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C
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Basrah Gas Company (BGC) is a two-year old joint venture between the Iraqi State South Gas Company (SGC), Shell
and Mitsubishi to capture and process associated gas from three oil fields in the south of Iraq. It is the largest gas
project in the history of Iraq and the world’s largest flare reduction project.
T
:
Iraq is an extremely difficult environment from an operational perspective
with a security situation that makes regular working life a constant
challenge. Thirty years of turmoil and embargoes have affected – and
degraded – all aspects of the Iraqi economy. The country also presents
a number of significant treasury challenges. Much of the Iraqi financial
system and banking infrastructure is still emerging with a legacy of state
bank monopolies, paper-based transactions, dominance of cash as a
payment method and little modern communications. Local regulations,
with regard to currency conversions, for example, are highly restrictive
and subject to regular unforeseen changes. This left a legacy of mistrust
of banks and a fear of failure (and therefore a reluctance to innovate).
Jean Vacqué, Head of Treasury at BGC explains that: “as a young
company, BGC wanted to overcome these challenges to ensure that our
banking operations would be stable, that we could honour our local and
international commitments and that our supply chain receivables would be
secure. We wanted to use modern treasury strategies and tools right from
the start to reduce the use of cash by centralising payments and introducing
corporate cards to improve visibility, control and efficiency.” To do this,
the company invested heavily in training and support to develop local staff
skills. It established banking and insurance partnerships to implement a
complete banking, treasury and supply chain solution that would deliver
comprehensive risk mitigation, streamlined processes and enhanced
efficiency in Iraq’s challenging operational and banking environment.
T
:
Over two years, BGC’s treasury has created and implemented a modern
– and pioneering – banking solution in Iraq that addresses the country’s
unique challenges and delivers the functionality and results the company
wanted. It includes:
•
A multi-country account structure involving: capital injection accounts
opened with a leading Iraqi bank acting as a correspondent for Citi;
a single USD account with Citi Dubai from which all payments,
internationally and into Iraq, are managed; a USD account opened in
2014 with Citi London for collections and investment.
•
Host-to-host connectivity between bank accounts and BGC’s ERP
platform to support electronic payments.
•
Remote printing of local currency cheques.
•
The first corporate credit cards issued by an international bank to an
Iraqi company.
•
Reloadable travel cards, largely to facilitate foreign travel.
•
Seamless electronic payments to the state company joint
venture partner.
BGC treasury started with a team of local staff, most of whom had limited
English and computer skills initially and had little knowledge of modern
banking, insurance or credit. Eighteen months later and through intense
training, BGC has a motivated and autonomous treasury team who – using
ERP tools and modern working methods – are processing payments of
over $1bn per year and managing insurance cover for 5,000 employees
and well over $1bn of assets. To reduce BGC’s use of cash, treasury
has encouraged the business to establish contracts and payment
practices – despite strong resistance – based on more efficient and
transparent payment methods. These efforts include leveraging banking
relationships to help local vendors to open their first bank accounts. As a
result, physical cash usage has been reduced by over 80%.
BGC has built a strong credit reputation with its vendors and partners to
obtain competitive payment and insurance terms in spite of a challenging
location and perceived political instability. To date, BGC has not had to
issue any credit support instruments and instead successfully managed
to obtain unsecured payment terms and securities from vendors on most
contracts, thereby directly improving working capital and credit risk. BGC
and SGC also structured an innovative stand-by letter of credit solution to
mitigate risks associated with gas sales receivables.
B
:
BGC created a modern treasury in an extremely risky country. It has
a centralised structure for payments, both in Iraq and internationally.
The company also has a full suite of treasury tools, including a London
account for investments, remote printing of local currency cheques and
corporate/travel cards. These solutions have delivered visibility, control
and efficiency, helping BGC to achieve its treasury objectives, including
reducing the use of cash. BGC has also created an entirely new work
culture in the treasury where service and efficiency are prioritised and
skills and continuous learning are prized. Moreover, while this evolved
over two years, many key initiatives were introduced in 2014 which is also
the year when Iraq faced fundamental security challenges.
K
:
•
Reduction in bank charges.
•
Time taken to implement solution and realise benefits.
•
Productivity gains.
•
Process efficiencies.
•
Risk removed/mitigated.
•
Local staff development and local content maximisation
David Aldred, Citi and Jean Vacqué, Basrah Gas Company
HIGHLY COMMENDED WINNER
Best in Class Treasury Solution
in the Middle East
Basrah Gas Company (BGC)
Jean Vacqué, Head of Treasury
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Adam Smith Awards © August 2015