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Halliburton overcharging iraqi oil { October 16 2003 } Original Source Link: (May no longer be active)
http://www.nytimes.com/2003/10/16/business/16HALL.htmlhttp://www.nytimes.com/2003/10/16/business/16HALL.html
October 16, 2003
2 in House Question Halliburton's Iraq Fuel Prices
By NEELA BANERJEE
Two senior Democratic congressmen are questioning whether Halliburton is overcharging the United States government in the procurement of gasoline and other fuel for Iraq, which is now importing oil products to stave off shortages.
In a letter sent yesterday to the White House Office of Management and Budget, the two lawmakers, Representative Henry A. Waxman of California and Representative John D. Dingell of Michigan, contended that "Halliburton seems to be inflating gasoline prices at a great cost to American taxpayers."
"The overcharging by Halliburton is so extreme that one expert has privately called it `highway robbery,' " the letter said.
According to the two lawmakers, Halliburton has charged the government $1.62 to $1.70 a gallon for gasoline that could be bought wholesale in the Persian Gulf region for about 71 cents and transported to Iraq for no more than 25 cents. The fuel was sold in Iraq for 4 cents to 15 cents a gallon, the letter said.
A spokeswoman for Halliburton, Wendy Hall, declined to address the specific calculations that Mr. Dingell and Mr. Waxman used in their letter, saying that the company's KBR unit, which is working in Iraq, "continues to negotiate fair and competitive prices to provide fuel to the Iraqi people."
"We used a sound procurement process which has been approved by the government for procurement activities," Ms. Hall said in a statement sent by e-mail. "We awarded the fuel acquisition contract to the suppliers who could meet the requirements defined by our client." Halliburton's client is the United States Army Corps of Engineers.
The accusation is the latest to roil an already contentious Capitol Hill consideration of how the money to rebuild Iraq is being spent. President Bush has asked Congress to approve an $87 billion supplemental financing package for Iraq operations, and about $20.3 billion of that would go to reconstruction projects. Many Democrats and some Republicans have said that the reconstruction so far has been plagued by waste and noncompetitive contracting.
Halliburton in particular has been the focus of much criticism because its contract to make emergency repairs to Iraq's oil industry was awarded by the Pentagon without competition and the industry remains hobbled, mainly by sabotage and looting, months after the main fighting of the war was declared over.
A spokesman for the Office of Management and Budget, Trent Duffy, said the Waxman-Dingell letter was under review. "We need to have a conversation with C.P.A. in Baghdad," Mr. Duffy said, referring to the Coalition Provisional Authority, the American-led civil administration in Iraq. "They're on a different time schedule, so we need a little more time."
Iraq, which has the third-largest oil reserves in the world, is producing at roughly half its prewar level of about 2.5 million barrels a day. Its refineries have been stymied by power failures, pipeline sabotage and the general degradation of the oil industry after more than a decade of United Nations sanctions. Starting in late April and at times during the summer, lines for gasoline clotted the streets of Iraq's biggest cities, especially Baghdad, and stoked widespread resentment among Iraqis already grappling with the breakdown of basic services.
As a result, the oil ministry and the coalition authority began importing gasoline and other fuel late in May from neighboring countries like Kuwait, Turkey and Jordan.
The extra $20.3 billion the Bush administration has asked for includes $2.1 billion for the Iraqi oil sector. A little less than half that would go to buying gasoline, cooking gas, kerosene and diesel fuel for Iraq, at a cost of about $4 million a day, Mr. Duffy has said previously. The rest of the money would go to repairing the industry.
At the heart of the Congressional Democrats' accusation is the difference between the wholesale price of gasoline in the Persian Gulf region and the price they calculated that Halliburton charged the Corps of Engineers for the gasoline it brought into Iraq.
Based on information that Mr. Waxman's office obtained from the Corps of Engineers, Halliburton received $304,486,577 to import 191,965,150 gallons of gasoline into Iraq as of Sept. 18. That would come to $1.59 a gallon on average, the letter said. Halliburton's contract calls for the government to cover costs and pay a profit margin of 2 percent to 7 percent, which would bring the price of gasoline to $1.62 to $1.70 a gallon.
According to the Congressional Research Service, the letter continued, the average wholesale price of benchmark Arab Gulf gasoline from April through September was about 71 cents a gallon. Industry experts who Mr. Waxman's office spoke to said it should cost no more than 25 cents a gallon for Halliburton to transport gasoline by tanker-trailers from neighboring countries to Baghdad. That would leave at least 66 cents a gallon unaccounted for, based on the Dingell-Waxman letter.
Iraqis pay the equivalent of 4 cents to 15 cents a gallon for gasoline, which means that American taxpayers are footing the bill for bringing oil into Iraq.
One answer for the disparity may be the cost of renting the trucks, or of paying drivers who are worried about entering a turbulent Iraq, said George Beranek, manager of market analysis at PFC Energy, a Washington consulting firm. Still, Mr. Beranek and other industry analysts said that the difference between the wholesale price and the price the letter says Halliburton charged was puzzling.
Mr. Waxman and some industry analysts also questioned why the Iraqi State Oil Marketing Organization did not take the lead role in obtaining the gasoline, given its long experience with importing and exporting oil and other petroleum products.
"The basic thing that Halliburton has to answer is why this high price," said Walid Khadduri, editor of the Middle East Economic Survey, a Cyprus weekly newsletter specializing in the oil business. "That's way above market price and they have to justify that."
Copyright 2003 The New York Times Company
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