In article <bmmdhr$2oju$1@pencil.math.missouri.edu>, Mark Graffis says...

2 in House Question Halliburton's Iraq Fuel Prices
October 16, 2003
2 in House Question Halliburton's Iraq Fuel Prices
By NEELA BANERJEE
http://www.nytimes.com/2003/10/16/business/16HALL.html

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