Contracts with provisional authorities

Introduction

While the Defense and State Departments have granted the lion’s share of contracts in Iraq and Afghanistan directly from Washington, a few U.S. companies have made their deals directly with local governing authorities that have emerged with U.S. support or direction.

The companies do not appear on the lists of contracts the Center for Public Integrity obtained under the Freedom of Information Act; their direct dealings with the provisional authorities in Iraq and Afghanistan demonstrate the complexity of tracking the role of private companies in the post-war countries.

Three U.S. companies—banking and brokerage powerhouse J.P. Morgan Chase, oil giant Chevron/Texaco and global telecommunications provider MCI—have won contracts from the Coalition Provisional Authority in Iraq, the Iraq State Oil Marketing Organization, and the Afghanistan provisional government.

In Iraq, Peter McPherson, director of economic development for the Coalition Provisional Authority—whose members were appointed by Coalition Provisional Authority Administrator L. Paul Bremer on July 13, 2003—told reporters in an Aug. 29, 2003, teleconference from Baghdad that CPA will pay J.P. Morgan Chase $2 million over an up-to-three-year period to run an operating consortium of 13 banks from 13 countries that will constitute the Trade Bank of Iraq. The temporary bank’s role is to issue and confirm credit letters to facilitate and encourage immediate importation of items like food, electrical equipment, and oil refinery machinery, and later that will allow for trade in oil and heavy machinery, worth hundreds of millions of dollars and effectively phasing out the UN oil-for-food program.

J.P. Morgan Chase also will train employees provided by the Iraq finance ministry, who will finance and run the bank in the long term, reports indicate. The Trade Bank will begin with $100 million in capital—$5 million from CPA and $95 million from a U.N. reconstruction fund, which primarily consists of oil revenue. Bank consortium members are not expected to make much revenue at first, but banking publications report that the real windfall will come once Iraq’s oil production resumes full capacity and an anticipated billions of dollars will flow through the Trade Bank for financing large development projects. Dividends are expected to be dispersed according to relationships developed during the contract.

McPherson said, “The real action here isn’t the contract to run the trade bank, to oversee the trade bank. It is the trade credit that will go through the trade bank.” The money-making potential of the contract is evidenced by the fact that bidding drew six groups totaling nearly 60 banks. The winning group, led by JP Morgan, was picked by an Iraqi-led selection committee in Bahrain. National Bank of Kuwait, the region’s highest rated bank that joined in regional reconstruction efforts after the first Gulf war, is the only Middle Eastern bank involved. The others are Standard Chartered PLC, London; Australia and New Zealand Banking Group; Credit Lyonnais, Paris; Millennium Bank, Poland; The Bank of Tokyo-Mitsubishi; San Paolo IMI, Italy; Royal Bank of Canada; Caja De Ahorros Y Pensiones De Barcelona; Standard Bank Group Limited , South Africa; Banco Comercial Portugues, Portugal; and Akbank, Turkey.

ChevronTexaco was one of six international oil companies selected by the Iraq State Oil Marketing Organization in June 2003 to purchase Iraqi oil. Nearly 50 companies competed for the purchasing rights for a total of 10 million barrels—the first Iraqi oil to be sold free of sanctions since 1990. ChevronTexaco ended up buying 2 million barrels.

Both Chevron and Texaco (the companies merged in 2001) held contracts with the Iraqi government prior to Iraq’s invasion of Kuwait in 1990. The two purchased Iraqi oil before the war under the U.N. oil for food program, importing nearly 11 million barrels of Iraqi oil between January and March 2003.

The expected revenue of $300 million from the first sale of Iraqi oil will be controlled by the U.S. government and its allies for use in rebuilding Iraq. In July 2003, ChevronTexaco was named by the Iraqi oil ministry as one of 12 companies awarded short-term contracts to market a total of 650,000 barrels of oil a day from August until the end of December 2003.

Like the J.P. Morgan Chase and ChevronTexaco contracts, MCI’s reconstruction activities in Iraq and Afghanistan were not disclosed in documents the Defense Department provided to the Center under a Freedom of Information Act request. Media and company sources, however, indicate that MCI has or had post-war business dealings in both countries.

For instance, after the U.S. invasion of Iraq in 2003, the Associated Press reported that the Defense Department picked MCI to build a wireless phone network for officials and aid workers in the Baghdad area. According to an MCI spokesperson, the Pentagon-led Coalition Provisional Authority awarded the contract to MCI in late May 2003 after approaching several other companies. MCI paid all the costs associated with the contract up front, which included expenses incurred in purchasing and assembling the equipment, shipping it to Iraq and installing it. MCI had the system installed and running in less than two weeks last June. The contract was part of a short-term communications plan costing the Pentagon approximately $45 million, according to the Associated Press. The company spokesperson would only say that the contract it won was for less than $20 million.

The decision to include MCI touched off a firestorm of controversy given the company’s recent legal troubles. In July 2002, WorldCom—which was later renamed MCI—declared bankruptcy amidst an accounting fraud scandal. Critics also charged that MCI had minimal wireless network experience and complained that the contract was not put up for competitive bidding. In August 2003, the General Services Administration suspended MCI from competing for new government contracts. In October, it was reported that a larger contract to establish a nationwide wireless phone network was awarded to a consortium of Middle Eastern companies. Bidding on the contract was conducted by the U.S.-led Coalition Provision Authority.

In May 2003, the BBC reported that MCI supplied telecommunications to the U.S. military and government agencies during and after the 2001 Afghanistan war. Other media sources revealed that MCI also served as a subcontractor providing long-distance connections for a wireless network in Afghanistan pursuant to a contract awarded by the interim Afghanistan administration in 2002.

The Center was unable to obtain any additional information on these contracts.