General Electric beats Siemens to Iraq power-generation contract

Siemens’ hopes of winning a big contract to supply power to Iraq have been dashed after the Trump administration intervened on behalf of US rival General Electric, according to people familiar with the matter.

In recent weeks it had looked as though Munich-based Siemens was close to securing a contract to supply 11 gigawatts of power-generation equipment to Iraq, in a deal reported to be worth $15bn.

But as the contest between the German engineering group and GE reached its final stages, the Trump administration put pressure on the Iraqi government, reminding Baghdad that 7,000 Americans had died since the 2003 invasion to oust Saddam Hussein, according to people familiar with the negotiations. GE is now expected to take a substantial share of the sale.

A big contract win would be a welcome piece of good news for GE’s troubled power division, which has reported plunging profits for the past two years and warned earlier this month that it would take a non-cash writedown of up to $23bn in the third quarter. The company is expected to announce its success soon, possibly when it reports third-quarter earnings on October 30.

For Siemens, which worked for months on what it called its “road map” for developing electricity supplies in Iraq, losing the sale would be a stinging disappointment. Last month Joe Kaeser, Siemens’ chief executive, travelled to Baghdad to meet outgoing Iraqi prime minister Haider Al-Abadi, and it seemed that a deal was close.

However, a top adviser to Mr Al-Abadi told Siemens two weeks ago to give up and go home because the German company’s persistence was causing problems for Iraq given how intense the US government pressure had become.

“The US government is holding a gun to our head,” the adviser said, according to another person familiar with the incident.

One potential delay in a contract decision could come from the transition in the Iraqi government. New prime minister Adel Abdul Mahdi was appointed at the beginning of the month, but has not yet formed a cabinet.

However, the US and Iraqi governments have already signed a non-binding memorandum of understanding outlining how they would co-operate on oil and gas production and power generation.

According to someone who has seen the MoU, the US plans to offer financing and insurance for American companies doing business in the Iraqi power sector. That will help GE win contracts and operate in Iraq, although Siemens, which has its power and gas unit headquartered in Houston, Texas, could also benefit.

Iraq’s decision on the contract comes as the government is seeking to win support from the Trump administration over the country’s gas imports from Iran. About 35-40 per cent of Iraq’s electricity is generated by plants burning Iranian gas, according to Michael Rubin of the American Enterprise Institute, and the government is worried that when reinstated US sanctions take effect on November 5, those purchases could result in penalties from the US.

Mr Rubin, however, said he expected the US to take a “pragmatic” approach, allowing the Iraqi government to use a financial structure that would keep the Iranian gas flowing and prevent a surge in blackouts. “They are not asking for a waiver, they are asking for a workaround,” he said.

If GE does beat Siemens to win a large contract to sell power plants to Iraq that will burn gas from Iran, it could cause a political furore in Germany. Richard Grenell, the US ambassador, has been forthright in warning German companies to cease doing business with Iran “immediately” in the wake of the Trump administration exiting the international deal over the country’s nuclear programme.

Both GE and Siemens have announced large job cuts from their power equipment divisions, which have suffered as the market for fossil-fuel generation has been squeezed by the rise of renewable energy. Manufacturers of gas turbines— led by GE, Siemens and Mitsubishi Hitachi Power Systems — have been battling fiercely for the sales that are still available.

GE took the lion’s share of a set of contracts for power equipment that Iraq awarded in 2008, but Siemens has recently been competing vigorously in the Middle East.

Neither GE nor Siemens would be expected to make much money from sales in Iraq, particularly after such an intense competition. But producing increased numbers of turbines would cut their losses from running their plants at well below full capacity.

Increased initial sales also broaden the installed fleet, generating more lucrative service contract revenues in the years to come.

GE and Siemens declined to comment.