From: CBPC, EACTAPP
Sent: Wednesday, January 28, 2009 12:33 PM
To: EACTTripoli
Subject: TRIPOLI 00000063 P CO 28-JAN-09 RISKY BUSINESS? AMERICAN
CONSTRUCTION FIRM ENTERS JOINT VENTURE WITH GOL [8466936]

CONFIDENTIAL

VZCZCXRO6748
PP RUEHROV
DE RUEHTRO #0063/01 0281042
ZNY CCCCC ZZH
P 281042Z JAN 09
FM AMEMBASSY TRIPOLI
TO RUEHC/SECSTATE WASHDC PRIORITY 4371
INFO RUEHXK/ARAB ISRAELI COLLECTIVE
RUEHLO/AMEMBASSY LONDON PRIORITY 0989
RUEHFR/AMEMBASSY PARIS PRIORITY 0676
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHTRO/AMEMBASSY TRIPOLI 4895

C O N F I D E N T I A L SECTION 01 OF 02 TRIPOLI 000063 
 
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E.O. 12958: DECL:  1/25/2019 
TAGS: PREL ECON EFIN ETRD EPET ASEC CVIS LY

CLASSIFIED BY: Gene Cretz, Ambassador, U.S. Embassy Tripoli, U.S. Department of State. REASON: 1.4 (b), (d) 

¶1.  (C)  Summary: U.S. project management company AECOM, which already has a large American expatriate presence and a large role in running housing and infastructure projects, recently signed a contract  for a joint venture (JV) with Libya's Housing and Infrastructure Board (HIB).  The new JV would allow several thousand HIB employees to leave the employ of the GOL and enter the private sector; it would also prompt a sizeable increase in the number of expatriate Americans working in Libya under AECOM's auspices.  The JV would initially focus on projects in Libya; however, the long-term goal is to implement projects throughout the African continent under a Libyan banner.  AECOM will capitalize the new JV and despite the fact that plummeting oil prices have prompted the GOL to recalculate its entire national budget, AECOM believes funding for its existing projects and the new JV is secure.  Nonetheless, AECOM's success to date has stemmed largely from the relationship of its chairman with the influential chairman of the HIB, who is rumored to be a potential candidate to take over as Prime Minister in an expected cabinet shuffle at the upcoming session of the General People's Congress in March.  That possibility, together with the fact that AECOM's increased profile will make it a larger target for those seeking to extract rents, make the new JV a potentially risky proposition.  End summary.  

ROLLING THE DICE  

¶2.  (C)  In a January 22 presentation to the Ambassador, the President of AECOM Libya Housing and Infrastructure, Jim Thompson, announced his company had just signed a contract for a JV between AECOM and Libya's Housing and Infrastructure Board (HIB). (Note: As reported ref A, HIB's chairman previewed the JV with us in a meeting in December.  End note.) HIB holds a 24 percent stake, AECOM and subsidiary private shareholders hold a 76 percent share.  The JV's board comprises four members - three from AECOM and one from HIB.  It is expected that 2,000 to 3,000 HIB staff will leave the GOL's payroll and be hired (at least initially) by the new JV, effectively privatizing the HIB's project management function.  Thompson said HIB could be down to 40-50 employees within two years if the project goes according to plan.  The new JV would initially focus on projects in Libya; however, the long-term goal is to implement development projects throughout the African continent under a Libyan banner to demonstrate that Libya "can add meaningful expertise, not just cash" to development efforts.  According to Dorda, some of the best real estate in Tripoli had been "reserved" for commercial development under the auspices of the new JV.  

¶3.  (C)  AECOM will provide most, if not all, of the funds for initial capitalization and registration of the new JV (estimated at USD 1.5 to 2 million).  Despite the fact that plummeting oil prices have prompted the GOL to recalculate its entire national budget (ref B) and scale back its massive infrastructure development program, AECOM believes funding for its existing projects and the new JV is secure.  Thompson explained that, as overall program manager for HIB, AECOM inherited hundreds of contracts that HIB had signed with various construction firms. There was little to no oversight of the process and many contracts were awarded on the basis of personal connections rather than winning companies' technical capacity.  Since winning the contract with HIB to serve as overall program manager, AECOM had had to revise nearly all of these old contracts.  (Note: In addition, as many of the contracts AECOM inherited were based on old development master plans, which were also inadequate and had to be revamped as well.  End note.)  

DEVELOPING LIBYAN HUMAN CAPACITY IS THE KEY  

¶4. (C) An additional issue was that many HIB staff had been poorly trained to do their jobs.  Thompson joked that AECOM could have implemented the entire housing and infrastructure development program more cheaply and quickly had they been able to do so with no GOL involvement.  Another AECOM executive described the Libyan approach to project management as "execute, plan, and then assess", rather than "assess, plan, and execute".  But AECOM's mandate from Dorda and the GOL is to not only produce tangible results, but to simultaneously overhaul HIB and train the next generation of skilled cadres.  

¶5. (C) Many HIB employees had the right credentials on paper, but had never received relevant on-the-job training.  With the new JV, HIB and AECOM hoped to create a new entity in which international and American standards of transparency, performance and merit would obtain.  A major component of AECOM's contract with HIB involves the transfer of knowledge to  TRIPOLI 00000063  002.2 OF 002   Libyan staff.  As part of the intiative, AECOM will train over 100 HIB executives, engineers, and technical specialists on program management, construction management and design. Currently, three HIB executives are participating in a one-year program to hone their project- and construction-management skills through curricula developed by the University of Houston and Rice University.  In addition, HIB engineers currently managing infrastructure projects already underway are participating in sessions of a 12-week environmental engineering student training program.  

A BIGGER, MORE VISIBLE U.S. FOOTPRINT IN LIBYA  

¶6. (C) Thompson said AECOM anticipates bringing in an additional 100-200 U.S. expat employees (and their families - several hundred Americans in all) to Libya in the next 6-12 months as part of the new JV.  AECOM already has  75-100 expatriate employees in-country - some on a permanent basis and some on TDY-equivalents -  to manage a multi-million contract it secured in In December 2007 to manage HIB's housing and infrastructure projects, which are cumulatively worth some 50 billion U.S. dollars (ref A).  With offices in Tripoli, Benghazi, Misurata and Sabha, AECOM currently has the largest U.S. private sector footprint in Libya, one that will grow considerably with the new JV.  AECOM already represents the largest single group of Americans present in Libya since the early 1970's.  As the geographic range of AECOM's projects and the number of Americans employed by the company increase, its profile and attendant security risks will increase.  

¶7. (C) While savvier than many companies operating here, AECOM employees have found Libya a particularly challenging venue in which to work.  Recruitment was an early issue; however, the recent economic downturn in the U.S., particularly in the construction sector, has been a boon.  Abiding by bans on alcohol and pork are challenging for some, as is the company's policy of forbidding expatriate staff to drive themselves, largely because of the high number of traffic accidents in Libya.  Housing, schools, security and visas are key issues for AECOM.  Expatriate AECOM employees are currently issued six-month, multiple-entry visas, with the facilitation of the HIB, but must leave the country every six months to renew them at Libyan People's Bureaus (embassy-equivalents) abroad.  The process is not smooth; the most recent tranche of AECOM employees were held up for three weeks, waiting for their Libyan visas to come through.  

¶8. (C )  Comment: AECOM took a considerable risk by coming to Libya before many other U.S. construction firms.  Thompson conceded that it had been a steep learning curve during the past year and a half for Americans and Libyans.  The new JV will take time to come together, but AECOM is entering the deal with a much better understanding of the environment than it had in December 2007.  That said, AECOM's success to date has stemmed largely from Thompson's relationship with HIB chairman Abuzeid Dorda, who is rumored to be a potential candidate to take over as Prime Minister in March.  While personal relationships are key in Libya, even if Dorda were to stay on at HIB, he is not universally well-liked by other influential members of the regime, a key issue in a regime in which housing and infrastructure projects are viewed (rightly) as a prime target for extracting rents.  In addition, a number of other significant GOL entities - the Organization for the Development of Administrative Centers, the Ministry of Planning, the General Electric Company of Libya, the Economic and Social Development Fund - have infrastructure projects of their own and are in de facto competition with HIB.  Those realities, together with the very real increased security equities that come with a more sizeable American presence, make the new JV a potentially risky proposition.  End comment. 
CRETZ