business - 7th February 2004
The Sydney Morning Herald)
8.40am and the Sheraton Hotel ballroom thunders with
the sound of plastic explosives pounding against metal.
No, this is not the Sheraton in Baghdad, it's the
one in Arlington, Virginia. And it's not a real terrorist
attack, it's a hypothetical one. The screen at the
front of the room is playing an advertisement for
"bomb-resistant waste receptacles": this
garbage bin is so strong, we're told, it can contain
a C4 bomb blast. And its manufacturer is convinced
that given half a chance, these babies would sell
like hotcakes in Baghdad - at bus stations, army barracks
and, yes, upscale hotels. Available in Hunter Green,
Fortuneberry Purple and Windswept Copper.
is ReBuilding Iraq 2, a gathering of 400 businesspeople
itching to get a piece of the Iraqi reconstruction
action. They are here to meet the people doling out
the cash, in particular the $18.6 billion in contracts
to be awarded in the next two months to companies
from "coalition partner" countries. The
people to meet are from the Coalition Provisional
Authority (CPA), its new Program Management Office,
the Army Corps of Engineers, the US Agency for International
Development, members of Iraq's interim Governing Council
and the big two reconstruction contractors - Halliburton
(which has been awarded $US2.39 billion in contracts)
and Bechtel ($US1.03 billion). All these players are
on the conference program, and delegates have been
promised that they'll get a chance to corner them
at "networking breaks".
now there have been dozens of similar trade shows
on the business opportunities created by Iraq's invasion
and occupation, held in hotel ballrooms from London
to Amman. By all accounts, the early conferences throbbed
with the sort of cash-drunk euphoria not seen since
the heady days before the dotcoms crashed. But it
soon becomes apparent that something is not right
at ReBuilding Iraq 2.
the organisers do the requisite gushing about how
"non-military rebuilding costs could near $500
billion" and that this is "the largest government
reconstruction effort since Americans helped to rebuild
Germany and Japan after the Second World War".
for the undercaffeinated crowd staring uneasily at
exploding garbage bins, the mood is less gold rush
than grim determination. Giddy talk of "greenfield"
market opportunities has been supplanted by sober
discussion of sudden-death insurance; excitement about
easy government money has given way to controversy
about foreign firms being shut out of the bidding
process; exuberance about CPA chief Paul Bremer's
ultra-liberal investment laws has been tempered by
fears that those laws could be overturned by a directly
elected Iraqi government.
ReBuilding Iraq 2, held on December 3 and 4, it seems
finally to have dawned on the investment community
that Iraq is not only an "exciting emerging market";
it's also a country on the verge of civil war. As
Iraqis protest against lay-offs at state agencies
and make increasingly vocal demands for general elections,
it's becoming clear that the White House's pre-war
conviction that Iraqis would welcome the transformation
of their country into a free-market dream state may
have been just as off target as its prediction that
US soldiers would be greeted with flowers.
mention to one delegate that fear seems to be dampening
the capitalist spirit. "The best time to invest
is when there is still blood on the ground,"
he assures me. "Will you be going to Iraq?"
I ask. "Me? No, I couldn't do that to my family."
was still shaken, it seemed, by the afternoon's performance
by former CIA officer John MacGaffin, who had harangued
the crowd like a Hollywood drill sergeant. "We
are right in the bull's-eye," he bellowed. "...
You must put security at the centre of your operation!"
Lucky for us, MacGaffin's own company, AKE Group,
offers complete counter-terrorism solutions, from
body armour to emergency evacuations.
Sleiman, MD of Iraq Initiatives for the Harris Corporation,
has a similarly entrepreneurial angle on the violence.
Yes, helicopters are falling, but "for every
helicopter that falls there is going to be replenishment".
begin to notice that many of the delegates at ReBuilding
Iraq 2 are sporting a similar look: army-issue brush
cuts paired with dark business suits. The guru of
this gang is retired Major General Robert Dees, freshly
hired out of the military to head Microsoft's "defence
strategies" division. Dees tells the crowd that
rebuilding Iraq has special meaning for him because,
well, he was one of the people who broke it. "My
heart and soul is in this because I was one of the
primary planners of the invasion," he says with
pride. Microsoft is helping develop "e-government"
in Iraq, which Dees admits is a little ahead of the
curve, since there is no g-government in Iraq - not
to mention functioning phone lines.
matter. Microsoft is determined to get in on the ground
floor. In fact, the company is so tight with Iraq's
Governing Council that one of its executives, Haythum
Auda, served as the official translator for the council's
Minister of Labour, Sami Azara al-Ma'jun, at the conference.
"There is no hatred against the coalition forces
at all," al-Ma'jun says, via Auda. "The
destructive forces are very minor and these will end
shortly ... Feel confident in rebuilding Iraq!"
speakers on a panel about "Managing Risks"
have a different message: feel afraid about rebuilding
Iraq, very afraid. Unlike previous presenters, their
concern is not the obvious physical risks, but the
potential economic ones. These are the insurance brokers,
the grim reapers of Iraq's gold rush.
turns out that there is a rather significant hitch
in Paul Bremer's bold plan to auction off Iraq while
it is still under occupation: the insurance companies
aren't going for it. Until recently, the question
of who would insure multinationals in Iraq has not
been pressing. The major reconstruction contractors
like Bechtel are covered by USAID for "unusually
hazardous risks" encountered in the field. And
Halliburton's pipeline work is covered under a law
passed by Bush on May 22 that indemnifies the entire
oil industry from "any attachment, judgement,
decree, lien, execution, garnishment, or other judicial
with bidding now starting on Iraq's state-owned firms,
and foreign banks ready to open branches in Baghdad,
the insurance issue is suddenly urgent. Many of the
speakers admit that the economic risks of going into
Iraq without coverage are huge: privatised firms could
be renationalised, foreign ownership rules could be
reinstated and contracts signed with the CPA could
be torn up.
multinationals protect themselves against this sort
of thing by purchasing "political risk"
insurance. Before he got the top job in Iraq, this
was Bremer's business - selling political risk, expropriation
and terrorism insurance at Marsh & McLennan Companies,
the largest insurance brokerage firm in the world.
Yet in Iraq, Bremer has overseen the creation of a
business climate so volatile that private insurers
- including his old colleagues at Marsh & McLennan
- are simply unwilling to take the risk. Bremer's
Iraq is, by all accounts, uninsurable.
insurance industry has never been up against this
kind of exposure before," R. Taylor Hoskins,
vice-president of Rutherford International insurance
company, tells the delegates apologetically. Steven
Sadler, managing director and chairman at Marsh Industry
Practices, a division of Bremer's old firm, is even
more downbeat. "Don't look to Iraq to find an
insurance solution. Interest is very, very, very limited."
clear that Bremer knew Iraq wasn't ready to be insured:
when he signed Order 39, opening up much of Iraq's
economy to 100 per cent foreign ownership, the insurance
industry was specifically excluded. I ask Sadler,
a Bremer clone with slicked-back hair and bright red
tie, whether he thinks it's strange that a former
Marsh & McLennan executive could have so overlooked
the need for investors to have insurance before they
enter a war zone. "Well," he says, "he's
got a lot on his plate." Or maybe he just has
when the mood at ReBuilding Iraq 2 couldn't sink any
lower, up to the podium strides Michael Lempres, vice-president
of insurance at the Overseas Private Investment Corporation
(OPIC). With a cool confidence absent from the shell-shocked
proceedings so far, he announces that investors can
relax: Uncle Sam will protect them.
US Government agency, OPIC provides loans and insurance
to US companies investing abroad. And while Lempres
agrees with earlier speakers that the risks in Iraq
are "extraordinary and unusual", he also
says that "OPIC is different. We do not exist
primarily to generate profit." Instead, OPIC
exists to "support US foreign policy". And
since turning Iraq into a free-trade zone is a top
Bush policy goal, OPIC will be there to help out.
Earlier that same day, President Bush signed legislation
providing "the agency with enhancements to its
political risk insurance program", according
to an OPIC press release.
with this clear political mandate, Lempres announces
that the agency is now "open for business"
in Iraq, and is offering financing and insurance -
including the riskiest insurance of all: political
risk. "This, is a priority for us," Lempres
says. "We want to do everything we can to encourage
US investment in Iraq." The news, as yet unreported,
appears to take even the highest-level delegates by
complete surprise. After his presentation, Lempres
is approached by Julie Martin, a political risk specialist
at Marsh & McLennan.
it true?" she demands.
nods. "Our lawyers are ready."
stunned," Martin says. "You're ready? No
matter who the government is?"
ready," Lempres replies, "...[although]
I don't know what we're going to do if someone sinks
a billion dollars into a pipeline and there's an expro[priation]."
doesn't seem too concerned about these possible "expros";
but it's a serious question. According to its official
mandate, OPIC functions "on a self-sustaining
basis at no net cost to taxpayers". But he admits
that the political risks in Iraq are "extraordinary".
a new Iraqi government expropriates and re-regulates
across the board, OPIC could be forced to compensate
dozens of US firms for billions of dollars in lost
investments and revenues, possibly tens of billions.
What happens then?
the Microsoft-sponsored cocktail reception in the
Galaxy Ballroom that evening, Robert Dees urges us
"to network on behalf of the people of Iraq".
I follow orders and ask Lempres what happens if "the
people of Iraq" decide to seize back their economy
from the US firms he has so generously insured. Who
bails out OPIC? "In theory," he says, "the
US Treasury stands behind us." That means the
US taxpayer. Yes, them again: the same people who
have already paid Halliburton, Bechtel et al to make
a killing on Iraq's reconstruction would have to pay
these companies again, this time in compensation for
their losses. While the enormous profits being made
in Iraq are strictly private, it turns out that the
entire risk is being shouldered by the public.
the non-US firms in the room, OPIC's announcement
is anything but reassuring: since only US companies
are eligible for its insurance, and the private insurers
are sitting it out, how can they compete? The answer
is that they likely cannot. Some countries may decide
to match OPIC's Iraq program. But in the short term,
not only has the US Government barred companies from
non- "coalition partners" from competing
for contracts against US firms, it has made sure that
the foreign firms that are allowed to compete will
do so at a serious disadvantage.
reconstruction of Iraq has emerged as a vast protectionist
racket, a neo-conservative New Deal that transfers
limitless public funds - in contracts, loans and insurance
- to private firms, and even gets rid of the foreign
competition to boot, under the guise of "national
security". Ironically, these firms are being
handed this corporate welfare so they can take full
advantage of CPA-imposed laws that systematically
strip Iraqi industry of all its protections, from
import tariffs to limits on foreign ownership. Michael
Fleisher, head of private-sector development for the
CPA, recently explained to a group of Iraqi businesspeople
why these protections had to be removed. "Protected
businesses never, never become competitive,"
he said. Quick, somebody tell OPIC.
issue of US double standards comes up again at the
conference when a CPA representative takes the podium.
A legal adviser to Bremer, Carole Basri has a simple
message: reconstruction is being sabotaged by Iraqi
corruption. "My fear is that corruption will
be the downfall," she says ominously, blaming
the problem on "a 35-year gap in knowledge"
in Iraq that has made Iraqis "not aware of current
accounting standards and ideas on anti-corruption".
Foreign investors, she said, must engage in "education
- bring people up to world-class standards".
hard to imagine what world-class standards she's referring
to, or who, exactly, will be doing this educating.
Halliburton, with its accounting scandals back home
and its outrageous overbilling for petrol in Iraq?
The CPA, with its two officers under investigation
for bribe-taking, and nonexistent fiscal oversight?
On the final day of ReBuilding Iraq 2, the cover headline
in our complimentary copies of the Financial Times
(a conference sponsor) is "Boeing linked to Perle
investment fund". Perhaps Richard Perle, the
former US assistant secretary of defence - who supported
Boeing's $18 billion refuelling-tanker deal and extracted
$20 million from Boeing for his investment fund -
can teach Iraq's politicians to stop soliciting "commissions"
in exchange for contracts.
the Iraqi expats in the audience, Basri's is a tough
lecture to sit through. "I don't know where the
line is between business and corruption," says
Ed Kubba, a consultant and board member of the American
Iraqi Chamber of Commerce. He points to US companies
subcontracting huge taxpayer-funded reconstruction
jobs for a fraction of what they are getting paid,
then pocketing the difference. "If you take $10
million from the US Government and sub the job out
to Iraqi businesses for a quarter-million, is that
business or is that corruption?"
were the sorts of uncomfortable questions faced by
George Sigalos, director of government relations for
Halliburton. In the hierarchy of Iraqi reconstruction,
Halliburton is king, and Sigalos sits onstage, heavy
with jewelled ring and gold cufflinks, playing the
part. But the serfs are getting restless, and the
room quickly turns into a support group for jilted
Sigalos, what are we going to have to do to get some
Sigalos, when are you going to hire some Iraqis in
management and leadership?"
have a question for Mr Sigalos. I would like to ask
what you would suggest when the Army says 'Go to Halliburton'
and there's no response from Halliburton?"
patiently instructs them all to register their companies
on Halliburton's website. When the questioners respond
that they have already done so and still haven't heard
back, he invites them to "approach me afterwards".
scene afterwards is part celebrity autograph session,
part riot. Sigalos is swarmed by at least 50 men,
who elbow each other out of the way to shower the
Halliburton VP with CD-ROMs, business plans and resumes.
When Sigalos spots a badge from Volvo, he looks relieved.
know Volvo. Send me something about what you can achieve
in the region." But the small, no-name players
who have paid their $985 entrance fees, here to hawk
portable generators and electrical control panelling,
are once again told to "register with our procurement
are fortunes being made in Iraq, but it seems they
are out of reach to all but the chosen few.
next session is starting and Sigalos has to run. The
serfs wander off through the displays of shatterproof
glass and bomb-resistant rubbish bins, caressing Sigalos's
business card and looking worried.
Sydney Morning Herald
- Halliburton Makes a Killing on Iraq War
From Iraq Prison Show We Are Our Own Worst Enemy -
5th May 2004
wage Iraq war online - 29th March 2003