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Siemens, GE Wage Battle for $15 Billion Power Deal in Iraq

Sept. 24, 2018
Order would provide welcome boost amid deep slump in sector.

Siemens AG and rival General Electric Co. (IW 500/6) are battling for a mega contract worth an estimated 13 billion euros (US$15 billion) to develop power stations in Iraq, an order that would hand the winner a badly needed boost amid a deep slump in the industry.

Siemens Chief Executive Officer Joe Kaeser met with Iraqi Prime Minister Haider Al-Abadi in Baghdad Sunday to discuss a plan to install 11 gigawatts of power generation capacity over four years and create thousands of jobs, the company said Monday in a statement. A person familiar with the deliberations, who asked not to be named, confirmed the potential value of the contract, which was first reported by German newspaper Handelsblatt.

While Siemens’s chances for winning the order are “high,” Adel Jeryan, Iraq’s deputy electricity minister, said in an interview that the government hasn’t picked a winner or set a price tag on the order. GE is also competing for the project, he said.

In a Sept. 11 tweet, the U.S. company said it’s working to develop Iraq’s power sector and could double generation in five years. GE has presented a proposal to the government that would add capacity, maintain and improve existing plants and strengthen networks, said another person familiar with the plan who asked not to be named.

Welcome Boost

The contract would come as a breakthrough for either Siemens or GE’s struggling power and gas divisions, which are suffering from a sharp slump in orders triggered by a broad decline in the gas-power market and shift to renewable energy sources. The business at GE has arguably been the biggest drag on the parent company, leading the once-sprawling conglomerate into the throes of a revamp. Siemens’s Kaeser is also reorganizing and cutting thousands of jobs in Germany.

On Monday, Siemens unveiled the long-awaited final plan to cut staff in its home country. The firm will eliminate around 2,900 positions, less than the roughly 3,400 announced in November, 2017 and cut global costs at the power and gas division by 500 million euros. The deal with unions saved a factory in Goerlitz and a production facility in Berlin.

Delicate Timing

Citing a market outlook by Siemens for the type of large gas turbines used in power plants, Barclays’ analysts said Monday demand is expected to be about a quarter of manufacturing capacity through 2020.

Pitching for the order also comes at a delicate time for GE after it disclosed last week that its flagship gas turbine is suffering from an “oxidation issue” that already prompted one customer in the U.S. to temporarily shut down two plants.

For Siemens, the Iraqi project could be its biggest contract ever. One worth about 10 billion euros and completed earlier this year in Egypt for power plants and wind farms generating a combined 16.4 gigawatts was described as the company’s biggest-ever when it was signed in 2015.

“We have had a series of meetings and positive feedback from the government for the development of power infrastructure in the country,” Siemens said Monday. “Repowering Iraq is a core element in the road map but it extends far beyond that.”

Kaeser told CNBC that the company would move quickly over the next three months to bring power to 300,000 people as part of the larger project to develop gas-fired power plants.

“If the government is ready today, we start tomorrow,” he said in the broadcast.

Siemens shares rose 0.6% to 110.94 euros each at 4:00 p.m. in Frankfurt, paring losses since the start of the year to 4.5%. GE stock fell 2.6% in New York.

By Eyk Henning, Khalid Al-Ansary and Richard Clough

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