U.S. to Boost Bechtel's Funding To Rebuild Iraqi Electricity Grid
By Neil King Jr. in Washington and Simeon Kerr in Dubai, United Arab Emirates
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.
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 related story).
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.