Hanwha Engineering & Construction withdraws from Iraq project

A view of the New Bismayah City in 2019, when it was still under construction. [HANWHA ENGINEERING & CONSTRUCTION]

Hanwha Engineering & Construction is withdrawing from a $10 billion construction project to build a city in Iraq after the client missed payments.

According to the company on Monday, it notified Iraq's National Investment Commission (NIC) on Oct. 7 that it will terminate the contract to build New Bismayah City. The project involved a $10.1 billion contract that Hanwha Engineering & Construction won in 2012.

It was being hired to build 100,000 houses and various auxiliary projects, such as those related to transportation, water systems and electricity in Bismayah, Iraq.

The contract terminates 21 days after Oct. 7.

The company said it made the decision due to NIC violating the contract and failing to make payments.

Although the project was to end in 2020, it was pushed back to 2027 due to geopolitical conflicts and the pandemic. Construction resumed after hostilities in Iraq ended, but was halted again in 2020 due to both the pandemic and the NIC failing to make its payments.

In a statement Monday, the company said it has finished building 38 percent of the houses and 26 percent of infrastructure. About 100,000 people live in completed areas of the city.

The company received advance payments of $4.3 billion since 2012. Based on the progress of construction, it is still owed $629 million from NIC.

“We plan on retrieving most of the uncollected payments of $629 million,” said a spokesperson for Hanwha Engineering & Construction. "However, the company is willing to continue with the project, and there is possibility that construction could start again after some negotiation.”

The incorporation of Hanwha Engineering & Construction, which is a wholly-owned subsidiary of Hanwha Corporation, is being cancelled on Nov. 1, and the subsidiary is being absorbed by the parent.

The construction company said in a statement that the "decision to terminate the contract and progress of collecting unreceived payments could affect financials of the merged entity."

BY LEE TAE-HEE [lee.taehee2@joongang.co.kr]