Q: One inadequacy of the current financial services framework in Iraq is that Iraqi companies have trouble getting letters of credit to sell their goods internationally. What's on offer currently? And do you see any development in that area?
A: The letters of credit are one of the most important issues for Iraq to deal with. In 2009, [the Trade Bank of Iraq, or TBI] issued more than $10bn in letters of credit. Other banks are doing the same. Most of the letters of credit are for imports other than oil and certain other products, whereas there is very little export outside of oil.
Back in 2003 the only way to finance trade was to trough the oil-for-food programme; now we see that we are back issuing letters of credit, except for oil. So that's big progress. Also the letters of credit were the biggest business, at least for trade banks. Before, Iraq was mostly importing goods and services and exporting oil. Now, there is a bigger trend to investments.
We see big projects for both the public and the private sectors, especially in the oil and power sectors. There are electric power stations being set up by the private sector mostly in the north, where there are about 2000 megawatts of power plants in the final stages. There are 1300 already operational and another 700 coming this year. This is mostly in Kurdistan. There is also a new project where the ministry of electricity will provide General Electric and Siemens with turbines that it has purchased for the private sector to build and operate these power plants. So within two or three years there will be more power plants generated by the private sector than the state. This is an important thing.
Also, Iraq has signed the second round of oil licensing agreements. So now we see that the private sector is benefiting from these contracts by providing services to the major oil corporations that actually won the licence round. So project finance is going to be critical this year, next year and in the future.
Q: Do you think there will be adequate project finance available? Do the banks seem willing to finance the necessary projects?
A: This is a good question and that's why at TBI we are now working with regional and international banks to be able to help to finance these projects. We are talking to multilateral agencies as well as export credit agencies and banks - national and regional banks. We are already talking to them and we have identified three projects on which we are working now. But there is a huge number of projects and basically nobody can finance all these projects, but at least the first steps have been taken to put Iraq back in the project finance arena.
Q: Do you find that many of the banks and companies have just been waiting to see what kind of government forms (following the elections in March 2010)?
A: The companies that are already in Iraq are working. It might take some time for the government to be formed, but we don't see that there will be any major changes in the policies of the government. Iraq is on track. For companies that have not started, they might be waiting. But definitely, I can tell you that the oil companies are not waiting. We can see that they are investing and signing contracts to develop the oil fields.
We see the major oil companies coming and the services we are providing them will be important. We are working very closely with other private banks and government banks and we are making sure that the banking industry as a whole gets upgraded and that we can provide the necessary services. There are already some foreign banks operating in Iraq - such as HSBC - and regional banks that will start to be more active, hopefully.
