Middle East power

Siemens closes in on massive Iraq deal

Siemens: Ready to solve Iraq's messy power problems. Source: AFP

German engineering conglomerate Siemens is nearing a massive contract to boost the country’s power generation infrastructure, Handelsblatt has learned.

Siemens chief Joe Kaeser met with the Iraqi prime minister, Haider al-Abadi, in Baghdad on Sunday to discuss the details of the deal, thought to be worth between €8 and €13 billion ($11.75 – $15.25 billion) and consisting of numerous smaller projects. They would involve partnerships with local contractors, which would receive part of the sum.

Mr. Kaeser’s meeting came after German Chancellor Angela Merkel had put in a special call to Mr. al-Abadi in support of the deal, government sources told Handelsblatt. A senior official in the economics ministry joined Mr. Kaeser to Iraq and Ms. Merkel’s government has also promised extensive export credit guarantees.

If successful, the contract will be one of the largest in the company’s history. Mr. Kaeser and Mr. al-Abadi did not sign a final deal on Sunday but industry sources say the talks stand a good chance of a successful conclusion in the near future. Mr. Kaeser called it a “very constructive” meeting.

“We made a promise to the Iraqi people and will deliver on that,” Mr. Kaeser wrote on Twitter several days ago. The Siemens deal would see the company add another 11 Gigawatt to Iraq’s power production capacity, provide infrastructure to transmit electricity, and offer as many as 60,000 new jobs in Iraq as well as training opportunities. The projects would reliably provide power to 23 million people.

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Siemens’s Iraq project would be a follow-up to recent successes in Egypt, where the company built three large power stations in fewer than 28 months, enough to ensure a reliable supply of electricity to 40 million people. The Egyptian plants can generate 14.4 Gigawatts of power and is thought to have been worth around €8 billion, a substantial boost to Siemens revenues.

Mr. Kaeser has also been keen to emphasize the Egyptian project’s strategic benefits: It solidified Siemens’s expertise in large-scale international infrastructure projects, paving the way for deals like this one in Iraq. It also saw Siemens win out over American arch-rival General Electric, always a satisfying achievement for the Munich-based company.

If it goes ahead, the Iraq project would present a fresh set of challenges. The Egyptian power plants were built from scratch, with brand-new technology on new sites. By contrast, much of the work in Iraq will involve repairing and extending existing infrastructure, working with local partners on a larger number of smaller projects.

Mr. Kaeser claims the breadth of Siemens’ operations makes it a good match for a system in need of widespread improvement, like Iraq’s. The company already has service contracts for six Iraqi power plants and signed a wide-ranging energy partnership deal with Baghdad two years ago, largely focused on energy planning and consulting. Now Siemens could bring the plans it consulted on to fruition.

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Negotiations for infrastructure investment are deeply political, as the Siemens CEO is all too aware. Mr. Kaeser has frequently accompanied Ms. Merkel and her foreign ministers on visits overseas, including to China, India, Mexico, Saudi Arabia and Argentina. He once told Handelsblatt: “Many of Siemens’s infrastructure contracts are influenced by state actors. So for business reasons, it is crucial for us to dialogue with political decision-makers.”

Mr. Kaeser also stresses the social benefits Siemens can create with infrastructure projects, boosting the company’s “social impact.” The Siemens CEO is an astute political thinker, who frequently argues that companies must create wider social value to justify their existence. That attitude is something that can also help attract and retain young talent, who are often inspired by values other than money. In this sense, building infrastructure in Iraq is a good look for Siemens, in addition to boosting its earnings.

Sven Afhüppe is the editor in chief of Handelsblatt. Axel Höpner is head of the Handelsblatt office in Munich, focusing on Bavarian-based companies, including Allianz and Siemens. To contact the authors: afhueppe@handelsblatt.com, hoepner@handelsblatt.com

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