South Korean builder Hanwha Engineering & Construction Co. has aborted a $10 billion project to build a Bismayah new city in Iraq after failing to receive payments for years from the Iraqi government.
Hanwha E&C, the unlisted affiliate of Hanwha Corp., expects to see as much as 828 billion won ($581 million) in losses from the project if it fails to recover dues it hasn't received yet.
The builder last Friday notified Iraq’s National Investment Commission (NIC), which awarded the project to Hanwha E&C ten years ago, of its decision to terminate its construction work on the outskirts of Baghdad.
“The NIC has violated our contract by delaying payments several times. We’re now terminating the project,” said a Hanwha E&C official.
The Bismayah New City scheme, billed as the “biggest city development project in Iraqi history”, was first proposed in 2010 and awarded to Hanwha in 2012.
Hanwha E&C's Bismayah project in Iraq The plan was to build 100,000 housing units on 1,830 hectares of land together with all the necessary transport, water, education, health and power infrastructure.
MOVE AIMED AT PREVENTING LOSSES FROM SPREADING
However, Hanwha halted work on the project in September 2020 after completing 30,000 houses as OPEC member Iraq failed to pay its dues for two years.
Completion of the project was originally scheduled for 2020 but has been deferred to 2027 due to the unstable political situation in the Middle East and delayed payments from the Iraqi government.
As of end-June, the progress rates of the construction of houses and other infrastructure facilities were 44.83% and 28.87%, respectively, according to Hanwha.
Hanwha E&C building in central Seoul Industry watchers said Hanwha is giving up on its Bismayah project to prevent any further negative financial impact from spreading across the entire Hanwha Group.
Hanwha Corp., the de facto holding company of the group, is set to absorb its wholly owned subsidiary Hanwha E&C on Oct. 31 to create synergy and improve the unlisted firm’s financial status.
Accounts receivable are classified as assets but if judged as being unreceivable, they are reclassified as non-operating losses.
As of end-June, Hanwha E&C had 828 billion won in unreceived payments arising from the Bismayah project.
