the long term," said the statement from the office of the
inspector general, an ombudsman that oversees the ministry.
"Our investigation... discovered manipulated and misleading
information in the documents that the two companies delivered
about their legal and financial status and their technical
capabilities," it said.
But a senior official in the electricity ministry defended
the contracts as valid and said the companies had agreed to
build with favourable conditions for Iraq, given that security
worries kept some larger companies away for now.
"These contracts are well organised and have no risk to the
Iraqi side... they are with staggered payments, the first is 45
percent after a year of the start of operating and 50 percent
after two years," said the official who asked not to be named.
One of the contracts was with Canadian company CAPGENT to
build 10 power stations and the other with a German company
called MBH, said Musab al-Mudarres, a ministry spokesman.
A call to CAPGENT in Canada did not get through. MBH did not
immediately respond to emails and telephone calls.
Dismissing the electricity minister could have a political
fallout. Shallal belongs to the Sunni-backed Iraqiya faction
which accuses Maliki of not living up to a power-sharing deal
among Shi'ite, Sunni and Kurdish political blocs.
Investment in Iraq is growing as violence ebbs eight years
after the U.S.-led invasion that toppled Saddam Hussein. But
corruption, inefficiency and red tape from a still highly
centralised state bureaucracy are often criticised by investors.
In May, STX Heavy Industries, part of South Korea's STX
Group, signed a deal to build 25 power stations with a total
capacity of 2,500 MW across Iraq, including Baghdad and Basra.
Electricity ministry spokesman Musab al-Mudarres said the
South Korean company was running short of time to find a third
party financial guarantor, a condition of its contract.
"We have put the contract before the cabinet and it will
take a final decision regarding the contract, whether to cancel
it or not," Mudarres said.
Mudarres said contracts with international companies allowed
them three months to finalise all required documents, including
finding a third-party guarantor. "Nothing has been officially
confirmed yet," said an STX Group spokesman, without
Iraq's war-battered national grid supplies less than half of
the OPEC member's 15,000 MW peak demand during the summer when
temperatures can exceed 50 degrees Celsius.
As a result, Iraqis receive only a few hours of power a day
from the national grid and are forced to rely on private
generators in their neighbourhoods and homes. The shortages were
a major complaint at nationwide protests earlier this year.
(Additional reporting by Ju-min Park in Seoul and Aseel Kami in
Baghdad; Writing by Patrick Markey; Editing by David Stamp)