The $87 Billion Money Pit

Helmut Doll waits. And waits. Doll, the German site manager for Babcock Power, a subcontractor of Siemens, is hoping for the arrival of Bechtel engineers at the Daura power plant, Baghdad's largest. U.S. construction giant Bechtel has the prime contract, now worth about $1 billion, for restoring Iraq's infrastructure. That includes Daura, which should supply one third of the city's generating capacity but today, six months into the U.S. occupation, is producing only 10 percent. "Nobody is working on the turbine," explains Doll. "Bechtel only came and took photos. We can't judge Bechtel's work progress because they're not here." Questioned, Bechtel spokesman Howard Menaker says Iraq's power has to be viewed as "a holistic system"--generation doesn't have to come from a particular plant--and in recent weeks Bechtel has sent engineers to the site. He also blames the delay on more stringent--or finicky, depending on your point of view--American standards. Menaker said the Daura turbine is "covered with friable asbestos and is right now a hazardous work site." The company says it has just completed "a protocol for asbestos abatement."

Still, it's not easy determining why the biggest power plant in Iraq's largest city seems to be such a low priority. Baghdad is still beset by blackouts, and so much of America's success or failure depends on power: the economy can't recover with-out it. The next logical place to ask is the U.S. Agency for International Development, which gave Bechtel the contract last April. Questioned by NEWSWEEK about Daura, USAID chief Andrew Natsios referred to a priority list drawn up by a coordinating committee under the Coalition Provisional Authority--the chief occupying power--and said he didn't know where Daura was on it. His aide said the CPA would know. No, Natsios said, he thought Bechtel would know. But Bechtel's Menaker responded: "We perform the work tasked to us by USAID. We don't make decisions on priorities. USAID and CPA make those decisions." Some CPA officials concede privately that the problem stems from the lack of preparation before the war. "It always comes back to the same thing: no plan," says one CPA staffer.

No doubt, reconstructing postwar Iraq is a brutally hard and hazardous task. Sabotage already has destroyed some 700 power-transmission towers. But George W. Bush, who has staked his nation's credibility--and perhaps his presidency--on success in Iraq, has no choice but to set things right. And Daura offers a small window into problems that have become all too typical of America's postwar morass in Iraq, a NEWSWEEK investigation shows. Iraqis like to point out that after the 1991 war, Saddam restored the badly destroyed electric grid in only three months. Some six months after Bush declared an end to major hostilities, a much more ambitious and costly American effort has yet to get to that point. It is only in recent weeks that the Coalition amped up to the power-generation level that Saddam achieved last March--4,400 megawatts for the country (though it's since dropped back). True, Saddam didn't have a guerrilla war to contend with, and his power infrastructure was in much better shape than the Americans found it. But he also had far fewer resources.

Six months ago the administration decided to cut corners on normal bidding procedures and hand over large contracts to defense contractors like Bechtel and Halliburton on a limited-bid or no-bid basis. It bypassed the Iraqis and didn't worry much about accountability to Congress. The plan was for "blitzkrieg" reconstruction. But by sacrificing accountability for speed, America is not achieving either very well right now. For months no one has seemed to be fully in charge of postwar planning. There has been so little transparency that even at the White House "it was almost impossible to get a sense of what was happening" on the power problem, says one official privy to the discussions.

Numerous allegations of overspending, favoritism and corruption have surfaced. Halliburton, a major defense contractor once run by Vice President Dick Cheney, has been accused of gouging prices on imported fuel--charging $1.59 a gallon while the Iraqis "get up to speed," when the Iraqi national oil company says it can now buy it at no more than 98 cents a gallon. (The difference is about $300 million.) Cronies of Iraqi exile leader Ahmad Chalabi, NEWSWEEK has learned, were recently awarded a large chunk of a major contract for mobile telecommunications networks.

All this has called into question the Bush administration's larger agenda: inspiring gratitude and admiration in the hearts of Iraqis and other Arabs, creating a model for a troubled region. Perhaps the biggest irony for the man in overall command, Defense Secretary Donald Rumsfeld, is that he has long warned of the pitfalls of "nation-building." "A large foreign presence," Rumsfeld has said in criticizing previous U.N.-led efforts, means "economies remain unreformed, distorted and dependent." Now the beleaguered Pentagon chief may be creating for himself--with U.S. companies, not the United Nations--the fate he wanted to avoid. Even many Iraqis who are grateful for liberation say they hate being a U.S. protectorate. Three months after Bush declared "Bring 'em on," attacks on Americans have increased from 20 to 25 or 30 a day, according to Gen. Ricardo Sanchez, the U.S. military commander for Iraq. And American taxpayers are footing most of the bill for this ill will, despite some $13 billion pledged at a U.N. donors' conference last week. The tally just through 2004, including what was spent to wage the war, will likely be at least $130 billion.