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Construction, Engineering Firms Eye Big Gains
Fri Mar 21,10:41 AM ET
By Kirk Shinkle
The war in Iraq (news - web sites) is officially on. And whether it lasts days, months or years, President Bush (news - web sites) has already outlined an aggressive plan for rebuilding that nation after the conflict.
He wants Iraq up and running in a year.
Government agencies are asking the private sector - mostly large oilfield service and engineering-construction firms - to join the effort.
The U.S. Agency for International Development, or USAID, in late February reportedly sent requests for proposal to several infrastructure-engineering firms. The contracts are worth an estimated $900 million.
The work includes rebuilding roads, bridges, oil fields, municipal water supplies, irrigation systems, schools, government buildings and other facilities.
Those invited to join the rebuilding party are familiar names in the engineering, construction and energy services industries.
**ID reportedly asked for bids from a short list of firms. They include Fluor Corp.; Washington Group Inc.; the Kellogg Brown & Root unit of Halliburton, which was headed from 1995 to 2000 by Vice President Dick Cheney (news - web sites); and privately held players Bechtel Group, Louis Berger Group and Parsons Corp. **
Jack Hermann, a spokesman for Washington Group, says he’s had several requests from government agencies.
“We have heard from USAID, the (Army) Corps of Engineers and the Defense Threat Reduction Agency,” he said. “We’ve responded to all three. We can’t talk about scope.”
He did say some project requests were specific, given his firm’s heavy involvement in nuclear material handling and chemical weapons demilitarization.
**liburton’s Kellogg unit has already built cells in the Guantanamo Bay detainee camp in Cuba. It also worked in the conflict in Afghanistan (news - web sites).
Halliburton’s stock, which trades as HAL, moved up more than 4% to $21.50 in early trading Thursday. **
The total price tag of rebuilding Iraq is unclear. The nonpartisan Council on Foreign Relations estimates the cost at $20 billion a year for several years. U.S. officials have put the figure at anywhere from $10 billion to $100 billion.
Industry watchers don’t expect any dark-horse wins for the initial contracts. Competitive bidding rules don’t apply, thanks to government rules for emergency needs.
Those rules also prevent the government from giving details about which firms will respond to the requests.
A recent news story noted that only $50 million is slated to go to nonprofits such as CARE and Save the Children.
Concerns also have been voiced in some quarters that Halliburton has unfairly benefited from its connection to Vice President Cheney.
In any case, the financial impact for engineering and construction firms depends on several factors, including the amount of damage from the war and the U.S. government’s commitment to the region.
Some analysts speculate that there will be a lot more work this time around than there was following the first Gulf War (news - web sites).
“(After) the '91 war, there was a lot of speculation about rebuilding that never materialized into work for anybody because the damage wasn’t great as expected,” said Richard Rossi of Morgan Joseph & Co.
“Iraq does hold the probability we’ll be there for a while, and we’ll help rebuild that infrastructure. That implies work on public projects like hospitals and transportation, and . . . work being done on their oil capacity.”
The biggest factor, of course, is the outcome of the war. It’ll take some time for that to be determined.
If things go as the administration plans - a clear victory for the U.S. and an accommodating Iraqi public - there should be lots of work for U.S firms.
“People are very hesitant to commit to any type of capital project until they know the outcome of this (conflict),” said analyst John Rogers of D.A. Davidson.
**The vast majority of the contracts are expected to go to U.S. firms. They got most of them following the 1991 Gulf War, despite protests from British competitors.
USAID officials have said that non-U.S. firms would only be subcontractors in the first stages of rebuilding. **
However, analysts say it’s likely some work will be parceled out to other countries to heal some international wounds.
Non-U.S. firms that stand a decent shot at winning projects include France’s Technip-Coflexip and Saipem SpA, which is 43%-held by Italy’s Eni SpA.
The scope of rebuilding also depends on Saddam Hussein). If retreating armies torch oil wells as they did in 1991, putting out the fires would be an early priority.
**After Kuwaiti wells were destroyed during the first Gulf War, it took two years to rebuild the oil infrastructure. Halliburton is in line for that job, as is rival Schlumberger Ltd. **
Other firms that could win firefighting contracts include Boots & Coots International Well Control Inc.; units of RPC Inc. Cudd Pressure Control and Superior Energy Services Inc.; and Canada’s Safety Boss Inc.
**Deutsche Bank estimates oil field service firms will easily see $1 billion to $1.5 billion in the “stabilization phase” after the war ends. **
But even after the first USAID contracts are awarded, analysts say, the benefits to construction firms won’t be clear until the conflict’s resolution comes into clearer focus.
“If we’re lucky enough that this results in a more - rather than less - stable Mideast, you have lots of other investment going on in the Mideast that wasn’t planned because of the instability,” Rossi said. “It has a good chance of becoming very big over a long period of time.”
Still, not everyone is betting the house on the war’s impact.
“I don’t think it’s going to make or break our industry,” Washington Group’s Hermann said.