US embassy cable - 04MADRID520

C O N F I D E N T I A L SECTION 01 OF 02 MADRID 000520 
 
SIPDIS 
 
FOR EB/ODF, EB/IRAQ, EUR/WE 
 
E.O. 12958: DECL: 02/13/2014 
TAGS: EAID, ECON, EFIN, IZ, SP 
SUBJECT: ENCOURAGING SPAIN TO PURSUE BUSINESS IN IRAQ 
 
REF: PRAGUE 145 
 
Classified By: Economic Counselor Judy Garber; Reasons 4 (b) and (d). 
 
1. (C) Summary.  With continued "bad press" over the lack of 
Iraq reconstruction-related contracts for Spanish firms, we 
met with Ministry of Economy's Director General for 
Commercial Policy Carlos Jimenez to share lessons learned 
reftel.  Our overtures were welcome, but we also received a 
clear message that no GOS official would be willing engage 
publicly on any aspect of Iraq reconstruction prior to March 
14 elections.   Jimenez noted Spanish companies no longer 
believe they will receive a fair shake in the process and are 
instead waiting for the introduction of bilateral credits 
sometime in 2005.  He also complained about delays in the 
signing of the contract for the production of the next 
tranche of Iraqi dinars.   We plan to continue to engage 
Jimenez and others on these issues to demonstrate our 
transparency and good will in this process but are 
anticipating little return on our efforts until after the 
elections.  End Summary. 
 
The Frustration Continues 
 
2. (SBU) We met February 12 with Jimenez, to share the 
positive experience of the recent Czech business delegation 
to Iraq (reftel) and encourage the Spanish to consider a 
similar trip to help their companies better compete for Iraq 
reconstruction contracts.  We also shared some of the 
"lessons learned" from the Czech experience and offered to 
work with the GOS and the Coalition Provisional Authority 
(CPA) to help set up a Spanish delegation visit. 
 
3. (C) Jimenez appreciated the suggestion.  He made clear, 
however, that the Ministry of Economy's efforts in Iraq are 
somewhat on hold until after the March 14 general elections. 
Senior GOS officials believe, Jimenez explained, that it 
would be extremely damaging to the governing Popular Party's 
efforts to win, particularly with an absolute majority, if 
there were any injuries or deaths of Spanish nationals during 
the electoral period.  The fewer Spaniards in Iraq on 
official business, the better.  For example, Spain's 
Counselor for Commercial Affairs still operates out of 
Madrid. 
 
4. (C) Jimenez added that other factors are also in play. 
One is the bitterness that has settled into the business and 
government sectors regarding Spanish companies' lack of 
success in obtaining contracts.  Although Spain is very happy 
that two of its construction companies, Dragados and 
Soluziona, teamed with CH2MHill to win the $12 million Army 
Corps of Engineers contract to build an electric plant in 
northern Iraq, many still resent the loss of a recent CPA 
contract to equip the Iraqi Armed Forces (note: the U.S. Nour 
Group won).  The Ministry of Defense had coordinated the bid 
by about 30 Spanish companies, and strongly believed the bid 
met perfectly the requirements of the RFP and offered a 
reasonable price.  According to Jimenez, State Secretary for 
Defense (and Commissioner for Iraq) Diez Moreno is still 
angry about the loss, particularly because he felt that the 
RFP had been somewhat amended later in the process to favor 
the American company.  He has reportedly sent a letter to DOD 
Comptroller Dov Zakheim on this issue (we have requested a 
copy).  Jimenez said that since most of the "real" money for 
Iraq is coming out of the U.S., Spanish companies believe the 
best way to get on board is to partner with U.S. companies 
and to lobby in Washington.  Some GOS officials believe that 
the CPA is already transforming into the future U.S. Embassy 
in Baghdad and are therefore less tuned in to third-party 
interests.  Finally, Jimenez pointed out that while the GOS 
will distribute some of its Madrid pledge this fiscal year, 
the GOS has not budgeted for Hispano-Iraqi business credits 
until 2005, when the GOS hopes to negotiate an agreement with 
a sovereign government. 
 
The Dinar Contract - Again 
 
5. (C) Conversation turned to the visit CPA's Tom Foley 
offered to make to Madrid this month to explain to Spanish 
companies how to take advantage of commercial opportunities 
in Iraq.  Jimenez said that while the Minister of Foreign 
Affairs had requested the visit, First Vice President and 
Minister of Economy Rato later decided that the visit should 
not happen in the run-up to the March election. 
 
6. (C) Additionally, Jimenez related Economy Ministry 
frustration over a pending contract for Spanish companies to 
produce additional Iraqi Dinars.  According to Jimenez, CPA 
had requested the contract on an urgent basis, but after the 
Spanish sent a draft 2-3 weeks ago, nothing happened. 
Ministry of Economy official Carlos Molina plans to return to 
Iraq with a new contract to try to get the ball rolling 
again.  (Note: Another GOS official speculated that CPA may 
be requiring some formal signal of GOS approval before 
signing the contract.  He asured us the GOS is fully on board 
to fund.  End note.) 
 
Comment 
 
7. (C) While there are numerous reasons for Spanish 
companies' failure to get contracts in Iraq, including 
security concerns and Spanish uncertainty over how to pursue 
contracts, the bottom line is that both business and 
government are extremely sensitive on this issue.  Press 
reports add fuel to the fire.  An illustrative headline is 
one that appeared in the February 6 El Pais daily, "The U.S. 
leaves Spain out of the big contract to supply the Iraqi 
Army." 
8. (C) It is clear that the current Administration has 
decided not to pursue at this time any commercial initiatives 
that involve travel to Iraq or meeting with CPA officials to 
discuss contracting issues.  After the March elections, we 
will revisit with Ministry of Economy contacts the option of 
a GOS-led business delegation visit to Baghdad. 
MANZANARES