Saturday, May 31, 2003

A list of electrical priorities hung on the wall in Baghdad: hospitals first, then water plants, sewage, business and industry.

A huge chart of the electricity grid was also stuck on the wall inside the ornately roofed room once inhabited by the privileged few Ba’athist leaders.

The electricity committee of the U.S. Office for Reconstruction and Humanitarian Assistance on Tuesday held the first of three meetings on restoring power to Iraq.

Electricity is the key to rebuilding the war-torn country because it allows industry to restart and water to flow, as well as bringing light.

“The whole of greater Baghdad is energized,” said the U.S.-appointed electrical commission chief, Karim Hassan. “We’ve had to cut some corners and improvise to get things linked up.”

The amount of electricity inside the system is 1,000 megawatts, less than half of Baghdad’s previous output. But specialists at the meeting said it should be sufficient for citizens’ needs, given that industry, a huge consumer, has barely restarted, and that the Iraqi armed forces have disappeared, along with their considerable demands for power.

The problem, though, lies in the distribution; specifically at the substations.

“With this amount of power available, I need to see more houses with their lights on,” said Gen. Steven Hawkins, the utilities task-force commander, who works with Mr. Hassan. “It’s just not good enough. I can’t understand why it’s not happening. More power, more power.”

Some ideas emerged on how to supplement electricity supplies.

For example, hydropower is not being tapped.

Complaints abounded about thieves undoing reconstruction work, often stripping wires of their valuable copper.

One Iraqi official suggested a solution to a problem in east Baghdad, where seven substations have been put out of action: “Let’s pay the tribes to guard the facilities. That way they can stop their guys from stealing and make just as much money.”

Outside help is also needed but not readily available. Russian and German companies that provided power services disappeared as the war began in March. They are coming back — but only to discuss feasibility and security issues.

U.S. divides up the pie

Despite the security situation, thousands of companies around the world want a hand in rebuilding Iraq, including electric systems and oil to health and education.

Much of the country is returning to normal, slowly but surely. Services have returned, sometimes to prewar levels but often not. Huge amounts of work still need to be done.

The cost of rebuilding Iraq is estimated to be $50 billion to $100 billion and is expected to continue for several years.

An Iraqi government is expected to make long-term reconstruction decisions, and Iraqi money — seized from Saddam Hussein’s government and from oil revenue — is expected to pay the costs.

But business opportunities now are largely limited to U.S. government contracts. The Office for Reconstruction and Humanitarian Assistance (ORHA) at the Pentagon has taken the lead on reconstruction, and the State Department’s U.S. Agency for International Development (USAID) has doled out most major work orders.

The Army Corps of Engineers and another State Department bureau also have awarded contracts.

All have gone to U.S. companies.

As much as 90 percent of each contract can be farmed out to subcontractors from around the globe — only Iran, North Korea, Syria, Libya and Cuba-based operations are excluded.

“The official USAID policy, which we follow, is that all companies not prohibited by law or regulation will compete on an equal and competitive basis,” said Howard N. Menaker, public affairs manager for Bechtel Infrastructure in Washington.

Iraqi companies, eligible to work as subcontractors since U.N. and U.S. sanctions were lifted, are keen — and qualified — to rebuild their country, Bechtel officials said.

Bechtel Group, based in San Francisco, won the biggest USAID reconstruction contract for emergency repair work.

Bechtel lures subcontractors

Bechtel is the roving emergency room for battered municipal services. The company’s contract is worth $680 million over 18 months. The work covers emergency repair of power facilities, electrical grids, water and sewage systems, air and sea ports, and reconstruction of hospitals, schools, irrigation structures and transportation links.

Bechtel has set up a Web site for subcontractors, and as of last week nine companies — from the United States, Britain, Kuwait and Saudi Arabia — had won 14 subcontracts.

“We certainly hope there are other opportunities to get additional work,” said David Liddle, vice president for global sales at Verestar in Fairfax. The firm is a Bechtel subcontractor working on emergency satellite communications.

More than 1,500 companies turned out for a May 21 conference in the District on subcontracting opportunities, the company estimated. More than 1,000 showed up two days later in London, and 1,500 showed up last week in Kuwait City.

Thousands more have registered on the company’s Web site as businesses eye contracts for the high-profile projects.

But Bechtel, which estimates that subcontracts will average about $500,000 each, is just one piece of the effort.

Black gold

Crude oil is by far the biggest sector for investment. Iraq has the second-largest proven oil reserves in the world, after Saudi Arabia, and the potential to export 6 million to 7 million barrels per day.

But years of neglect, sanctions and a violent outbreak of looting has set the industry back. As of last week, Iraq was unable to produce enough petroleum products for domestic consumption.

Gasoline lines were as long as ever in Baghdad on Wednesday morning. Cars had parked half a mile from the stations, their owners slouched in the seats, asleep since 4 a.m., waiting for a morning fill-up.

“There is a massive effort by coalition forces to address the fuel and cooking problem,” said Gen. William Wallace, commander of the 5th Corps, which controls Baghdad and western and northern Iraq.

The situation could have been worse.

The Pentagon expected Saddam to torch oil wells and fields, creating an environmental and financial disaster. The Army Corps of Engineers, taking the lead contracting role on oil-related projects, awarded one contract to Kellogg Brown & Root, a subsidiary of Halliburton, for work putting out oil fires and assessing damage to the country’s oil infrastructure.

An Army Corps spokesman, who asked not to be named, said the project is worth an estimated $600 million.

The no-bid contract focused congressional critics of the war and reconstruction effort. Vice President Dick Cheney led Halliburton until the 2000 presidential race.

Even though Saddam did not destroy Iraqi oil fields, production has plummeted from around 2 million barrels per day in the months leading up to the war. Today is the target date for production to meet domestic needs — 580,000 barrels per day in the north and 550,000 in the south, a Corps spokesman said.

Iraq’s acting oil minister last week said that the country was producing 700,000 barrels of oil a day and would be able to resume exports this month, according to the Associated Press.

At least one additional oil-related contract is in the works, the spokesman said, but because it will be up for bid worldwide, it is not likely to be awarded before fall. The scope of the work and value of the contract have not been decided.

Frustrating process

For companies seeking work, the Commerce Department has established an Iraq Reconstruction Task Force and a “one-stop shop” Web site to provide them with information. Each government agency offering contracts also has extensive information on its site.

But there is no clearinghouse for authoritative information on all potential projects in Iraq, and each company is responsible for its own subcontracts.

“It’s kind of a little frustrating right now,” said James Morrison, president of the Small Business Exporters Association, a D.C. association for small and midsize businesses.

Government agencies seem interested in providing information and using U.S. companies, but the process is difficult to navigate, he said.

“I understand [the agencies] are swamped,” Mr. Morrison said.

Judd Kessler, a partner at the law firm Porter Wright Morris & Arthur, is working with a half-dozen companies interested in subcontracting work.

“This is a human effort, so it ain’t perfect. On the whole I would say AID did a decent job,” said Mr. Kessler, a former chief counsel for Middle East programs at USAID.

Criticism grows

Others have been more critical.

“Because the structure is so unorganized, no one knows who is paying or who is in charge,” said Ahmed Shaffiq Agha, head of the Iraqi National Congress’ human rights office. The congress opposed Saddam Hussein’s rule and is vying for a leadership role in Iraq.

Mr. Agha, speaking by telephone from London, said a visit last week to Baghdad indicated that little or no progress had been made in improving life in Iraq’s capital since it fell to coalition forces April 9.

Politically, the contract process has run into some intense criticism, especially from Democrats on Capitol Hill. But Republicans also have questioned reconstruction efforts.

“I am concerned that the administration’s initial stabilization and reconstruction efforts have been inadequate. The planning for peace was much less developed than the planning for war,” said Sen. Richard G. Lugar, chairman of the Foreign Relations Committee at a May 22 hearing on reconstruction.

The Indiana Republican has called a series of hearings on the administration’s efforts.

Rep. Henry A. Waxman, California Democrat and ranking member of the Government Reform Committee, has asked the General Accounting Office to investigate some of the awards and has questioned USAID on the projects, citing “confusion and concern” about the contracts.

At the hearing last month, Sen. Joseph R. Biden Jr., Delaware Democrat, asked Deputy Defense Secretary Paul Wolfowitz whether the United States would have to maintain a presence for “three, four, five, six, eight, 10 years, with thousands of forces and spending billions of dollars.”

“Senator, the problem is, it is very difficult to predict. It is possible, and it’s possible that things will go faster,” Mr. Wolfowitz said. He said much of the criticism of the administration’s efforts in Iraq stems from “an incomplete understanding of the situation in Iraq as it existed before the war and an unreasonable expectation of where we should be now.”

WorldCom contract

Another source of criticism has been a Pentagon telecommunications contract awarded to MCI, formerly WorldCom.

The Pentagon chose the bankrupt company, which committed the largest accounting fraud in U.S. history, to build a cellular telephone network in Baghdad.

The contract to build the cellular network is worth $24 million to $34 million, said Lt. Col. Ken McClellan, an ORHA spokesman.

Col. McClellan said MCI had been instrumental in telecommunications work in Afghanistan and Haiti. But the company has limited experience with cellular networks, and competitors and watchdog groups questioned the deal.

Sen. Susan Collins, Maine Republican and Governmental Affairs Committee chairman, has started an investigation into federal contracts awarded to MCI.

Citing “massive accounting fraud” at WorldCom, Mrs. Collins also asked the General Services Administration to explain past government awards.

Lack of security hinders work

USAID awarded contracts to seven companies besides Bechtel. Their experiences have depended largely on where they are working. The southern port city of Umm Qasr is relatively secure; elsewhere, especially in Baghdad, looting and lawlessness make reconstruction efforts perilous.

Stevedoring Services of America, a Seattle company, took over management of Iraq’s main port in Umm Qasr on May 22.

The firm’s one-year contract calls for it to manage delivery of humanitarian supplies and materials for reconstruction, hire pilots to guide ships up the channel, coordinate warehousing, track shipments, store cargo, and coordinate movement of goods out of the port and into Iraq’s interior.

The company had 12 employees in the region and had hired 200 Iraqis to help unload supplies as of last week, said Andy McLauchlan, senior vice president of business development and marketing.

Other businesses are still in the fact-finding phase and hindered by a lack of security.

“There is limited access for contractors,” said a Bethesda-based official for Abt Associates Inc.

Reorganizing health services

Abt, based in Cambridge, Mass., won a contract to help revamp Iraq’s health care system. The company will focus on distribution of medical supplies, hospital assessment and improving health care administration, said the official, who is supporting the start of Iraqi operations and asked not to be named.

“The security environment remains a concern,” the official said.

Baghdad hospitals were looted in March as medical staff fled or were unable or unwilling to come into work through dangerous roads as U.S. troops poured into the city.

The degree of damage was less than widely reported: One survey showed that seven out of 27 facilities were seriously pillaged.

Several hospitals, especially the main one in the poor area of Thawra City (formerly Saddam City), managed to keep functioning during the war, thanks to makeshift security teams set up by local Shi’ite leaders.

The country has enough pharmaceuticals, although getting them to the right places has proven to be a problem. International aid groups have flooded Baghdad with material that is unnecessary, such as far too many crutches.

The main problem is how to reorganize the health service, and how to remove health administrators and some doctors who reached positions of power thanks to their Ba’ath Party seniority rather than skill.

“We had a crunch meeting here in the ministry last Sunday, with 80 to 100 people crowding into this small and once-elite boardroom,” said Maj. George Thompson, a U.S. Army doctor who serves in the Medical Corps.

“The ORHA chief for the health service, Stephen Browning, fired two directors, another seven resigned on the spot, and the remaining seven will have to take their chances in running for election by the health staff.”

When Mr. Browning told the staff what had just happened, he declared that “this is where democracy starts” and told them they could elect their new directors.

Everyone broke into applause.

“What we are looking for in middle and top managers is enthusiasm, drive, initiative, fire in the belly,” said Charles Dobson, who was sent to Baghdad by the British Health Ministry.

“We want attitude. The Iraqis tell us what they are looking for. They know B.S. when they see it and enjoy speaking out now that the constraints have gone.”

• Correspondent Paul Martin in Baghdad contributed to this report.

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