This article considers how UAE sponsors of Iraqi utility projects can design payment escalation procedures while continuing to meet their service obligations. A water or power project may face delayed payment from a public offtaker while still supplying an essential service. Recovering arrears must be balanced against contractual duties and the legal limits on interrupting public services.
The Civil Code No. 40 of 1951 is central to the contractual analysis, including its provisions on public utility concessions, set-off and suspension of performance. Depending on how the project was procured, the Investment and Partnership Instructions No. 1 of 2024 and the Public Contracts Implementation Instructions No. 1 of 2025 may also apply, alongside the Investment Law No. 13 of 2006 and sector legislation such as the Ministry of Electricity Law No. 53 of 2017.
Establishing the payment entitlement
The contract should state how services are measured, certified and invoiced, whether by availability, volume or another standard. The operator should establish which conditions have been met and whether deductions or disputed measurements affect all or only part of an invoice.
A review of Iraqi public-sector project contracts should distinguish an invoice awaiting administrative processing from a formally disputed entitlement. Public payments in Iraq often depend on budget allocation and Ministry of Finance procedures, so the responsible contracting entity and authorised decision-makers should be identified. A promise from operational staff that payment will follow is not an approved variation or acknowledgement of debt.
Escalation within the contractual structure
An escalation process can require written notice with supporting records and referral to progressively senior representatives, each with a defined purpose and timeframe. It should not leave the operator waiting indefinitely without access to the agreed dispute mechanism, and notices should be given in the form the contract requires.
The process should deal with undisputed amounts, allowing the accepted portion of a partly challenged invoice to be paid. Procedural deadlines should be preserved during discussions, as escalation meetings do not necessarily suspend limitation periods or replace formal claim notices. A running arrears schedule should record invoices, certificates, deductions and payments individually.
Continuing service and suspension
Any right to suspend must be assessed against the contract, mandatory Iraqi law and the public-service character of the project. The Civil Code allows a party to withhold performance where the other fails to perform, but this right is applied cautiously to public utilities, where continuity of service is a recognised principle. Reducing a discretionary service differs from interrupting essential supply, and approval, notice and continuity requirements should be checked first.
Project documents may require minimum service levels, emergency support or a managed handover even during a payment dispute. These should be coordinated with staffing, safety and asset protection. Subcontractor payment demands increase pressure but do not enlarge the operator’s rights against the public customer.
Security and financial consequences
Payment support may include a Ministry of Finance guarantee, a letter of credit, an escrow account or another mechanism. Its effect depends on the instrument, issuer and approvals obtained. Participation of a public entity is not an implied sovereign guarantee of every payment.
A review of project financing in Iraq should coordinate the payment dispute with lender covenants and direct agreement rights, since arrears may trigger defaults under the financing. Interest, compensation and termination payments need their own contractual and legal basis, and Iraqi statutory interest rates may apply where the contract is silent.
Dispute resolution under the current rules
The 2025 public contracts instructions generally require Iraqi law and Iraqi courts for public contracts, with arbitration available only in limited circumstances. Projects procured under the partnership or investment frameworks may follow different rules. Sponsors should confirm the agreed forum early, as it affects how quickly an arrears claim can be determined and enforced against a public body.
Termination as a last resort
If termination is considered, the parties should identify the procedure for valuing outstanding obligations, transferring operations and handling staff. A settlement should address accrued invoices, continuing service costs and security, without leaving the project company liable for commitments it can no longer fund.
Records and claims against public entities
Claims against Iraqi public bodies are won on documents. Operators should maintain complete records of meter readings, availability data, certificates, invoices and correspondence, with each invoice traceable to the underlying performance data. Where certificates are issued late or not at all, the operator should record its requests and the authority’s responses, as these may later be needed to show that payment was due.
Public entities sometimes dispute old invoices on the basis of internal audits by the Federal Board of Supreme Audit or the entity’s own inspectors. Operators should be prepared to respond to such audits with supporting evidence, and should ensure that variations and price adjustments were approved by authorised officials. A payment claim supported by clear approvals and complete records is much harder to resist than one relying on informal understandings with project staff.
Conclusion & how Etihad Law Firm can help
Payment escalation should preserve a clear recovery route while recognising the legal limits on interrupting essential services.
As Iraq public private partnership lawyers for Emirati companies, Etihad Law Firm advises on utility and partnership contracts, prepares and pursues payment claims against public entities, and coordinates with financing arrangements, helping sponsors document an orderly response to arrears within the project’s public-service and regulatory obligations.