Saturday, 23 January 2010, 06:22

C O N F I D E N T I A L SECTION 01 OF 03 BASRAH 000001

SIPDIS

EO 12958 DECL: 1/23/2020

TAGS ECON, EINV, EPET, KCRM, PGOV, ASEC, IZ

SUBJECT: BASRAH: FOREIGN SECURITY FIRMS ADAPT TO CHANGING CONDITIONS

REF: A. BAGHDAD 63 B. BAGHDAD 30

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CLASSIFIED BY: John Naland, PRT Team Leader, PRT Basra, US State Department. REASON: 1.4 (b), (d) 1. (U) This is a Basrah PRT reporting cable.

Summary

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2. (SBU) Since 2003, prominent foreign security companies such as Control Risks, Aegis, and Olive Group have been a familiar and prominent presence in Basrah. Their armored convoys and heavily armed western security guards protect and escort foreign companies and foreign government clients to appointments and site visits. Many, if not all, international oil companies (IOCs) employ them. However, the composition and bottom line of many security firms are changing due to improved security, greater competition, an increasing Iraqi workforce, and the GOI and public's desire to see fewer armed westerners on their streets. While some IOCs complain of exorbitant charges for protection, security firms claim that Basrah still remains a potentially dangerous place. These firms will likely continue to increase their Iraqi workforce, recognizing locals' greater familiarity with the culture, language, and terrain, reinforced by the better reception they enjoy with the populace, police, army and GOI. End summary.

Foreign security companies in Basrah

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3. (SBU) Foreign security companies with their armored convoys and heavily armed western security guards have been part of the landscape of Basrah since 2003. These firms escort and assist foreign company and foreign government clients to appointments and site visits. Many, if not all, IOCs employ them as well. Firms like Control Risks, Aegis, Olive Group, and BritAm dominate the sector.

4. (SBU) Some firms also offer more comprehensive services, including business intelligence, geopolitical risk management, crisis management, and kidnap/ransom strategies. Typical services in Basrah include armed escort to oil fields, downtown Basrah, or remote construction sites. Most firms boast of employees with military or Special Forces background, and/or energy or engineering expertise. Prices for specific services are hard to gauge, dependent as they are on the number of people assisted, visit location, length of contract, and other services provided.

5. (SBU) According to our contacts, however, they do not come cheap: to escort a single executive for a four-hour, roundtrip from COB Basrah to South Oil Company costs around USD 6,000. (Note: A typical trip would include four security agents, drivers, and three or four armored vehicles. End note.) A day trip to the Port of Umm Qasr and back for two engineers could cost around USD 12,000. A recent visit by a member of the Council of Representatives from Baghdad to Basrah and back ran about USD 12,000. According to several local security representatives, however, costs for such services are beginning to fall, largely due to lessening security risks, the use of more local staff, and increased competition. (Note: The PRT has no method for verifying this assessment. End note.)

Improved security, preference for Iraqi workers forcing changes

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6. (SBU) The composition of the workforce of many security companies is beginning to change, and will likely change more soon. There are several reasons for the shift. The first is improved security. Although no one is suggesting that security companies are no longer needed, security improvements have made it possible for maneuvers to occur with slightly less staff, vehicles, and weapons. They can also employ more local staff. All of these changes translate into lower operational and customer costs. The GOI's and the public's strong desire to see fewer foreign guards carrying guns is also a driving factor. According to XXXXXXXXXXXX, the GOI is anxious to "get rid of all the white faces carrying guns" in their streets. Many local security company reps openly acknowledge that a more "Iraqi face" is safer as well, as it draws less attention.

7. (C) It appears that this sentiment has increased in the wake of the Blackwater verdict in the United States (refs A, B) and recent GOI actions could point to an even more aggressive stance against these companies. According to XXXXXXXXXXXX on January 12, a China National Petroleum Company (CNPC) security team was stopped in Basrah city by the Iraqi police in a "clear attempt to disrupt and cause panic to the clients." XXXXXXXXXXXX said that the Iraqi police stopped the convoy and showed a letter from the Ministry of Interior (MOI) stating that as of January 12, personal security teams now faced a more restrictive weapons regime. The situation was eventually resolved, and the convoy

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was released, but XXXXXXXXXXXX said that this episode could presage a more restrictive posture towards security firms "in retaliation for the Blackwater verdict." XXXXXXXXXXXX said that on January 13, still another MOI directive had instructed that all security companies (including those working for the USG) are required to resubmit all company, employee, weapons and vehicle information to the MOI, as if they were applying for a new license. (Note: PRT is seeking more details about these allegedly new policies. End note.)

Security firms getting an Iraqi face

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8. (SBU) Most, if not all, of these security firms are already Iraqi-licensed companies. (Note: While legally they may be Iraqi firms, they are still managed by expats, usually British nationals. End note.) These firms were once largely staffed by expats from the U.K. or U.S. Most of them today have between 70 to 80 per cent local staff. XXXXXXXXXXX country managerXXXXXXXXXXXX said that currently most Iraqi employees are drivers or junior security guards. In the near future, he wants to see them move into full management. Many of the current expat managers and trainers would move into the background areas of training and management. The PRT also expects that new local security companies will be formed.

Some IOCs complain of high prices; exaggerated threat

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9. (C) Several IOC representatives have complained of what they contend are unwarranted high prices especially given the vastly improved security situation since 2008. The security firms justify their steep charges by insisting that their own costs - purchase and import of armored cars and weapons, highly skilled professionals - necessitate the pricing. Halliburton Iraq country manager decried a "mafia" of these companies and their "outrageous" prices, and said that they also exaggerate the security threat. Apart from the high costs for routine trips, he claimed that Halliburton often receives what he says are "questionable" reports of vulnerability of employees to kidnapping and ransom. He said that he recently saw an internal memo from their security company which tasked its employees to emphasize the persistent danger faced by IOCs. PRT Econoffs have heard that Halliburton, Shell, and BP, among others, are evaluating their options regarding security firms, with an eye towards finding cheaper alternatives.

Companies claim that high risk is still present

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10. (C) Security firms openly acknowledge the improved security situation, but claim that Basrah remains a dangerous place. Firms often highlight recent IDFs, VBEIDs, or other attacks. (Comment: These companies also appear to be very plugged into the latest security incidents. It is unclear where they get their information. End comment.) At a recent dinner attended by representatives from France-based Total oil company and Control Risks, a starkly divergent picture of the Basrah security situation emerged. Several Total employees, veterans of the local scene and evidently well-briefed on current security issues, opined that they felt comfortable in downtown Basrah. Control Risk reps disagreed sharply citing the still-present "extremely dangerous" threats of kidnappings and armed attacks. They said it would be "years" before western businesspeople, let alone tourists, could walk the streets of Basrah with any reasonable feeling of safety.

11. (C) Reconciling these views is not easy. While security is clearly better, there is no guarantee this trend will continue. Corporate boards are often very conservative about security and often insist their employees retain security firms. Governments can be similarly risk adverse. Two expat port consultants working for the Japanese aid agency (JICA) told PRT EconOff that JICA policy mandates they travel with internationally known security firms.

With security improved, market forces at work more

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12. (SBU) As security continues to improve and pressure increases for security firms to have more of an "Iraqi face," market forces could play a bigger role. IOCs, faced with tight contractual margins, are reviewing the high costs for security. Improved security could translate into a less manpower and equipment. Increased competition and more local employees could translate into lower costs and pricing. According to Olive Security and G4S, charges have decreased over the last 18 months. They note that some of the more profitable security contracts tendered by the US and UK military in the past have disappeared or will do so soon. They claim that newer contracts with IOCs are not as generous. Italy-based oil company ENI's contract with Aegis is "much less" costly than that Aegis's

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current contract with the US Army Corps of Engineers.

Comment

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13. (SBU) With improved security and absent a major upsurge in violence, security companies will likely become ever more Iraqi both in legal terms and number of workers. This shift could provide more jobs and give local security firms and employees valuable expertise. The lower cost of increasingly Iraqi security will also help the bottom lines of IOCs. For their part, security companies recognize the many advantages of hiring well-vetted local employees with greater familiarity with Iraqi culture, language, terrain, and people. The better reception they enjoy with the populace, police, army, and government may pay dividends as well. End comment.

14. (SBU) RSO Baghdad Comment: RSO believes that although security in Basrah appears to have improved, the environment should be regarded with cautious optimism and judgment reserved to observe the overall security environment after the withdrawal of U.S. military forces from Iraq. It is too early to be able to gauge whether the security environment in Iraq will allow effective employment of local nationals as members of Protective Security teams supporting private industry activities. RSO understands the value of employing local nationals to support the Protective Security effort. Presently, an effort is in place to train Iraqi Police to work with RSO Protective Security Details, and RSO's current employment of them is judicious and strictly controlled. RSO believes that building a labor pool of well-vetted local employees in Iraq's current environment is difficult. RSO efforts to vet local nationals for employment is labor intensive, often subjective and many times proves to be too difficult for many local national employees to complete successfully. Additionally, USG efforts to train local nationals in Protective Security tradecraft to ensure technical proficiency appears to be intensive in labor and time required, with mixed results. End Comment. NALAND