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Companies battle to rebuild Iraq

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LONDON, England (CNN) -- A battle is intensifying as fighting in Iraq draws to a close between supporters of the U.S.-led war and their opponents for control of lucrative reconstruction projects.

The month-long war and 12 years of United Nations-imposed sanctions before that -- has left most of Iraq's infrastructure in tatters. Schools and hospitals need to be rebuilt, as do roads and bridges while water supplies, sanitation and electrical systems must be restored.

Beyond those necessities, oil production and technology-related services -- essential to Iraq's future growth -- need to be brought back on line and expanded.

Analysts' estimates of the cost of rebuilding Iraq vary between $84 billion and $500 billion.

"On the physical side, the international community will need to find $15 billion a year over the next 10 years -- several times more than the Iraqi economy will earn," Edmund O'Sullivan, editor-in-chief of the Middle East Economic Digest, told CNN.

But the road to achieving these goals may be bumpier than the United States and its backers in the conflict had first hoped.

European Union leaders, at a summit last week in Greece, said the EU and United Nations not the U.S. -- must play a central role in rebuilding Iraq.

While the administration of U.S. President George W. Bush has suggested the U.N. could take the lead in humanitarian efforts, it wants the United States and Britain which provided most of money and military might in toppling the regime of Saddam Hussein to control the political and economic agenda in Iraq.

"There's an almighty political scrap going on at the moment," said O'Sullivan. Still, the U.S. administration plans to hand out contracts worth $1.9 billion for post-war construction, half of which could go to subcontractors, according to the U.S. Agency for International Development (USAID). Much of the actual work is likely to be carried out by Iraqis.

British companies are widely expected to benefit from American goodwill, but France and Germany -- which opposed the conflict to disarm Iraqi President Saddam Hussein -- are likely to be frozen out.

So far, U.S. and British corporate interests appear to be winning the battle to rebuild Iraq. Some companies in Arab nations are also expected to benefit.

The biggest contract, worth as much as $680 million, has already been awarded. San Francisco-based Bechtel Group was selected as the prime contractor of reconstruction work in Iraq.

Two other contracts have also been awarded. Vice President Dick Cheney's old firm Halliburton said in late in March that it had won a contract from the U.S. Army Corps of Engineers to put out oil fires and make emergency repairs to Iraq's oil infrastructure. Cheney was the chief executive of Halliburton from 1995 to 2000 and sold his interest in the business after the 2000 election.

USAID awarded a $4.8 million contract to Stevedoring Services of America to manage the Umm Qasr port in southern Iraq.

British Trade and Industry Secretary Patricia Hewitt has already held meetings with 15 companies interested in helping rebuild Iraq, an official at her department told CNN.

However, Hewitt says she does not want British companies profiting just because of the supportive role played by the UK military in the Iraq conflict.

"I want British companies winning contracts in Iraq on the basis that they will do a superb job in the development of Iraq's economy and infrastructure, because they've got the expertise and they've got long experience of working either in Iraq, or on other parts of the Middle East," Hewitt told CNN.

Many British companies contacted by CNN would not comment on whether they had approached the UK government for Iraqi contracts.

But construction firms AMEC, Balfour Beatty and Carillion have been tipped as possible subcontractors.

AMEC, which was involved in the reconstruction and cleanup of the World Trade Center and the Pentagon after September 2001, told CNN it "stands ready to help in the reconstruction" of Iraq and major contractors, like Halliburton, were aware of its competencies having worked closely with them in the past.

France and Germany which were doing business with Iraq before the war -- would also like a piece of the rebuilding action. The most recent figures available show France sold about $650 million worth of goods to Iraq in 2001, while Germany exported $400 million in 2002.

"If it is left to the Iraqis, I assume it will be more fair play to all companies," Ruba Husari, of Energy Intelligence, told CNN. "The French would have a share because of the long historical relationship and their involvement up until this moment."

Simon Hughes, of the opposition Liberal Democrats Party in Britain, said U.N. involvement would also provide a more equal playing field.

"The United Nations doesn't traditionally divide the contract. That's not the role they take on ... They've got to be the people who ensure on behalf of the international community that fair play is done for everyone," Hughes told CNN.

"And this is a difficult bullet to bite. That means countries that may not have supported action in Iraq may have equal entitlement to be part of the solution, even if that may not be terribly appealing on Capitol Hill."

The debate comes with high stakes. And by far the most hotly contested contracts will be to rebuild Iraq's oil industry, the country's financial life-blood.

Oil was discovered in Iraq in 1927 and the country now has proven reserves of 112.5 billion barrels, the world's second largest, and possibly another 200 billion barrels in unexplored areas.

Production in Iraq's war and sanction-savaged oil fields fell to about 2 million barrels a day in 2002, compared to a pre-1991 production level of 3.5 million barrels.

Getting output back to those levels could take at least 18 months and cost about $5 billion initially, with another $3 billion for annual running costs, according to a recent study by the James A. Baker III Institute for Public Policy at Rice University, Houston, Texas.

Before the war, companies from France, Russia, China and other countries have lined up development deals with the Iraqi government worth as much as $20 billion.

French oil giant TotalFinaElf, which has contracts worth up to $4 billion to develop Iraq's Majnoon oil field, has said it expects that contract to be honored.

Other French companies -- such as telecommunications giant Alcatel, engineering group Alstom, and carmakers Renault and Peugeot -- are also anxious to pick up the business they lost during the war.

-- CNN's Hala Gorani and Richard Quest contributed to this report

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