As Basra's economy promises to boom, Britain's consulate prepares to pull out.

Foreign businessmen are flooding into Basra in preparation for what they hope will be a business bonanza, but British diplomats are preparing to leave the city.

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"BASRA is Iraq's Venice," declared Abdulmuttalib Kadhom, gesturing proudly at his scale-model of the Al Andalous Residential City.

A 700-unit complex that is part of the southern Iraqi port's long-awaited reconstruction drive, its integrated flats, mall and social club are a world away from the egg-box style slums that make up much of the city.

True, it may be some time before Basra's sewage-logged canals are filled with gondoliers of tourists, but builders like Mr Kadhom can perhaps be forgiven for erring on the bright side. Optimism, after all, is what kept him going in the past decade, during which he risked death threats from Shia militias by taking British army contracts to refurbish schools and hospitals.

"Through you, I would like to invite the British back to Basra," he told The Sunday Telegraph at a local trade fair last week, where hundreds of businesses set out their stalls in an exhibition centre guarded by soldiers and police. "Now that they have left Basra as occupiers, they can come back as investors."

All of which makes Mr Kadhom the more puzzled as to why the small British consulate in Basra, whose main task is to help UK firms access Basra's fertile but potentially tricky markets, is about to shut down.

From Sunday, the consulate that has been HMG's outpost here since 2004 will close its Portakabin-style offices in a high-security zone in the city's heavily-guarded airport, vacating the only place in Basra where the Union Jack still flies.

The latest British pull-out from Basra, however, takes place not to the backdrop of heavy mortar fire, as it did when the British Army staged their humiliating withdrawal from Basra Palace in 2007, but to the gentle ring of accountants' tills 3,500 miles away in Whitehall.

Foreign Office mandarins tasked with implementing the Government's austerity drive have decreed that the £6.5 million a year bill for running the four-strong consulate is too high, and that British commercial interests can be adequately represented from the Embassy in Baghdad, 300 miles north.

But many British business leaders fear it will squander the chance for a foothold in the city that Britain liberated from Saddam Hussein, at the cost of 179 British soldiers' lives and roughly £9 billion in taxpayers' cash. Instead, they say, the plum business opportunities are being cornered by firms from Turkey, Indian and China - the last of which opposed the 2003 invasion.

The move also comes despite the Foreign Secretary, William Hague, pledging in 2010 to defend Britain's embassy network from budget cuts, on the basis that "helping British business is an existential mission for the Foreign Office".

"To shut this consulate just to save a little money is a shocking way to advance British interests, when we have nine consulates in Spain alone," said Baroness Nicholson of Winterbourne, who chairs the Iraq Britain Business Council, which opened its own small office in Basra just back in July.

"£6.5 million a year might seem a lot, but it is a drop in the ocean when one considers that Basra is going to be an energy hub for the whole Middle East region."

Announcing the move to parliament in October, the Foreign Secretary, William Hague, said the cash for the Basra consulate would be re-allocated to support the missions in Baghdad and the Kurdish city of Irbil, where British firms are also involved in oil exploration.

"I have decided to focus staff and resources where they will support the United Kingdom's partnership with Iraq as efficiently as possible," he said.

However, The Sunday Telegraph has learned that part of the reason for the Basra office's closure is the high cost of providing personal protection for the consul, Debbie Tomlinson. While Basra may be safer than it used to be, British diplomats are still considered a target - particularly given the Iranian influence in the city - so Ms Tomlinson is escorted by a personal security detail wherever she goes, costing thousands of pounds per day.

Critics, though, say that having maintained the consulate throughout Basra's most violent years, it hardly makes sense to shut it now, when the city is finally turning the corner, nor does it send out a reassuring message about security.

Certainly, whatever the lingering hazards, Basra today is much more peaceful than it was back in 2007, when escalating British casualties from militia mortar fire and roadside bombs prompted the then Prime Minister, Gordon Brown, to withdraw UK forces earlier than his American allies had wanted. The move was widely criticised, partly because it made the Army seem as if
they were accepting defeat, and partly because it effectively handed Basra over to a gangsterhood of warring Shia militias and death squads.

The following year, however, Iraqi government troops from Baghdad mounted operation Charge of the Knights, killing and arresting some leaders and forcing others to flee to neighbouring Iran. Today, their HQs still lie in rubble around the city, while giant billboards around town show the mugshots of wanted criminals, with crosses daubed over those already killed or arrested.

Shops and bazaars that used to shut at dusk now remain open until midnight, watched over by Iraqi army trucks bristling with machine guns, while the port city's corniche, overlooking the hulks of ships destroyed in Iraq's many wars, is once again a place for locals to promenade and smoke shisha pipes.

In the centre of town, the new Basra Times Square development, a twin-tower combination of luxury flats, mall and five-star hotel, will bring a touch of Dubai-style bling when it opens in 2015.

"As a citizen of Basra, I can say that security is really good now," said Dr Thair al Khamees, manager of the Iraqi firm behind the project, al Dayer United. "Most of the militiamen are in prison now, or have left the country. And unemployment has gone down a lot because there are a lot of oil companies working here, and the government is issuing a lot of contracts."

Even the Basra Sheraton, which was looted and set ablaze during the 2003 invasion, has re-opened, with rooms fully booked by foreign businessmen, many of whom no longer use armed security.

Yet eavesdrop on the deals being discussed over Turkish coffee in the Sheraton's foyer, and few of the whispering voices are British. True, oil giant BP has the contract to operate the vast Rumallah oilfield an hour's drive outside Basra, which currently produces nearly half the country's oil exports. Outside the oil sector, though, the only British firm of any size is engineering company Mott McDonald, which in the past six years has picked up 1,000 projects, including an award-winning design for a reed-roofed school serving Basra's Marsh Arab community.

Instead, the bulk of business is being snapped up by firms from China, India and Turkey, Iraq's Ottoman-era ruler, which already has nearly 100 companies here. An Indian firm has just won a $230 million contract to revamp Basra's sewage network, while China, according to the IBBC, has already invested some $12bn compared to Britain's $1bn.

"The Brits may have helped remove Saddam but it is the Chinese, who vehemently opposed the war, who are snapping up all the big contracts," said one British businessman.

"Every plane landing from the Gulf into Basra is full of Chinese engineers. And you can see them in the restaurants and the souks of Basra. You'll find hardly any British here."

Understandably, many British businessmen fear that that they might still be targets for those still resentful of the occupation, or are put off by the cost of private security, which the British embassy still recommends they use. But private security firms also stand accused of exaggerating risks in order to guarantee continued business, creating a vicious circle.

Ahmad Koobi, an Iraqi employee of the IBBC, said some security firms had even staged incidents to convince clients of their need for their services. "A guy I know in one security firm got one of his colleagues to fire a few shots near his vehicle, just to frighten his client."

Another problem for British firms is the UK government's extremely tough new anti-bribery laws, which criminalise "facilitation payments" even in private contracts. Critics say that what looks good on Whitehall strategy documents simply puts British firms at a disadvantage somewhere like Basra, where corruption is endemic.

"The likes of the Chinese don't give a damn about bribing," said one British businessman. "Maybe we shouldn't pay bribes, but it does mean we're losing out."

Britain's ambassador to Baghdad, Simon Collis, told The Sunday Telegraph: "There is a problem of perception amongst some people in Basra and in Britain. But with an intensified programme of visits by me and my team from Baghdad we are showing there is not a practical problem. The embassy's office at the airport was in a high-security location that Iraqis found it difficult to access anyway, so although we were flying the flag for Britain, it was hard for people to see it. Unfortunately, our current security assessment does not permit us to base ourselves in a owntown location."

Mr Collis added that in any event, the embassy's most valuable contribution for British business was often in influencing decisions made by central government in Baghdad.

But with a strong historic rivalry between the two cities - Basra was deliberately neglected during Saddam's rule - some businessmen argue that good local contacts in Basra count for everything. In the event of a Briton needing consular assistance - security problems or trouble with the local police for example - local officials may not take kindly to being asked for
favours from Baghdad.

"Smaller businesses starting off in Iraq for the first time would like to have a consul close by," said Peter Hunt, an engineering consultant who has worked in Basra since 2003.

As of now, though, British businessmen wishing to join him out there will have to make do with occasional visits from the embassy up north, which is planning to come down once every month or so. The difficulties of that arrangement have already become apparent, however. Earlier this month, the Embassy visit to Basra ended up behind schedule after the official convoy
broke down on the highway from Baghdad.


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