niqash | Hayder Najm | thu 11 aug 11
The latest scandal at Iraq’s ministry of electricity involves multi-billion dollar “phantom deals” with a German and Canadian company. The minister of energy has been asked to resign. But the real story is not as simple as it first appears.
As a long, hot summer continues to overheat the citizens of Baghdad, one of the government ministries that could alleviate some of their pain is in the spotlight once again. With the latest scandal at the Ministry of Electricity, which will most likely result in the dismissal of the current minister, it seems that this government department deserves to sit atop the list of most corrupt government institutions in Iraq.
Despite an ever-changing roster of ministers since the new Iraqi government was formed in 2003, nothing has really changed in terms of electricity supply in Iraq. Most Iraqis still only get a few hours of electricity a day, most local power is currently supplied by the independent owners of generators and Iraqis continue to suffer without their refrigerators and air conditioning in the 50 centigrade-plus summer heat. In fact, during popular protests earlier in the year, a better electricity supply was one thing all the crowds demanded.
Those earlier protests saw the resignation of Karim Wahid the former minister of electricity. And now, after only six months in the job, the next minister also appears to be being forced out of this difficult job.
The latest scandal involves what are coming to be known as the “phantom deals”. How much of the deals really are phantoms and how much is real still appears to be up for debate.
Early in July the Electricity Minister Raad Shalal signed two deals, worth close to US$2 billion in total, for the building of power plants and infrastructure. According to some politicians though, the companies he signed the deals with did not actually exist. One of the companies was a German one, Maschinenbau Halberstadt (MBH) and the other was a Canadian firm, the Canadian Alliance for Power Generation Equipment Inc (CAPGENT).
MBH was awarded a contract worth US$623 million to build five power plants in the Ninawa province within a year’s time. Capgent’s contract was for just over US $1.2 billion and they were assigned to build ten power plants in Iraq in the provinces of Anbar and Salaheddin, also within 12 months.
The value of the two contracts amounts to a significant percentage of the money spent on the reconstruction of power production in Iraq over the last eight years, since the US-led invasion of the country which toppled former Iraqi leader Saddam Hussein’s’ regime in 2003.
However over the past week, suspicions began to be cast upon the two companies with whom the Iraqi minister of energy had signed deals. The Canadian Capgent was said to exist on paper only and the German MBH was allegedly a bankrupt firm owned by Lebanese shareholders. Iraqi Prime Minister Nouri al-Maliki apparently ordered the two contracts annulled and demanded that Shalal resign.
Suspicions about the two companies were first raised by Jawad Hashim, a former Iraqi minister of economic planning under Saddam Hussein’s regime, who immigrated to Canada in 1982. Hashim heard about the deals and began making enquiries into Capgent, which only took the name Capgent and began calling itself “a leader in thermal and diesel power plant construction” after May of 2011. He then wrote to al-Maliki’s office of his suspicions that the operation was a bogus one.
Al-Maliki wrote to his electricity minister asking him to justify his decisions on what were already being called “the phantom companies”. Al-Maliki's media advisor, Ali al-Moussawi, told NIQASH that the past week has brought no response from Shalal. “So Al-Maliki ordered the dismissal of the minister because he did not respond to his inquiries,” al-Moussawi said. The media adviser also stressed that the decision was final but that any resignation also needed to be accepted by the Iraqi parliament.
News agency AFP reported that at a news conference on Monday the Deputy Prime Minister for Energy Hussein al-Shahristani said that Capgent was "a company on paper only" and MBH was bankrupt and facing legal trouble. Apparently there had been no loss of public money though because the contracts signed with both companies stipulated that they would be paid after the work was completed.
However whether those allegations about the “phantom companies” are completely true is uncertain.
It is true that MBH was declared insolvent by a German court early in 2011 and their management was handed over to insolvency management firm Mueller and Rautmann, also of Germany, with offices in Halle, Hannover and Magdeburg. But the insolvency was certainly not hidden: it was announced in local media.
In a mid-May press release issued by Mueller and Rautmann, the insolvency administrators reported that the firm would continue to operate. Creditors at a meeting had been satisfied and MBH’s liabilities would be paid, with the help of the Sakr Group in Lebanon, who had investments in the firm. Only 14 employees would be made redundant and MBH’s own website announced a restructuring. Contacted by NIQASH on the phone, a representative at MBH in Magdeburg said the company currently had no comment to make on the situation but that MBH did still exist and was still “a working company”.
Meanwhile the allegations about Capgent were investigated by a business columnist, David Baines, of Canadian daily, the Vancouver Sun. Although the company's website has no phone number and its physical address is that of its lawyer's Vancouver office, Baines managed to interview Muhannad Samara, the managing director of the company, who is an Iraqi with Canadian citizenship based in Jordan.
Baines queried the company’s founding as well as Samara’s credentials – he is an immigration consultant supervising a power plant construction company and the company is indeed more like a consultancy, only existing on paper. Samara said that Capgent worked with partners in the Middle East but declined to give any details about the primary shareholders in the company or which Iraqi contractors were being enlisted to work on the power plants for, he said, “security reasons”.
And he said that he was puzzled by the allegations of fraud as Capgent would be “responsible for financing the proposed power projects, and the Iraq government is not required to make any payments to the company until they are up and running”. Additionally Samara said Capgent had yet to hear from the Iraqi government that the contract had been cancelled; the Vancouver Sun story was published August 10.
Eventually Baines - the newspaper’s prize winning business columnist, described as “uncovering white collar crime, stock fraud … for 23 years” - concluded that he could understand why both the Iraqi man in Vancouver who had raised the alarm and the Iraqi government were suspicious of Capgent and had reacted so strongly. “On the other hand,” Baines wrote, “Samara made himself available to me and responded to my questions in a very straightforward manner.”
According to information received from the Iraqi ambassador in Canada, who was asked to investigate the contracts: “the two companies do not meet the financial and technical capabilities to qualify as manufacturers for this type of project and thus they are unable to fulfil their contractual obligations.”
Iraq’s electricity problems started over two decades ago in the 1990s when after the country invaded Kuwait and were in turn, attacked by US-led forces, much of the electrical infrastructure was damaged. As the Washington Post reported in 1991, targeted bombing of substations and other power generating infrastructure was a deliberate tactic to “ create post war leverage over Iraq. Planners now say their intent was to destroy or damage valuable facilities that Baghdad could not repair without foreign assistance”.
While electricity supply had never been optimal in Iraq, after the Gulf War it was even worse. As planned by US military strategists, economic sanctions made repairing the Iraqi grid difficult, if not impossible. During Saddam Hussein’s rule, Baghdad often got priority in terms of the hours of electricity the city had. But since 2003, almost everyone has suffered equally from shortages, unplanned power cuts and drop outs. Many homes only get two to four hours of electricity a day.
And despite the millions spent by foreign aid and investment agencies, despite the game of musical chairs played by Iraq’s ministers of electricity, power supply does not appear to have improved at all. In fact, blaming former ministers of electricity, who usually leave Iraq immediately after they resign or are dismissed, has become common practice for the new ministers of electricity.
The chair has been occupied by three ministers in the recent past and all of them have either been accused (and even convicted) of corruption or, in Wahid’s case, resigned amid a growing onslaught of criticism.
The mudslinging in this case has already started. Shalal, previously a high ranking manager in the oil industry, is an independent MP and part of what is known as the ‘Solution’ political party. Solution is affiliated to the Sunni Muslim-backed Iraqiya bloc, which is led by former Iraqi Prime Minister Ayed Allawi, who is considered to be the main political rival of the current Prime Minister al-Maliki. And it was the opposition Iraqiya bloc that nominated him for the job of electricity minister.
The recent news has seen the Solution party crying foul, saying that they will take legal action and that their members will not be subject to a trial by media. They also believe that the calls for Shalal’s resignation may have been a premeditated and politically motivated decision, coming as it did two days after Friday demonstrations on the subject.
Of course, unfortunately none of this is new to Iraq. Although the need for a steady supply of electricity are urgent, nearly all of the deals made for the swift building of power plants and the reconstruction of a national grid seem to be in limbo, stuck in a bureaucratic, political or financial mire. And all the while, for the average Iraqi on the street, the summer of 2011 just keeps getting hotter.