Profiteering Inflates Costs of U.S. Reconstruction Projects in Iraq

The cost of building materials in Iraq has soared as much as tenfold amid fears of shortages, threatening the pace of the already troubled U.S. reconstruction effort, Iraqi and U.S. officials said Tuesday.

Local suppliers have jacked up the prices of such basics as lumber, gravel and bricks in the expectation that a U.S.-funded building boom is poised to take off and will drain stocks of the materials, the officials said.

The price of cement, for instance, has increased from about $8 per ton before the U.S.-led invasion in March 2003 to as much as $110 per ton, they said. Concrete blocks have shot from $75 per 1,000 to $450.

The surge in costs largely reflects profiteering, not actual shortages, Iraqi officials said. Still, the higher charges could lead to cutbacks in some projects as more money than anticipated is spent on basic supplies.

“We’re going to witness one of the largest developments in the world,” Omar Damluji, the Iraqi minister of housing and construction, said in an interview at a conference here. “The more movement, the more prices become higher.”

The costs are another hurdle for the U.S. reconstruction effort, which has been plagued by delays.

Work has begun on 442 of the 2,800 planned projects, which include schools, clinics and water treatment plants. Of the $18.4 billion Congress set aside for Iraqi reconstruction, only $1.24 billion has been spent.

The daily violence across Iraq and burdensome contracting rules have been the chief culprits in the glacial pace of reconstruction, which was envisioned as a way to provide jobs and public works to restore the economy and keep the insurgency from exploding.

The Center for Strategic and International Studies, a nonpartisan think tank based in Washington, estimates that only about 27 cents of every dollar is reaching ordinary Iraqis, with the rest siphoned off by security, waste and overhead costs for the big American companies that have taken the lead in rebuilding. According to one recent estimate, it can cost as much as $5,000 a day to provide security for a single U.S. businessperson in Iraq.

In a related concern, several U.S. companies have pulled out of the country because of security fears, creating a vacuum that has been filled by companies from Russia, China and France, the Iraqis said.

Raad Adnan, head of a state-owned Iraqi construction firm, said that no U.S. businesses had responded to a recent series of bid requests for new construction equipment posted by Iraq’s housing ministry.

Besides U.S. spending, billions of dollars’ worth of Iraqi government money from its oil industry is also available for reconstruction projects.

“We are waiting for you,” Adnan told the crowd of U.S. businesspeople at the conference organized by the U.S. Trade and Development Agency.

But American executives at the conference said that penetrating the Iraqi market has been difficult. Major U.S. companies such Halliburton Co., Bechtel Group Inc. and Parsons Corp. have won most of the large U.S.-funded contracts, and Iraqi and foreign firms have snagged many of the smaller ones financed by Iraqi funds.