Iraq's Odious Debts

Allies angered at exclusion from bidding

Erin E. Arvedlund
The New York Times
December 10, 2003

Moscow: Russia, France, Germany, Canada and other countries barred by the Pentagon from bidding for $18.6 billion worth of prime reconstruction contracts in Iraq reacted angrily Wednesday, noting that the move was all the more astonishing given recent appeals by Washington for help in postwar Iraq.

Russia’s defense minister, Sergei Ivanov, immediately ruled out any write-off of Iraq’s $120 billion debt, a project that just last week President Bush appointed former Secretary of State James A. Baker III to oversee. “Iraq’s debt to the Russia Federation comes to $8 billion, and as far as the Russian government’s position on this, it is not planning” any forgiveness of those arrears, he told the Interfax news agency. “Iraq is not a poor country.”

Speaking in Berlin, the foreign minister, Igor Ivanov, said the decision flew in the face of earlier assurances from President Bush. Indeed, diplomats had talked in Europe in recent days of an effort by both Europeans and Americans to reduce the acrimony of recent months. Secretary of State Colin L. Powell appealed to NATO nations in Brussels last week for help in Iraq.

Germany’s foreign minister, Joschka Fischer, said after meeting Mr. Ivanov that he had noted the development “with astonishment,” and a spokesman for Chancellor Gerhard Schroder said: “That would not be acceptable for the German government. And it wouldn’t be in line with the spirit of looking to the future together and not into the past.”

Canada expressed shock at White House comments in support of the Pentagon decision, particularly given that it – like France and Germany – has troops in Afghanistan aiding the Americans. “It would be difficult for us to give further money for the reconstruction of Iraq,” said Canada’s deputy prime minister, John Manley. “To exclude Canadians just because they are Canadians would be unacceptable if they accept funds from Canadian taxpayers for the reconstruction of Iraq.”

Steven Hogue, a spokesman for Prime Minister Jean Chrétien, said Canada had contributed more than $190 million to the rebuilding effort.

Canada’s Liberal Party leader, Paul Martin, who becomes prime minister on Friday, said, “I find it difficult to fathom.” He added, “There is a huge amount of suffering going on there, and I think it is the responsibility of every country to participate in developing it.”

France was slightly more muted. “We are studying the compatibility of these decisions with international competition law together with our partners that are involved, notably in the European Union and the European Commission,” France’s Foreign Ministry spokesman, Herve Ladsou, told Reuters.

In Brussels, the European Commission said in a statement that it “will examine the 26 contracts to determine whether these restrictions on public procurement for the reconstruction of Iraq respect commitments by the United States to World Trade Organization rules on public procurement.”

Of all the countries excluded from bidding, Russia ultimately may have the most at stake, because it wants to develop the oil-rich West Qurna fields in Iraq. The West Qurna is one of the largest deposits in the world, and Saddam Hussein in 1997 awarded Lukoil, Russia’s second-largest oil producer, a contract to develop it and drill for oil. Mr. Hussein’s government canceled the contract in February, just before the war. Lukoil insists the contract is still valid.

Earlier this year, Lukoil’s president, Vagit Alekperov, said he was “grateful” to Mr. Putin for bringing up its Iraq concessions at high-level meetings with Mr. Bush.

Mikhail Mikhailov, the spokesman for Lukoil, which owns the rights to the concession, said on Wednesday that the deal was “not affected” by the Pentagon’s decision, and that “a contract was signed between Lukoil and the government of Iraq.” He continued: “It exists, it is legitimate, and no one is trying to annul it. War often complicates these things.”

Another Russian company, GAZ, an automaker, said it had already begun shipping 5,000 Volga passenger cars to Iraq for Baghdad’s taxi fleet under a 2001 contract. “In principle, it’s not a huge amount,” said GAZ’s spokesman, Sergei Lugovoy, noting that the contract represented less than 10 percent of GAZ’s annual Volga production. “But all the same, Iraq will be one of the strongest export markets.”

Clifford Krauss contributed reporting from Toronto for this article.

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