Privatizing the Spoils of War
Corporate Research E-Letter No. 33, March 2003
PRIVATIZING THE SPOILS OF WAR:
PAYING COMPANIES TO REBUILD POST-INVASION IRAQ
by Philip Mattera
Looming war in Iraq is taking a toll on the U.S. economy. The stock market is slumping, gasoline prices are climbing, and uncertainty is causing companies to put off new investments, thus contributing to the growth in unemployment. Airlines are bracing for massive losses such as those that followed 9/11. Advertisers are reluctant to book commercials that might air during news programs filled with reports of death and destruction. Businesses with overseas operations are worried about the rising tide of anti-Americanism.
For some sectors of U.S. business, however, the prospect of war is much less discouraging. Chief among these, of course, are the military contractors, led by Lockheed Martin, for whom a U.S. invasion will in effect be a massive trade show for their lethal wares. Yet the merchants of death are not the only ones for whom the war represents a lucrative business opportunity.
The Bush Administration is so certain that there will be a war -- and that it will easily prevail over Iraq -- that federal agencies are already preparing to award contracts for postwar reconstruction. In other words, as soon as U.S. troops finish destroying Iraq’s infrastructure using the weapons produced by one group of companies, another group of companies will be brought in to rebuild that infrastructure. Your tax dollars at work.
In fact, quite a few tax dollars. A report issued this week by a bipartisan panel of experts convened by the Council on Foreign Relations estimates that reconstruction will cost at least $20 billion a year. The Bush Administration already has an agency in place to oversee the spending of that money: the Office of Reconstruction and Humanitarian Assistance. The head of that office, Jay Garner, epitomizes the incestuous relationship between the public and private sectors in the reconstruction process: he is a former Army general who then went to work for a military contractor. Garner is expected to serve as the administrator of postwar Iraq.
THE FAVORED FIVE
Recently, Time magazine and the Wall Street Journal reported that the U.S. Agency for International Development (AID) has quietly sent out a detailed request for bids on initial reconstruction work that would be worth an estimated $900 million. The solicitation was not sent far and wide. Only a handful of companies, all of them U.S.-based, are being allowed to compete for the contract under a provision of federal procurement law that allows for streamlined bidding in special circumstances. Those companies are all giant engineering firms: Bechtel Group, Fluor Corp., Halliburton Co.’s Kellogg Brown & Root unit, Parsons Corp. and Louis Berger Group.
The name that jumps out from the list is Halliburton, which is where Vice President Dick Cheney served as chief executive before joining George Bush’s ticket in 2000. Halliburton has apparently not been shy about using its connection to the Administration to generate business. Its Kellogg Brown & Root unit has been a major recipient of Pentagon contracts for logistics support. What makes the largesse bestowed on the company by the Bush Administration even more controversial is that Cheney is still in a sense on the Halliburton payroll, since, as the London Guardian noted this week, Cheney reported in his most recent financial disclosure form that he is still receiving deferred compensation from the company.
Halliburton’s favored position has also generated controversy in light of its campaign contributions. As the Center for Responsive Politics reports in the new issue of its Capital Eye newsletter, Halliburton directed 95 percent of its $709,320 in federal campaign contributions during the past two election cycles to Republicans. All but one of the other contractors on AID’s short list have also been heavy Republican contributors.
The favored five companies have other issues that the Bush Administration has apparently chosen to ignore:
- Bechtel and its joint venture partner Parsons Brinckerhoff are being investigated by Massachusetts officials for more than $1 billion in cost overruns on the Big Dig highway project in downtown Boston.
- In 2001 Fluor agreed to pay $8.2 million to settle a whistleblower lawsuit in which one of the company’s units was charged with submitting false invoices to the federal government.
- Halliburton, as is well known, is being investigated by the Securities and Exchange Commission for questionable accounting practices relating to cost overruns on projects carried out during Cheney’s tenure as CEO.
- In 1995 a subsidiary of Parsons agreed to pay $3.2 million to settle a whistleblower lawsuit that accused the company of overcharging the Air Force on environmental surveys.
- Louis Berger Group seems to have a somewhat cleaner legal record, but the company has been involved in controversial areas such as water and transport privatization.
THE NEW OIL GRAB
No discussion of postwar Iraq would be complete without a discussion of oil. Bush Administration officials have taken pains to dispel the idea that their war plans are motivated by a desire to take control of Iraq’s oil reserves, the world’s largest after Saudi Arabia. Yet the Administration has not denied that it intends to use Iraqi oil revenues to help finance the rebuilding of the country. In fact, there have been indignant statements from U.S. officials about alleged plans by Saddam Hussein to order the destruction of oil facilities in the event of an invasion, suggesting that the Bush Administration already regards those assets as its own.
What is unclear is which companies will be chosen to exploit those assets. One might assume, based on the plan for the AID contract, that U.S. petro-giants such as ExxonMobil and ChevronTexaco have the inside track. The situation, however, is more complicated.
Oil Daily recently reported that companies based in countries such as China, India, Indonesia, Russia, Syria and Vietnam that have exploration or development contracts with the current regime in Iraq would likely try to enforce those claims in a postwar environment. In an interview with the Washington Post, the chief executive of the French company Total Fina Elf, which has negotiated with the Iraqi government but not signed a deal, argued that his firm should have an edge because of its detailed knowledge of Iraq’s oil fields. At the same time, BP and Shell have reportedly been pressuring the British government to assure them a place at the table. BP chief executive John Browne has publicly stated that “we did actually discover all the oil in Iraq,” an allusion to his company’s role in the Western oil grab in the Middle East in the early 20th Century.
While the oil exploration and development deals for postwar Iraq are still unresolved, one U.S. oil services company has already clinched a contract to develop a plan for extinguishing oil field fires and rebuilding damaged petroleum infrastructure. The lucky winner was none other than Halliburton’s Kellogg Brown & Root.
APPENDIX: RESEARCHING PENTAGON CONTRACTS
Big engineering and oil companies are hardly the only business interests that stand to make money in postwar Iraq. The coming months will undoubtedly bring more revelations about which firms will reap the benefits of regime change.
In the meantime, there is a wealth of information available on which firms are already recipients of contracts from the Pentagon. The Defense Department (DoD) has a website at http://web1.whs.osd.mil/peidhome/procstat/procstat.htm with extensive documentation, including a list of its 100 largest contractors and a breakdown of prime contracts awards by state and county. Perhaps the most impressive document is a 4,000-page list <http://web1.whs.osd.mil/peidhome/procstat/st06\ST06-FY2002.pdf> of every DoD contract, arranged by the category of the goods or services provided, using the Federal Supply Classification system. An outline of the classification system can be found at http://www.dlis.dla.mil/PDFs/h2.pdf.
Perusing the list gives one a sense of the amazing variety of items purchased by the Pentagon, which in turn shows the wide range of companies that profit from the military budget. The list shows, for example, that in fiscal year 2002 DoD spent $1.2 billion on drugs, $551 million on dairy products and $17 million on sporting goods.
The true purpose of the DoD, however, can be seen in the long lists of contracts for armaments--including items that, when discussed in relation to other countries, are described as weapons of mass destruction. Category 1040 lists $6.6 million in contracts for “chemical weapons and equipment.” Category 1140 lists $672 million for “nuclear components.” Eighty percent of that latter amount comes from a single contract -- with a unit of Bechtel. These numbers may very well be understatements. The list has a catch-all category (9999 - Miscellaneous Items ) containing $2 billion in contracts, most of which is attributed to “classified domestic contractors.”
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