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IRAQ: Iraq Sues A.P. Moeller-Maersk on Reconstruction Performance and Alleged Mismanagement of Port

In what could be a test case, Iraq is suing over a reconstruction contract awarded by the Coalition Provisional Authority in April 2004 to manage the port at Khor Az Zubayr. A judge ``assessing the case'' will visit the facility on June 6 with a port expert.

by Andy CritchlowBloomberg
May 30th, 2005

May 30  -- Iraq is suing A.P. Moeller-Maersk A.S, the world's biggest container-shipping company, for failing to pay fees at the port of Khor Az Zubayr, the first such suit against a foreign company since Saddam Hussein was removed from power.

The Iraqi Ports Authority is asking a court in Basra to accept the lawsuit against Copenhagen-based A.P. Moeller, said Mahmood Salih Abdul-Nabi, the authority's director, in a telephone interview from Basra May 28. A judge ``assessing the case'' will visit the facility on June 6 with a port expert, he said.

``This could be a test case between an Iraqi government department and a foreign company,'' said Adil Sinjakli, a senior partner at Iraqi law firm Sinjakli & Associates, which has offices in Baghdad, in a telephone interview on May 26. Sinjakli, who offers legal services to foreign companies operating in Iraq, isn't involved in this case.

A.P. Moeller-Maersk, which won a U.S. army contract to manage the Khor Az Zubayr port in 2003, denies Iraq's allegations of mismanagement. Soren Sjostrand Jakobsen, Maersk's Middle East director for business development, said in a May 22 interview his company is owed $3.5 million for unpaid fees and equipment it abandoned after a demonstration by local villagers forced them to abandon the facility in March.

``We're in dialog with the ministry about the outstanding money,'' Jakobsen said, adding the company is aware of a possible suit. Maersk hasn't received an ``official'' notice from the Iraqi Ports Authority over the claims, he said. ``Even if they sue we're confident we can reach an amicable solution,'' he said.

Iraq, the Middle East's fifth largest oil producer, ships all its oil exports, about 1.4 million barrels a day, from its Persian Gulf terminals, located within 6 miles of the disputed port. Crude oil in New York closed on Friday at $51.85 a barrel.

Stopped Paying

Maersk stopped paying a 7 percent levy for all freight it handled between September, 2004, and March 2, 2005 after the government withheld a $15,000 a day fee for operating the port, said Sjostrand Jakobsen. The Iraqi Ports Authority, which stopped paying Maersk because the company failed to supply accounts for the volume of freight handled at the terminal, claims Maersk fired local Iraqi workers in favor of expatriates to run the port.

Maersk last year bid to run the port in partnership with the Iraqi government for as long as 20 years. The company said it will return to the port should the Iraqi public and government agree.

Under the original contract, Maersk managed the port at no cost, with the intention of winning a longer term contract when the Iraqi government was re-established, Jakobsen said. This contract was then re-negotiated under commercial terms with the Coalition Provisional Authority in April 2004 and transferred to the Iraqi government in August, he said.

Irregularities

The office of Stuart Bowen, special inspector general for Iraq reconstruction, said in a report to U.S. Congress last month that it's investigating 34 separate cases of irregularities in the U.S.-managed reconstruction contracts, including instances of fraud, bribery and bid rigging. His initial review of contracting data in Iraq indicates the federal government doesn't have one organization with the ``big picture'' about how reconstruction money is being spent, Bowen said in a May 9 e-mailed statement.

Bowen's office said it had no record of the original Maersk contract being awarded by the U.S. Army, when contacted by Bloomberg on May 23.

A.P. Moeller, controlled by Maersk Mc-Kinney Moeller, 91, posted a record profit in 2004 when net income jumped 41 percent to 24.5 billion Danish kroner ($4.3 billion), and sales rose 5.7 percent to 166 billion kroner. Its shares have gained 44 percent over the last year to close at 54,400 kroner on Friday, May 27.

Documentation

The U.S.-led Iraq Reconstruction Management Office said on March 16 that it's working with companies including Maersk, Raytheon Co. and London-based Global Risks Strategies to help secure money they claim is owed by Iraqi ministries for contracts handed over from the Coalition Provisional Authority.

``It's a hallmark of all reconstruction contracts that very little documentation exists,'' said Yahia Said, an Iraq reconstruction researcher at the London School of Economics, in a telephone interview. ``I'd expect more payment disputes if the Iraqi government can't find paperwork to match contracts.''

Said, who frequently travels to Iraq, is also a consultant for New York-based Iraq Revenue Watch, a think-tank formed by George Soros.

Iraq's economy, which depends on the Khor Az Zubayr and Umm Qasr ports on the Shatt al-Arab waterway for sea trade, has been slow to recover since the U.S.-led invasion, with almost 30 percent of the workforce unemployed, according to the World Bank.

Cargo

Khor Az Zubayr, 10 kilometers (six miles) north of Umm Qasr, operating at full capacity, handled about 400,000 tons of cargo in the year to May, 2004, according to last year's invitation to companies to bid for management contracts. That could rise to as much as 20 million tons a year with modern handling equipment, said the tender for the contract, which hasn't yet been awarded.

The port also handled about 120,000 tons a month of fuel oil products, according to the invitation. Iraq, the world's second- largest holder of oil reserves, is importing gasoline, cooking gas and other fuels to meet a shortfall in domestic supply.