The spoils of war

A concerted collection of state-owned and private local companies are laying the groundwork to prepare business plans for lucrative contracts to rebuild a post-war Iraq following a coalition triumph in Operation Iraqi Freedom.

As governing politicians give the country's full imprimatur to the war, even providing more than 200 troops for the campaign, executives at mostly large construction- and fuel-related companies are beginning to draw up game plans, convene consortiums and ponder opportunities for making money in a post-war Iraq.

To varying degrees, PKN Orlen, Budimex-Dromex, Polish Oil and Gas (PGNiG), Geofizyka Toruń, PHZ Bartimpex and Zakłady Azotowe w Tarnowie-Mościcach (ZATM) are all interested in playing a part in reconstructing Iraq.

Indeed, market watchers globally point to a greater sense of urgency in the pursuit of post-war spoils, now that one contract has already been awarded.

The US government tapped Kellogg Brown & Root (KBR), a subsidiary of Texas-based energy firm Halliburton (at which US Vice President Dick Cheney was chief executive from 1995 until 2000) to put out oil-field fires and aid in the rebuilding of Iraq's petroleum infrastructure.

This news bodes well for pro-America Poland, some say.

Executives expect that the country's staunch support for the war, and for the US in particular, though not founded on commercial motives, is an indispensable bargaining gambit when the time comes to vie for business in Iraq. Of course, they note that everything depends on the war's outcome, and the process by which the new governors of the country - whoever they will be - choose to divvy up the business.

But companies are betting heavily that the US and other coalition countries, a group that by some accounts numbers 50, would maintain a paramount role following the war.

And, some local executives add, the fact that countries with the most experience with Iraqi infrastructure - Germany, France and Russia - have staunchly opposed the war will shunt them aside when future business prospects surface.

Based on these notions, local executives are beginning to script plans.

Bartimpex, a gas-trading firm that also operates as a holding company for construction and financial services companies, has recently begun to set up a consortium of local companies, across various industries, to focus on the Middle East. It was a project launched months prior to the second Gulf War's start in the middle of March, but subsequently the company has considered Iraq as a land fertile with business opportunities.

"We would like to be ready for new opportunities in the Middle East, also Iraq," said Aleksander Kotłowski, deputy director general at Bartimpex. He said that the company's offset agreement partnership with Lockheed Martin could aid it in snatching up contracts, should the US be the main arbiter of the tender processes.

But Kotłowski pointed to another achievement the company boasts; its experience with the Polish section of the Yamal pipeline project. "Maybe because of that experience we are interested in these opportunities," he said.

Bartimpex was able to secure financing for the multibillion-dollar pipeline and act as a developer on the construction of the Polish portion of the project, he explained. This proven financial stability and organisational know-how would aid Bartimpex in crafting a winning pitch for business in the Middle East.

Some executives are loath to say that the government's military stance and backing of the Anglo-American coalition will bulk up their revenue streams in the future. Instead, they explain that their experience working in Iraq is the key to their potential success.

Construction frenzy

In the 1960s, '70s and '80s, domestic construction firms were active in Iraq constructing roads, factories, houses and oil and gas infrastructure.

"In the so-called communist times there was quite a bit of activity from Polish firms," said Paweł Szałamacha, analyst at the Adam Smith Research Centre. He added that chemical as well as food-processing companies also worked there.

One analyst estimated that the country garnered an average of some $200 million in annual revenues from Iraq at the apex of the two countries' business ties.

Budimex-Dromex was one of the most active companies in Iraq before the first Gulf War, Operation Desert Storm.

"Budimex-Dromex built 270 kilometres of road in Iraq in the '60s and '70s," said Mikołaj Koszutski, press officer at the construction company. In the southern Iraqi city of Basra, he said, Dromex constructed industrial buildings and elsewhere it built homes, all amounting to hundreds of millions of dollars in contracts.

Unfortunately, the company was forced to exit Iraq in the prelude to Desert Storm, leaving behind some $2 million still owed today by the Iraqi government. (Polish companies in total are owed some $700 million.)

"We've tried to get our money, but nothing has happened," Koszutski said, "We are still waiting."

He added: "But also we need geopolitical stabilisation."

>From many angles it would seem that Budimex has set the bar too high to ever set foot in Iraq again; a guarantee of receiving cash from the Saddam Hussein regime and at the same time stability in a region currently beset by ground and air bombardment.

However, like other companies Budimex sees a lot of promise in the coalition forces. Should the coalition control Iraq, Budimex believes debts will be repaid and stability maintained.

"It would be a quite easy guarantee to make," Koszutski said, explaining that once the coalition marshals had full control of the region, Budimex would opt to begin anew in Iraq.

Instead of preparing any specific business plan, he said it has a wait-and-see approach to new business, since most deals in the Middle East are usually sought through the government. "Nobody has spoken to us about it," he said. "We are waiting. Nobody has contacted us from the Polish government."

Various levels and ministries of the government are looking into the question of how well placed domestic companies are to win tenders in Iraq, though they are unwilling to give even a hint of an implication that commercial motives have any role in support for the war.

Zbigniew Kubuacki, director of the economic relations department at the economy ministry, said companies are well positioned.

"Mostly because Polish companies have a tradition in Iraq, we can say that there is an interest," he said. "Probably their expertise would be needed in general construction."

Asked whether the country would win contracts over more experienced companies in France, Germany or Russia because of its war posture, Kubuacki said: "I don't want to speculate. I can't expect that we're in a worse position than others in the coalition. There are some 50 countries directly or indirectly supporting the effort. We can imagine that Poland is in a good position. It will depend on a lot."

Kubuacki said that no-one knows what type of tender process will be employed or who will actually be governing it.

Unsure footing

But even as Kubuacki was speaking to the Business Journal, there was some noise coming out of Germany's business community about its potentially wobbly footing in seeking future business in an occupied Iraq.

International press quoted directors from two trade associations, the Frankfurt-based VDMA machinery and plant builders' association and Berlin-based BGA trade association, as complaining that Chancellor Gerhard Schröder's opposition to Operation Iraqi Freedom could make the leaders of an occupied Iraq give German companies short shrift on the many expected lucrative deals.

Internationally, politicos expect this to occur to some extent with companies from Germany as well as France and Russia.

But Halliburton, for one, said should it begin looking for subcontractors, business that many Polish companies are seeking, it would adhere strictly to merit-based criteria.

"KBR will evaluate resources based on required needs," said Wendy Hall, Halliburton's public relations manager. She added that the company, which has drawn accusations of nepotism for its past relationship with the US vice president, would not in particular favour companies located in coalition countries.

But it would indeed not rule them out. "Currently, there is no plan not to utilise such resources if such a company is the most qualified for the requirement," she said.

Financial messes

Qualified or not, analysts point out that companies here might also have too many financial problems at home, considering the usual mix of an anaemic economy and high unemployment, to be able to take advantage of much new business.

"The whole bunch of other construction companies, besides Budimex, have problems at home and will not be able to look abroad," said Paweł Puchalski. "Their financial situation is disastrous." And after further thought, he said for perhaps only a few smaller companies, "subcontracting is all they can do."

He went on that past experience of operating in Iraq could only take companies so far. At the eleventh hour of tender decisions, it all comes down to ability to deliver.

"What guarantees can you give that you will do the work?" Puchalski asked. "What kind of guarantees can Polish companies show with a poor financial situations locally? Not a lot."

Executives pushing for business in the region agree that financial and output ability is of the essence. That is part of the reason local companies are forming or joining consortiums. Strength is in numbers.

"We have a meeting on April 1 on this topic," says Zbigniew Patys, director of the department of oil and gas production at state-owned PGNiG. "After that, I can say more about it. We are to prepare a consortium. We are preparing a proposal with companies from the UK."

The financial precariousness of local companies was an impetus behind Bartimpex's decision to build an all-Polish consortium about six months ago, according to Kotłowski.

"Most of these companies don't have the financial strength or credibility they had 15 years ago when they were in the Middle East," he said of the companies invited to the group. He declined to identify which companies would partake in Iraqi and Middle Eastern business. The names of these companies, he said, "may not be so obvious. But we as a consortium have a lot of experience in gas and fuel pipelines."

With that in mind, it plans to take advantage of Iraq's depleted fuel infrastructure.

Toruń-based oil and gas exploration company Geofizyka, which sealed a contract in Iraq as recently as 2001, also knows first hand that there is revamping work to be done there.

"We have interest," said Jerzy Trela, manager of the company's marketing department. "The infrastructure of Iraqi oil and gas is in poor condition."

In March 2001, Geofizyka started work on a contract with Iraq-based North Oil Company. But as the tensions rose between the coalition governments and Iraq, its progress was halted.

Geofizyka will not in the future shy away from the country. "If the sanctions are eased, we will probably try again," Trela said.

PKN Orlen and chemicals company ZATM are also considering the opportunities.

And, barring any unexpected catastrophe related to the war, the outlook is good, according to executives.

"From the geopolitical point of view it's a good moment for Poland," said Bartimpex's Kotłowski, noting that the country's support for the war could enable its smaller companies to fill a niche in a post-war Iraq.

There is an important caveat. Kotłowski noted that whatever the president and prime minister may say, and whatever resources the country commits to the battles, traditional business rules still apply: companies must be able to deliver in the construction and fuel sectors, and at a nice price.

"Polish companies must still be cost competitive," Kotłowski said.