Already, postwar bids begin

Reconstruction is on the agenda at an EU meeting with Colin Powell today.

The Iraq war may be far from over, but already European countries and companies are desperately jostling for position so as not to miss out on the peace.

A vast reconstruction program - the biggest since the 1945 Marshall Plan for Europe - is being planned for postwar Iraq, and contracts worth tens of billions of dollars will theoretically be up for grabs once the guns fall silent.

But governments and businesses in Europe are increasingly alarmed that President Bush's administration will argue that, since Washington paid for the war with its dollars and its soldiers, so its businesses should prosper from the peace.

Perceptions that the war has a secondary motive - to secure plump deals for Bush cronies - grew last week, when the Houston energy services firm Halliburton, once headed by Vice President Dick Cheney, showed up at the top of the list of potential contractors. Yesterday Halliburton declined to bid for a primary contract, although the firm remains interested in subcontracts. Officials there declined to say whether their decision was related to questions of favoritism.

The stakes in rebuilding Iraq are high. With its vast oil reserves and richly talented, 2 million strong exile community, the country has huge potential. But after years of sanctions and decades of mismanagement, the economy is a shambles. Estimates have put the cost of rebuilding roads, schools, hospitals, the transport system, oil wells, airports, and government at more than $100 billion.

Britain and its EU partners want the US to put together a much broader alliance for rebuilding Iraq than the narrow "coalition of the willing" assembled to fight the war.

Leaders in London, Paris, and Brussels are adamant that the UN play a preeminent role in helping form a new government in Baghdad so that aid and development money can be released from multiple channels, not just from US coffers.

But the early signals have not been encouraging. An initial $900 million package of contracts tendered through USAID has put US companies in the driver's seat for the first awards. Already a US stevedoring company has beaten a British rival to a deal to manage the Iraqi port of Umm Qasr.

Britain is perhaps in the most peculiar position. Because its soldiers are dying in Iraq, business here is leery of "ambulance chasing."

Still, the big concern - which Foreign Secretary Jack Straw is expected to raise with Secretary of State Colin Powell during a meeting today with EU officials in Brussels - is that despite fighting the war, Britain will miss out on the peace, just as it did in Kuwait 12 years ago.

Trade Secretary Patricia Hewitt has urged USAID not to overlook British firms, and a trade group has set up a meeting next week with the government to thrash out how best to win work.

"We feel our companies have strengths there - many of them were working in Iraq until 1991," says Nigel Peters, deputy executive director of the British Consultants and Construction Bureau, a trade group of some 300 firms, 80 of which have voiced an interest in securing work in Iraq.

The problem is that USAID money is the only reconstruction cash available at the moment, and it is usually tied to US companies or at the very least, companies with US security clearance. British firms like Balfour Beatty, a construction company; Costain, a construction contractor; and utility service provider Thames Water may not thus get in at the ground floor, but they are confident of securing subcontracting work in this first round of aid money - and that could be enough to gain a head start over others.

French companies are in a more invidious position. France has been one of Iraq's biggest trading partners in recent years, yet its implacable opposition to the war has left it with few friends in Washington. French business chiefs have put together a working group to study possibilities, but some openly acknowledge that they may only get scraps to start with.

Analysts note, however, that the rhetoric from Paris has started to soften, in a sign that the government may be trying to help position the country for postwar work. Foreign Minister Dominique de Villepin sounded a conciliatory note at a recent London conference, and Foreign Ministry officials are confident that the law of averages can still work in France's favor.

"Nobody wants to have all their eggs in a single basket," adds Jean-François Delpech, with the Foundation for Strategic Research, a Paris think tank. "The Iraqi people are well-educated, and there is a substantial middle class in Iraq: I don't see them tolerating very long being just a puppet government."

The third European country with the strongest ties to Iraq is Russia, but its position looks the weakest. Moscow has burned bridges with both the regime in Baghdad (a key oil contract was torn up in December), and with coalition forces by opposing the war. Some analysts in Moscow predict that the Russian government will even have a hard time claiming back some $8 billion of debt Iraq owes. They add that Russian petro-technology is not on a par with that of Western powers, so it will be well back in the line to develop Iraq's oil industry.

A large share of the reconstruction billions will go into the oil industry to turn the country once again into one of the world's major crude producers. Early work will favor oil services firms, but in the long term, major exploration will be needed to make the most of reserves.

Western leaders have promised to put Iraq's oil wealth into trust so it can be used for the benefit of the people. Yet reviving the industry can be done only through massive investment by large Western companies - who will naturally look for some returns on their investments.

The most likely long-term scenario, says Fadhil Chalabi, a former top Iraqi oil official, is a large-scale privatization, with Western firms like Exxon Mobil, BP and Royal Dutch/Shell taking stakes.

"We have to have the participation of foreign companies," says Mr. Chalabi, now executive director of the Centre for Global Energy Studies in London. "We need to have a huge amount of money coming into the country. The only way is to partially privatize the industry and get as much foreign capital as possible."

Indeed, the need is so great - estimates call for $6 billion just for the oil industry to return to a pre-1991 state - that participants are not likely to be limited to just the English-speaking world.

"You can't blacklist oil companies," says Paul Floren, a spokesman for French giant TotalFinaElf. "Every oil field out there is developed under a consortium," which makes it difficult to exclude one company over another, he adds.

• Terrence Murray in Paris and the Associated Press contributed to this report.