Oil Wars

During the depths of the Venezuelan economic meltdown that resulted from the opposition led oil strike Chavez's opponents liked to complain that Chavez administration wasn’t building any public works. Never mind that their little attempt to topple Chavez cost the country at least about $14 billion in lost revenue. Chavez could probably have built quite a few things with that $14 billion.

Thankfully Chavez didn't sit around crying over spilt milk but rather worked hard to get the country back on its feet. He suceeded and the last four years have seen a complete turn around in Venezuela’s economic fortunes. Not only are Venezuelans living much better these days but massive public works have been sprouting up all over the place.

The opposition, never ones to give Chavez credit for anything, now claim that there is nothing to building roads, subways, bridges, hospitals or anything else for that matter. Just find contractor, give them some money, and presto – the finished product pops up. So simple a caveman could do it – or even Manuel Rosales for that matter.

Needless to say things aren’t quite that easy in the real world – as the government of Iraq is finding out the hard way. While Venezuela has spent a couple of hundred million dollars and will have a brand new and much needed bridge in a matter of weeks Iraq has spent hundreds of millions dollars for a much needed new power plant all they have to show for it is “some metal sitting in the desert”.


The sad details were given in Monday’s Wall Street Journal in an article entitled “In Struggle to Rebuild, Iraq Fights Texas Firm”. Lets take a look:

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.
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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.

Clearly its not as simple as just looking up a contractor in the phone directory.
And it is interesting that the Iraqis managed to find some small obscure firm from Texas to do the work(Texans just keep popping up all over the place during the Bush presidency don’t they!)

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.

It was also a big step up for Southeast Texas. The assignment was the largest in the company's history, and the most challenging. Based in a low-slung brown building in the small town of Buna, three hours outside of Houston, Southeast had never worked overseas, let alone in a war zone like Iraq. Its total 2003 revenues were about $250 million, smaller than the Musayyib contract.

So how did some tiny little company get a contract that was bigger than its entire prior year revenues? No one knows, but some have their suspicions:

Exactly how Southeast Texas won the Iraqi contract is a matter of dispute. Iraqi officials believe Southeast bribed the then-electricity minister, later arrested on unrelated corruption charges, to win the business. "To hire a company that is not well-known to do a project this big, and sign the contract in a couple of days? Who has ever heard of such a thing?" says Senior Deputy Minister of Electricity Raad al-Haris. "I think money changed hands." Mr. Dempsey, the U.S. reconstruction official, concurs: "They probably paid a bribe," he wrote in an internal memorandum earlier this year.

Now here is a interesting question. Corruption is often portrayed as a vice of governments in poor countries. Yet it take two to tango – if there was indeed "money changing hands" in this case it means a U.S. company bribed Iraqi officials. In fact, U.S. companies have done lots of bribing around the world. So how exactly do they get a squeaky clean rating from Transparency International? Who knows, maybe it has something to do with who pays T.I.’s bills (which is itself less than transparent).

Of course, even if there was some corruption in the selection process hopefully the power plant could still be built – right? If anything it would just be padded with some extra costs. At least that is what I would hope.

However the deal originated, Southeast Texas executives say they were excited about the project. "We supported our president completely and we thought it would look good for our company if we went in and helped rebuild Iraq," says Mr. Cole, who has spent 40 years in the construction business.
The good feelings didn't last long.

In March 2004, the company says it notified the Iraqi government that it was behind in its payments. Having been warned by Iraqi officials that the site needed better security, Southeast says it built new concrete walls and guard towers. So it wasn't able to begin work at the site until May 25, nearly four months later than planned.
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The Iraqis acknowledge they were late with payments, citing the confusion resulting from many changes of leadership, and say they occasionally fell short in meeting their contractual promises. But the Iraqis also accuse the company of continually setting conditions for resuming work at the plant, leaving the site idle for long stretches.

"I knew they were cheating us. But the government was desperate to finish the plant, so we gave in," says Mr. al-Haris, a Western-educated official involved in the Musayyib project since its inception.

Under the terms of a Nov. 2, 2005, agreement, Southeast agreed to resume work on the plant in exchange for an additional $9.1 million from the Iraqi government. The company says the next payment didn't arrive until Feb. 17, 2006 -- 108 days late.

Kind of sounds like the Iraqis don’t have their act together either. Actually, of course they don’t. After all they hired THESE IDIOTS to built the plant.

Watch as it gets better:

Work on the Musayyib plant finally resumed on March 23, 2006. One week later, the bad blood exploded during a meeting at Amman's Sheraton Al-Nabil Hotel & Towers. According to participants on both sides, the Iraqis were told they would have to pay more if they wanted Southeast to test the plant's machinery and bring it on line. Mr. al-Haris, the Iraqi government official, says he told the Southeast executives that they were a "bunch of cheats," and then stormed out of the room.

This is just surreal. One would think that the builder making sure the plant actually works and generates electricity would be a given. But apparently not. I guess in Texas the way things work is if you want something built that is one thing, if you want it to ACTUALLY WORK, that is extra.

This would be like the new bridge to La Guaira collapsing after the first truck crossed it and the contractor saying: “Don’t blame us. We built you a bridge. You didn’t specify you actually wanted it to hold the weight of cars and trucks”.

Fortunately, the bridge to La Guaira is being built by a Venezuelan company and overseen by competent Venezuelan government officials. And I think we can see why they didn’t hire anyone from Texas to build the thing.

From there things went from bad to worse with the Texas company walking off the job and it and the Iraqi government suing each other for millions of dollars. The U.S. government is thinking about using other contractors, but things won’t be easy for them:

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.

The Iraqis refused this extorsion so how did the Texans respond?:

Now it's up to the U.S. to try to pick up the pieces. During a visit in March, Mr. Herman accepted a cigarette from Mohammed Nashoom, a Ministry of Electricity official stationed at the plant, and inhaled deeply. Mr. Herman told the Iraqi that the U.S. hoped to hire a Boise, Idaho-based contractor, Washington Group International Inc., to assume responsibility for the plant.

Mr. Nashoom promised to help, but told Mr. Herman that Southeast welded the doors of some of the control rooms shut, which will make it harder for the new contractors to get access to the computers and files stored inside.

So when it is all said and done the Iraqis have spent millions and millions of dollars and all they have is a non-working electric plant with its doors welded shut. Hey, do American companies create value or what?

Too bad the Iraqi government really isn’t anything more than a bunch of U.S. puppets. Otherwise next time they could say screw the Texans and hire some Venezuelans for the job. Who knows, if they did that they might have an electric plant that actually generated some electricity.


BTW, its kind of tangential to the main point, but after reading this I have to ask – is the U.S. really trying to win this war?!?!?! If I didn’t know better I’d say Bush, Cheney, Rice, etc, all must have a lot of money in Vegas riding on the U.S. LOSING this war. Then again, maybe they just have a lot more money riding on making sure that war profiteering companies make killer profits. Yeah, that is probably it.
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