tug-o-war

Hopes of Siemens' Iraq deal shrink as US steams in

IRAQ-SOCIAL-UNREST-ELECTRICITY
This summer in Baghdad. Source: AFP

A month ago, Siemens was set for one of the biggest deals in its corporate history. CEO Joe Kaeser journeyed to Baghdad to meet the Iraqi prime minister, amid strong rumors of a €13 billion ($15 billion) deal to modernize the country’s electricity system.

On Saturday, Mr. Kaeser returned to the country to sign a “landmark” agreement. “A milestone for the new Iraq,” he announced triumphantly. Siemens signed a preliminary agreement to add 11 Gigawatts to Iraq’s power infrastructure.

Unfortunately there was a catch. On the other side of Baghdad, the Iraqi government was signing another multi-billion dollar deal to modernize the electricity system, with Siemens’s arch-rival General Electric (GE). GE announced that it had a deal to add 14GW to Iraq’s warn-torn grid.

There has been speculation for the last month about whether Siemens or GE would win a contract from Baghdad. Reportedly, rumors suggested that the latter was ahead in the bidding. Now, it seems, Baghdad is two-timing the industrial giants, keeping its options open. Both agreements, Handelsblatt has learned, are non-binding declarations of intent: nice words, but no commitments.

It seems that no one single company will win the massive prize of modernizing Iraq’s electricity system, shattered by decades of war. But GE may well be in the stronger position. In recent weeks, as Siemens appeared to pull ahead in the race, the US government exerted massive pressure behind the scenes.

Blood in the ground

“It really became a different ball game,” said one industry source. With American blood in the ground and thousands of US troops still stationed in the country, Washington was in no mood to see a European company win a Iraqi infrastructure project of this size. Promises of federal financing guarantees are said to have been extended to GE.

GE also enjoys practical advantages. US industry sources say Iraq wants to see immediate improvements. Baghdad fears electricity shortages next summer, a possible source of unrest. With 60 percent of the country’s electricity system already using its technology, GE says it can make an immediate impact.

The German government strongly backed the Siemens bid behind the scenes, with Chancellor Angela Merkel telephoning the Iraqi prime minister, and German ministers accompanying Mr. Kaeser on his trips to Baghdad. It was all meant to be an example of German soft power in full effect. But Mr. Trump’s arm-twisting may prove stronger than Berlin’s charm offensive.

Siemens still has hopes of a lucrative deal. Two years ago, the company concluded a wide-ranging “energy partnership” with Baghdad, developing a comprehensive energy plan to develop the electricity system.

Mr. Kaeser says this “road map” will bring immediate improvements to the lives of hundreds of thousands of Iraqis. Within four years, eleven extra gigawatts would bring reliable power to 23 million people.

Siemens is betting on the breadth of its services: the German company wants to plug gaps in the electricity network with mobile transformer solutions, and by connecting the country to neighboring electricity networks using high-voltage direct-current transmission lines. Both companies in the running also propose using gas that’s usually flared in oil fields to support the electricity generation. Gas is burned at present because Iraq lacks sufficient infrastructure to make use of the fuel.

There should be plenty of business available: it will cost $150 billion to rebuild Iraq, according to an assessment by the World Bank. Fixing the power infrastructure is particularly important to Baghdad, given the heat in the summertime that has triggered unrest as people suffer in the absence of air conditioning.

In recent years, Siemens built three large power plants in Egypt in record time, and seeks to expand its involvement in international infrastructure mega projects. Hope springs eternal.

Axel Höpner is head of the Handelsblatt’s Munich bureau, focusing on Bavarian companies, including Allianz and Siemens. Dana Heide is a political correspondent for Handelsblatt in Berlin. Allison Williams contributed to this story. To contact the authors: hoepner@handelsblatt.com, heide@handelsblatt.com

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