Power firm’s shock ally

Nicky Hager reveals a controversial American company behind the South Island’s proposed Project Aqua scheme….

STATE electricity generator Meridian is teaming up with one of the world’s most controversial companies to build the Project Aqua power scheme in the South Island.

In a secret process, without government input, Meridian has selected the United States’ Bechtel Group as its “alliance partner” for the proposed $1.2 billion project_a decision Meridian won’t confirm officially for at least another four weeks.

The partnership with Bechtel_constructing the largest new power scheme since the 1975-1988 Clyde Dam project_is certain to be contentious.

The power scheme involves diverting 70% of the water from the Waitaki River and is already controversial. Local opponents such as Waitaki First campaigner Neil Thorpe have objected to the loss of future irrigation water and recreational fishing. They also fear the destruction of endangered bird habitat and the creation of a 60km canal, up to 20 metres high, scarring the landscape. Actor Sam Neill and rugby coach Laurie Mains are campaign patrons.

San Fransisco-based Bechtel Group is one of the world’s largest construction companies. Founded in 1898, its website says it has 900 projects in 60 countries. The company has a record of attracting public opposition and protest over its role in contentious nuclear, mining, water, energy and public works projects.

A recurring feature of claims made against the company is the use of behind-the-scenes lobbying, both for the contracts and for governments to agree to the projects that produce the contracts.

For its part, Meridian said that its alliance partners, once confirmed, would be expected to “conduct themselves in a way that was acceptable to New Zealanders”.

Meridian spokesman Alan Seay, who said that track record and ability to deliver on contracts were key to the selection of contractors, added: “We set ourselves high standards and we would not want to see them compromised.”

The latest controversy to dog Bechtel concerns its multi-million dollar contract to take part in the reconstruction of Iraq after the US invasion.

In May, senior Republican and Democrat members of congress called for an inquiry into Bechtel after it received an initial $US680 million of contracts for reconstruction of transport, power, water and other services destroyed by the US bombing of Iraq. Senior company officials, such as former US Secretary of State George Shultz, are close to the Bush administration and publicly supported its war plans, raising complaints of political patronage.

Shultz, a Bechtel board member and senior counsellor, was also chairman of the prominent pro-war Committee for the Liberation of Iraq. Last September, Shultz wrote a piece in the Washington Post headed “Act Now; The Danger Is Immediate”, backing an invasion of Iraq. “A strong foundation exists for immediate military action against Hussein and for a multilateral effort to rebuild Iraq after he is gone,” he wrote.

ABC News, commenting on the Iraq contacts, said Bechtel was an experienced contractor “but in addition, they are generous political donors_principally to Republicans”.

Bechtel was granted the Iraq contracts on merit, spokesman Jonathan Marshall told the Sunday Star-Times, taking into account its track record of working on reconstruction in Kuwait. It claims to be “relatively even-handed toward the two major political parties”.

Bechtel is also at the centre of a row over cost over-runs on a tunnel-building project in Boston. A report by the Boston Globe in February found that “at least $1.1 billion in construction cost overruns, or two-thirds of the cost growth to date, are tied to Bechtel mistakes”. Typically, cost over-runs on construction projects result from “variations” on top of the “fixed price”. Overall, the Boston project cost had risen from $2.5b in 1985 to $14.6b in 2003, making it the most costly civil engineering project in US history.

Though Meridian is a state-owned company it has been able to conduct its negotiations with Bechtel secretly. Given that Project Aqua involves public resources, public money and a state company, critics argue the partnership plans should have been publicly debated before decisions were made.

Non-governmental lobbiests are unhappy at the secrecy. Bill Rosenberg, who monitors overseas investment in New Zealand for the Campaign Against Foreign Control of Aoteroa, said foreign companies bidding to operate in New Zealand must be judged on their records, both bad and good. He said Bechtel probably looked like an obvious choice for Meridian because of its size.

“But looking at its record of cost over-runs and disregard for social and environmental concerns, why would we want to get involved with them?” he said.

Seay said Meridian had been very open about Project Aqua. A huge volume of data had been published, but he said negotiations for contracts were “commercially sensitive” and it was not appropriate to name names or discuss details. It was standard practice in the business world.

Sources within Meridian say that earlier this year the state company decided on a short-list of four companies as potential alliance partners. The other three were also big overseas companies but without Bechtel’s controversial record. As alliance partner, Bechtel (in a joint venture with the South African-owned firm McConnell Dowell) will be responsible for all construction work and an equal partner with Meridian in other decisions on the project.

The sources say they decided to share their concerns about the selection of Bechtel because of its record overseas and in New Zealand. They said that bringing in a powerful partner inevitably changes the decision making, including the risk of pressure from the partner to go ahead with a project despite rising costs or other problems that emerge.

Although not a well-known name in New Zealand, Bechtel has undertaken various high-profile projects here. One was the most controversial of the 1980s “Think Big” projects, the Synfuel gas-to-petrol plant. The current Bechtel CEO, Riley P. Bechtel – the fourth generation of Bechtels heading the family firm – oversaw construction of the plant in 1984 as General Field Superintendent.

The project was in part the result of major lobbying by the overseas companies concerned but proved a hugely expensive folly and was eventually sold off to Fletchers at a loss of hundreds of millions of dollars to taxpayers.

Bechtel’s 100-year history includes a long and close association with US government military activities. It was involved in the Manhattan Project – which developed the first US atomic weapons – and manages the Nevada test site where about 1000 nuclear weapons have been tested. In addition to building or designing 45 nuclear power stations in the United States, it built the Tarapur nuclear plant that India used to produce plutonium for its 1974 nuclear bomb test.

Bechtel’s mining projects include the notorious US-owned Grasberg mine in West Papua, one of the world’s largest gold mines which has drawn criticism for its environmental record. There has also been social unrest connected to the site. Bechtel also built the huge, foreign-owned Panguna copper mine in Bougainville, which sparked the nine-year conflict in which over 10,000 people died.

Other Bechtel contracts have resulted in controversy and social unrest, including riots over Bechtel’s control of the Bolivian water system which led to Aguas de Tunari (27.5% owned by Bechtel) seeking arbitration for damages from Bolivia, one of the world’s poorest nations, for a sum of around $25m which has caused an international humanitarian outcry.

Bechtel’s Boston tunnel project – known locally as the Big Dig – involved routing 3km of the interstate 93 highway under downtown Boston. The Boston Globe’s year-long investigation into cost overruns culminated in articles headed “Artery errors cost more than $1b” and “Lobbying translates into clout”.

The reporters claimed, for instance, that Bechtel failed to include a 19,600 seat arena on its design plans, instead showing open space for running utility lines – later costing $900,000 in extra work.

The Globe alleged Bechtel “never paid for any of its mistakes. Instead, it profited. To date, Bechtel has received more than $264m beyond what its original contracts called for, in part because Bechtel received additional money to fix its errors”.

Bechtel said the Boston Globe stories were “fundamentally flawed” and did not understand “the fundamentals of the engineering and construction industry”. Last month, Massachusetts state representatives introduced a bill to establish a commission to investigate the cost over-runs and recover money from Bechtel and other contractors.

Bechtel spokesman Marshall said: “Ethics is one of the most important principles that every employee holds in Bechtel.”

He added: “We try to be sensitive, both out of self interest and higher principle, to the needs of the environment and workforce. We wouldn’t have done 20,000 projects in 140 countries around the world unless we were invited back again and again.”

In fact, he said the weight of accusation against Bechtel from detractors was such that “we don’t engage in doing everyone for libel and slander (even though) the amount of garbage written about us is truly amazing”.

Meridian’s website states that 45 national and international companies registered earlier this year as “potential alliance participants” for Project Aqua.

Part of the reason for Meridian seeking a foreign partner in Project Aqua is that the government’s power scheme design and construction agencies were sold off in the mid-’90s. Meridian could, with effort, reconstruct a New Zealand design and construction capability but it is easier to use foreign contractors.

The decision-making process, including the choice of Bechtel as partner, highlights problems with the state-owned enterprise model, critics claim. The decisions on Project Aqua can be made secretly by Meridian managers while cabinet ministers are insulated from accountability.

When told about the selection of Bechtel, Waitaki First chairwoman Helen Brookes said “that’s the kind of company I would expect [Meridian CEO] Keith Turner to bring on board. The impression of people in the valley is that they’ll drive their project regardless of the people who live here. If they choose a partner with similar attitudes, that wouldn’t surprise me at all”.

Meridian’s Seay would not confirm the Bechtel partnership, saying “it would be inappropriate for me to name names at this stage”.

He said Meridian would not be announcing its choice of partner for another four to six weeks. Then, later on the same day he gave the information to business journalists on another newspaper on an off-the-record basis.

The newspaper ran a small story headed “Local firm tipped to build hydro project”. It said that local construction firm McConnell Dowell was “tipped” to build Project Aqua partnered by Bechtel.

Seay said he had responded to an inquiry and had not provided the tip in an effort to forestall a more probing feature.