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Iraq security eating chunks of contractors' costs
Tuesday April 13, 2004 10:12 am ET

By F. Brinley Bruton

LONDON, April 13 (Reuters) - Spiralling violence in Iraq has driven costs sky high for foreign firms working on the billions of dollars in reconstruction contracts, with the price of insuring some workers doubling in the past week.

Contractors in Iraq are spending more than half their total operating costs insuring and protecting staff who have become targets of insurgents and prey to kidnappers, according to insurance giant Aon Corp.

"High risk workers saw insurance rates nearly double towards the end of last week," Claire Heneghan of London-based insurance broker Heath Lambert said.

For example, the annual premium to insure around 100 staff doubled to $16,000 per worker last week for an individual policy worth $200,000, Heneghan said.

Insuring fewer workers is much more expensive, Heneghan added.

Foreign firms employ tens of thousands of staff in Iraq working on reconstruction, funded mostly by $18.6 billion in U.S. contracts being overseen by the Coalition Provisional Authority.

Texas firm Halliburton, the U.S. military's biggest contractor in Iraq, says about 30 of its staff and sub-contractors for subsidiary Kellogg Brown and Root have been killed in Iraq and seven workers are missing.

In addition to repairing Iraq's oil infrastructure, Halliburton does work the military used to do, such as preparing meals for U.S. troops.

The cost of doing such work has risen as security has deteriorated and a wave of kidnappings has swept through parts of the country, with American, Japanese, Russian and Ukrainian hostages being taken.

Insurance and security-related costs such as hiring bodyguards and protecting compounds are so expensive now that contractors are spending more than half their total operating costs on security, said Martin Stone, a political and terror risk analyst at Aon, the world's second-largest insurance broker.

"It is also likely that 50 percent is a minimum; some are paying a lot more," he said.

Under U.S. law, defence contractors and sub-contractors are obliged to buy accident and health cover for their employees. For contractors with employees in Iraq this currently costs around 20 percent of insured value, said Stone.

Firms are guarded about how much they are spending on security and insurance.

High risk staff, such as security workers, account for the brunt of the costs and some companies are considering pulling out instead of running the growing risks.

Romanian private security firm Bidepa, working for coalition forces in Iraq, has said it is considering pulling out of the country after one of its workers was shot dead and another one injured in an ambush near Baghdad on Sunday.

"When the contract was signed, things in Iraq were more quiet," Bidepa director Dumitru Niculae told Reuters.

"I didn't think it would be so dangerous." (Additional reporting by Simon Challis in London, Antonia Oprita in Bucharest)