Japan to offer USD 2 billion soft loan for Iraqi refinery

Japanese government will provide a roughly JPY 160 billion soft loan for a refinery project in Iraq on the condition that the core contract goes to a Japanese firm.

The oil refinery will be part of a larger refining complex already in operation in the southern city of Basra. The aid would amount to the single largest yen loan ever extended for an Iraqi project. While the loan will cover the project's full cost, it will be extended only if the primary contract for overseeing construction is awarded to a Japanese company.

The terms of the aid also require JPY 50 billion of the products going into the refinery to be built in Japan. With contractor bids solicited next year, a final selection is to be made in 2014. Plant engineering firms JGC Corporation, Chiyoda Corporation and Toyo Engineering Corporation are expected to vie for the core contract.

The Organization for Economic Cooperation and Development restricts such tied aid under its rules for development assistance but in the case of Iraq, building the refinery through private sector financing would have been difficult in light of the cost of ensuring adequate security.

The proposed Japanese loan was cleared by OECD members. Iraq's refineries have been ravaged by war, contributing to gasoline shortages. Despite having some of the world's largest oil reserves, Iraq spends USD 5 billion a year to import petroleum products.