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Halliburton unscathed by overcharge
flap
By Hussain Khan
 TOKYO -
The timely capture of Saddam Hussein virtually eclipsed,
for a while, the embarrassing scandal involving the
apparent US$128 million overcharging of US taxpayers by
Halliburton, Vice President Dick Cheney's old firm,
which received $7 billion in no-bid contracts for oil
services and other work in Iraq. The total overcharge,
revealed by a Pentagon audit, covers about $61 million
for fuel and another $67 million for supplying army food
services.
But investors in Halliburton and its
engineering subsidiary Kellogg, Brown & Root (KBR)
paid little heed to the uproar in Washington and the
field day by Democratic presidential candidates
excoriating what they called the apparent
war-profiteering and sweetheart deals with Halliburton.
Investors figure the firm once run by Cheney will
continue to be favored and will continue to reap
enormous profits. And that's how it's playing out.
Stock prices are rising and new contracts are
still being awarded to the company. Group revenues
surged 39 percent to $4.1 billion on the back of a
stunning 80 percent revenue rise to $2.3 billion at the
KBR engineering and construction subsidiary that won the
government work. And this despite the fact that
third-quarter earnings fell 38 percent to $58 million,
or 13 cents a share, because of a loss on discontinued
operations as well as litigation over asbestos.
The Pentagon awarded another $222 million worth
of Iraq reconstruction work to Halliburton last week.
A Pentagon audit revealed that Halliburton's KBR
subsidiary overcharged the government by as much as $61
million for supplying and transporting fuel in Iraq. No
one claims that the company pocketed ill-gotten gains,
and Texas-based Halliburton contends that it was forced
to pay higher costs because it was overcharged by a
supplier in Kuwait. It also said that in other related
work it saved US taxpayers as much as $164 million.
President George W Bush was politically
embarrassed and stung by allegations that the
Halliburton overcharging confirmed that his
administration was favoring big-business friends, even
while excluding foreign critics of his war policy from
bidding competitively on major reconstruction contracts
in Iraq. He said Halliburton must repay the funds.
Halliburton has been doing everything in Iraq
from repairing oil wells to delivering soldiers' mail
and even preparing the display turkey Bush posed with
when he visited troops in Baghdad on Thanksgiving. Some
competitors have complained that the Pentagon has
already given Halliburton so much work in Iraq's oil
sector that it would be nearly impossible to dislodge
the company even if, in future, bidding is allowed for
the competitors.
If they find blood, look out
for piranhas
"This is a contract everybody is
watching," said Steven Schooner, a professor of contract
law at George Washington University law school. "If they
find blood, they're going to set the piranhas loose.
It's going to be a nightmare for Halliburton."
The Bush administration denies the charge that
the Iraq war was fought for oil and that it waged the
war to pay off business cronies of the White House.
Nonetheless, the Pentagon findings on Halliburton
overcharges are likely to fuel the allegations of
favoritism, especially since it was revealed that the
firm had been granted the contract to manage Iraq's
oilfields, valued at up to $7 billion, without
competition and without any bidding. Cheney's name
inevitably surfaces.
Cheney denies that his
connections and influence as vice president have
improperly aided his old company. His links to
Halliburton, however, have drawn intense scrutiny
because he ran the company for five years and was given
a $33 million payoff when he left to run for office.
Before joining Halliburton he was secretary of defense,
and in a position to know about and grant Pentagon
contracts. Halliburton's military work has expanded over
the past decade as the Pentagon has sought to increase
its procurement ratio by outsourcing non-combat tasks to
private contractors.
During the decade of
Halliburton's extraordinary growth, Cheney was the
defense secretary for four years, from 1989-93, and then
the chief executive of the company for five years, from
1995-2000.
As vice president, Cheney has
maintained his contacts with energy-industry executives
and solicited their views in developing US energy
policy. The secrecy of those contacts - which the White
House refuses to divulge - is the subject of a US
Supreme Court lawsuit.
In response to a Sierra
Club lawsuit, the high court agreed last Wednesday to
decide whether the Bush administration must disclose the
names of participants in Cheney's energy task force that
advised the president on national energy policy. The
court's decision to consider the issue has broad
implications for the president's ability to receive
confidential advice. Bush and Cheney claim it is the
executive's prerogative and privilege to receive
confidential advice and that divulging the names of
participants and their views would inhibit their ability
to speak candidly. The Supreme Court is expected to hand
down a decision by June.
Cheney's close ties
with energy industry
After several meetings with
energy experts - and a few environmentalists - Cheney's
energy task force produced a national policy report in
May 2001. Last month Republicans completed an energy
bill that provides billions of dollars in tax incentives
meant to increase energy production but little in the
way of support for conservation and alternative
sustainable energy sources. The legislation stalled.
The audit revealing overcharging emerged as US
officials prepared to award two new contracts to repair
Iraq's oilfields valued at up to $2 billion, and
Halliburton's KBR got another no-bid contract for $222
million last week from the Army Corps of Engineers.
Other contracts are expected. The latest contracts cover
rebuilding Iraq's oil industry and restoring the
nation's essential infrastructure. So far KBR has been
awarded $2.26 billion in contracts.
Despite the
good news in Iraq, Halliburton announced this week that
two of its divisions had filed for Chapter 11 bankruptcy
protection and reorganization as part of a settlement
for asbestos claims. It sought protection for its DII
industries division and the KBR construction and
engineering services business. The KBR unit does not
include the government contract division working in Iraq
because it does not have any asbestos liabilities, the
company said. The anticipated bankruptcy filings were
first announced a year ago as Halliburton sought to
extricate itself from asbestos claims that threatened to
crush the company.
More than 400,000 workers
filed individual lawsuits claiming they were harmed by
inhaling asbestos.
Under the agreement, a
bankruptcy trust will be created to handle all current
and future asbestos lawsuits against Halliburton and its
subsidiaries filed by workers. Last week most claimants
voted in favor of the plan that will include payment of
$4.2 billion in cash and shares. Halliburton inherited
most of the claims four years ago when the conglomerate,
then under Cheney's leadership, acquired Dresser
Industries Inc for $7.7 billion.
A company
spokeswoman said the Chapter 11 bankruptcy plan
"provides permanent and final resolution of
Halliburton's asbestos issues". She said it would have
"no impact on any of our present and future projects".
She was right, as Halliburton stocks held firm and
continued to rise thereafter.
$67m overcharge
for army canteens
The Pentagon said it had found
evidence that the company overcharged the US government
$61 million for gasoline delivered to Iraq. It said the
government would have overpaid $67 million to Kellogg,
Brown & Root to supply army canteens - if auditors
hadn't raised alarms.
Although Bush said the
funds must be repaid, Defense Secretary Donald Rumsfeld
said earlier the same day that there had been no
overcharges. He chalked up the error to a simple
disagreement: "We've got auditors that crawl all over
these things," Rumsfeld said.
But congressional
Democrats are not letting the issue die. Representative
Henry Waxman, a California liberal and a relentless
critic of the Bush administration, has introduced a
telephone tip line for whistleblowers to report
corporate profiteering associated with Iraq
reconstruction contracts. "I created the tip line
because the White House refuses to respond to
congressional inquiries about Halliburton and other
well-connected contractors," said Waxman, calling for a
full review of all Iraq contracts.
"This audit
confirms what we've known for months. Halliburton has
been gouging taxpayers and the White House has been
letting them get away with it," Waxman said.
Halliburton's KBR overcharged the US Army by
$1.09 per US gallon (29 cents a liter) for nearly 57
million gallons (216 million liters) of fuel transported
from Kuwait to Iraq, defense officials said. The
government was paying Halliburton $2.64 a gallon (nearly
70 cents a liter) for gasoline from Kuwait, more than
twice what others are paying. The shipments were
mandated under a contract to restore Iraq's oil fields.
Documents of the US Army Corps of Engineers refer to
"political pressures" from Kuwait's government and the
US Embassy in Kuwait to deal only a Kuwaiti firm owned
by a prominent family.
Some Democratic lawmakers
have questioned why KBR bought more expensive fuel from
Kuwait when it paid less for fuel from Turkey. According
to government documents, KBR paid $1.17 per gallon (31
cents a liter) to buy fuel from Kuwait and 89 cents a
gallon (23.5 cents a liter) to purchase it from Turkey.
Hussain Khan holds a master's degree
in economics from Tokyo University and has worked in
Japan as an equities analyst. He is an independent
Tokyo-based analyst on current affairs and economic
issues for various newspapers and magazines. E-mail
hk@ourquran.com.
(Copyright 2003 Asia Times Online Co, Ltd. All
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