Background on Iraq’s Investment Law

Iraq’s Investment Law No. (13) of 2006 (as amended in 2010 and 2015) was enacted to create a legal framework that attracts capital to support national economic development. The law outlines a series of strategic objectives, most notably encouraging investment, facilitating the transfer of modern technologies, and contributing to Iraq’s development through expanded and diversified production. The law also aims to encourage both local and foreign private sectors to invest in Iraq by streamlining the establishment of projects and enhancing their competitiveness in domestic and international markets. Additionally, it focuses on human capital development, providing employment opportunities for Iraqis, protecting investors’ rights and assets, and expanding exports while improving Iraq’s trade and balance of payments.

Technical and Historical Overview of Al-Khairat Thermal Power Plant

The Al-Khairat Thermal Power Plant is one of the largest electricity generation projects currently underway in Iraq. Located in the Karbala Governorate on a desert plain about 20 km south of Karbala City and 2.5 km from the new Karbala Refinery, the site was strategically selected to utilize the high-sulfur heavy fuel oil (black oil) produced daily in large quantities by the refinery. The project was conceptualized through coordination between the Ministry of Oil and the Ministry of Electricity to ensure the use of this heavy fuel in electricity generation, achieving dual goals: continuous refinery operation without by-product bottlenecks and strengthening Iraq’s national electricity grid to help reduce power shortages.

Technically, the Al-Khairat plant is designed as a heavy fuel-fired thermal power station. Its planned generation capacity is substantial, comprising six steam generation units, each with a nominal capacity of 660 MW, resulting in a total installed capacity of approximately 3,960 MW. However, the contracted net guaranteed capacity is 2,800 MW, which will feed into the national grid. These figures make Al-Khairat the largest thermal power station in Iraq in terms of scale, expected to supply over 10% of the country’s total electricity needs upon full operation. Importantly, the plant will run on domestically sourced fuel, primarily the heavy fuel oil from Karbala Refinery, with the option to use crude oil via a nearby strategic pipeline. Utilizing this local fuel source alongside its massive output potential will reduce reliance on imported gas or external energy sources, enhancing Iraq’s energy independence.

The project’s actual development began in recent years following preparatory and contractual procedures. In 2021, a major step was taken when Iraq’s Council of Ministers’ Energy Committee awarded development rights to a consortium led by Harlow International, an Iraqi company. Subsequently, the National Investment Commission (NIC) and the Ministry of Electricity signed investment contracts granting the investor an investment license under the Investment Law. Key agreements included a power purchase agreement (PPA) with the Ministry of Electricity and a trilateral fuel supply agreement involving the Ministry of Oil, ensuring a stable supply of heavy fuel to the plant. The latter is a first-of-its-kind arrangement among Iraq’s investment-based power projects and is backed by Cabinet Resolution No. 611 of 2008, mandating ministries to provide fuel for power plant sustainability.

Construction was awarded on an EPC (Engineering, Procurement, Construction) basis to China’s CITIC Construction, one of the world’s leading infrastructure firms. CITIC is responsible for design, equipment procurement, construction, commissioning, and maintenance. Several global companies from countries including the USA and Germany joined the project as subcontractors and technology providers to ensure state-of-the-art generation systems and environmental efficiency.

The Role of the Investment Law in Attracting Investment to Al-Khairat

The Investment Law played a pivotal role in attracting the financing and expertise necessary to realize the Al-Khairat Thermal Power Plant. Without the pro-investment environment established by Law No. 13 of 2006, it would have been difficult to attract a local player like Harlow International or a global partner like China’s CITIC Group. The law contributed to the project in several key areas:

• Institutional Framework and Streamlined Procedures: The law enabled the establishment of the National Investment Commission and provincial investment commissions, creating a “one-stop shop” for licenses and facilitating major project transactions. In the case of Al-Khairat, the NIC issued the investment license to Harlow and coordinated with the Ministry of Electricity, Ministry of Oil, and Karbala Governorate to allocate land and finalize contracts. This reduced bureaucracy and secured high-level government support, as evidenced by the Memorandum of Understanding and subsequent contracts between NIC and the Ministry of Electricity.
• Government Guarantees and Supporting Agreements: Within the legal and policy framework, the investor and financiers received critical assurances to mitigate non-commercial risks. Cabinet decisions guaranteed a stable, long-term local fuel supply, alleviating concerns about feedstock availability. A power purchase agreement ensured that the Ministry of Electricity would receive and pay for generated electricity, backed by a sovereign guarantee from the Iraqi government to cover any default by the purchaser. These guarantees enabled the project’s bankability and allowed Harlow and CITIC to secure financing backed by the Iraqi government—an outcome that would have been impossible without the enabling provisions of the Investment Law. The law also protected investors and lenders against arbitrary legal or administrative changes, encouraging companies like CITIC to confidently enter the Iraqi market.
• Attractive Environment for Global Firms: The law improved Iraq’s overall investment climate, drawing global companies into the project. In addition to CITIC, leading engineering and technology firms from multiple countries participated as subcontractors and suppliers. The Investment Law’s emphasis on transparency in major project tenders enabled their involvement and supported the transfer of knowledge and modern technologies to Iraq—one of the law’s core objectives. Moreover, the law facilitated the employment of foreign expertise in investment projects, making it feasible to construct a thermal plant of this scale and complexity.

In short, the Investment Law created the legal and economic framework required to launch the Al-Khairat project under an investment partnership. It unified government efforts through a single investment window, provided customs and tax incentives for international financiers, secured vital government commitments (fuel supply, energy offtake, payment guarantees), and protected investor rights. These combined factors attracted the capital and technology needed for a project that could not have been realized through government funding alone due to financial and technical constraints.

Economic and Social Impact of Al-Khairat Thermal Power Plant

The Al-Khairat Thermal Power Plant is expected to generate significant economic and social benefits at both the local and national levels during its construction and operational phases. The following are the primary impacts anticipated for Karbala Governorate and Iraq’s national power infrastructure:

• Strengthening the National Grid and Reducing Deficit: By adding a net 2,800 MW to the grid, Al-Khairat will substantially narrow Iraq’s electricity supply gap. With a current deficit of about 11,000 MW (actual production ~29,000 MW vs. demand ~40,000 MW), the plant could supply over 10% of national demand. This will reduce outages for citizens and institutions nationwide, directly improving living conditions. More reliable power will help students study at night, reduce household generator costs, and ease burdens on small businesses. Stable electricity will also enhance social stability and reduce public dissatisfaction linked to chronic outages.
• Boosting Industrial and Economic Development: Reliable electricity is the backbone of economic growth. Al-Khairat’s power will increase productivity across Iraq’s industrial and commercial sectors. Factories in Karbala and central Iraq will operate at full capacity without costly interruptions, potentially attracting new industrial investments. The plant will also integrate with the nearby Karbala Refinery by consuming its by-product (high-sulfur fuel oil), maximizing the value chain of oil and energy production. This synergy provides low-cost fuel for the plant and adds revenue to the refinery, improving overall project economics. Reduced reliance on imported gas and electricity, thanks to local resource use, will cut foreign currency spending and improve Iraq’s balance of payments. Strategically, added electricity capacity will accelerate reconstruction efforts and attract investment in other sectors supported by reliable infrastructure.
• Job Creation and Local Economic Stimulation: During construction, the project will generate thousands of direct jobs for engineers, technicians, and laborers, as well as indirect jobs through subcontractors and local service providers. This employment wave will help reduce local unemployment and equip Iraqi workers with valuable infrastructure project experience. In the long run, hundreds will be employed in operations, management, and maintenance, providing sustainable energy-sector jobs in the region. Additionally, hundreds of local suppliers will benefit from contracts to provide materials, transportation, catering, and other services, injecting liquidity into Karbala’s economy. This local economic boost will drive social development by raising incomes and improving living standards for families working on or benefiting indirectly from the project.
• Improving Services and Infrastructure in Karbala: A major power plant in Karbala will improve public services. With steady electricity, hospitals, schools, water stations, and sanitation facilities will operate more efficiently. The city will also better meet electricity demand during religious pilgrimage seasons without blackouts, ensuring visitor comfort and enhancing Karbala’s infrastructure image. The governorate may also receive a preferential share of the generated electricity before surplus is fed to the national grid, reducing its vulnerability to outages. Additionally, the project has spurred infrastructure upgrades in southern Karbala, such as roads and high-voltage power lines connecting the plant to the grid—benefiting surrounding rural communities with better transportation and public service access.

In summary, Al-Khairat is a strategic, multi-benefit project. It significantly enhances Iraq’s power generation capacity, boosting energy security and reducing chronic shortages. It transforms a low-value oil by-product into power that drives development. Locally, it brings jobs, stimulates the economy, and improves services in Karbala. Its success will validate the investment partnership model between government and private sectors for large infrastructure projects, encouraging replication across provinces and sectors—contributing to Iraq’s prosperity and its people’s well-being.

Sources and References:

• National Investment Commission – Investment Law No. 13 of 2006 (as amended) and objectives.
• NIC Investor Guide – List of benefits and guarantees for investors.
• Press release – Contract signing between the Ministry of Electricity, NIC, and investor for Al-Khairat project (including PPA and fuel supply agreement).
• Iraq Business News – Report on CITIC’s award for EPC contract, project cost, and estimated output.