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Tue 4 May 2004 04:00 AM

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A 6.7 billion dollar question

US companies are touring the world with contracts for Iraq worth billions, but will subcontractors take the bait?

|~||~||~|When it comes to Iraq, April 2004 may well turn out to be a turning point for the US-led coalition’s strategy in Iraq. A spate of kidnappings and an escalation of hostilities towards foreign nationals forced hundreds of workers to leave the country, suggesting the situation was set to get a lot worse before getting any better.

However, almost simultaneously, a seven nation global tour by major US contractors kicked off in Dubai. The objective is clear. The corporate heavyweights, amongst them Kellog, Brown and Root, Lucent and Fluor-Amec, have US $6.7 billion in construction subcontracts up for grabs and need to reassure companies that Iraq is a viable product and highlight what opportunities are available. For sceptics, the global roadshow appears ill-timed.

They say Iraq is not as lucrative a place to do business as the coalition had hoped. While on the surface it appears a valid point, a roadshow to drum up support when business is bad would suggest the opposite.

According to Jason David, consul general in Dubai, the forum comes at just the right time. “Iraq Now will offer those hoping to secure contracts in Iraq the [chance] to discuss opportunities with companies who are already doing business in the country,” he says.

That the tour only takes place in coalition friendly countries may well wrangle Paris and Berlin. One regional diplomat from a US coalition nation summed things up. “It’s a system [the roadshow] we’re not accustomed to, but these are the rules of the game and we have to line up to follow them. Everybody will get his chance, but it’s more a question of when and how.”

However, for many of the 700 delegates, these events signal a change in US policy, whereby the Americans are now looking to include the region in Iraq’s reconstruction. “Let me put this to you. Does a person keep on fighting with no real purpose and accept death, destruction and no peace? No, eventually, he’ll wake up and realise, he’s made a mistake,” says A.M. Shafie, senior consultant, Majed Allaheq Contracting Est.(MACON), a Saudi Arabian logistics and construction firm.

“I think the Americans have now woken up.”Contrary to previous Iraq rebuild conferences, the overriding feeling at the inaugural event in Dubai was positive. In January, for example, a conference held in Kuwait was slammed across the region for not having enough visitors, poor organisation and too much information on the geo-political situation rather than the contracting process.At the time, Jim Martin, marketing manager, Hepworth had even questioned the purpose of attending such an event.

“The whole experience has turned us off doing anything like this in the future,” he said. In contrast, at Iraq Now, speakers placed a great deal of emphasis on the tendering process, something that until now, many companies, particularly in the Arab World, knew nothing about.

“Although the conference was short, the speakers are highly qualified and are giving us specifics on projects that we read about, but don’t feel we can apply for,” says A.M. Shafie. “The most encouraging thing is the way they are approaching the subcontractors like us, they give the impression they seriously want to give the contracts to us.”

Shafie sees the latest development, as a sign the US needs regional companies to avoid creating an Iraqi quagmire. Local firms not only have the language advantage, but also experience and the required equipment to enter Iraq, all at a more affordable price.

Nevertheless, even if American corporations have suddenly woken up, much work still needs to be done. While the conference brings people to enquire cautiously about the Iraqi market, the reality is that many of these smaller firms are in no position to win subcontracts.

Wayne D.Giles, a managing partner at the Bahrain-based Gulf Strategic Partners, believes the event merely emphasises to regional companies how much work they must do before even considering the Iraqi market.

For starters, all firms must fulfil US Federal Acquisition Regulations (a set of rules and guidelines contractors must adhere to to gain contracts). On top of that pre-registration and the lack of connections with Iraqi firms on the ground also suggest some serious financial weighting will be needed before entering the market in terms of research and support alone.

“The theory outlined here is that if you want to do work in Iraq, you need to form the right connections, with an Iraqi support and possibly an international company, so that you have the technical people in there to accomplish the work,” says Giles.

One Iraqi delegate was quick to back this point of view. While acknowledging the importance of the roadshow in providing an opportunity for subcontractors to put their foot in the door, Hussein T Al Yasiri, business development manager for the Baghdad-based firm IT 4 Windows remains sceptical on the event’s overall purpose.

“The speakers are making the whole process of registering with the Federal Government too easy,” he says. “There’s more to it than just signing up on a website. The reality is that tenders are too large for smaller companies to win, but at least they know how to go about applying for them now.” The cost issue will inevitably deter firms. Many of those listening to the speakers fell into the smaller to medium sized enterprise bracket with varying interests ranging from petrochemicals to furniture.

Ultimately, although cost is a problem, the main obstacle in dividing up the $6.7 billion in contracts comes down to one simple factor: security. The April kidnappings have done little to persuade subcontractors to enter Iraq. One former employee at a pipeline company cited an example as to why smaller enterprises will not enter Iraq in the current climate.

“A big US corporation involved in Iraq can afford to keep their employees handsomely paid in Europe, waiting for the situation to die down. A colleague, for example, received over $1 million in six-months just to stay with the firm and he hadn’t even entered Iraq. When he was called to go, he left after three days.”

As Giles from Gulf Strategic Partners puts it, companies like Fluor and Bechtel can pay the insurance premiums and send their staff to Iraq. “But if you are a 10, 50 or even 100 million dollar operation and you want to you send one or two people out there to see what happens then you’ll definitely think twice.”

Perhaps the picture portrayed is overly gloomy. Valentin Laiseca, economics and commercial counsellor at the Spanish Commercial Mission in the UAE, says we should be cautious in jumping too quickly on the ‘Iraq is too dangerous bandwagon,’ particularly when based outside of the country. However, when pressed on Spain’s decision to pull troops out of Iraq, he merely says, “The US is trying to sort things out.”Although several delegates suggested the media played a role in exaggerating the security issue, the recent escalation in violence cannot be ignored.

“Iraq doesn’t have a very encouraging business environment at this point in time,” says Ibrahim A. Al Hajiri, president of Saudi Arabian Gulf Continental.

“It may change in a week, but even if you do get a contract it will be difficult to get people to execute it. We live in the real world and we have to accept that and we have to live with it.”All in all, one thing is certain.

The huge numbers drummed up by the Iraq Now conference in Dubai seem to have re-ignited interest in rebuilding Iraq from regional companies. However, even as this article comes to an end, more unrest continues to surface in Iraq.||**||

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