by Charles J. Hanley, AP Special Correspondent –

http://story.news.yahoo.com/news?tmpl=story&cid=540&ncid=736&e=8&u=/ap/20031017/ap_on_re_mi_ea/iraq_privatizing

BAGHDAD (October 17, 2003) — The US-led occupation authority is taking initial steps toward selling off the first of Iraq’s scores of state-owned companies to investors, but will stick to small enterprises until a sovereign Iraqi government takes over the job, the American privatization chief said Friday.

Thomas Foley said the privatizing of Iraq’s government-dominated economy will begin with service companies, such as a taxi-limousine service and an architectural design firm.

“We selected a small group, fewer than 10 state-owned enterprises (SOEs) that are very small and very simple, low-asset businesses to begin initial privatization steps,” said Foley, in charge of private-sector development under the Coalition Provisional Authority.

The US plan for Iraqi privatization is controversial. Some critics interpret Article 47 of the Fourth Geneva Convention, protecting civilians in wartime, as outlawing major alterations in an occupied country’s economic system, through its prohibition of annexation of occupied territory. Foley told reporters no sales would involve land. “As for selling SOEs, we believe that would be permitted prior to there being a sovereign government,” he said.

The US administration foresees a likely transition to a sovereign Iraqi government by late 2004 after the drafting of a constitution and national elections.

During 35 years of Baath Party rule here, ended by a US-British invasion force in April, some of Iraq’s largest enterprises were nationalized and other major state companies were established. Before the war, some 200 state-owned enterprises employed a half-million Iraqi workers, Foley said.

The CPA in mid-September completed an assessment of 153 of the 200 companies — excluding military industries, companies under the Oil Ministry and electric commission, and state banks and insurance companies. “The assessments were targeted toward determining which of those made sense for privatization and how and when such privatization might be appropriate,” said Foley, who heads a New York investment firm, NTC Group.

Asked for examples of the most valuable enterprises, he cited cement, fertilizer, sulfur-mining, textile and automotive tire companies, among others.

An overall plan for privatization will be submitted to Iraq’s interim Governing Council in the next several weeks, centered on establishment of a privatization agency, Foley said. The majority of privatizations will be carried out by a sovereign government, he said. “My guess is that this process will take three to five years,” Foley said.

Some Iraqis have expressed concern that their most promising companies will be bought up by foreign investors. The first, small privatizations are unlikely to attract foreign interest, Foley said.

He did not say when those smaller companies are likely to be put up for sale, but did say that date is “not close.” He described those sales as a kind of test “to understand what sorts of obstacles we may run into.”