Iraq’s Mega-project Sparks Infrastructure Boom

Country’s US$17 Billion Road and Rail Plan to Create Opportunities

By Heba Hesham

Amid a climate of relative stability, Iraq has embarked on a US$17 billion Development Road project to link it to Türkiye via high-speed rail and transform the region into a logistics hub.

From Issue 2, 2024 of Breakbulk Magazine.

Iraq is experiencing its most stable period in the past two decades and amidst this change, a renewed sense of confidence and optimism has sparked bold projects.

With a vision to transform itself into a regional transit hub, the country has embarked on a significant project that will connect the Grand Faw Port in Southern Iraq to the border with Turkey, and then to European transit networks. Such a route would not only link the Middle East to Europe via Turkey, but also connect Turkey to the Middle East Gulf states.

The US$17 billion project, dubbed Development Road, involves the construction of a 1,200-kilometer two-way high-speed rail network capable of transporting goods and passengers at 300 kilometers per hour. Announced in May 2023, the plan also entails the construction of 15 train stations along the route, as well as highways and tunnels.

The project is of such strategic importance that it is directly supervised by Iraq’s Prime Minister Muhammad Al-Sudani and the Minister of Transport Razzaq Al-Saadawi.

“The Development Road will be beneficial for Iraqi people because it will be used for everything, helping the economy to grow. Iraq imports 99 percent of its goods. It exports its oil and gas, but it imports the majority of its goods,” Captain Cem Ercan, CEO at Turkey-based CETA Logistics & Projects, told Breakbulk.

He said the proposed project is inspired by the Silk Road, the ancient trade route that linked Baghdad with western and eastern regions such as Syria, Europe, China and Japan.

Passing through 12 governorates, the new route is expected to pave the way for the development of vast areas of the country. For instance, new industrial zones are envisaged along the route, and a cargo airport will be built to maximize the project’s impact.

The mega project will primarily involve Turkey and Iraq, with Turkey hosting nearly a tenth of the infrastructure, Turkey’s foreign minister Hakan Fidan recently said. Ultimately, it is expected to reduce travel time between Asia and Europe when completed by 2029.

Project Outlook

Operating from the city of Mersin, home to Turkey’s largest port, CETA Logistics & Projects has been active in Iraq for over 15 years and has a subsidiary in Erbil, the capital of Iraqi Kurdistan. About 80 percent of the company’s cargo is transit based, destined to Iraq and CIS countries.

“We’re already doing shipments on behalf of Iraq’s Hemn Group, a big contractor for bridges and roads in the northern region. It uses its own resources, such as bitumen, for the roads, but it imports the steel and other material. For the road and rail project, Iraq will likely source about 40 percent of the raw material domestically and import 60 percent,” Ercan said.

“This will benefit all sectors in Turkey, including logistics, supply chain, machinery, and factories. We’re still waiting for the project to start. I heard about it five or six times when I was in Iraq recently.”

Meanwhile, Mhmmod Tayeb, general manager of Basra-based freight forwarder Naseem Umm Qasr LLC, expects the initial phase of the Development Road to focus on the construction of the main roads and bridges and on bringing supplies to Iraq. He said that typically, logistics services are needed when 60 percent of a project is completed.

“The Development Road project could be successful as it would offer an alternative to the Suez Canal and other options for transit transportation. Iraq is already linked to Turkey, Jordan and the Gulf region, but many of these routes are not active,” Tayeb told Breakbulk.

Furthermore, the recent blockade of the Red Sea is accelerating Iraq’s ambition to become a regional transportation hub. “There are discussions for a new transit line through Saudi Arabia’s Arar land port to Iraq as a result of the Red Sea blockade. For the same reason, there are talks for the establishment of a transit through the Umm Qasr port, heading overland to Northern Iraq, and then to Turkey through Ibrahim Khalil, the crossing point between Turkey and Iraq,” Tayeb said.

Construction Upswing

A focal point in the Development Road is the Grand Faw Port, one of the world’s largest container terminals, set to undergo expansion to accommodate the increased cargo volume associated with the mega-transport project.

South Korea’s Daewoo Engineering & Construction is carrying out the first phase of the port’s construction under a US$2.6 billion contract awarded by the transport ministry in 2020. The port is expected to receive its first freighter in 2025 and operate at full capacity in 2038, a report by the Turkey-based Center for Middle Eastern Studies stated.

With 99 berths, the long-planned Grand Faw Port will be West Asia’s largest, and since it is deeper than the Suez Canal, it will be able to accommodate larger cargo ships. When operational, it will offer an alternative to traditional transit routes, while enabling Iraq to link to China’s Belt and Road Initiative. Notably, the port will reduce China-Europe transportation time by 20-25 days.

According to Iraqi port authorities, construction on the port’s infrastructure and the five main berths is 80 percent complete. Similarly, construction on the Silk Tunnel, the Middle East’s largest underwater tunnel, has reached advanced stages. The tunnel is being built under the Khor Al Zubair Channel and forms part of a new highway that will link the Grand Faw Port to Umm Qasr Port and the existing transport network.

The final part of the plan is the 1,200-kilometer-long road and railway network, which will connect the Grand Faw Port with Turkey. According to Iraq’s Ministry of Transport, four governorates are nearing completion of the surveys for the rail and road placements and alignments.

Soil investigation has also been completed for 1,000 kilometers, while initial designs have been carried out for 600 kilometers of the railway and 300 kilometers of the highway.

Logistics Challenges

While the Development Road is making rapid progress, several issues need to be ironed out to enable its success, according to Ercan.

“The south side is managed by the armed forces, while the north side is managed by the Kurdish people. If you’re delivering goods to the south side of Iraq, you have to change the trailer and the prime mover. You cannot go with a Turkish registration plate to the south side; it’s compulsory to use an Arabic plate,” Ercan said.

The requirement poses a challenge for companies transporting cargo from one region to the other. “Iraq needs to clear these obstacles if it wants to fully benefit from the Development Road project. They also need to improve the customs points. If you’re going to the south side, you often have to pay under-the-table money to the checkpoints, each time about US$1,000 or US$750. They need to tackle this problem as well,” Ercan said.

Another challenge freight forwarders face in Iraq stems from the automatic expiry of Customs duty exemption certificates, according to Tayeb. “Large projects, such as New Bismayah City, are exempt from Customs duties and taxes under the contracts. This exemption certificate automatically expires after one year,” he explained.

“We always tell the government that this document should remain active as long as the project is running. It makes no sense for the cargo to arrive and then you discover the exemption certificate has expired. Renewing it takes about a month, and during this time, we pay storage fees and fines, which is ultimately incurred by the foreign investor.”

Wave of New Projects

Despite these challenges, the Development Road project is making steady progress and has sparked a wave of new residential cities along its route. These have been the focus of local freight and logistics companies.

“As freight forwarders, we’re more focused today on investment and residential projects such as the US$10.1 billion New Bismayah City southeast of Baghdad. Hanwha Engineering & Construction is building the city, which will house more than 600,000 people. Residential cities require large shipments of goods, and all the material is exempt from custom duties,” Tayeb said.

“We’re especially excited about the projects awarded by the National Investment Commission, not only residential but also industrial projects and the raw materials they require. This type of logistics work never ends; as soon as an order is finished, another is placed,” he said.

Naseem Umm Qasr has been working with companies such as South Korea’s Hyundai Engineering and Construction and Japan’s engineering firm JGC, supporting their logistics requirements for refinery construction and upgrading projects in Iraq.

CETA Logistics is also benefitting from the infrastructure boom. The company is supporting an expanding oil and gas project in Sulaymaniyah, and a 6,000-ton-perday cement plant that PowerChina is building for a dam project. Both are in the Iraqi Kurdistan Region.

Additionally, the Turkish logistics specialist is gearing up to transport components for a new solar power plant near Baghdad. The first phase will have a capacity of 250 megawatts, or MW, and the second will have 500 MW.

“We will use the Umm Qasr Port in Basra for this project, and we expect to start by mid-February. The first phase will take about eight months, and once that’s completed, we will start on the second batch. It will all be breakbulk and project cargo.”

While the Iraqi market is not mature yet, companies that have had the courage to do business there have learned how to navigate it, Tayeb said. “Take Hyundai, for example. The company came to Iraq and took on dozens of projects, including the Karbala oil refinery. In the process, it developed a local base, learned about the port procedures, and some of its employees even speak Arabic.”

For Ercan, the fact that Iraq is heavily dependent on imports means there’s constant demand for logistics and freight services. “Iraq imports most of their goods, so it’s always a lucrative market and you can make decent profits if you deliver good work.”

CETA Logistics & Projects will be exhibiting at Breakbulk Europe 2024 on 21-23 May.

TOP PHOTO: CETA Logistics supports cement plant project in Erbil, Iraq. CREDIT: CETA