< Back to Iraqi Dinar in the News February 14th, 2010

Najaf airport tussle shows risks in Iraq investing

NAJAF, Iraq — Najaf's airport was meant to be a symbol of Iraq getting back to business, and in many ways it's been a success, creating jobs and spurring a construction craze in the Shiite shrine city.

But an increasingly bitter dispute between local authorities and the Kuwaiti contractor brought in to run the facility is casting a cloud over one of Iraq's proudest postwar accomplishments and prompting accusations of political meddling.

The standoff serves as a warning to other companies considering answering Baghdad's calls to snap up investment opportunities and pump needed development money into the country. It highlights how risks go beyond bombings to widespread corruption, uncertain legal protections and inadequate government oversight.

Najaf International Airport opened a year and a half ago to great fanfare. It was a landmark in developing Iraq's mainly Shiite south, which ousted ruler Saddam Hussein had largely neglected.

Since then, foreign carriers such as Gulf Air have moved in, ferrying planeloads of pilgrims to Najaf, home to some of Shiite Islam's holiest sites. That provides work for locals, including thousands of taxi drivers outfitted with brand new Chevrolet Aveo yellow cabs financed by the provincial government. The boosted visitor numbers have fueled a wave of new building projects in the city.

"The airport changed the landscape of the place," said Nouri Jawad, general manager of Qasr al-Dur, a four-star hotel in the city center.

The airport, which was converted from a military air base, is noteworthy for its normality.

Unlike Baghdad's dated and foreboding departure hall, the compact terminal here is light and airy, evoking the optimism of the booming holy city it serves. Well-heeled visitors from the Persian Gulf dressed in white robes and black abayas stream across the terminal's polished stone floor. A new ATM — a rare sight in Iraq — awaits travelers.

The dispute, however, has left unclear who exactly is in charge.

Najaf's provincial council seized control of the facility last month. It accuses Kuwaiti contractor Aqeeq Aviation of investing only a fraction of the $50 million promised for the airport, forcing the government to pay for some terminal fixtures and leaving the airstrip without adequate navigation and landing equipment.

Aqeeq, a division of Kuwaiti investment company al-Aqeelah, in turn blames the Najaf authorities.

It says it pumped millions into the airport, though it does not claim it paid the full amount. That, it argues, is because local authorities broke the contract at several key points, including failing to turn over administration of most of the airport, such as the new passenger terminal.

Najah al-Balaghi, an Aqeeq executive who continues to list his title as CEO and managing director of the airport, blames the problems on Najaf officials' inexperience working with the private sector and what he calls their "lack of basic knowledge about policies and law."

He said that if Najaf officials believe Aqeeq violated its contract, they should take the matter to court. Instead, they blocked access to the company's local bank account before taking over operations last month.

Political posturing between Iraq's Shiite-dominated parties also plays a role ahead of parliamentary elections on March 7.

Al-Balaghi said his company was caught in the middle when control of the Najaf council shifted to Prime Minister Nouri al-Maliki's party in local polls a year ago and tussling over the airport heated up.

"Both parties in Najaf are utilizing Aqeeq's achievements in the airport and attributing it to their party ... to win more seats," al-Balaghi said.

Enticing foreign investors such as Aqeeq to bet on Iraq's future has taken on increased urgency as security improves and U.S. troops pull out of the country. Iraqi and American officials see foreign investment as vital for rebuilding the country's tattered infrastructure and providing jobs that provide an alternative to violent extremism.

But foreign companies have been slow to arrive in Iraq, which is still plagued by violence that authorities fear could increase as American forces speed their withdrawal after the March elections.

German automaker Daimler opened an office in Baghdad last year, and Lufthansa is planning to resume direct flights from Europe after a 20-year hiatus. Agriculture equipment maker CNH Global has started assembling tractors south of Baghdad.

Iraqi leaders are pushing for more companies to take the plunge. In October, al-Maliki headed a large delegation to Washington to tout Iraq's potential as an investment destination.

For the most part, though, big corporations are keeping their distance or dipping into the Iraqi market via local distributors for now. Even the country's vast oil reserves initially struggled to garner enthusiasm, with Western oil giants balking at the terms of offer for developing some of the fields.

Security is not the only concern. The economy under Saddam was tightly controlled by the state, limiting Iraqi officials' experience with the hard-nosed realities of free-market capitalism. Legal reforms have not kept up with the need for investment.

"I can't say the entire problem is caused by Aqeeq," Fayed al-Shemri, the head of the Najaf provincial council, acknowledged when asked who was responsible for the dispute over the airport. "It's (also) a problem of old laws dating back to the former regime."

A lack of adequate checks and balances to protect both investors and the local population is often a problem in countries racked by conflict, said Robin Hodess, director of policy and research at Transparency International. She said Iraq still suffers from rampant bribery and nepotism, and a shaky regulatory framework.

The anti-corruption watchdog ranks Iraq alongside Sudan near the bottom of its corruption perceptions index, an annual survey of perceived levels of graft. Only Myanmar, Afghanistan and Somalia received lower scores.

Aqeeq's parent company is still deciding whether to fight for its rights at the airport or simply walk away, al-Balaghi said. Either way, he advises caution over putting money into Iraq for now.

"There is huge potential but an ambiguous regulatory and legal framework," he said. "What happened to Aqeeq is likely to happen to any other private potential investor."

Associated Press Writer Sameer N. Yacoub contributed to this report.