Economy Update – Baghdad
The Iraqi Ministry of Justice has announced a significant arbitration ruling that favors Iraq in a billion-dollar dispute against the German company AHG. This case traces back to 2020 when AHG filed a claim with the International Centre for Settlement of Investment Disputes (ICSID), asserting that Iraq owes compensation exceeding one billion dollars due to the alleged confiscation of production operations at a licensed cement factory.
In its lawsuit, which challenges the licensing agreement between the parties as well as various Iraqi investment laws and agreements, AHG has engaged a team from K&L Gates located in New York, Berlin, and the UAE. As of now, Iraq has not appointed any external advisors to address this matter.
This recent development is not the first instance of foreign investment disputes involving Iraq. In February 2017, Aguilletti, another foreign investor, lodged a similar arbitration request with ICSID after an administrative decree from the Ministry of Trade and Industry in Erbil transferred ownership of a French government-held investment to private Iraqi individuals, namely Sirwan Saber Mustafa, Chaoshin Hassan Shauhin, and Jiksi Hamo Mustafa.
Aguilletti’s case focused on allegations that Iraq failed to meet its obligations under a mutual investment encouragement agreement signed between Iraq and France. The dispute also involved claims of governmental appropriation of Aguilletti’s investments in the Iraqi telecommunications sector. According to reports, AHG’s investments pertain to a cement factory in Kirkuk, which despite being built in the 1980s and operating at only 25% of capacity at the time of license acquisition in 2008, underwent significant rehabilitation efforts funded by the German company.
As one of the earliest investors in Iraq post-2003, AHG claims it was motivated to invest in the Kirkuk Cement Factory based on assurances from the Iraqi government regarding adequate protections for foreign investments. However, just three months following the granting of the license, the Iraqi officials expressed concerns about project delays, despite an agreed rehabilitation timeline of three years.
By January 2009, during the rehabilitation period, the Iraqi government allowed only 11 days for the German company to address the issues raised. Failure to do so would result in a two-million-dollar credit being placed in a black list, preventing further operations in Iraq. Subsequently, the Iraqi government revoked AHG’s license and initiated litigation to enforce certain financial claims.
After a protracted legal battle spanning six years, an Iraqi appellate court ruled in favor of AHG, concluding that the government’s claims of delay lacked substantiation and that the proposed rehabilitation timeline was reasonable. Following this ruling, both parties agreed to retract their legal proceedings and restored AHG’s license to continue its work at the Kirkuk Cement Factory.
Nevertheless, AHG asserts that the Iraqi government again failed to uphold its commitments. The German company claims that, in March 2017, an armed seizure occurred at the cement factory, leading to arrest warrants for its senior officials. They further reported that by January 2018, their 51% share in a local partnership established to operate the Kirkuk Cement Factory was illegally confiscated through an alleged court order, which erased AHG from the ownership records.
Following their removal from the facility by a faction of the Iraqi army in April 2017, AHG initiated conflict notifications against Iraq in November 2018. Despite efforts for resolution, including discussions in Istanbul, no amicable settlement was reached.
AHG demands compensation of over one billion dollars from the ICSID due to the financial losses incurred from these actions taken by Iraq.
While a bilateral investment treaty exists between Germany and Iraq that includes an arbitration clause enabling ICSID involvement, the German government has yet to ratify this treaty, pending approval from the European Commission. Nonetheless, AHG contends that Iraq accepts arbitration governed by the 2006 Investment Law (which allows added benefits to investors per international agreements) and acknowledges that the licensing regulations related to the Kirkuk Cement Factory dictate that disputes be resolved through arbitration.
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