Bureaucratic squabble holds up $18.6 billion Iraq aid package

BAGHDAD, Iraq -- It will be the biggest American attempt to change the face of Iraq since the invasion: $18.6 billion from U.S. taxpayers for rebuilding. Yet a U.S. bureaucratic squabble is holding up the money.

The aid package approved by Congress last month amounts to nearly two-thirds of Iraq's annual economic output in 2002, estimated by the World Bank at $28 billion. By summer, the pipeline of dollars is expected to turn Iraq into one of the world's largest construction sites.

But the contract proposals, which were to be released for bids on Dec. 3, are being held up by an apparent turf battle between the U.S. departments of Defense and State.

The dispute, described by U.S. officials on condition of anonymity, centers on the State Department and its co-agency, the U.S. Agency for International Development, vying for some of the contracting authority from the Pentagon-led occupation administration of Iraq, known as the Coalition Provisional Authority.

The State Department believes it can better oversee contracts because it will take the chief U.S. diplomatic role in Iraq on July 1, when power transfers to Iraqis. Then the CPA will be absorbed by the new U.S. Embassy in Baghdad.

Defense officials said contract proposals would be delayed until administration officials settle the dispute, probably by early January, with bids due several weeks later and contracts awarded in March or April. The CPA's original schedule called for contracts to be awarded on Feb. 2.

When the contracts are awarded -- only firms from the United States and its occupation partners are eligible -- U.S. officials estimate winning bidders will hire hundreds of thousands of Iraqis to toil on the 2,311 planned construction projects that need to be completed in two years.

"It's almost historic, it's that big," said Bill Smith, a retired Navy engineer who will oversee the rebuilding of the country's water and public works. "We're concerned that the infrastructure can absorb it. Can the ports handle it? Can the roads handle it?"

Planners expect rebuilding to touch the lives of every Iraqi, providing electric power, clean water and sewage treatment, while fixing the tattered oil industry -- all of which have been ravaged by three wars, a dozen years of U.N. sanctions and the Saddam regime's neglect. U.S. officials hope the revitalized infrastructure forms the bedrock for the Middle East's most freewheeling economy.

"It will make this country a reliable place to do business," said Dan Senor, spokesman for U.S. administrator L. Paul Bremer.

Only an estimated 20 percent of the funds will be spent inside Iraq -- just under $2 billion each in 2004 and 2005. The rest will go to foreign contractors and suppliers.

Success will be evident in a few ways: If Iraqis get enough electricity to keep their homes lit and to run their refrigerators and air conditioners this summer, and if the booming progress takes the steam out of the insurgency and creates a new army of construction workers.

"My personal goal is to help build the construction industry in Iraq," said David J. Nash, a retired Navy admiral who heads the rebuilding effort. "If you put as much money in as we are you can't help but make a difference. We're trying to get Iraq rebuilt and win the peace."

Nash, a former top executive with U.S. construction firm Parsons Brinckerhoff, spoke in Baghdad last week before heading to Washington to try to restart the bidding process.

Nash will be in charge of an enormous and elaborate logistical ballet. Five hundred projects must be kept running simultaneously, some with more than 1,000 workers, for two years.

Plenty can go wrong. With Iraq's airports expected to remain off-limits because of security concerns, arriving contractors and their supplies will be fighting for the same dock slips and highway lanes as the U.S. military, which will be in the midst of its largest troop rotation since World War II. About 130,000 U.S. troops are on the ground now.

Contractors will be competing for the same labor pool, the same supplies of concrete and pipe, the same trucking fleet. Inflation could become a problem.

The biggest wild card is security. The guerrillas have already disrupted construction projects, dynamiting pylons and pipelines, killing several foreign contractors and forcing a South Korean electrical firm to pull its 60 workers out this month.

Convoys are fat targets for the Iraqi guerrillas, who are expected to do their best to disrupt and discredit the U.S. effort. Contractors have been told to bring their own security -- and write the costs into their bids -- because the U.S. Army won't protect them, Smith said.

A Pentagon Web site explaining the contracts says "there is no plan" to allow contractors to delay their work for security reasons. Smith estimates safeguarding rebuilding will eat up 7 percent of project costs.

A few high profile killings or acts of sabotage could paralyze the work, triggering a contractor exodus or dissuading other donor countries from contributing to rebuilding efforts.

"It's a huge issue," Smith said. "The security situation won't stop it but it will dictate the pace."

Smith fears some Iraqis might not notice that they're reaping benefits -- water, sewer, cleaner rivers, better roads and electricity -- but they will notice that they have to pay for it for the first time.

Iraqis currently pay nothing for their erratic supply of water and electricity, which is one reason there hasn't been money to upgrade it.

Although U.S. taxpayers are funding the rebuilding of Iraq, it is a private sector effort. Just 120 U.S. government workers will monitor the companies and the work.

And they're in a rush. Even before the bid solicitations have been released, interested contractors are being told to get ready to move.

Contractors will earn extra profit the more Iraqis they hire, and there are further incentives for transferring technology to Iraqi companies, Smith said.

Of course, $18.6 billion can't fix everything in Iraq. Smith said the cash, part of the overall $87 billion supplemental appropriation for Iraq and Afghanistan, will cover fewer than half the 5,000 projects on the original "to-do" list. The World Bank estimated the country's ragged infrastructure needs $55 billion.