STX Heavy faces contract breach in Iraq

Company reviewing contract on whether Iraq can legally retract accord on plant


STX Heavy Industries is in danger of losing a 3 trillion won ($2.8 billion) plant construction contract in Iraq due to political turmoil in the Middle Eastern country, industry sources and news reports said Monday.

STX, whose main area of expertise is manufacturing ship engines, said it was looking into the situation. It also tried to dispel the concerns, saying that the company’s business abilities have not been called into question.

“The core of the recent problem is the political situation in Iraq,” said Choi Gun-young, a spokesman for STX.

He added that the company is reviewing the contract, including whether or not there are legal grounds allowing the Iraqi government to pull out of the deal for the reasons it is citing. 

Reuters reported that on Sunday, a spokesman for Iraq’s Electricity Ministry warned that STX may lose the deal if it fails to produce a third-party guarantor within the next three months.

The Iraqi official indicated that without the required documents, the Iraqi Cabinet may not endorse the contract.

STX claims that there had been no such clauses in the initial contract, and that it had not received any “formal” notifications from the Iraqi government regarding a possible retraction.

The contract STX signed was with former Electricity Minister Ra’ad Shalal al-Ani, who was recently dismissed by the Iraqi government just six months into his term.

The minister’s dismissal was linked with a move by the Iraqi government to cancel a combined $1.7 billion contract with Canadian and German companies.
 
Iraqi Prime Minister Nouri al-Maliki and his deputy prime minister for energy affairs, Hussain al-Shahristani, have told the Iraqi state media that the ouster was due to allegations of corruption involving the two foreign firms.

But there may be more to the electricity minister’s ouster, according to those close to the matter.

This is because the incumbent prime minister reportedly regarded Shala al-Ani, a high-profile politician, as competitor because he received the support of former prime minister Ayad Allawi who was al-Maliki’s political rival.

The deal with STX, signed under the former electricity minister, therefore, may also be used as a tool by the current government to further push the former premier into a corner.

In May, STX Heavy Industries signed a contract with the Iraqi government for building 25 diesel energy plants of 100 megawatts each in Iraq including in the major cities of Baghdad and Basra.

STX has recently been looking to diversify its portfolio by branching out into the industrial plant business. In 2008, it secured a cement plant project in Jordan.

By Kim Ji-hyun (jemmie@heraldcorp.com)