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New Information May Bolster Questions on Halliburton
Published on Wednesday, October 22, 2003 by the New York Times
New Information May Bolster Questions on Halliburton
by Neela Banjerjee

The head of an Iraqi oil agency said yesterday that his group had been trucking in gasoline and other fuel to Iraq for considerably less money than Halliburton, which has so far received more than $700 million from the Army Corps of Engineers to stave off shortages there.

Although it initially appeared that Halliburton was gouging only American taxpayers, it now seems that the company is overcharging the humanitarian Oil for Food program and the Iraqi people as well. This significantly compounds the implications of Halliburton's actions.

US Reps Henry A. Waxman of California and John D. Dingell of Michigan
Separately, a report earlier this month by the Congressional Research Service, a nonpartisan public policy research arm, warned that the Corps of Engineers might be paying too much to import fuel.

The disclosures support assertions by two senior House Democrats, Representatives Henry A. Waxman of California and John D. Dingell of Michigan, that Halliburton may be overcharging American taxpayers and Iraqis. The lawmakers sent a letter to the head of the Corps of Engineers yesterday asking it to look into the price disparity between the Iraqi agency's imports and Halliburton's.

The letter also noted new information released by the corps that most of the money to buy the fuel had come from a fund established by the United Nations meant to provide humanitarian aid to Iraq. The fund is under American control.

"Although it initially appeared that Halliburton was gouging only American taxpayers," the lawmakers said in the letter to Lt. Gen. Robert B. Flowers, head of the Corps of Engineers, "it now seems that the company is overcharging the humanitarian Oil for Food program and the Iraqi people as well. This significantly compounds the implications of Halliburton's actions."

Halliburton, which is paid a fee of 2 percent of the cost of the fuel it delivers, has strongly denied the accusation of overcharging, if not the pricing cited by the lawmakers. It contends that it buys fuel by soliciting competitive bids and that the high cost stems from the price of transporting and distributing fuel in a volatile country. The Army Corps of Engineers and the Coalition Provisional Authority, the American-led civil administration in Iraq, have so far stood by Halliburton.

But Iraq's State Oil Marketing Organization is now importing fuel, too, and from the same countries nearby as Halliburton. An Oct. 16 fax from the agency to the House Committee on Government Reform, where Mr. Waxman is the ranking Democrat, indicates that the Iraqis are bringing in gasoline at a much lower price than is Halliburton.

Halliburton said in response to the Congressional letter last week that it charges $1.59 a gallon for its gasoline imports, which includes the 2 percent profit margin. In the fax, the Iraqi marketing organization's general manager, Mohammed al-Jibouri, said that gasoline from Turkey costs $347 a metric ton delivered to Baghdad, which he said translates to about 98 cents a gallon.

Halliburton did not dispute that the Iraqis were buying fuel for a much lower price, saying instead that the nature of the company's contracts with the Corps of Engineers made it harder to get a better price from suppliers. The corps did not respond to an e-mail message seeking comment on the contract conditions.

Referring to a Halliburton unit working in Iraq, Wendy Hall, a Halliburton spokeswoman, said in an e-mail message from Houston that "contractually, KBR has been prevented from procuring fuel contracts for longer than a 30-day period."

"In addition," she said, "all services and their associated costs to execute the mission are subject to the same 30-day procurement limit, including trucks, trailers, depots and labor. Simple economics dictate that companies who are not bound by these guidelines, and are able to negotiate price on a long-term contract basis, can negotiate lower prices."

The Corps of Engineers has shown on its Web site that most of the money paid to Halliburton to import the petroleum products has until now come from the Development Fund for Iraq, established by the United Nations Security Council to give the American-led occupying authority control over money Iraq had earned under the Oil for Food program.

But in its supplemental financing package for Iraq, the Bush administration has asked Congress to approve $900 million for fuel imports.

The Congressional Research Service said in its memorandum, on Oct. 8, that the request for $900 million to import fuel to Iraq suggested that the Coalition Provisional Authority "is asking for substantially more money than is called for by current fuel prices in the Persian Gulf trading area."

Based in part on that memo, two other Democrats, Senators Byron L. Dorgan of North Dakota and Ron Wyden of Oregon, have added an amendment to strip away $200 million for fuel imports from the Senate-passed version of the $20.3 billion supplemental finance bill. That would be in line with the $197 million to $249 million the Congressional Research Service memo says the government may be overpaying for fuel.

The memo includes a caveat that costs for delivery and particularly distribution could add greatly to the total price of fuel imports. And Halliburton has argued that the costs of its imports are high because it "incurs costs for transportation, storage, distribution, quality assurance and labor required to manage the operation." Halliburton also implied in its statement last week that security concerns contributed to the $1.59-a-gallon cost of gasoline.

American taxpayers foot most of the bill; Iraqis pay 4 cents to 15 cents a gallon at the pump.

"Based on the entire picture," Ms. Hall of Halliburton wrote in her e-mail message, "to allege that KBR is overcharging for this needed service insults the KBR employees who are performing this dangerous mission to help bring fuel to the people of Iraq. The drivers transporting the fuel face the real risk of being killed or wounded, and vehicles and contents being destroyed.''

The 2 percent fee, she added, "is less than the markup for products at a local gas station or supermarket."

Yet in an e-mail message to staff members of the House committee, the Washington office of the Coalition Provisional Authority suggested that Halliburton and the Iraqi marketing agency do not seem to have different security and distribution costs.

The message quoted Larry Rogers, deputy for program management at Team Rio, the Corps of Engineers-led project to rebuild the Iraqi oil industry, as saying that Halliburton and the Iraqi agency's oil "are generally being delivered to the same depots and distribution systems." The message also says that "fuel truck convoys are required to be escorted by coalition military forces regardless of ownership."

But Mr. Jibouri, the Iraqi marketing group's chief, said by telephone from Baghdad that the 98 cents a gallon it pays for the priciest gasoline it imports "includes everything."

"The contractor we sign with is obliged to buy the gasoline and deliver it into our depots," he said. "There are no extra costs."

What explains the difference between the Halliburton and Iraqi prices? "They are not actually accustomed to this business," Mr. Jibouri said. "They probably don't know the region that well. We know the area very well. We used to sell petroleum products to the people we now buy from."

Copyright 2003 The New York Times Company


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