UK: Investing in Iraq's Power Sector

Last Updated: 12 August 2010
Article by Vivek Gambhir and Hussain Kubba

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

The proposed IPPs are planned for development in Samawa, Amara , Basra, Shat al Basrah 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 procured by the Electricity Ministry in 2008.

This new generation will be 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 to meet both existing demand and the explosive growth in demand that has been brought about by increasing access to consumer goods.

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.

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.

For more information on establishing companies in Iraq see our previous Law-Now on  Incorporation Options in Iraq and  Iraqi Mixed Companies: Corporate Issues.

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 Licences are exempt from taxes and fees for 10 years
  • 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 nationalisation 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

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 06/08/2010.

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