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Iraq's Power Sector- a good investment

As part of its plans to modernize and develop Iraq’s power infrastructure, the Iraqi
Electricity Ministry has recently invited bids to build, own and operate five new
independent power plants (IPPs) to be developed across the country.

The proposed Power Plant Sites are to be developed in Samara, Asmara , Basra, Shat
al Basra and Diwaniya and should add a generating capacity of nearly 3,250MW. It is
anticipated that winning bidders will be selected by the end of 2010, with contracts
being signed by January 2011. The IPPs will be based on GE turbines already
purchased by the Electricity Ministry in 2008 and kept in storage.

This new power capacity will be developed on top of 10 other plants that will be built on
an engineering, procurement and construction (EPC) basis, with a planned capacity of
over 6.9GW, based on Siemens and GE turbines also procured by the Electricity
Ministry in 2008. This substantial increase is planned in order to meet both existing
demand and the sustained growth in demand brought about by the increasing sales in
the consumer goods fields.

Daily demand for electricity in Iraq is currently 13,000MW, while Iraq’s generating
stations are currently able to supply only 7,000MW. The Iraqi government hopes to
attract US$27bn of investment to double its generating capacity within an aggressive
six-year timeframe. Investment will not be limited to generating capacity as transmission
and distribution grids will also need considerable investment with new capacity coming
online; currently the Iraqi transmission grid is only able to carry 8,000MW.

Recent news that Iraq’s Ministry of Oil will temporarily oversee the Electricity Ministry
bodes well for investors looking to participate in Iraq’s power sector.  The Ministry of Oil
has successfully awarded contracts to 10 consortiums within a 12 month period last
year, all through a public bidding process.
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Incorporating in Iraq

International investors looking to enter the Iraqi market will have to consider how to
structure their operations. Those wishing to invest have a number options on
establishing a company presence in Iraq, the most common of which are either
registering a branch company or establishing a limited liability company.

In the early days, many of the foreign companies setting up in Iraq did so as branch
offices, such branch companies offering them certain benefits such as speed, reduced
corporate reporting requirements and potential tax advantages for the home company.
However, recent regulations now require that a company establishing a branch office
have a contract with a term of at least six months with the Government of Iraq or a
governmental entity in Iraq. Therefore, new entrants to Iraq without any such
governmental contract are increasingly taking the incorporation route to establish
themselves in Iraq.

Limited liability companies are the most common method for a foreign investor wishing
to establish a company in Iraq. Private limited liability companies require a minimum
share capital of 1m IQD (less than €700) and offer limited liability to small groups of
investors. There are other options companies may wish to consider depending upon
their business operations in Iraq, such as Joint Stock Companies and Mixed
Companies. Joint stock companies allow shares to be publicly offered to an unrestricted
number of individuals on a limited liability basis.

Mixed companies are formed with governmental persons having a minimum 25%
ownership, and are subject to specific rules, e.g. in relation to share subscription and
appointment of board members. Mixed companies could be incorporated as a joint
stock or limited liability company, yet, in practice, it is more common to establish mixed
joint stock companies rather than mixed limited liability companies.

Investment Incentives

Investing in Iraq is regulated by the Investment Law (No.13) 2006. This law offers
considerable potential benefits to those looking to invest, principally:

 Investors are free in principle to transfer capital and revenue out of Iraq
 Rights to bring in non-Iraqi workers where domestic skills are unavailable
 Projects with Investment Licenses are exempt from taxes and fees for 10 years
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 Imported assets and associated parts will be exempted from fees if bought in
within 3 years of approval
 The right to ‘lease’ the land required for the investment project for up to 50 years,
which can be renewed beyond the 50 years
 Investors may choose to operate bank accounts in whichever jurisdiction they
choose
 Affirms that confiscation or nationalization may only be made by a final court
ruling

However foreign investors should also be aware that investment regulations made
pursuant to the Investment Law require a minimum level of capital expenditure of US$
250,000 by foreign investors.

Iraq has also passed a Free Zones Law (No.3) 1998 demarking certain areas as free
zones with the following benefits for potential investors in these zones:

 Goods imported and exported from Free Zones are exempt from all taxes and
duties (certain exceptions may apply)
 All capital, interest and income generated by projects located in the Free Zones
are exempt from taxes and duties throughout the project timeline
 There are currently Free Zones in (1) Basra/Khor Zubar, (2) Ninevah/Flaifil and
(3) Al-Anbar/Al-Qaem

Sept. o8.2010

Mircea Halaciuga,Esq.
+4072458.1978
http://halaciuga.webs.com/