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Japan: Consortium To Bid For Iraq Gas Project

Halliburton's KBR is Part of the Group

by Bayan Rahman and Carola HoyosFinancial Times
December 18th, 2003

A consortium led by Mitsubishi, the Japanese trading company, is preparing to bid for a gas development project in Iraq.

The consortium is made up of nine Japanese trading and plant engineering companies and KBR, the engineering and construction subsidiary of Halliburton, the US energy services group formerly led by US vice-president Dick Cheney.

They plan to bid for the development of gas fields in western Iraq, according to a person familiar with Japan's involvement in the country.

The project is said to encompass the Akkra field, a large and relatively unexploited field, which holds about 7,500bn cubic feet of gas and whose closest export markets would be Saudi Arabia and Jordan.

The Japanese consortium is understood to have signed a memorandum of understanding with Thamir Ghadhban, the former chief executive of Iraq's oil ministry, in late July, indicating their shared interest in pursuing the project.

The deal is difficult to value because Iraq's terms for gas are relatively unknown. But it could be worth billions of dollars over the lifetime of the field, netting the successful international companies hundreds of millions of dollars, depending on the terms, analysts said.

The field was "a long way from major development", said Martin Purvis, analyst at Wood Mackenzie, the Edinburgh-based consultant. He added that it would be at least 18 months before the first gas would flow.

In addition, the deal might first have to be sanctioned by a legitimate Iraqi government, for which the development of some key oil fields could be a higher priority, industry executives said.

The field is not the most obvious choice to supply Japan, and industry insiders believe at least part of the interest is Japan's wish to "get a foot in the door".

Tokyo is the largest donor of financial assistance to Baghdad after Washington and plans to send troops to Iraq to help in reconstruction and humanitarian work.

While the financial donation has had public backing, sending troops has stirred controversy because of Japan's pacifist constitution.

A successful bid may encourage other Japanese companies to compete for contracts in Iraq and ease their concern that the prime deals are handed to US companies. It would also be one of the first indications of Japanese companies seeing the commercial rewards of their government's backing for the war.

The person familiar with Japan's dealings with Iraq said the consortium was in a strong position to win the bid because of the interest Japanese companies had shown in developing gas fields in Iraq in the 1980s while European companies had focused on oil.

The consortium may win some financing for the project through the $5bn (4bn, 2.8bn) the Japanese government has pledged for reconstruction and humanitarian work in Iraq over four years. The $5bn is spread over a four-year period starting in 2004 and includes $1.5bn in grants.

Mitsubishi is Japan's largest trading company. Included in the consortium are fellow trading houses Mitsui, Marubeni, Itochu and Tomen. The other Japanese companies involved are plant engineering groups Chiyoda, JGC and Toyo, and Mitsubishi Heavy Industries.

Japanese companies are understood to be considering more than a dozen projects in Iraq, including supplying equipment to a hydro power station in Mosul and providing hospital beds.

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