LondonThe suicide bombing of the International Red Cross headquarters in Baghdad on Oct. 27 and subsequent attacks, have intensified concerns among potential investors about the security situation in Iraq and its impact on reconstruction.
But the bombing was not the only worry on the minds of would-be investors attending a conference here at the end of October on reconstruction business prospects. Also of concern were issues ranging from the survivability of orders being issued by the US-led Coalition Provisional Authority; to the backgrounds of potential Iraqi business partners; to the financial and political risks of entering the country with projects and cash before a new constitution is written and a new government is elected.
Response to the escalating terror tactics of opponents of the US-led occupation was muted, but concerns were clearly there. "The latest events do tend to shake peoples comfort levels," said David Neckar, the Practice Leader at the London-based global insurance broker, The Willis Group.
Omer Totonji, an Iraqi who is general manager of Saudi Arabia-based Al Saady Holdings Company, who is active in bringing together Iraqi and foreign business interests, predicted the bombing will dampen investors' enthusiasm. Totonji noted the outflow of expatriates from Iraq following the bombing of the UNs Baghdad headquarters this past summer and suggested a similar response to the latest attack is likely.
But while impact of international workers pulling out of the country is a concern, the difficulty recruiting workers to go in is another, said Peter Kulke, a director at German engineering consulting company DE-Consult. He said the bombing would make it more difficult for his company to find people willing to go to Iraq. DE-Consult operated in Iraq for about 17 years under the regime of Saddam Hussein and is interested in project management of railroad system reconstruction.
Panayotis E. Goritsas, a representative for Greek contractor Empedos at the conference, says Empedos is eager to join the reconstruction effort too, but summed his company's attitude up by saying, "If its too dangerous, we just wont go there."
But foreign investors are also concerned about the future of private enterprise in Iraq. While the Coalition Provisional Authority has been issued orders changing the landscape of Iraqs financial and business law, legal experts warn that a future Iraqi government could well overrule those changes, voiding contracts signed with the US-installed provisional government and making sizable up-front investments by foreigners all but worthless.
One of the sharpest warnings comes from a UK-based international arbitration lawyer, Juliet Blanch, who told the London meeting of the significant risks to companies signing contracts with Iraq based on orders being issued by CPA, such as the new foreign investment, tax, tariff and banking orders issued in September. "There is no obligation of any succeeding government [in Iraq] to ratify any CPA changes" to Iraqi law, she said. The US governmentand CPA Administrator Paul Bremer in particularhave called for Iraq to pass a privatization law. But Blanch warned that, "if the CPA went through with the [proposed] privatization and the subsequent regime decided to renationalize, they would not be obliged to compensate companies" because the government could claim the privatization was unlawful.
Jay Brandes, a US Commerce Department official who is also director of the Iraq Reconstruction Task Force, seemed to acknowledge the limitations of CPA actions. Brandes, who addressed the London conference via phone from Washington, responded to a question about whether companies face a risk in signing contracts with Iraq now, noted that the recent mobile telephone service contracts awarded by the Governing Council are for only two yearsabout as much time as the US expects to remain in control. After that, Brandes noted, companies will have to negotiate directly with the new government.
A two-year timetable now seems like a best-case scenario for companies interested in work going beyond the CPAs mandate to make basic repairs to Iraqs infrastructure.
Iraqs telecommunications system ranks low on the coalitions priority list of needed repairs, meaning longer term investment needs of $3 billion to $7 billion to bring the system into the modern era will depend on private investment, particularly after the US decided that $360 million initially earmarked for sectoral repairs was deemed to be a commercial opportunity rather than a strategic necessity, said Paul Davis, vice president of European business development at California-based Parsons.
But telecommunications spending, much as with investments in the oil, gas and many other sectors will have to await significant improvement in Iraqs delivery of electricity. That, it seems, is currently struggling against a vicious cycle. "You cant pump oil into a power station without electricity, and you cant generate electricity without fuel," notes John Baxter, the group engineering director at UK-based Powergen, which is working with the British military in southern Iraq.
Righting all this will take time, which is another commodity in Iraq that seems to be in short supply. While Washington is pinning its hopesand applying considerable pressureon the Iraqis producing at least a "timetable" by December 15 for a new constitution and eventual elections within two years, the USs main ally in Iraq, Britain, is showing its own signs of concern.
Neil Crompton, the head of the Iraq policy unit at the British Foreign and Commonwealth Office spoke of a danger of widening discontent, with the transfer of power moving into the hands of the "discontented and violent elements" in Iraqi society. While Crompton still thinks the Coalition will meet its deadlines for handing over power to a new Iraqi government, he conceded: "We could be knocked off course by a combination of events."