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<http://online.wsj.com/home> The Wall Street Journal
August 28, 2003 8:52 a.m. EDT
PAGE ONE
IRAQ IN TRANSITION
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03-fset.html','rebuilding','toolbar=no,scrollbars=no,location=no,width=700,h
eight=509,left=20,top=30');%20void('');> [go to Nation Building interactive
graphic]
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03-fset.html','rebuilding','toolbar=no,scrollbars=no,location=no,width=700,h
eight=509,left=20,top=30');%20void('');>
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03-fset.html','rebuilding','toolbar=no,scrollbars=no,location=no,width=700,h
eight=509,left=20,top=30');%20void('');> 2 * See an interactive graphic
about what is needed to
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03-fset.html','rebuilding','toolbar=no,scrollbars=no,location=no,width=700,h
eight=509,left=20,top=30');%20void('');> reconstruct Iraq3, which companies
have won contracts and which contracts are still under consideration.
* See continuing coverage <http://online.wsj.com/page/0,,2_0869,00.html> 4
of developments in Iraq.
U.S. to Boost Bechtel's Funding
To Rebuild Iraqi Electricity Grid
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 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.
[bug][blank]
By Neil King Jr. in Washington and Simeon Kerr in Dubai, United Arab
Emirates
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.
San Francisco-based Bechtel was originally awarded an 18 month, $680 million
contract for Iraqi reconstruction work on airports, water, power, schools,
roads and government buildings. After business rivals and some legislators
criticized the limited competition involved in that award, Andrew Natsios,
the head of the U.S. Agency for International Development, promised that no
additional taxpayer money would go into the Bechtel contract beyond the $680
million ceiling.
According to a funding document from the U.S.-led Iraqi provisional
authority, however, U.S. officials recently decided that Bechtel requires
the additional $350 million "to maintain momentum in high-priority
infrastructure projects." Mr. Bremer approved the new projects on Aug. 20,
according to the document.
Wednesday, an AID spokeswoman said that "security conditions" had evidently
led Mr. Bremer to lift the limit and give more work to Bechtel. The
additional $350 million will come from what's left of a $2.5 billion Iraq
reconstruction fund Congress approved early this year.
U.S. officials also said they are willing to consider sharing responsibility
for security with a United Nations-backed multinational force as long as it
was under American command (See
<http://online.wsj.com/article/0,,SB10620303939275300,00.html?mod=article-ou
tset-box> related story1).
Possibly within weeks, the Bush administration plans to put out for bids a
new contract for follow-on work in Iraq that could be valued at well over $2
billion, according to administration and congressional sources. The contract
would focus mainly on power and water work. Congress has pressured the
administration to open any additional Iraq work to competition and not
simply to stick with the same contractors.
Michael Kidder, a Bechtel spokesman, said there have been "informal
discussions" in Baghdad on the need for new funding but added that "we have
not received any formal notification of additional work in Iraq."
As with other contractors in Iraq, Bechtel's work has been delayed and made
more expensive by rampant sabotage. In the spring, Bechtel teams found that
dozens of power towers were down across Iraq, some the result of past wars
and others the work of looters and saboteurs. An assessment in recent weeks,
however, found that over 120 power towers are now down across the country.
"It's a big problem," said one Bechtel official.
Partly because of such sabotage, U.S. officials in Iraq have been forced to
revise several times their forecast for restoring electricity to prewar
levels. Earlier this summer, Mr. Bremer promised to do so by the end of
July. The provisional authority now says Iraqi power generation won't reach
4,400 megawatts until the end of September -- and that's still short of
Iraq's prewar generation of about 5,000 megawatts.
In a desperate attempt to improve the power situation, the provisional
authority is negotiating deals to import power from Turkey and possibly even
longstanding U.S. antagonists Syria and Iran. The authority is currently
finalizing a two-year contract with privately owned Turkish power company
Karadeniz for the provision of 50 megawatts of electricity, which will
eventually rise to 75 megawatts, a senior authority official said.
Iraqi Electricity Commission officials have also opened talks with Syria and
Jordan, and plan to start negotiating soon with Iran, the official said.
Iraqi authorities might barter crude oil for the cash value of any power
contracts signed, though it isn't certain that suppliers will agree to such
terms.
"We're keen to explore options of importing power to help solve the current
imbalance in electricity supply-demand," said Charles Heatley, a spokesman
for the coalition authority in Baghdad.
Iranian officials said they would have no problem with selling electricity
to Iraq. "Although we don't recognize the Iraqi government, that doesn't
mean there wouldn't be talks between the two countries," said Hossein
Afarideh, chairman of the Iranian Parliament's energy commission. Iran is
already discussing the possibility of supplying liquefied natural gas and
gasoline to Iraq, said Hojat Ghanimi Fard, executive director with the
National Iranian Oil Co.
In Washington, the scramble for new reconstruction money comes as available
funds are drying up quickly. Since late spring, the U.S.-led administration
in Baghdad has spent most of $2.1 billion in seized Iraqi assets, much of
which went to pay Iraqi government salaries and to fund smaller
reconstruction projects handled by the U.S. military.
To replenish the coffers there, the Treasury Department plans within a week
to send a last installment of $420 million in Iraqi assets that were
previously frozen in U.S. banks. The U.S. is also working to get access to
more than $2 billion in Iraqi assets found in other countries.
The administration is sure to face criticism in Congress and elsewhere as it
moves to expand Bechtel's workload in Iraq. Republican Rep. Jim Kolbe of
Arizona, who heads the appropriations subcommittee that overseas foreign
aid, said he agreed with the need to lift the contract ceiling in this case.
"But we've made it abundantly clear to the administration that any new money
must be competitively bid," he said.
Congress is meanwhile bracing for what's expected to be a multibillion
dollar request to fill a gaping hole in Iraq's 2004 budget. Iraq's
sputtering oil revenues, estimated to be less than $10 billion next year,
might cover only half of the country's overall needs, some U.S. officials
estimate. The administration hopes that other countries will step up with
significant offers at an October donors conference in Spain.
Mr. Bremer told the Washington Post Tuesday that meeting Iraq's
infrastructure and other needs next year would require "several tens of
billions" of dollars from abroad.
But others are skeptical that the U.S. will receive substantial help. "I
think the administration is dreaming on that one," said Mr. Kolbe. The U.S.
is now spending about $4 billion a month just to keep 140,000 U.S. troops in
Iraq.
Write to Neil King at neil.king@wsj.com5 and Simeon Kerr at
simeon.kerr@dowjones.com6
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Updated August 28, 2003 8:52 a.m.
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