Iraq Fights Texas

S.N.A.F.U., ie more news about how much progress we've made in Iraq.

Homage to George L. Kelling

In Struggle to Rebuild, Iraq Fights Texas Firm - :
MUSAYYIB, Iraq -- The gleaming new power plant here could have been a rare example of a successful Iraq reconstruction project. Its control rooms are stocked with state-of-the-art computer systems, and its enormous generators -- equipped to boost Iraq's total electricity supply by 10% -- are ready for use.

Yet as Iraqis struggle with continual power outages, and the searing summer nears, most days this sprawling compound 40 miles south of Baghdad is nearly deserted. The buildings here are shuttered, the unused generators gathering dust. This plant wasn't derailed by insurgent attacks. It was hijacked by a bitter dispute between the Iraqi government and a Texas contractor, a clash that has roped in the U.S. Embassy and escalated into charges of corruption and incompetence.

The fight highlights the dangers of the Bush administration's stated plan to wind down the U.S. rebuilding effort here, leaving it to the Iraqi government to rebuild the country. U.S. reconstruction officials say it's already clear that the $33 billion spent by the U.S. won't restore Iraq's basic services to their prewar levels. [nice!]

Awash in oil revenue, the Iraqi government has tens of billions of dollars to spend rebuilding. But Iraqi officials have virtually no systems in place for negotiating large construction contracts, overseeing the work itself, or making payments to foreign contractors on time. That has led the Iraqis to hire foreign contractors who were inexperienced or incapable of doing the job.

The plant at Musayyib, which officials say is weeks away from being operational, has become the most prominent symbol of the paralysis. “The Iraqis have spent $300 million on this plant, and all they have is some metal sitting in the desert,” says John Dempsey, a U.S. reconstruction official during a recent visit to the plant.

Three years ago, the Musayyib plant was a symbol of something else: the optimistic, ambitious push by Iraq's first post-Saddam Hussein government, in conjunction with its American benefactors and American companies, to repair the country's infrastructure. Electricity shortages had become a major source of public anger toward the American and Iraqi governments, with insurgent attacks and production problems pushing Iraq's power supply below prewar levels.

Iraq's Ministry of Electricity signed the contract with Southeast Texas Industrial Services Inc., a privately held company that specializes in building power plants, refineries and oil-drilling sites. The project was the largest undertaken by the Iraqi government since the U.S. invasion -- a $283 million effort to build a 500-megawatt plant, plus an adjacent refinery that would process much-needed fuel for other nearby electricity plants.

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In September 2006, Southeast told the Iraqis that its American employees needed Defense Department badges so they could enter U.S. military facilities across Iraq and take refuge there in emergencies. Since the badges could only be given to contractors working on U.S.-funded projects, Al Herman, a senior U.S. Embassy official, suggested awarding Southeast a small U.S. contract to train Iraqi workers on the new equipment. “The idea was to give them a make-work contract worth $100,000 or so,” Mr. Herman says.

A few days later, Southeast submitted a $7.95 million bid. The offer angered the U.S. Embassy officials, who felt the company was trying to take advantage of them.

Mr. Cole says Southeast was simply trying to submit an honest bid. U.S. officials had asked the company to send a proposal for six months of on-the-job training, which would entail millions of dollars in security costs alone. “They never told us this was a dummy contract,” he adds.

By that point, Southeast executives had made the decision to walk away from the project. In January, Mr. Cole emailed Karim Hasan, the new Iraqi electricity minister, to say that the company was giving the government a final chance to correct its “innumerable” failures to secure the site, provide the badges, and make timely payments. If the ministry failed to do so within four days, Mr. Cole wrote, Southeast would consider the contract “terminated” and begin seeking financial damages.

In his emailed reply, Mr. Hasan accused the company of acting in bad faith. “STIS's behavior, we now see, has for some time had the objective of engineering a means for STIS to avoid its obligations under its contract,” the Iraqi official wrote.

Southeast formally severed the Musayyib contract on Jan. 31. In an email to Mr. Hasan, a lawyer for the company said it would attempt to recover financial damages of at least $20 million for its security expenses and lost profits.

On Feb. 18, Mr. Hasan accused Southeast of “holding the Iraqi people hostage to its attempt to extort both the Iraqi and American governments” and threatened to open arbitration proceedings and refer the company to the U.S. Justice Department. Mr. Cole replied in kind: “We are confident in our position and in our opinion, were you confident in yours, you would not succumb to such baseless threats.”

While the Iraqi government and Southeast traded attacks, U.S. officials were quietly looking for a way of somehow finishing the plant. They had long ago given up on Southeast, whom they deemed unreliable. In his memo to colleagues, Mr. Dempsey wrote: “I do not believe STIS is competent to complete this project.”

“If the plant is practically complete, and we're not 'competent' to complete it, how did it get this far?” Mr. Cole replies. “If the U.S. government had done anything to help us, the plant would be up and running already.”

U.S. officials say they're even willing to use American funds to finish the plant. But they knew that it wouldn't be enough for them to simply hire another contractor and send them to Musayyib. Without Southeast's blueprints and software, it would be extremely difficult for another company to get the plant's generators and computers running properly.

When U.S. officials approached Southeast, Mr. Cole said in an email that Southeast would be willing to turn over the software and blueprints and drop its planned litigation -- if the Iraqi government agreed to terminate the contract and pay the company approximately $8.2 million.

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This page contains a single entry by swanksalot published on May 15, 2007 9:46 AM.

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