As Iraq embarks on infrastructure reconstruction unprecedented for decades, the Trade Bank of Iraq (TBI) is leading the way in financing the Iraqi government’s mega-sized contracts.

In April last year, the Iraqi Ministry of Electricity, through the Trade Bank of Iraq, issued a documentary letter of credit (LC), to cover the cost of a power contract signed with GE Energy, a leading supplier of power generation and energy delivery technologies.

Previously, in December 2008, the Iraqi Ministry of Electricity had announced its agreement with GE Energy to purchase power generation and equipment services valued at nearly US$3bn.

The announcement was a significant milestone in Iraq’s economic development, as the country seeks to rapidly develop its energy infrastructure and increase its electricity production.

Under the agreement, GE Energy is providing heavy-duty frame 9E multi-fuel gas turbines capable of supplying 7,000 megawatts (MW) of electricity. The government of Iraq plans to install the units at key sites around the country to provide support for the electricity grid. This will improve the country’s power stability and help to address electricity shortages. Iraq’s daily power generation output currently averages less than 6,000 MW, while the demand is typically more than 10,000 MW.

As part of the agreement, GE Energy will also provide technical advisory services, performance testing and spare parts to support the reliable operation of the turbines. In addition, GE will provide technical and management training in order to help Iraq strengthen its power sector workforce.

The US$3bn contract between GE and Iraq’s Ministry of Electricity is to be paid via a Trade Bank of Iraq letter of credit confirmed by JP Morgan. JP Morgan was nominated to handle the transaction because of the bank’s relationship with GE and its history of advising and confirming large transactions for the company.

“JP Morgan was honoured to add its confirmation and advise the LC to GE,” says Geoffrey Brady at JP Morgan. “JP Morgan rarely advises and confirms such a large transaction for a single client, and is proud to have been a part of this historic agreement.”

The agreement follows the government of Iraq’s previous order with GE in May 2008 for eight gas turbines to meet short-term power requirements in Iraq.

Deal information

Borrower: Government of Iraq
Amount: US$3bn
Issuer: Trade Bank of Iraq
Advising/confirming bank: JP Morgan
Law firm: DLA Piper
Date signed: April 2009