European firms at end of queue for Iraq contracts
26 March 2003
Reuters
By F. Brinley Bruton

Britain may be standing beside the United States in the battle to drive Saddam Hussein from power in Iraq, but the spoils of war promise to be thin for British companies - and thinner for European rivals.

U.S. guidelines restrict the bulk of contracts to reconstruct Iraq's damaged infrastructure to American companies, prompting British construction and engineering firms to complain that they are being left out in the cold.

Resulting behind-the-scenes jockeying has led to high-level discussions between governments, but British firms, and their peers in continental Europe, are not holding out much hope that this will bear fruit.

"The reality is that the United States Corps of Engineers basically runs (the reconstruction) and it has a long-term, well-established relationship working with a small group of American companies," an executive at a major British construction and engineering firm told Reuters.

He pointed out that American firms got the lion's share of reconstruction work after the 1991 war against Iraq.
So far, many executives have been shy to admit their interest in bidding for the multi-million dollar contracts for fear of seeming to be greedy and anxious to profit from the war.

And if British firms face an uphill battle to win U.S. contracts, their European peers face a virtual wall. Some European firms that are normally keen to bid on such contracts are not aggressively pursuing the work.

U.S. FIRMS LEAD QUEUE

The U.S. Agency for International Development (USAID) has said many foreign firms will particpate in Iraq's reconstruction, but U.S. firms will still have the upper hand because of laws that require the agency to source primary contracts through American companies.

On March 10, before the first shot in the war was even fired, USAID invited five American engineering companies to submit bids for a reconstruction contract.

The winning firm would get about $900 million to repair Iraqi health services, ports and airports, schools and other educational institutions.

Bidders include Bechtel Group Inc and Fluor Corp (FLR.N) confirmed they had received the contracts. The Wall Street Journal also reported that invitations went out to Parsons Corp, Louis Berger Group Inc and Kellogg Brown & Root, a subsidiary of Halliburton Co (HAL.N), once headed by U.S. Vice President Dick Cheney.

On Monday, USAID gave Stevedoring Services of America (SSA) a $4.8 million contract to manage the Iraqi port of Umm Qasr, before British or American troops had taken control of the town.

It beat competition from Britain's Peninsular & Oriental Stream Navigation (PO.L), one of the world's top three ports operators and a firm larger than SSA.

There was a glimmer of hope for British companies earlier in the week after sources told Reuters that Balfour Beatty Plc (BBY.L), Carillion Plc (CLLN.L) and AMEC Plc (AMEC.L) - involved with the cleanup and rebuilding after the September 11 attacks on the United States - were on a short list of British companies to be given priority by the American government.

But while this followed a conversation between Patricia Hewitt, Britain's trade and industry secretary, and the head of USAID, the U.S. government has so far offered no guarantees that it will give British companies any preferential treatment or modify its policy of favouring its own companies when awarding prime contracts.

Small British builder Costain Group on Wednesday said it was talking to several major U.S. contractors about taking part in the reconstruction work.

EUROPE SIDELINED

Firms from continental Europe face an even tougher battle for Iraqi reconstruction contracts. Unlike those in Britain, most cannot leverage their governments' "special" relationship with the United States.

"I am quite sure that the Americans will try hard to reserve this kind of business for themselves," said Rudolf Rupprecht, Chief Executive of German trucks and industrial group MAN (MANG.DE). "The rebuilding situation will depend on the development in the relationship between the United States and Europe."

Relations between Europe and the United States soured when countries including France and Germany opposed the U.S.-led military strike on Iraq.

Despite the behind-the-scenes rivalry, companies have projected a sanguine "wait-and-see" stance on post-war reconstruction opportunities.

"If in the aftermath of an Iraqi conflict, reconstruction or engineering opportunities arise which are suitable for Balfour Beatty to look at, then it will look at them," said a spokesman for the company.

"If it comes up, we will look at reconstruction opportunities, but as it is we are busy with our record order book," he said.

Swiss engineer ABB (ABBZn.VX), which has been working in energy transmission and distribution under the oil for food agreement and with the UN Development Programme over the last 10 years, takes a similar approach.

"We are ready to provide our knowledge in this field and also materials like transformers, like substations that you need to have for a new electricity network in Iraq," said a spokesman.

ABB pulls in revenues of less than $50 million per year from Iraq, industry sources said, adding that the company could double this after the hostilities end. But even so, it is only a small proportion of the group's $18.2 billion annual sales. (Additional reporting by Nick Tattersall in Frankfurt and Jon Cox in Zurich).