US 'corporate invasion' brings no respite from war

Donald Rumsfeld flew to Baghdad yesterday. Not to a skyline bristling with cranes but to a city where there is still no electricity for much of the day because less power is being generated than under Saddam Hussein.

Almost five months after the overthrow of Saddam, entire neighbourhoods are still without phone lines. The government offices bombed in the war are still blackened shells. Next to them stand the burnt-out ruins of ministries and shopping centres set on fire in the looting that followed.

But the US Defence Secretary was unlikely to see those, cocooned in security to keep him from the seething anger against the American occupation. Much of Baghdad is still an armed American camp. The country's infrastructure is in a worse state than it was under Saddam.

One of the accusations levelled at the US invasion was that it was simply paving the way for a subsequent American corporate invasion. But despite billions of dollars of contracts won by American companies, there are no visible signs of reconstruction at all.

Foreign businessmen are too afraid to visit Iraq for fear of being kidnapped. Those who have ventured in report being threatened at gunpoint by Iraqis. New Iraqi ministers have finally been appointed - but the all-important Oil Minister, Ibrahim Mohammed Bahr al-Ulum, is not even in Iraq. He is holed up in Kuwait.

The oil industry - Iraq's only big export sector - is producing less oil than it did under Saddam immediately before the war. Production is around 1.7 million barrels a day, compared with 3 million a day before the war. Paul Bremer, the US civilian administrator, does not expect to get oil production back to pre-war levels before October next year.

Desperate to find someone else to pay the bills, the US is trying to get foreign countries to put up some cash towards the $100bn (£63bn) that it estimates will be needed. But as long as America insists on keeping control of Iraq and not handing the running of the country over to the UN, foreign donors are reluctant. A pledging conference scheduled for Madrid next month is now in doubt. The US government is preparing to ask Congress for an extra $2.75bn for Iraq.

Iraqi businessmen gather every Thursday morning at the convention centre taken over by the American occupation authority, where KBR (formerly Kellogg Brown and Root), a subsidiary of Halliburton and one of the US contractors for reconstructing Iraq, hands out tenders to local firms. As Doris Carter announces the tenders for this week, hands shoot up in the air. "We need two tractors with 40-foot trailers and an operator for two months," yells Ms Carter. There is a scramble for application forms.

Outside the auditorium, the Iraqi businessmen sit gloomily drinking coffee. "We left early," explains a representative from a company that sells heavy equipment to the oil industry. "We could send our tea-boy to the local market to get contracts of the type they are awarding today. Everybody should stop going to these meetings as a protest against what is happening."

Many of the businessmen have similar complaints, but none wants his name printed for fear of jeopardising future contracts. "From the tenders which I've seen, it's nothing," says a company representative. "We can handle road-building and construction - they ask us for office supplies. Big contracts are available, it's just that we're not getting them. Some big tenders are awarded that we do not hear about. We just fill in a lot of forms, and then sit and wait."

Halliburton, the American corporation formerly headed by the US Vice-President, Dick Cheney, started out servicing Texas oil wells. It won contracts worth more than $1.7bn in Iraq without ever having to go through a bidding process.

It did it by virtue of a catch-all contract to provide logistical support for the US army agreed in 2001. That contract was only supposed to cover work directly connected with military operations - but the army broadened the definition to include work on Iraqi oilfields, claiming contingency measures to put out oil fires were part of secret military planning. Halliburton's contracts are now expected to be worth a lot more than previously thought.

Then there is Bechtel. The former Republican secretary of state from the Reagan era, George Schultz, is a Bechtel board member. As chairman of the so-called Committee to Liberate Iraq, Mr Schultz was one of the biggest campaigners for war. Bechtel was awarded the primary contract - worth as much as $680m (£415m) andpotentially much more lucrative - to rebuild Iraq's water and electricity supplies, roads, schools, sewers and hospitals. Bechtel was chosen in a closed-door process, with just six companies, all American, invited to put in bids.

According to sources in Washington, Bechtel has made $1.3m in political donations over the past four years, 60 per cent to Republicans. Bechtel's contract is for work on many sectors, but most crucially electrical power, which Mr Bremer has called "the key to reconstruction". Four months after the war supposedly ended, Iraq's power stations are producing less electricity than before the war: currently only about 3,300 megawatts a day, compared with 4,000 before the war, according to Mr Bremer's own figures. Current demand of 7,000mw would have to be met to keep the lights on 24 hours a day. In one street in Baghdad's Adhamia district, residents have become so frustrated with constant black-outs that they have come up with their own solution. The two sides of the street are on different local grids, so the residents have stretched power cables across the street and take electricity from their neighbours when the power goes out on their side.

And yet Bechtel is now to get an extra $350m on top of the $680m contract it originally won. The new money is "to maintain momentum in high-priority infrastructure projects", according to a funding document from the US-led Iraqi provisional authority.

That is despite a commitment from the US Agency for International Development (USAid), a government agency handing out massive contracts for reconstructing Iraq, that Bechtel would get no more American taxpayers' money. A USAid spokesman said "security conditions" had prompted Mr Bremer to change his mind.

Getting a phone line to anywhere in the country except Baghdad is all but impossible. A mobile phone operating licence has still not been awarded - though the Americans ordered Arab companies who had started a service to close down in July so the contract could be properly bid for.

So what is going wrong with Iraqi reconstruction? Ask Bechtel and their spokesman, Francis Canavan, says it's a combination of the looting and antiquated infrastructure neglected under 13 years of international sanctions. Iraq's power generators were run dangerously, without proper maintenance, under Saddam, he says, and Bechtel is now running them at safe levels while the damage from bombing and looting is repaired.

And without electricity to pump and purify the water system, clean water supplies remain below pre-war levels.

The absence of security in Iraq is proving a problem. A conference on mobile phones in July had to be held in Jordan because foreign businessmen were too afraid to visit Iraq. There have been at least 40 kidnappings for ransom in three months. It is rich Iraqis who have been kidnapped so far, but some of those released had been tortured, and the kidnappers threatened to kill them if the families did not pay.

Security has also been a problem at Umm Qasr, Iraq's only officially functioning port. "Nothing is normal, I can tell you that," said Fergus Moran of Stevedoring Services of America, the company contracted to get the port running again. "The security situation in the country has not improved." He said foreign employees of the company had been threatened.

Another source at SSA said Iraqis had threatened foreign employees with hand grenades inside the port. Thieves are also breaking into warehouses at the port several times a week, by blowing holes in the warehouse walls, he said.

But Mr Moran said security was not the only problem. Funds under the company's contract with USAid are slow coming too. "I think most contractors around Iraq will tell you that the funds are slow in coming," Mr Moran said. "And ours is not a very big contract." Every indication is that America has vastly underestimated the scale of the task it faces in reconstructing Iraq.