WASHINGTON - U.S. lawmakers say the Pentagon's inspector general was probing possible criminal violations involving fuel shipped to Iraq by Halliburton, the oil services company once headed by Vice President Dick Cheney.

The three Democratic lawmakers said on Friday they had been told by the inspector general's staff on Thursday an overcharging issue involving Halliburton's Kellogg Brown and Root unit was now with the IG's Defence Criminal Investigative Service.

The IG's office had no immediate comment.

Asked to react, Halliburton said it was bringing in fuel for the best price and it did not wish to be dragged into a debate over the issue by politicians during a presidential election year.

"We do not intend to debate these issues within the context of a political campaign, for either party. We welcome a thorough review of any and all of our government contracts and as a responsible government contractor we will work with the appropriate government agency," said Halliburton spokeswoman Wendy Hall in an e-mail.

The information about a possible criminal probe was released in a letter to Pentagon Inspector General Joseph Schmitz by the three lawmakers, Democratic presidential contender Senator Joseph Lieberman of Connecticut, and Rep. Henry Waxman of California and Rep. John Dingell of Michigan.

On Wednesday, military auditors said they had asked the Pentagon's Inspector General to look into a "suspected irregularity" over fuel brought into Iraq by KBR, suggesting the auditors suspected wrongdoing.

"Your staff informed us that after receiving this referral from DCAA, you referred this matter for criminal investigation by the Defence Criminal Investigative Service (DCIS) within the inspector general's office," said the letter signed by the lawmakers, who are the ranking minority members of three congressional committees.

KUWAITI CONTRACTOR

A draft audit by the Defence Contract Audit Agency last month found evidence KBR might have overcharged by $61 million through September 30 to bring fuel into Iraq via Kuwaiti subcontractor Altanmia Commercial Marketing Co.

Bringing in fuel to Iraq is part of a no-bid contract KBR has with the U.S. Army Corps of Engineers. So far that contract has brought in more than $2 billion in business for KBR.

This no-bid deal is set to be replaced by two new contracts worth a total of $2 billion, which are due to be awarded before Saturday after several delays.

"It's still on (the pending announcement). Nothing has changed," said corps spokesman Ross Adkins when asked whether the IG's probe would affect the award of the contracts.

The corps has stood by its client over the pricing issue. On December 19, the corps said Altanmia's prices had been "fair and reasonable" and issued a waiver exempting KBR from providing certified cost and pricing data in its sole source fuel contract with the Kuwaiti company.

The lawmakers were highly critical of the waiver, which they said effectively blocked auditors from further delving into the pricing issue.

"It was highly unusual for the Corps to block DCAA from effectively auditing Halliburton and Altanmia by releasing Halliburton from its obligation to provide cost and pricing data," they said.

The pricing issue has been at the forefront of KBR's contract and the Army said last month its own fuel agency would soon take over the role, probably by April when their own contractors are in place to do the job.

Copyright 2004 Reuters Ltd

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