"An American law firm with ties to the Bush administration has been hired to help set up a legal system in Iraq.
"The firm, Squire, Sanders & Dempsey, has been drafted in by USAID to advise on privatising former government-held industries, structuring government economic and regulatory agencies, and developing a tax structure.
"The legal deal is part of a larger package worth up to $79.6 million taken on by Bearingpoint, formerly called KPMG consultants, to advise on the restructuring of Iraq. The deal is expected to lead to several million dollars of work for Squire, Sanders, effectively as sub-contractor.
"It was also announced on Friday that the administration in Iraq has appointed a JP Morgan-led consortium that includes France's Credit Lyonnais to set up and manage a trade bank for Iraq.
"The Coalition Authority in Baghdad created the bank to allow Iraqi ministries and oil concerns to begin making big-ticket purchases abroad.
"The purchases are likely to start at an average of about $100m a month but the bank's overall business could balloon to $500m a month as Iraq's oil industry gets back on its feet.
"The number of contracts awarded to companies with close connections to the Bush administration is increased by the Squire, Sanders' deal. The firm donated $41,350 to George W Bush's election campaign in 2000, and earlier this year a Sanders partner, Ronald James, was made personnel chief of the new Department of Homeland Security.
"James used to work for Donald Rumsfeld, now Defence Secretary, when Rumsfeld was a member of Congress, and during the Nixon administration he shared a White House office with Dick Cheney, now Vice President...." [more]
"An oil pipeline linking Iraq's oilfields in Kirkuk with the Baiji refinery to the south was on fire this afternoon after a possible sabotage attack, the US military said.
""There is a fire. I don't know if it is a blast. It started at about approximately 2.30pm (Baghdad time) this afternoon," said Major Josslyn Aberle of the 4th Infantry Division.
""Our 173rd Airborne Brigade in Kirkuk, civil affairs officers and our taskforce RIO (Rebuilding Iraqi Oil) have shut off the valves, so now it's only residual oil burning. They estimate it will be one to two days for the fire to burn itself out.""
The following article from Reuters wasn't included here yesterday because the headline seems misleading: "Halliburton Iraq Work Booms But Profit Seen Small." So it appears here today with this caveat.
Anyone who imagines that Halliburton is making only a "small" profit is simply not acquainted with its double-dipping for dollars under LOGCAPII.
Halliburton doesn't just make a "small" profit as the contractor, the "3-5%" allowed for under LOGCAP. Halliburton's subsidiaries are able to make much larger profits -- because there is no oversight of the subcontracting process.
Halliburton routinely selects its own subsidiaries for subcontracts. And the subcontractors can potentially reap much greater profits.
So it's true that Halliburton makes a "small profit" at the top end of the deal, but its subsidiaries can charge the full "rack rate" for its services down the line.
Double-dipping like that squeezes out much bigger profits.
And $1.7 billion is a lot for Halliburton to squeeze.
"NEW YORK (Reuters) - Halliburton Co.'s business may be booming in Iraq because of reconstruction, but the small profit margins there and the lingering asbestos liabilities at home are a drag on the stock, analysts said on Thursday.
"The Houston company once headed by Vice President Dick Cheney has so far won $1.7 billion in Iraq-related contracts.
"Halliburton's KBR engineering and construction division has been awarded a $705 million contract for oil field infrastructure repairs and is bidding on two contracts for work in Iraq worth up to a $1 billion.
"It has also been awarded a Logistics Civil Augmentation Program (LOGCAP) contract, estimated at over $900 million, to build base camps and provide non-combat services such as delivering mail.
""The dollar values (of these contracts) are huge," said Rep. Henry Waxman, a California Democrat who has repeatedly criticized the amount of work going to Halliburton under LOGCAP. "There is an enormous potential for waste and abuse in the Halliburton contract," Waxman said in a statement...." [more]
"The United States might give Bechtel Corp. more cash to rebuild Iraq's water and power systems, as sabotage and aging equipment drive up the cost.
"Bechtel and U.S. authorities in Iraq have entered discussions about finding more money for reconstruction, now that all $680 million in the company's original contract to rebuild some of the country's essential infrastructure has been committed to specific projects.
"The Wall Street Journal reported Thursday that Bechtel would get an extra $350 million. Company and government representatives said, however, that no decisions have been made.
""Initial discussions on raising the $680 million cap on the Bechtel contract are ongoing," said Luke Zahner, a spokesman for the U.S. Agency for International Development, which hired Bechtel to work in Iraq. "However, no formal request to raise the cap has been made to USAID at this time."
"For months, USAID said it would not spend any more on Bechtel's contract to repair Iraq's electrical grid, water and sewer systems, airports and phone lines.
"But as the costs become clearer, both the company and the coalition now governing Iraq have been searching for ways to pump extra money into the work. After studying Iraq's tattered infrastructure up close, Bechtel concluded the country needs $20 billion in repairs. Both the company and USAID warn that figure could be low...." [more]
"Faced with escalating costs and continued instability in Iraq, U.S. officials in Baghdad have decided to boost Bechtel Group Inc.'s postwar reconstruction contract by $350 million, or more than 50%, The Wall Street Journal reported Thursday.
"The decision to steer additional funds to Bechtel is the latest sign that the Bush administration has seriously underestimated the cost and complexity of rebuilding Iraq. Although the U.S. plans a dramatic push for new reconstruction funds -- part of what one U.S. official said will be a $2.75 billion emergency budget request for Iraq next month -- the administration remains vague on what the overall project is likely to cost.
"The new Bechtel money, which could be turned over within days, is part of at least $1 billion the U.S. hopes to pour into Iraqi power generation alone over the next year. U.S. officials and Bechtel assessment teams now estimate Iraqi reconstruction will cost at least $16 billion and likely much more. L. Paul Bremer, the top U.S. official in Iraq, has said that the costs of rebuilding Iraq and revitalizing its economy could top $100 billion...." [MORE]
By Michael Dobbs
Washington Post Staff Writer
Thursday, August 28, 2003; Page A01
"Halliburton, the company formerly headed by Vice President Cheney, has won contracts worth more than $1.7 billion under Operation Iraqi Freedom and stands to make hundreds of millions more dollars under a no-bid contract awarded by the U.S. Army Corps of Engineers, according to newly available documents.
"The size and scope of the government contracts awarded to Halliburton in connection with the war in Iraq are significantly greater than was previously disclosed and demonstrate the U.S. military's increasing reliance on for-profit corporations to run its logistical operations. Independent experts estimate that as much as one-third of the monthly $3.9 billion cost of keeping U.S. troops in Iraq is going to independent contractors.
"Services performed by Halliburton, through its Brown and Root subsidiary, include building and managing military bases, logistical support for the 1,200 intelligence officers hunting Iraqi weapons of mass destruction, delivering mail and producing millions of hot meals. Often dressed in Army fatigues with civilian patches on their shoulders, Halliburton employees and contract personnel have become an integral part of Army life in Iraq.
"Spreadsheets drawn up by the Army Joint Munitions Command show that about $1 billion had been allocated to Brown and Root Services through mid-August for contracts associated with Operation Iraqi Freedom, the Pentagon's name for the U.S.-led war and occupation. In addition, the company has earned about $705 million for an initial round of oil field rehabilitation work for the Army Corps of Engineers, a corps spokesman said...." [more]
"WASHINGTON (AP) The Bush administration may ask Congress next month for a few billion more dollars for Iraq reconstruction, officials said Wednesday, only a few weeks after the Pentagon said extra money would not be needed at least until the new budget year begins in October.
"The possible early infusion of fresh cash is an indication of the urgency felt by L. Paul Bremer, the civilian administrator of Iraq, and others in the administration to make faster progress in Iraq.
"The administration has been saying for weeks that it expects to request billions in emergency funding for Iraq during the 2004 budget year, but until now it had insisted enough money was available through September to pay for civic projects like repairing utilities and schools.
"In fact, as recently as Aug. 4 the Pentagon had estimated that $4 billion of the $62.6 billion in emergency funding it received in April would be left over when the budget year ends Sept. 30.
"The United States is spending about $3.9 billion a month on military operations in Iraq, and that does not count funds used by Bremer's Coalition Provisional Authority to rebuild the wartorn country...." [more]
"The top US official in Iraq, Paul Bremer, today admitted that reconstructing Iraq would require US taxpayers and foreign governments to contribute billions of dollars in the next year.
"In an interview with the Washington Post, Mr Bremer said Iraq needed "several tens of billions" of dollars to rebuild its economy and infrastructure. The expenditure would be in addition to the $4bn the Pentagon spends every month on the US military presence. Four months after the war ended, electricity production is still below pre-war levels, Mr Bremer admitted.
""The UN estimates that to get a more or less satisfactory potable water system in the country will cost $16bn over four years. The 2,000 megawatts we need to add now just to meet current demand will cost $2bn, and the engineers tell me we probably should spend about $13bn over the next five years to get the power system [in good order]," he told the newspaper.
"Quick revenues from Iraq's vast oil resources have failed to materialise because of sabotage and looting. Mr Bremer said he hoped to return Iraqi oil production to pre-war levels by October 2004. But even when deliveries return to 2002 levels, the industry would not produce enough revenue to cover the cost of reconstruction, he added...." [more]
"At the Doura power station, a large oil-fired plant that supplies much of Baghdad's electricity, a single engineer is working with an acetylene torch to repair a much patched heat exchanger.
"The site is strewn with rusted pipes, broken gauges and refuse. Only two of its four turbines are in working order. An aged Fiat gas turbine wheezes along on low-pressure natural gas. Doura's two broken turbines are supposed to provide 320MW, equivalent to a 10th of Iraq's entire current production. But the Siemens engineers whose company built the plant have made a survey and gone home; their future work schedule is not clear. The US army unit is an Airborne artillery company, not Corps of Engineers specialists.
""You don't see the civilians out here," an army officer grimaces, referring to the Coalition Provisional Authority. "The Iraqis just agree with everything you ask, and then nothing happens."
"The fitful effort to restore electricity supplies epitomises the so far ineffectual reconstruction effort in Iraq. Shortages--not just of energy but of goods and services of all kinds--remain acute. The lack of security and the country's dilapidated condition remain the two biggest problems. But increasingly contractors and CPA dissidents openly allege that the US's direction of Iraq's recovery is beset by bureaucratic inertia and mismanagement. "The Americans have a lot of problems," says Dattar Kassam, director-general of Baghdad's refinery. "They are overwhelmed and understaffed. Just when I get to know one of them, he gets himself sent back.
""Until the war broke out, I used to be able to order my own high-priority spare parts through Jordan. We are depending now on KBR [Kellogg, Brown and Root, a Halliburton subsidiary] to order our spare parts, but so far we haven't received any."..." [more]
"WASHINGTON (Reuters) - The strategic targeting of Iraq's oilfields and pipelines is playing havoc with the pricing of projects to rebuild that country's crucial oil industry, a senior U.S. official said Monday.
"Michael Mele, Iraq Program Manager for the U.S. Army Corps of Engineers, said volatile security and ongoing attacks on the oil infrastructure made it impossible to predict the ultimate worth, for example, of two new contracts to repair Iraq's oil industry.
""Obviously the situation is evolving and every time we get something fixed in the oil sector and get it back in working order, someone tends to come along and blow it up," Mele told an Iraq reconstruction conference at the National Press Club...." [more]
"Aug. 24 (Bloomberg) -- Italian builders and engineers including Impregilo SpA and Trevi SpA are failing to benefit from Prime Minister Silvio Berlusconi's support for the U.S.-led military campaign to topple Saddam Hussein's regime.
"`We haven't been involved in anything so far,'' said Federico Manzella, a spokesman for Milan-based Impregilo, Italy's biggest construction company, in a telephone interview.
"Berlusconi backed U.S. President George W. Bush's decision to attack Iraq at the same time France and Germany opposed it, offering Italian military bases for use by U.S. forces in the war and contributing 1,000 doctors and paramedics for humanitarian aid. That prompted Bush to describe Italy as ``America's good friend'' at a meeting with Berlusconi at his ranch in Waco, Texas.
"Yet Italian companies such as Trevi, which supplied 54 water pumps to Iraq under the United Nations' oil-for-food program, have been excluded from one of the biggest reconstruction efforts since Europe was rebuilt after World War II. The U.S. government estimates the cost at about $100 billion...." [more]
"Pasadena-based Parsons Corp. won an $89-million contract from the Army Engineering and Support Center to manage the disposition of captured weapons and ammunition in Iraq.
"The construction and engineering firm said Friday that it would manage other contractors at three sites in Iraq but would have no direct role in the movement or destruction of the ordnance.
"According to a company statement, the subcontractors will collect munitions captured by U.S. military personnel, destroy unserviceable weapons and ammunition, and stockpile the remainder under U.S. control. The initial contract runs for one year.
"Parsons had bid on one of the major contracts to rebuild Iraq's infrastructure but lost to San Francisco-based Bechtel Corp."
STOP IRAQ WAR PROFITEERING Activists launch campaign calling for Congressional investigations into corporate war profiteering in Iraq
by Bill Berkowitz
"Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed." -- President Dwight D. Eisenhower, April 16, 1953
"A handful of companies, including the Dick Cheney-connected Halliburton, Bechtel, and MCI, are already reaping the benefits from President Bush's invasion of Iraq. Despite the ongoing instability -- marked most emphatically by this week's bombing of the UN headquarters in Baghdad -- all sorts of companies intend to vie for highly profitable contracts to rebuild the country devastated by the U.S. invasion, years of UN sanctions, and decades of the despotic rule of Saddam Hussein.
"Anti-war activists, increasingly troubled by Bush administration plans for the wholesale sell-off of Iraq's resources through a U.S.-orchestrated corporate takeover, are organizing to stop war profiteering. In early August, the North Carolina-based Institute for Southern Studies, joined by a number of peace, religious, labor and veterans groups, launched a campaign to challenge the "'second invasion' of Iraq by powerful corporate interests seeking to control the country's oil, water and other resources."
"Tara Purohit, an Institute associate working on this campaign, contrasted present U.S. policy with reconstruction following World War II when President Franklin D. Roosevelt said "I don't want to see a single war millionaire created in the United States as a result of this disaster." Harry Truman denounced war profiteering as "treason." And earlier in the century, according to Purohit, "Sen. Robert LaFollette called war profiteers 'enemies of democracy in the homeland.'"
""Our country has a proud history of leaders who have stood up to the war profiteers," said Purohit...." [more]
"WASHINGTON (Reuters) - Lead U.S. government contractors working in Iraq said on Thursday they had no plans to leave following this week's blast at U.N. headquarters in Baghdad and their projects were on target.
"While voicing concern privately about security after the blast at the U.N.'s Baghdad office that killed at least 24 people, U.S. firms in Iraq said they would stay the course.
""Security issues have not delayed our work or the deployment of our people. By and large work continues pretty much on target," said Bechtel spokesman Howard Menaker, pointing to other obstacles such as the searing heat in Iraq.
"Bechtel, which has already been allocated $534 million out of its $680 million contract, is one of the lead contractors in Iraq for the U.S. Agency for International Development and is responsible for fixing Iraq's battered infrastructure.
"Bechtel said its biggest success so far had been dredging Umm Qasr port, which was open to commercial traffic, and repairing some key bridges and transportation routes.
"USAID spokeswoman Ellen Yount said despite news reports to the contrary, many of the agency's contractors had surpassed expectations and were not being hampered by security problems.
""We have not put anything on hold (because of the U.N. blast)," Yount told Reuters.
""The Iraqi people are the best barometer on progress made. In terms of looking at the past month, many people feel that they are much further ahead in Iraq than in other countries in a similar time frame," Yount added.
"A key gripe among Iraqis has been the poor electricity grid and Yount said there was a "renewed emphasis" on this, with more than a third of Bechtel's budget going on power.
"Iraqis have also complained about lack of water and are dismayed at how long it is taking to get the economy moving....
"Some contractors said privately Tuesday's massive blast had shaken them and they feared insurance premiums would rise and even tighter security would chew up more of their budgets...." [more]
"WASHINGTON - Major US oil companies fear Washington will lock them out of a multibillion-dollar bonanza in Libya if United Nations sanctions are lifted, industry sources say.
"Even as the UN Security Council considers toppling the sanctions, the prospect of President George W. Bush's administration lifting a separate US embargo appear remote, they said.
"As a result, the Americans fear missing out on lucrative investments in the oil-rich African state.
""The UN vote will be the critical element. If the UN actually votes to eliminate sanctions then I think you will see people here saying: 'Well now it is time to get busy and talk to the adminstration'," said William Reinsch, president of the National Foreign Trade Council.
"However, the administration's stance is not encouraging enthusiasm that US sanctions will be raised.
""It's fair to say there's hope, but not optimism (about US sanctions being lifted). I think there are people in the administration who say we shouldn't move the goalposts on this," Reinsch said.
"The US energy industry risks being left out of Libya for a generation, warned Reinsch, whose group represents 300 multinationals including ExxonMobil, ChevronTexaco, Halliburton and Bechtel Group...." [more]
The Tawdry Tale of WorldCom's Sweetheart Deal in Iraq
"NEW YORK--WorldCom Inc., recently and hilariously accused of rerouting phone calls to avoid paying connection fees to other phone companies (who was running the joint, frat dudes?), ranks with Enron in the annals of modern corporate debauchery. After an $11 billion accounting scandal sunk the infamous telecommunications conglomerate into bankruptcy, the U.S. General Services Administration banned federal agencies from doing business with WorldCom. So how is a proscribed "company that has demonstrated a flagrant lack of ethics"--the words belong to Senator Susan Collins (R-ME), chairperson of the Senate's Governmental Affairs Committee--poised to land a $900 million Pentagon (news - web sites) contract to build a cell phone system for occupied Iraq?
"I was curious about it, because the last time I looked, MCI has never built out a wireless network," comments Len Lauer of Sprint...."
"When the U.S. government appropriated Indian land in the Oklahoma Territory in 1869, thousands of settlers -- and a new breed of capitalists -- raced across the plains and staked their claims. Despite current concerns about security and increasing rates of sabotage, in the long run competition among corporations looking to cash in on investment opportunities in Iraq is more likely to replicate the Oklahoma Land Rush than a new Marshall Plan.
Take the reconstruction of Iraq's oil fields: While Halliburton, once headed by vice president Dick Cheney, was first to snare a huge contract, other companies including the Fluor Corp. and the Parsons Corp. tried to get in on the action. Now these companies are crying foul. The Houston Chronicle's David Ivanovich recently reported that "some industry officials are questioning whether the bidding process has been skewed to favor... Halliburton subsidiary KBR, formerly known as Kellogg Brown & Root."
"The murky waters of contract awards and potential cronyism were not on the agenda when John Taylor, the Treasury Department's undersecretary for international affairs, spoke at the Iraqi Reconstruction Conference sponsored in early June by Equity International. Taylor chose to focus on the positive challenges of reconstruction, telling attendees that "the opportunities for achievement are tremendous." He also pointed out that reconstruction projects were abundant, due both to recent US military actions, and "from the economic devastation of the last 25 years."..." [more]
"THE US administration in Iraq is to double the number of guards protecting oil installations in a bid to halt sabotage attacks that are seriously damaging attempts to export crude oil.
"An international security company has been awarded a contract for 6,500 guards to ensure no further damage is done to the main oil pipeline to Turkey. The new recruits will be in addition to the 5,000 Iraqis already protecting the 600-mile structure.
"Iraqi’s oil industry is supposed to play a crucial part in financing the reconstruction of the country, but attacks over recent days have put a question mark over those plans. Yesterday, a fire was still raging on the main pipeline to Turkey, with US authorities saying it would take ten days to control.
"Iraq has the world’s second-largest proven crude reserves, at 112 billion barrels, but its pipelines, pumping stations and oil reservoirs are dilapidated after more than a decade of neglect.
"The sabotage on the Turkey pipeline costs $7 million in lost revenue every day, as the US-led administration struggles to pay for post-war reconstruction.
"Paul Bremer, the US administrator, told CNN: "These are probably people left over from the old regime who are simply fighting a rearguard action by attacking Iraq’s assets.
""We’ve had these attacks on a pretty regular basis over the last three months," he added, "causing literally billions of dollars of losses to the Iraqi people."
"Residents near the latest blasts say that when Saddam Hussein was in power, he deployed air patrols around key oil facilities and stationed troops at checkpoints along pipelines.
""Where are the Americans? All they do is fly a few Apache helicopters at night and take some photographs and that is it," said an Iraqi oil worker...."
"BAGHDAD, Iraq -- The military is backing off earlier claims that sabotage was behind an Iraqi oil pipeline explosion.
"The Army says the first of two fires burning along a pipeline to Turkey was started by somebody who lit oil leaking from a burst pipe. But it says it might not have been sabotage.
"A 4th Infantry Division spokeswoman says part of the pipeline was faulty and that somebody set fire to the leak. Others in the military have flatly said the fires were sabotage.
"The fires stopped oil exports to Turkey just days after they began...."
HALLIBURTON SEEKS MORE IRAQ WORK Oilfield services company, already in Iraq, seeks contracts for final phase of oilfield repairs.
By Mark Gongloff, CNN/Money Staff Writer
"NEW YORK (CNN/Money) - Halliburton Inc. said Monday it had placed a bid for a U.S. Army Corps of Engineers contract to finish repairing Iraqi oil fields -- though it's likely the company has already done the most lucrative part of the work.
"Friday was the last day to submit bids for two Army contracts, each of which will have a minimum value of $500,000 and a maximum value of $500 million.
"Other firms who submitted bids included Alisa Viejo, Calif.-based Fluor Corp. (FLR: up $1.07 to $36.95, Research, Estimates) and Parsons Corp., of Pasedena, Calif.
"The winning bidder will be announced in mid- to late October, raising an issue of timing for many would-be contractors, since the first two phases of the project must be completed by Dec. 31.
"According to the Army, the third and final phase of the project, which must be completed by March 3, 2004, is worth only $176 million -- compared with the $967 million value of the rest of the contract.
"The structure of the contract has led to some anonymous criticism, in recent reports by the New York Times and the Wall Street Journal, that the process has been skewed in favor of Houston-based Halliburton (HAL: up $0.03 to $23.44, Research, Estimates), which was led by Vice President Dick Cheney until his resignation before the 2000 election.
"The Army has denied showing any favoritism to Halliburton, and pointed out that the recent sabotage of a critical Iraqi oil pipeline only highlights the chance that there could be more work in Iraq than is currently expected...."
"Victor Bout, by most accounts the world's largest arms trafficker, had agreed to meet me in the lounge of the Renaissance Hotel in Moscow, a monolithic post-Soviet structure populated by third-tier prostitutes and men in dark suits. Bout's older brother, Sergei, waited with me, as did Richard Chichakli, a Syrian-born naturalized American citizen who lives in Dallas. Sergei helps run Bout's many air-cargo companies. Chichakli, an accountant, calls himself a former business associate of Bout and his ''friend and brother.''
"As we waited, Chichakli tried to discourage me from pressing Bout about his connections, suggesting that there were some things I didn't want to know. ''They'll put you on your knees before they execute you,'' he said. Then he nodded toward the doorway. ''Here he comes. Does he look like the world's largest arms dealer to you?''
"Bout, who is 36, six feet tall and somewhat expansive in girth, nimbly made his way through the crowded lounge. He didn't shake my hand as much as grip it, with a firm nod. Icy blue eyes like chips of glass punctuated a baby face. We sat on one of the lounge's dingy couches, and he placed a thick folder of papers on his lap.
'"'Look, here is the biggest arms dealer in the world,'' Chichakli said...."
LATimes: U.S. TO LET IRAQ MANAGE ITS OIL A plan for international advisors is dropped, signaling increased confidence in the competence of local technocrats.
By Warren Vieth, Times Staff Writer
"WASHINGTON — The U.S.-led occupation authority in Iraq has abandoned plans to create an international advisory board to oversee the country's battered oil industry, opting instead to give Iraqi technocrats a freer hand to chart their own course.
"While U.S. and allied officials remain in charge of reconstruction, the decision to scale back foreign supervision signals their increasing confidence in the competence of Iraqi oil professionals and heightened concern about Iraqi political sensitivities, officials said. Instead of answering to a global board of directors, oil technocrats will report to a minister named by the new Iraqi Governing Council.
"The move could disappoint those who viewed the ouster of Saddam Hussein as an opportunity to set Iraqi oil policy on a pro-American course, open the nation's oil sector to Western companies and reduce the influence of OPEC on world oil production and prices.
"The decision was prompted in part by the reluctance of foreign oil company experts and prominent Iraqi expatriates to join the board, officials said. The expatriates expressed concern they would be perceived by Iraqis as agents of a U.S.-orchestrated takeover of the Iraqi industry. Some oil companies reportedly were reluctant to assign key personnel to the effort, fearing that their participation might sour future business deals in Iraq...."
THE JOBS OF WAR As conflicts stretch armed forces worldwide, the private sector is seizing its chance to profit as dozens of tasks once done by soldiers are now being carried out by contractors
By STEPHEN FIDLER and THOMAS CATAN
"STANDING guard outside the presidential palace in Kabul, a group of well-built and heavily-armed men frisks visitors and calls for radio clearance.
"Sporting crew-cuts, wrap-around shades and pistols strapped to their thighs, they look every bit like members of the United States special forces who guarded this entrance until recently.
"But they are not. All are employees of DynCorp, the Virginia-based company hired by the State Department to guard leaders in the US-backed Afghan government against assassination attempts.
"Their home is Camp Aegis, an imposing compound next to the central bank in the centre of Kabul, protected by steel containers filled with earth and loops of razor wire.
"It houses about 150 people of 10 nationalities, including some 50 Nepalese Gurkhas - famous for their fierce fighting in many wars alongside the British army - who on a recent off-duty afternoon were watching a Nepalese musical film on a huge, flat-screen television.
"Most of the men in Camp Aegis are former military personnel, including US Special Forces and Delta Force troops who have served in hot spots such as Somalia and Haiti. Some took part in the US invasion of Afghanistan before going private.
"'The most visible US military presence in Afghanistan is DynCorp,' says Mr Nigel Churton, chief executive of security firm Control Risks...."
"These so-called private military companies (PMCs) are providing services for governments that were once the preserve of the military.
"They are hired - principally, though not exclusively, by the US - for relatively mundane tasks such as building and guarding army bases and sophisticated roles providing battlefield logistics, training, strategic analysis and intelligence gathering, for example. Some, a controversial minority, are hired for direct combat duties.
"Apart from a few historical arrangements such as the British Gurkha regiment and the French foreign legion, most developed world governments, including the US, have shied away from the use of hired fighters in battle, believing them unsuited for high-intensity combat.
"But private contractors now perform virtually every other function essential to military operations, in what amounts to a creeping privatisation of the business of war.
"In the first Persian Gulf war, one in 50 US personnel on the ground was a contractor. In the recent war in Iraq, that figure was one in 10. At last count, the Pentagon employed more than 700,000 private contractors...."
"TIKRIT, Iraq - Iraqi officials blamed saboteurs for a ferocious blaze at a giant oil pipeline in northern Iraq, but U.S. military officials said today it was too soon to say whether the fire was caused by sabotage or an accident...."
"Some of California's biggest engineering companies are submitting bids today to restart the Iraqi oil industry, but the Army Corps of Engineers warned that it might not award a new contract — instead relying on Halliburton Co. to complete the work it already has started.
"Houston-based Halliburton has billed the government for $641 million for work done under a no-bid pact awarded in secret March 8. Corps officials in April described the deal as "a limited-duration, limited-scope emergency services contract" and said additional work would be awarded in open, competitive bidding. Parsons Corp. of Pasadena and Fluor Corp. of Aliso Viejo are among those making bids.
"But Wednesday, corps spokesman Bob Faletti said there might not be enough emergency repair work to merit additional contracts. The main reason the corps was accepting bids for two new oil contracts, he said, was the possibility of more looting and sabotage.
""Otherwise, there might not be a lot of additional repairs needed," Faletti said.
"Halliburton's competitors have watched in barely concealed frustration as the oil services giant got its foot in the door of an oil market that experts say ultimately will need tens of billions of dollars' worth of repairs. Now rivals are contemplating the possibility of the door slamming on them.
"At best, the new contracts offer "bits and scraps," complained an oil executive who asked not to be identified...."
"TIKRIT, Iraq Aug. 16 —
A raging oil fire and pipeline trouble stopped all oil flow Saturday from Iraq to Turkey, just three days after the pipeline between the two countries was reopened, the military said. A police officer once imprisoned for his opposition to Saddam Hussein was appointed the top Iraqi law enforcer, while attacks continued against U.S. forces.
"U.S. soldiers were helping Iraqi oil workers contain a fire burning since Friday outside the northern town of Baiji on a section of the 600-mile pipeline from the northern city of Kirkuk to the Turkish city of Ceyhan.
""There is no oil flowing into Turkey right now," said Col. Bobby Nicholson, chief engineer for the 4th Infantry Division.
"The army and Turkish oil officials will investigate what happened after the fires is put out, he said. Nicholson could not say when oil would resume flowing...."
"An arm of Halliburton, the controversial group led until 2000 by American vice-president Dick Cheney, yesterday emerged as the preferred bidder for a contract worth £350m over seven years to coordinate logistics support for British troops on overseas missions.
Kellogg Brown & Root, which is already providing support services for the army in the Gulf and is operator of Devonport naval dockyard in Plymouth, was named late last month as preferred bidder for a £4bn contract to upgrade garrisons in Aldershot and on Salisbury Plain.
"The Ministry of Defence said the new contract - which is to identify and assess commercial suppliers of items such as food and tents for its permanent joint headquarters - had a core annual value of £12m, but that this could increase to £50m.
"KBR - which provoked accusations of cronyism when it was awarded an early contract to repair Iraq's oil network without competition - beat off a rival bid from a consortium of UK-based Turner Facilities Management and Dyncorp of the United States."
"Foreign and domestic companies yesterday bid on more than $1 billion in contracts to repair Iraq's oil fields, though most of the work sponsored by the U.S. government likely will go to Houston-based Halliburton.
" The Bush administration tasked the Army Corps of Engineers with putting out oil fires after major combat ended in the U.S.-led war, and later repairing oil fields damaged by years of neglect and ongoing sabotage.
"Halliburton, which Vice President Dick Cheney once led, won the initial no-bid contract to extinguish oil-well fires through subsidiary Kellogg Brown & Root, which has worked closely with the Army to evaluate and repair oil fields.
"The corps, which relies on private contractors to execute projects, last month laid out a three-phase plan totaling $1.14 billion to return Iraq to prewar oil production by the end of March. But the first phase will be complete and the second well under way when the newest contracts awarded in mid-October.
"The first phase of contract work is the heftiest, valued at $716 million. It is scheduled for completion by Sept. 30. The second phase, valued at almost $251 million, should be completed by Dec. 31, and parts of it are up for grabs.
"Phase three is the practical target for bidders. It is valued at $176 million, a small portion of the total oil award before the corps hands over contracting and repair responsibilities to the Iraqi Oil Ministry.
"Despite the dwindling amount of contract work, companies are not complaining publicly and some see a chance to enter a potentially lucrative market.
"The two, two-year contracts, one for northern and one for southern fields, have been put at between $500,000 and $500 million.
""That's the big mystery: How much work will be in those contracts," said Bob Faletti, a corps spokesman.
"Companies bidding for the work are assuming it wall fall on the low end...."
"LONDON, Aug 15 (Reuters) - The UK Ministry of Defence has picked Kellogg Brown & Root (KBR) as preferred bidder to provide logistics support for its armed forces worldwide, the company said on Friday.
"Logistics support for UK forces in Iraq is part of work involved, it said in a statement. A company spokesman could not give a financial value for the expected seven-year final contract.
"KBR is the engineering and construction arm of U.S.-based Halliburton Co (nyse: HAL - news - people), a company once led by U.S. Vice-President Dick Cheney.
"It will help with contracting commercial support for British forces deployed on operations or exercises, something it has done for U.S. Forces since 2001, KBR said."
"LONDON, Aug 14 (Reuters) - Oil services and construction firms worldwide are putting finishing touches to bids due later on Thursday to revamp the Iraqi oil industry, but U.S. giant Bechtel will not be joining them.
"Bechtel, which is already in charge of many millions worth of non-oil reconstruction work in Iraq, has bowed out of the running for up to $1 billion in contracts to repair the nation's oil industry.
"The contracts -- one for southern Iraq and the other for northern -- replace a no-competition contract awarded in March to Kellogg Brown & Root (KBR), a unit of Halliburton (nyse: HAL - news - people), the Texas oil firm once led by Vice President Dick Cheney.
"But some in the industry believe that KBR is first in line to get these new second-tranche contracts as the group has already been working in the Iraqi oil fields.
"Other firms, including a joint venture between the United States' Fluor Corp (nyse: FLR - news - people) and Britain's Amec Plc , are also set to submit their proposals.
"Bechtel, already the prime contractor chosen to help rebuild Iraqi infrastructure, such as its bridges, ports, schools and hospitals, said it would hold off bidding for the oil industry project from the U.S. Army Corps of Engineers.
""The Army Corps of Engineers' final work plan for Iraqi oil services work details their intent to accelerate the transition of responsibility to the Iraqi Oil Ministry, effectively minimizing the scope of any new contracts," a Bechtel spokesman said.
"The Corps of Engineers put out its new plan recently, which some took to mean that there is little work remaining to do.
"Many had expected Bechtel to bid for the oil work, and took their bowing out as a sign that KBR had an unfair advantage, although Bechtel would not comment on this and said only that it planned to focus on opportunities with the Iraqi Oil Ministry.
"There are some signs that the contracts are not destined for KBR, or KBR alone. The United States government said in bid documents that its preference was to award the contracts to two separate companies as the "geographic areas of the two contracts will not overlap".
"The U.S. Army Corps of Engineers admitted KBR had an advantage, since they had been at work in the fields for months...."
"WASHINGTON, Aug 13 (IPS) - It is no secret that U.S. defence and construction companies -- particularly those with close ties to the administration of President George W. Bush -- are making a lot of money in the post-war rush for contracts in Iraq.
"Firms whose directors held membership in Defence Secretary Donald Rumsfeld's Defence Policy Board (DPB) or in the 'Committee for the Liberation of Iraq' (CLI) did not appear to suffer any handicap, either.
"Two big winners, of course, were Halliburton, whose last CEO was Vice President Dick Cheney, and engineering giant Bechtel, whose senior vice president, Jack Sheehan, serves on the DPB. Former Secretary of State George Shultz, a Bechtel board member and former top executive, also chaired CLI, a supposedly non-governmental body that helped lead the march to war and dissolved itself late last month.
"Less well known is San Diego-based Scientific Applications International Corporation (SAIC), one of the Pentagon's largest, most lucrative, and politically connected contractors. Of the six billion dollars it earned in revenue last year, about two thirds of it came from the U.S. Treasury, mostly from the defence budget.
"SAIC is among the most mysterious and feared of the big 10 defence giants -- feared because of its ruthlessness in procuring contracts, says the 'Washington Post'; mysterious, in part because, as an employee-owned company, it does not have to file with the Securities and Exchange Commission (SEC), and because its press officers are notorious for not providing information. Indeed, for this article, SAIC press officers referred all questions to the Pentagon's general press office.
"SAIC, which specialises in advanced technologies that can be applied to the battlefield, particularly in command and control systems, is now deeply involved in the Pentagon's most important operations in Iraq.
"That it should be is really no surprise, taking into account its various connections. Among the hawks on the DPB, Rumsfeld's mini-think tank, for example, is retired Admiral William Owens, a former vice chairman of the Joint Chiefs of Staff who also served as SAIC's president and CEO and is currently its vice chairman.
"Another member of SAIC's board is retired Army Gen. Wayne Downing, who until last summer served as the chief counter-terrorism expert on the National Security Council (NSC) staff.
"Before that, Downing also served as a lobbyist for the Iraqi National Congress (INC) led by Ahmad Chalabi, the controversial Iraqi expatriate long championed by the neo-conservatives in the administration and the DPB. Like Shultz, Downing was also on the board of the CLI, which, not coincidentally, worked closely with the INC.
"Another prominent SAIC executive and former vice president also has a long-standing connection with Iraq: David Kay, the former U.N. weapons inspector who was hired by the Central Intelligence Agency (CIA) in June to head the effort to track down Iraqi weapons of mass destruction (WMD).
"A former senior science official in the Reagan administration, Kay argued forcefully last fall against relying on U.N. weapons inspections to ''contain'' Iraq and for removing Saddam Hussein from power.
"These connections may account for some of SAIC's success in landing Iraqi-related contracts...."
Steve Hawkes in London and Richard Thomson in New York
"MCDONALD'S, a symbol of American cultural expansion and home to the best-known hamburger in the world, is under siege from entrepreneurs battling it out to serve the first Big Mac in Iraq.
"The US fast food giant's head office in Chicago has been inundated with enquiries about opportunities in the oil-rich state since the end of the conflict, including dissidents keen to make their name back home.
"A company insider said: 'They have gone to other countries, become successful and want to go to Iraq and open a McDonald's.'
"The level of interest is not surprising given the lucrative nature of such a franchise and the rush to make money out of the chaotic reconstruction...."
"There is already mounting speculation that one of Iraq's wealthiest merchant clans, the al-Bunnia family, is in pole position for a McDonald's franchise.
"The family held licences with Nestle, Danone and United Biscuits before UN sanctions were introduced in the 1990s and has recently worked as a sub-contractor for US constructor Bechtel...."
"McDonald's expansion in recent years means that it now serves burgers in a host of Middle Eastern countries. It has 34 restaurants in neighbouring Kuwait and introduced the 'McArabia' - two grilled chicken patties wrapped in flat bread - into Egypt last week in a bid to beat a boycott of US products by Arabs angered by the Iraq conflict...."
By SELCAN HACAOGLU
Associated Press Writer
ANKARA, Turkey
"Iraq on Wednesday began pumping fresh crude oil from its northern oil fields for the first time since the war, through a pipeline leading to Turkey's Mediterranean coast, said a Turkish oil official at the oil terminal.
"Last month Iraq began exporting fresh crude oil from its southern oil field for the first time since the war.
"On Wednesday, Iraq began pumping oil from its northern oil fields at around 4:30 p.m., said the official, speaking on condition of anonymity, at Ceyhan terminal.
""This is the first Iraqi oil pumping through Turkey since the war. They started pumping and everything looks normal," the official said. "We don't know for how long they will keep pumping. It is up to Iraqis."
"The oil flow to Turkey was expected to be between 300,000 and 400,000 barrels a day, about half of prewar volumes, Dow Jones reported on Monday...."
"The oil Iraqi-Turkish pipeline runs from Iraq's Kirkuk oilfields to Ceyhan."
By DAVID IVANOVICH
Copyright 2003 Houston Chronicle Washington Bureau
"WASHINGTON -- Some of the nation's largest engineering and construction firms are bidding to take over the reconstruction work begun by Halliburton Co. in Iraq's oil fields.
"Fluor Corp. and Parsons are among the companies vying to win two key contracts from the U.S. Army Corps of Engineers to rebuild Iraq's still-devastated energy infrastructure.
"But some industry officials are questioning whether the bidding process has been skewed to favor Houston-based Halliburton subsidiary KBR, formerly known as Kellogg Brown & Root. And they worry that by the time another firm has a chance to get into Iraq, the bulk of the estimated $1.14 billion worth of work will already be completed.
"Bechtel, for instance, one of the world's largest engineering and construction firms, has decided not to bother: The Army Corps' work plan, a Bechtel spokesman said, "effectively" minimizes the scope of any new contracts.
"The Army Corps is looking for companies to serve as prime contractors to work with Iraq's northern and southern oil companies to help repair Iraq's oil pipelines, restring power lines and boost crude oil production.
"Firms must submit their bids by Thursday. The Army Corps plans to award the contracts by mid-October.
"The Army Corps has come under intense fire since March, when -- without seeking bids from competitors -- it handed KBR an exclusive contract to begin emergency repairs to Iraq's critically important oil sector.
"That decision prompted accusations of cronyism, since Vice President Dick Cheney once headed Halliburton. But Pentagon officials argued they needed a contractor in place in case Saddam Hussein torched hundreds of Iraqi oil wells and caused the kind of ecological devastation seen in Kuwait. Their fears turned out to be misdirected. The oil sector has suffered the most damage from looting and sabotage.
"Like the other firms, KBR will have an opportunity to bid for the two prime contracts, although the company would not say Tuesday if it plans to bid.
"For weeks, KBR's competitors have been complaining bitterly that the Houston firm enjoys untold advantages in this competition.
"First, KBR teams have been on the ground in Iraq for months. And to help facilitate the transition to Iraqi control, Iraq workers are being "embedded" in KBR's work teams.
"Last month, KBR officials -- as the current contractor -- were at the table when Iraqi oil ministry officials, together with the U.S.-led Coalition Provisional Authority and the Army Corps, were meeting in Baghdad to scope out the work needed to restore oil infrastructure to its pre-war levels. That work plan detailed 220 projects to be completed by the end of March.
"In questions submitted to the Army Corps, would-be bidders complained about KBR's "obvious competitive advantage" from those discussions.
"Army Corps officials insisted their decision to release the work plan had eliminated "any competitive advantage that KBR might have."..."
"A few days ago I talked to a soldier just back from Iraq. He'd been in a relatively calm area; his main complaint was about food. Four months after the fall of Baghdad, his unit was still eating the dreaded M.R.E.'s: meals ready to eat. When Italian troops moved into the area, their food was "way more realistic" — and American troops were soon trading whatever they could for some of that Italian food.
"Other stories are far worse. Letters published in Stars and Stripes and e-mail published on the Web site of Col. David Hackworth (a decorated veteran and Pentagon critic) describe shortages of water. One writer reported that in his unit, "each soldier is limited to two 1.5-liter bottles a day," and that inadequate water rations were leading to "heat casualties." An American soldier died of heat stroke on Saturday; are poor supply and living conditions one reason why U.S. troops in Iraq are suffering such a high rate of noncombat deaths?...
"There's also another element in the Iraq logistical snafu: privatization. The U.S. military has shifted many tasks traditionally performed by soldiers into the hands of such private contractors as Kellogg Brown & Root, the Halliburton subsidiary. The Iraq war and its aftermath gave this privatized system its first major test in combat — and the system failed.
"According to the Newhouse News Service, "U.S. troops in Iraq suffered through months of unnecessarily poor living conditions because some civilian contractors hired by the Army for logistics support failed to show up." Not surprisingly, civilian contractors — and their insurance companies — get spooked by war zones. The Financial Times reports that the dismal performance of contractors in Iraq has raised strong concerns about what would happen in a war against a serious opponent, like North Korea.
"Military privatization, like military penny-pinching, is part of a pattern. Both for ideological reasons and, one suspects, because of the patronage involved, the people now running the country seem determined to have public services provided by private corporations, no matter what the circumstances. For example, you may recall that in the weeks after 9/11 the Bush administration and its Congressional allies fought tooth and nail to leave airport screening in the hands of private security companies, giving in only in the face of overwhelming public pressure. In Iraq, reports The Baltimore Sun, "the Bush administration continues to use American corporations to perform work that United Nations agencies and nonprofit aid groups can do more cheaply."..." [Links & emphasis added.]
* * *
Excerpts from the July 31, 2003 Newhouse article cited by Paul Krugman follow:
"WASHINGTON -- U.S. troops in Iraq suffered through months of unnecessarily poor living conditions because some civilian contractors hired by the Army for logistics support failed to show up, Army officers said.
"Months after American combat troops settled into occupation duty, they were camped out in primitive, dust-blown shelters without windows or air conditioning. The Army has invested heavily in modular barracks, showers, bathroom facilities and field kitchens, but troops in Iraq were using ramshackle plywood latrines and living without fresh food or regular access to showers and telephones.
"Even mail delivery -- also managed by civilian contractors -- fell weeks behind.
"Though conditions have improved, the problems raise new concerns about the Pentagon's growing global reliance on defense contractors for everything from laundry service to combat training and aircraft maintenance. Civilians help operate Navy Aegis cruisers and Global Hawk, the high-tech robot spy plane.
"Civilian contractors may work well enough in peacetime, critics say. But what about in a crisis?
""We thought we could depend on industry to perform these kinds of functions," Lt. Gen. Charles S. Mahan, the Army's logistics chief, said in an interview.
"One thing became clear in Iraq. "You cannot order civilians into a war zone," said Linda K. Theis, an official at the Army's Field Support Command, which oversees some civilian logistics contracts. "People can sign up to that -- but they can also back out."...
"For almost a decade, the military has been shifting its supply and support personnel into combat jobs and hiring defense contractors to do the rest. This shift has accelerated under relentless pressure from Defense Secretary Donald Rumsfeld to make the force lighter and more agile....
"Thanks to overlapping contracts and multiple contracting offices, nobody in the Pentagon seems to know precisely how many contractors are responsible for which jobs -- or how much it all costs.
"That's one reason the Bush administration can only estimate that it is spending about $4 billion a month on troops in Iraq. White House Budget Director Joshua Bolten said this week he could not even estimate the cost of keeping troops in Iraq in fiscal 2004, which begins Oct. 1.
"Last fall the Army hired Kellogg Brown & Root, a Houston-based contractor, to draw up a plan for supporting U.S. troops in Iraq, covering everything from handling the dead to managing airports. KBR, as it's known, eventually received contracts to perform some of the jobs, and it and other contractors began assembling in Kuwait for the war.
"But as the conflict approached, insurance rates for civilians skyrocketed -- to 300 percent to 400 percent above normal, according to Mike Klein, president of MMG Agency Inc., a New York insurance firm. Soldiers are insured through the military and rates don't rise in wartime.
"It got "harder and harder to get (civilian contractors) to go in harm's way," said Mahan, the Army logistics chief."
"Iraq is swimming in oil, but anybody who thinks that such natural wealth translates into a fat and happy middle class is in for a crude awakening.
"Precious resources alone - whether oil or gold or diamonds - rarely raise nations from poverty to prosperity. Countries usually become poorer, more corrupt and more prone to coups, wars and tyranny than their less-endowed neighbors, recent studies show.
""It's a big problem, this myth about oil - that if you have it, everybody is going to be rich," said Terry Lynn Karl, a Stanford University political scientist who studies developing nations that depend on the sale of their natural resources.
"Amid the violence and chaos in their country, many Iraqis look longingly to a day when they can share the wealth that had been hoarded by ousted ruler Saddam Hussein.
"The Bush administration has promoted that notion in its fitful efforts to pacify an impatient populace and quell attacks on the U.S.-led occupation force.
"But even if the administration meets its goals to have Iraq's battered, looted oil infrastructure pumping petroleum at pre-war levels of 2.5 million barrels a day early next year, some Iraqis are certain to be disappointed. Washington wants to use those revenues to repair the damage done since the war, not just write checks to Iraqis...."
"The promise of oil revenues which US officials had counted on as an essential component of their plan to rebuild Iraq has not materialized, and it is beginning to look like it won't for at least two or three more years at best, even if continuing sabotage can be foiled.
"While in mid-April various experts were predicting that oil exports could resume in a matter of weeks, that has not happened as quickly as it should have and oil facilities continue to be sabotaged today.
"Oil industry experts have long known that a large share of the oil income would have to be spent to repair and upgrade those facilities. That means that the money for reconstruction efforts has to come from the international community and not from the Iraqi oil sector.
"The reality is there won't be any surplus Iraqi oil income for at least three to five years under a best-case scenario. Considering that American administrator L Paul Bremer said, when last in Washington, that "oil revenues are 100 percent of our budget", that means that the Iraqi council next year that is going to be responsible for the 2004 budget is going to be allocating a deficit, and a huge one at that.
"There was initial optimism because the worst-case scenario of damage to Iraqi oilfields from fighting during the war did not occur - a la the torching of Kuwaiti oil fields in 1991. Officially, by the end of the war only nine oil well fires were set by the retreating Iraqi forces, of out 1,800 in more than 500 oil fields in the southern region. The northern oil fields in Kirkuk and Mosul were not set afire.
"But the cumulative effects of more than 20 years of underinvestment, mismanagement, neglect and lack of modernization due to sanctions have left Iraq's oil sector in a sorry state. Since before the war many US officials said reconstruction would be paid for by oil revenues, this is a huge problem. Iraq only earned $12.5 billion in oil exports in 2002, and its current export capacity may be down from over 2 million barrels a day in 2000 to around 800,000 - if there is no further sabotage...."
"Big engineering and construction companies are still scrambling to compete for a shrinking piece of Iraqi oil-reconstruction work, though they are increasingly frustrated that little will be left for them to handle, Monday's Wall Street Journal reported.
"Fluor Corp. (FLR) of Aliso Viejo, Calif., and Parsons Corp. of Pasadena, Calif., are pressing on for what they see as a chance to establish a foothold for future work inside Iraq. Bechtel Group Inc., which already won a $680 million contract to rebuild Iraq's nonoil infrastructure, is opting not to pursue U.S.-sponsored oil work right now, saying it will wait to work with the new Iraqi government.
"Other corporations expected to be bidding for the two new oil-reconstruction contracts include Foster Wheeler Ltd. and the incumbent, Halliburton Co.'s Kellogg Brown & Root unit. The bids are due Thursday, and will be awarded in October.
"As reported last month, several companies have been expressing concern about the contract to the U.S. Army Corp of Engineers for weeks, worried that Halliburton will have completed much of the work first and that later work will be turned over to Iraq's new government. Though unwilling to complain publicly, several industry executives have criticized the process as favoring Halliburton, which won a no-bid contract before the war and already in inside that country doing the work.
"Wall Street Journal Staff Reporters Susan Warren, Jim Carlton and Chip Cummins contributed to this article."
U.S. DEFENDS PRIVATE SECTOR'S IRAQ CONTRACTS U.N., nonprofit agencies could do work for less; Millions spent on rebuilding; Firms are more efficient and flexible, official says By Mark Matthews
Sun National Staff
Originally published August 10, 2003
"WASHINGTON - With U.S. taxpayers bearing most of the cost of occupying Iraq, the Bush administration continues to use American corporations to perform work that United Nations agencies and nonprofit aid groups can do more cheaply, a senior Bush administration official acknowledged.
"The administration is paying hundreds of millions of dollars to U.S. corporations not only for major infrastructure projects such as roads and bridges, but also for harbor dredging, repairs to electrical systems and buildings, and health services.
"The smaller jobs are all tasks that the United Nations and nonprofit groups have broad experience performing in Iraq and other nations recovering from wars. In fact, they are performing some of them, funded by the international community, alongside U.S. contractors in Iraq....
"The decision to rely on American companies occurred against a backdrop of suspicion of the United Nations and of NGOs among conservative activists with close ties to the Bush administration. The fear is that NGOs are using their growing influence to promote their often liberal agendas.
"For the immediate postwar work on reconstruction and the repair of oil fields, the administration restricted the bidding process to firms that officials knew had a solid track record and the necessary security clearances to start quickly.
"The KBR subsidiary of Halliburton, the Texas company formerly led by Vice President Dick Cheney, was chosen in a secret process to perform what some reports said was $7 billion in oil field repairs. Bechtel, a giant international construction firm with close government ties, was hired for a range of reconstruction projects under a $680 million, 18-month contract.
"The choice of both firms created an immediate international furor, feeding suspicion that the invasion of Iraq had an underlying economic motive, something that the administration has repeatedly denied.
Process under review
"Under congressional pressure, the U.S. Army Corps of Engineers sharply reduced KBR's award. Nevertheless, the General Accounting Office, responding to requests from Democratic Reps. Henry A. Waxman of California and John D. Dingell of Michigan, is reviewing the bidding process.
"USAID also hired Stevedoring Services of America for $4.8 million to assess work required at Iraq's large southern port, Umm Qasr; Creative Associates International Inc. for as much as $62.6 million for help with the Iraqi school system; and Abt Associates for $43.8 million for health services.
"Most recently, the agency hired a Virginia-based contractor, BearingPoint Inc., for $9 million to "foster economic rehabilitation and reform" in Iraq.
"Although duplication has been avoided, both Bechtel and the United Nations are in some cases doing the same kinds of work, though in the case of Bechtel, the American taxpayer is footing the bill.
"For example, both Bechtel and the U.N. Development Program are dredging and clearing wrecks from the Umm Qasr harbor. Bechtel says it has dredged 3 million cubic meters as part of a $45 million project. USAID credits the firm with opening the port to commercial traffic June 16 and to passenger traffic June 24.
"Using a $2.5 million grant from Japan, the U.N. agency dredged 600,000 cubic meters in 11 days to clear the way for large vessels carrying humanitarian aid and has started a larger, $46 million project at the port with money from the U.N. oil-for-food program in Iraq.
U.N. expertise
"Bechtel and the U.N. agency are also working to repair Iraq's electrical system, which has suffered repeated blackouts since Baghdad fell in April. The difference is that the U.N. agency had recent experience with Iraq's electrical grid, having worked on the system in Kurdish-controlled northern Iraq during the past decade.
""In terms of a learning curve and knowledge of local parties, clearly [U.N. organizations] win hands down over Bechtel," said Durch of the Stimson Center.
"Likewise, Bechtel and UNICEF are repairing schools and water systems. UNICEF, which kept a large staff in Iraq throughout the decade of U.N.-imposed sanctions, says it has gathered a number of contractors who can build schools for 500 students for $20,000.
"Bechtel has budgeted $50 million to repair 1,330 schools and clinics and 15 fire stations, but a spokesman said that "no cost comparison is valid without accounting for differences in type and size of institution and level of repairs needed."
"Although Bechtel has a reputation for tackling major jobs, it needed time to gear up for its work in Iraq. A spokesman said 90 percent of the company's work there is being subcontracted. USAID wants local Iraqi businesses and coalition partners to be given preference.
"The kind of efforts on education and economic development for which USAID hired U.S. companies has been performed in other countries by a number of charitable groups, including Save the Children, CARE, Oxfam and the Baltimore-based Catholic Relief Services...."
"Carlyle Group Inc., a private equity firm whose senior executives include former U.S. cabinet members and ex-President George H.W. Bush, has turned a $180-million 1997 investment in United Defense Industries Inc. into $1.2 billion.
"Carlyle yesterday sold shares worth $270 million in United Defense, which makes the Bradley Fighting Vehicle as well as artillery, naval guns, missile launchers and munitions. Carlyle has sold almost $500 million in shares of the company in public offerings since 2001, pocketed about $350 million in dividends before the company went public, and still owns about $350 million of stock, according to Securities and Exchange Commission filings.
"Carlyle acquired United Defense in October 1997, buying out previous owners FMC Corp. and Harsco Corp. Carlyle is replete with famous names. Senior advisers include former British Prime Minister John Major, former U.S. Secretary of State James Baker, former Securities and Exchange Commission chairman Arthur Levitt, and Richard Darman, budget director under the former President Bush. Frank Carlucci, defense secretary under President Ronald Reagan and chairman emeritus of Carlyle, has been a director since 1997, as has former MCI Communications Corp. Chief Financial Officer William E. Conway, one of four founders of Carlyle, who serves as United Defense's chairman.
"United Defense has acknowledged Carlyle's connections helped its business. "Our board of directors consists of members who have served in senior positions within the U.S. government, such as secretary of defense, chairman of the Joint Chiefs of Staff and commander-in-chief of the United States Central Command," it said in its October 2001 prospectus. The management and board's "unique insights into the U.S. Department of Defense and allied militaries is one of our key assets."..."
"GREENWICH, Conn. (AP) A Greenwich resident will serve as director of private sector development in Iraq, in an appointment by President Bush.
"Thomas Foley, 51, who said he befriended Bush in 1974 when they both attended Harvard, will report directly to the top U.S. administrator in Iraq, Paul Bremer, the Greenwich Time reported.
"Foley is chairman and founder of the NTC Group, a private equity investment company. He was chairman of Bush's Connecticut campaign finance committee in 2000, after raising more than $100,000 for his college friend.
"Foley plans to leave for Iraq early next week and stay in Baghdad for nine months. He was appointed to the post last week during a visit with the president in Washington.
"He will be in charge of 200 state-owned enterprises, including mining, chemical, cement and tobacco companies. Oil production and two state-owned banks are the only industries that will not be under his supervision, he said.
"Second, over the next six months, he will draft a privatization plan for the state-owned businesses.
"Finally, he will manage all trade and foreign investments into Iraq...."
David Teather, New York
Saturday August 9, 2003
The Guardian
"One of the main bidders for the lucrative contract to rebuild the Iraqi oil industry has dropped out of the race, amid concerns that the tender process unfairly favours Halliburton, the company with close ties to the US vice-president, Dick Cheney.
The construction giant Bechtel, one of the biggest engineering companies in the world, now plans to sidestep Washington and apply directly to the Iraqi oil ministry for work.
"The growing disquiet over cronyism in George Bush's administration was further stirred yesterday when it emerged that a friend of the president who helped his election campaign had been hired as the director of private development in Iraq.
"Thomas Foley, 51, befriended Mr Bush when they attended Harvard. He will be in charge of 200 state-owned enterprises including mining, chemical, cement and tobacco production, and report directly to the top US administrator in Iraq, Paul Bremer.
"A Halliburton subsidiary, Kellogg Brown & Root, was quietly awarded a contract without tendering in the spring to perform immediate repairs to Iraq's oil infrastructure, and extinguish oil fires. The Army Corps of Engineers said the work, which could be worth up to $7bn (£4.3bn), was part of a wider contract signed last year.
"Two further contracts worth $500m each for repair work in the oil industry have since been offered.
"However, a week ago, the date for completion of the work was brought forward to December 31, sparking concerns that the deadline would be nearly impossible to meet for any company not already on the ground in Iraq...."
"The Bechtel Group, one of the world's biggest engineering and construction companies, has dropped out of the running for a contract to rebuild the Iraqi oil industry, as other competitors have begun to conclude that the bidding process favors the one company already working in Iraq (news - web sites), Halliburton.
"After the United States Army Corps of Engineers quietly selected Halliburton in the spring to perform early repairs of the Iraqi oil business in the aftermath of the war, other companies and members of Congress protested that the work should have been awarded through competitive bidding.
"Halliburton's role in the rebuilding has been under political scrutiny because the company was formerly headed by Vice President Dick Cheney (news - web sites). But the Bush administration and the Corps of Engineers, which is overseeing the Iraqi oil reconstruction effort, have repeatedly said that Halliburton has no inside track.
"Preliminary plans for a new contract, which industry executives had thought might total $1 billion, were announced late in June by the Corps of Engineers. The bidding was meant, in part, to introduce competition and a sense of fairness into the lucrative Iraqi reconstruction market, an executive with a major engineering concern said. Like many industry executives, he would speak only on condition of anonymity because his company does not want to jeopardize its chances for future government contracts.
"But in the last month, the corps, which is overseeing the reconstruction efforts, has specified a timetable for the work that effectively means that the value of any contract companies other than Halliburton could win would be worth only about $176 million, according to Corps of Engineers documents and executives in the engineering and construction business...."
"Earlier this week, Bechtel cited the timetable as its reason for dropping out of the bidding. The company now plans to deal directly with the Iraqi oil ministry for future reconstruction work, a spokesman, Howard N. Menaker, said.
"Although the oil ministry and the Army Corps of Engineers nominally cooperate, industry analysts say the Americans have the upper hand...."
"As the bidding deadline looms on two big contracts to repair Iraqi oil facilities, some competitors grumble privately that the process favors Halliburton, the Texas oil firm formerly headed by Vice President Dick Cheney, because the bidding specifications closely resemble what one of its divisions is currently doing in Iraq.
"Before the Iraq war, Halliburton's KBR division, formerly known as Kellogg, Brown & Root, had been awarded a secret, no-bid contract worth up to $7 billion. But congressional pressure forced the Army Corps of Engineers to rescind most of that award and reopen the work to competition.
"Now, the Army Corps is soliciting bids on two contracts for that work. One is to repair facilities in north and the other in southern Iraq. Each could be worth up to $500 million over the next few years. Those bids are due Aug. 14, and Army Corps officials have said they will make awards in October.
"But disenchanted competitors -- who include some of the world's best-known engineering firms (though not San Francisco's Bechtel Corp.) -- say the very nature of the bidding process gives the inside track to Halliburton. That's because its KBR division is already doing some oil repair work in Iraq under an abridged version of the now-rescinded $7 billion secret contract.
"One potential bidder, who attended a July 14 meeting in Dallas where Army Corps officials answered questions about the contracts, explained the basic complaint.
"According to the source, who spoke on condition of anonymity, the two contracts up for bid cannot specify precisely what work needs to be done because the needs of the Iraqi oil industry have not yet been laid out.
"Given this uncertainty about the scope and therefore, the cost of the work, each bidder is being asked to lay out its track record in a dozen broad categories. They include things from putting out oil well fires and assessing damage to maintaining pipelines and refineries and helping the Iraqis export their oil.
"Prospective bidders are also being asked to show the Army Corps how they would handle two scenarios: putting out oil well fires and doing damage assessments on Iraqi facilities, according to the official bidding specifications.
"But the source complained that the firefighting part of the process had no real bearing on the nature of the work, because burning wells are not a problem. More importantly, the source said, damage assessment is exactly what KBR is doing in Iraq right now.
""They have data and information the rest of us are not even capable of gathering," the source said. "Without having been there to see the facilities and know whether they have been bombed or looted, it's hard to put together a cohesive plan that represents reality."..."
"An executive order signed by President Bush more than two months ago is raising concerns that U.S. oil companies may have been handed blanket immunity from lawsuits and criminal prosecution in connection with the sale of Iraqi oil.
"The Bush administration said Wednesday that the immunity wouldn't be nearly so broad.
"But lawyers for various advocacy organizations said the two-page executive order seemed to completely shield oil companies from liability — even if it could be proved that they had committed human rights violations, bribed officials or caused great environmental damage in the course of their Iraqi-related business.
""As written, the executive order appears to cancel the rule of law for the oil industry or anyone else who gets possession or control of Iraqi oil or anything of value related to Iraqi oil," said Tom Devine, legal director for the Washington-based Government Accountability Project, a nonprofit group that defends whistle-blowers....
"According to the order, "any attachment, judgment, decree, lien, execution, garnishment or other judicial process is prohibited, and shall be deemed null and void, with respect to the following:
""(a) the Development Fund for Iraq and
""(b) all Iraqi petroleum and petroleum products, and interests therein, and proceeds, obligations or any financial instruments of any nature whatsoever arising from or related to the sale or marketing thereof, and interests therein, in which any foreign country or a national thereof has any interest, that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of United States persons."
"The order defines "persons" to include corporations, and covers "any petroleum, petroleum products or natural gas originating in Iraq, including any Iraqi-origin oil inventories, wherever located."
"Betsy Apple, an attorney for Earthrights International, which brings lawsuits on behalf of alleged victims of human rights abuses abroad, said the scope of the order goes far beyond the way the Treasury Department has billed it.
""It's very disingenuous to suggest that the only thing that's being protected here are development funds for Iraq," she said. "That's trying to hide the fact that it's the oil companies who are doing that work and generating those proceeds."..."
Officials say it will take at least a year to restore pre-war levels
"The liberation of Iraq and the overhaul of its creaky oil production system were supposed to boost supplies and help lower prices. That may yet happen. But with Iraq still producing less than half of its pre-war output, oil prices have shot up to levels not seen since the war started. And consumers will likely have to wait awhile before prices ease again....
"Though Iraq’s oil industry sustained relatively little damage during the fiercest fighting, widespread looting throughout the country after the invasion of Baghdad sharply cut production capacity.
"U.S. officials hailed the resumption of Iraqi oil exports last month. But much of that is coming from millions of barrels stockpiled at the Turkish Mediterranean port of Ceyhan before the war began. The major pipeline supplying Ceyhan from the oil-rich northern Iraqi fields surrounding Kirkuk remains largely shut down...."
"BAGHDAD, Iraq - An American civilian delivering mail to the U.S. Army died Tuesday when his truck was blown apart by a remote control bomb north of Tikrit, the military and his employer said....
"The slain U.S. civilian worked for Kellogg Brown & Root, a subsidiary of Halliburton, a Houston-based oil field-services and construction company. Halliburton is the former company of Vice President Dick Cheney which has major contracts for reconstruction in both Iraq and Afghanistan.
"Company spokeswoman Wendy Hall said the worker was on a daily mail run from Baghdad International Airport to the Tikrit region when the mine was exploded. Tikrit is 120 miles north of the capital.
"Hall said the dead employee was with a team supporting the U.S. Army Corps of Engineers and that two fellow workers were in the convoy but not hurt. The military and the company declined to identify the victim.
"It was not immediately clear if the civilian contractor was the first to die in Iraq, but their deaths have been rare, despite their work in extremely dangerous conditions.
"Cheney's former company already has garnered more than $600 million in military work related to the wars in Afghanistan and Iraq. Most of that is from work orders to support U.S. troops - delivering mail, serving food, building infrastructure - but the company also has a contract worth more than $70 million to rebuild Iraq's oil industry.
"Kellogg Brown & Root had been doing work at the Baiji refinery and pipeline terminus about 30 miles north of Tikrit. The company's contracts potentially could earn billions more without having to compete with other companies - raising complaints of favoritism by some in Washington...."
They fly helicopters, guard military bases and provide reconnaissance. They're private military companies--and they're replacing U.S. soldiers in the war on terrorism
B Y B A R R Y Y E O M A N
"At a remote tactical training camp in a North Carolina swamp, six U.S. sailors are gearing up for their part in President Bush's war on terrorism. Dressed in camouflage on a January afternoon, they wear protective masks and carry nine-millimeter Berettas that fire nonlethal bullets filled with colored soap. Their mission: recapture a ship--actually a three-story-high model constructed of gray steel cargo containers--from armed hijackers.
"The men approach the front of the vessel in formation, weapons drawn, then silently walk the length of the ship. Suddenly, as they turn the corner, two "terrorists" spring out from behind a plywood barricade and storm the sailors, guns blazing. The trainees, who have instinctively crowded together, prove easy pickings: Though they outnumber their enemy 3-to-1, every one of them gets hit. They return from the ambush with heads hung, covered in pink dye.
""You had people hiding behind their teammates!" barks their instructor, Tony Torres, a compact man with freckles and salt-and-pepper hair. "That's as shameful a thing as I can think of. That's fucked up. That's just fucked up." When approaching a "bad guy," Torres reminds them, a unit must move aggressively, fanning out to divert the terrorists' attention. "You guys need to get your shit together," he scolds. "There's not a lot of cover in this structure. The only thing to do is move toward your threat."
"The men listen attentively. They know that Torres, a Navy vet, honed his skills during nine years in the service, performing search-and-rescue operations and providing nuclear-weapons security. But Torres no longer works for the military. These days he is an employee of Blackwater USA, a private company that contracts with the U.S. armed forces to train soldiers and guard government buildings around the world. Every day, the Navy sends chartered buses full of trainees 25 miles from Naval Station Norfolk, the world's largest naval base, to the company's 5,200-acre facility in Moyock, N.C. Last fall, Blackwater signed a $35.7 million contract with the Pentagon to train more than 10,000 sailors from Virginia, Texas, and California each year in "force protection." Other contracts are so secret, says Blackwater president Gary Jackson, that he can't tell one federal agency about the business he's doing with another...."
