Postwar Iraq: A showcase for privatisation?

A number of powerful right-wing think-tanks closely allied to the Bush administration have been pushing for ‘privatisation’ to be made the central plank in the US economic plan for the restructuring of postwar Iraq.

Philip Mattera

IN the week of 31 March, US military officials came up with a solution to the chaos surrounding the distribution of water to civilians in the Iraqi port of Umm Qasr: They are providing water free to locals with tanker trucks, who are being allowed to sell the precious liquid for a ‘reasonable’ fee. ‘This provides them with an incentive to hustle and to work,’ an Army commander told a reporter for the New York Daily News.

This transfer of a public good to private hands may be an initial small step in what could be widespread privatisation in Iraq after the war is over. A number of conservative think-tank denizens and other analysts have been arguing for months that the post-Saddam Hussein economy should be restructured according to the principles of Milton Friedman.

In the week of 24 March, Robert McFarlane, National Security Adviser during the Reagan Administration, and Michael Bleyzer, chief executive of an equity fund management company, published an op-ed in the Wall Street Journal headlined ‘Taking Iraq Private’. The two men argued that ‘the US and its allies would be well advised to put together a team of private sector business leaders as a ‘steering committee’ to supervise and monitor’ economic restructuring.

An explicit call for privatisation, rather than simply private investment, was issued last fall at a conference convened by the right-wing Heritage Foundation. In a paper presented at that conference (and revised in March), Ariel Cohen and Gerald O’ Driscoll wrote: ‘To rehabilitate and modernise its economy, a post-Saddam government will need to move simultaneously on a number of economic policy fronts, utilising the experience of privatisation campaigns and structural reform in other countries.’ The authors go on to assert what they call Lesson No. 1: ‘Privatisation Works Everywhere.’

Back in September, the US State Department’s Washington File website gave a full account of the discussion at the Heritage meeting, quoting Cohen as saying that at the top of his list of recommendations was ‘a modern legal environment that recognises property rights, which are now non-existent in Iraq, and is conducive to privatisation’.

As with other Iraq matters, the US calls for privatisation have been echoed in Britain. In March, the free-market-loving Adam Smith Institute issued a paper titled ‘Toward an Economic and Governance Agenda for a New Iraq.’ One section of the document starts out with the declaration: ‘Privatisation is a sine qua non for successful reform in Iraq’. The authors go on to say, ‘In Iraq there is much to privatise, as a considerable portion of the economy is state-owned.’ Among the sectors that should be up for grabs, they suggest, are mining, chemicals and construction.

Playing down the business boon

Since the war began, the Bush Administration has avoided talking about the business boon being created in Iraq for US and other foreign corporations. Yet it has taken steps such as awarding a contract to operate the port in Umm Qasr to a private company, Stevedoring Services of America. Another contract, for technical assistance to the reconstruction effort, has been given to the International Resources Group, which will share the work with UK subcontractor Crown Agents, which is itself the product of the privatisation of a British development assistance agency.

The US Agency for International Development, which is coordinating the reconstruction plans, gave about half a dozen large US-based engineering companies an exclusive right to bid on the main contract for infrastructure work. According to various press reports, the leading contenders for that contract are Bechtel Corp. and Parsons Corp. The latter is said to have taken on Halliburton Co.’s Kellogg Brown & Root unit as a subcontractor after Halliburton was eliminated as a primary bidder, apparently because of controversy surrounding the company’s ties to Vice President Dick Cheney.

What’s significant about Bechtel and Parsons is that both companies, in addition to their main construction units, have operations engaged in privatisation activities in the United States and elsewhere. Bechtel is a leading player in water system privatisation, ranking just behind the big three - Suez, Vivendi Universal and RWE/Thames Water - in that controversial business. A subsidiary of Bechtel was forced to abandon its operations in Cochabamba, Bolivia, in the wake of a popular uprising over massive water rate hikes. Bechtel is now suing Bolivia for $25 million in compensation through a secret World Bank tribunal.

Parsons performs privatisation feasibility studies and sometimes takes on the projects itself. The most notorious instance of the latter is the company’s role in privatising the auto inspection system in New Jersey. That project, worth more than $500 million, has been marked by charges of inefficiency and excessive costs. Parsons was the sole bidder on the contract, which was awarded in the late 1990s by the administration of Governor Christie Whitman, who is now serving as head of the US Environmental Protection Agency.

It’s clear that there are a lot of business opportunities to be had in Iraq. The Bush Administration is reported to have convened around 10 task forces to plan the transformation of everything from agriculture to banking. US companies are expected to receive contracts to restructure and operate facilities such as airports, schools and hospitals.

The big prize

The big prize, of course, is oil. There’s no doubt that foreign companies will be called in to operate Iraq’s petroleum system after the war; the question is whether they will remain in place indefinitely and perhaps even have an ownership interest. Some people seem to think that should be the case. In December, the authors of the Heritage Foundation report published an article in the online version of the arch-conservative National Review that was headlined ‘PRIVATISE IRAQI OIL’. The Los Angeles Times reported in February that a State Department advisory panel of exiled Iraqi petroleum professionals recommended privatisation of the country’s oil resources, but only after US military administration has been replaced by a new sovereign government.

The Bush Administration has tended to speak in platitudes about  using oil revenues to  benefit the Iraqi people, but it  is  significant  that  the person reported to have been chosen to oversee postwar oil production is a former chief executive officer of Shell Oil Company. Philip Carroll also worked as chief executive for Fluor  Corp., one of the big engineering companies that had been invited to bid on the main reconstruction contract.

Carroll’s potential conflicts of interest are not the biggest problem for the Bush Administration in its plans for postwar oil exploitation. The Washington Post reported on 3 April that United Nations and British officials are arguing that the US would not have the legal authority to take over Iraq’s oil operations, even on an interim basis, without a new Security Council mandate, given the fact that those operations have been under the supervision of the UN’s oil-for-food programme.

In January, Platt’s Oilgram News reported that a 1976 State Department Memorandum of Law, written after Israel had taken control of Sinai oil fields originally developed by Egypt, had concluded that international law did not support the right of an occupying power to grant an oil development concession. It would not be surprising to learn that the State Department is now seeking a new legal opinion.

To the victor go the spoils, it is said. In the case of this war, the spoils will be going to the victor’s business allies as they bring a distinctly corporate form of liberation to the people of Iraq.                                                        

The above article was originally published in the electronic newsletter of the Corporate Research Project <>, of which Philip Mattera <> is the Director.