Iraqi contractors keep hard hats on

By Myles Neligan
BBC News Online business reporter

Two UK contractors died in a rocket attack on Monday

Alex Munro, Middle East sales director at US air freight firm National Air Cargo, had not been in Baghdad long before the perils of doing business in occupied Iraq were brought home to him.

As the room in the US military barracks where he was staying shook from the force of a mortar explosion, he turned to a nearby army officer and observed: "That was close."

"Nope," came the reply. "They're only close when they blow you off your seat."

Mr Munro's anecdote vividly illustrates the challenges facing foreign workers selected to carry out the lucrative but risky job of rebuilding Iraq's shattered infrastructure.

Line of fire

Iraq was always going to be a hazardous assignment for western contractors, but escalating conflict between US-led forces and Iraqi insurgents has in recent weeks made the work even more dangerous than expected.

There are no safe locations in Iraq Fergus Harradence, Gulf Unit, DTI

The brutal murder of four US workers in Fallujah last month, followed by the videotaped decapitation of telecoms expert Nick Berg, signalled that the insurgents had turned their attention away from military targets.

And the death of two British contractors in a rocket attack in Baghdad on Monday again confirmed that Iraqi militants now consider foreign civilian workers fair game.

Their intention is to plunge Iraq deeper into chaos by halting the reconstruction effort, and the tactic has at times appeared close to succeeding.

Many companies operating in Iraq were reported to have pulled staff out of the country in the wake of the Fallujah murders.

And last week, World Bank president James Wolfensohn told BBC News Online reconstruction work had fallen seriously behind schedule because of the deteriorating security situation.

Heads down

Even the UK government does not mince its words when describing the business climate in Iraq.

Much of Iraq's infrastructure needs urgent repair work

"There are no safe locations in Iraq," Fergus Harradence, the head of the Department of Trade and Industry's Gulf unit, bluntly told a conference in London this week.

"Terrorists are targeting contractors, and anything that isn't tied down and guarded will be stolen. Business opportunities in Iraq are not something to look at as a sideline."

One measure of the obstacles faced by contractors on the ground is the slow pace at which they are burning through the $18.6bn set aside by the US last year for reconstruction.

According to recent figures, just $1bn of this sum had been spent, and a further $2.3bn committed, by the end of March.

And the increased physical risk of working in Iraq means that a greater than expected proportion of the total may be spent on security rather than restoring Iraq's roads, water and electricity supply.

With the cost of protecting workers on the ground running at about $5,000 per employee per day - all of it recoupable from the US government - it is thought the final security bill could mop up over 10% of the reconstruction budget.

For companies not working on US government tenders, who have to meet their own security costs plus an insurance bill equivalent to about 20% of their project budget, operating in Iraq is unlikely to make financial sense at all.

Legal puzzle

Aside from the security risks, there are also legal and administrative uncertainties hanging over Iraqi reconstruction work.

Road freight is vulnerable to attack

It is unclear whether the legal framework governing contractors' activities will survive the transfer of power from the ruling Coalition Provisional Authority to the interim Iraqi government on 30 June.

And more legislative changes are likely when a fully elected Iraqi government takes over, probably in January next year.

A further complexity for businesses operating in Iraq is that property ownership is often hotly disputed, a legacy of former ruler Saddam Hussein's habit of appropriating the assets of his opponents and redistributing them among his cronies.

"It is premature even to be having a discussion about Iraq's market potential because of the incredibly unclear (legal) picture," said Bathsheeba Crocker, Co-Director of the Centre for Strategic and International Studies, a Washington-based think-tank.

Holding on

And yet, while foreign firms in Iraq have become more cautious, there is so far little sign of them losing their appetite for contract work.

According to the DTI's Fergus Harradence, there has been no noticeable decline in the number of British firms expressing an interest in working in Iraq, even after the latest upsurge in violence.

"Most people seem to regard this as a blip," he said.

And Aldwin Wight, of security consultants Kroll, believes recent reports that much reconstruction work had come to a halt were "rather exaggerated".

"There was a bit of a falling off after Fallujah, but a lot of (contractors) seem to be coming back in now," he said.

For many, this is because all-expenses-paid contracts backed by the richest government in the world are simply too good to pass up.

"We get mortared two or three times a day, and we review the situation daily," said Alex Munro of National Air Cargo, whose services are much in demand in Iraq since the roads became too dangerous for goods transportation.

"But we're in this for the long haul."

With security expected to remain volatile even after the Iraqi interim government takes over, contractors in Iraq are - for now - gritting their teeth and digging in for a long hot summer.