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Rebuilding Iraq

POSTWAR SCENARIO

US is accused of hoarding contracts to rebuild

By Stephen J. Glain, Globe Staff, 03/20/2003

WASHINGTON -- The Bush administration is preparing to invest billions of dollars in Iraqi hospitals, schools, and roads immediately after the end of hostilities against Baghdad, in part to assure the Arab world that America's drive for war is about political change, not profits.

Officials must now also assure the Europeans and Russians, who say they've been locked out of the bidding.

Diplomats say the process was designed to squeeze foreign competition out of work that ultimately will be worth tens of billions of dollars. Political watchdog groups, meanwhile, have criticized the closed-door talks as a way to guarantee sweetheart deals for corporations close to the White House.

"This is economic unilateralism," said Mikhail V. Margelov, chairman of the Russian Parliament's Committee for Foreign Affairs. "It is not wise to award all that money to [US contractors]. The only possible way to rebuild is for a new Marshall Plan" that includes multilateral participation and transparent bids.

The White House has authorized the US Agency for International Development to choose the prime contractor for some $900 million worth of projects aimed at reviving Iraq's dilapidated economy, the first step in what could be the most ambitious postwar reconstruction plan since the allies rebuilt Germany and Japan following World War II. USAID has issued eight requests for proposals to such US giants as Bechtel Group Inc., Halliburton Co., and Fluor Corp. to oversee construction of schools, roads, and hospitals, and sea and airport facilities, as well as to purchase and distribute medicine, food, and textbooks.

"This will be the largest disaster relief response we've ever put together," said Ellen Yount, chief USAID spokeswoman. "We view this as a real opportunity because we've had so much more time to prepare for it," unlike USAID efforts to rebuild postwar Afghanistan.

The process was conducted in secret, which Yount said is allowed under a government procurement law applied in emergency situations. According to the Washington-based Center for Responsive Politics, many of the companies vying for the contract made generous contributions to President Bush's 2000 election campaign; one of the firms -- Halliburton -- was recently headed by Vice President Dick Cheney.

Spokesmen for Halliburton and Bechtel confirmed they are under consideration for postwar work in Iraq but stressed their size and reputation in the industry was a far more important factor in the bidding process than whatever ties they may have to the White House. "Bechtel is one of the world's largest and most respected construction companies," said spokesman Jonathan Marshall. "It would be inconceivable that anyone would not at least consider it for this kind of work."

European officials complain that European contractors such as ABB Ltd. and Siemens AG were not invited to join the bidding. The resurrection of postwar Iraq represents a gold-mine of new business -- particularly given the stagnant global economy -- and non-US corporations and officials were stunned to find much of the work already parceled out. Chris Patten, head of the European Union's external relations, openly condemned the Bush plan. Diplomats in Washington say they have been contacted by conglomerates from their home countries who are furious at what they said is another American end run around a lucrative market.

Many Europeans still resent the major role US companies played in repairing the damage done to Kuwait after the last Gulf war. And while they appreciate how the spoils in war traditionally go to the victor and that Washington has a history of hinging aid allotments to the purchase of US goods and services, they find it particularly galling that they would be sidelined from a region they have historically dominated.

"This should come as no surprise," said a French attache, "given what the Americans did in Kuwait City."

Yount of USAID said that the projects under negotiation represent only the initial phase of reconstruction and that the agency has already allocated $154 million among UN agencies such as the World Food Program, which is free to procure goods and services from foreign companies and agencies. "We fully anticipate extensive subcontracting to non-American firms," she said. "This does not represent the full universe of the rebuilding."

Estimates for how much money and time it would take to rebuild Iraq's tattered infrastructure after several wars and more than a decade of sanctions vary. The Bush administration is expected to ask Congress for as much as $100 billion to pay for the war, including a $2 billion provision for reconstruction. The United Nations Development Program estimates the rebuilding alone could take $10 billion a year over three years.

European and Russian officials are particularly concerned because until now it has been largely their companies that have sustained Iraq's sanctions-ridden economy. Under a United Nations program that allows Baghdad to sell billions of dollars of oil for humanitarian goods, Iraq has been able to support what is left of its hospitals, schools, energy grids, and telephone systems. The so-called MOU trade, so named for the UN memorandum of understanding that enabled it, is worth billions of dollars each year, and no one has spent more time marketing their wares than France, Germany, Russia, and China. American involvement in the program has been relatively minor until recently.

Russia, debt-laden Iraq's largest creditor, is the biggest participant in the oil-for-food trade. It had $1.3 billion in contracts in 2001 and had been promised another $40 billion by the Iraqis as soon as UN sanctions were lifted.

KSB Aktiengesellschaft, a German pump manufacturer, spent five years rebuilding its presence in Baghdad after closing its office in the early 1990s. Because for much of the last decade Berlin was so closely associated with Washington in its confrontation with Iraq, the company did business with Baghdad through a French subsidiary. Now the company averages about $18 million in sales by dutifully mining for MOU business.

"Of course we're looking toward the future," said regional manager Ronald Knobloch at a recent trade exhibition. "And of course the US will muscle in. After all, they make policy."

Stephen J. Glain can be reached at glain@globe.com.





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