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[casi] Iraq, Halliburton and Snow

A. Halliburton Unit's Bill for Iraq Work Mounts,, 9 May 2003
B. Snow Discusses Iraq's Financial System, AP, 8 May 2003

A. Halliburton Unit's Bill for Iraq Work Mounts
Cost of one contract for aiding U.S. in rebuilding nears $90 million, but
little is going to Iraqis.
By Mark Fineman, Times Staff Writer, 9 May 2003

BAGHDAD - The Pentagon has paid nearly $90 million to a subsidiary of the
well-connected Halliburton Co. to cater to the Americans who are working to
rebuild Iraq, U.S. officials said - while the reconstruction effort has yet
to show significant results for ordinary Iraqis.

The Defense Department gave Halliburton's KBR exclusive rights to the job -
which has included fixing up an extravagant presidential palace being used
by the Americans - under a broad U.S. Army logistics contract that pays the
company a fee based on a percentage of everything it spends, according to
Pentagon documents and Halliburton's corporate filings.

KBR, whose parent firm has had strong ties to Vice President Dick Cheney,
has drawn scrutiny for an emergency oil contract in Iraq that is becoming
increasingly lucrative.

Under a "task order" from the lesser-known logistics contract, the Defense
Department has rung up KBR's multimillion-dollar bill - which is expected to
nearly double - as the number of U.S. officials and Iraqi exiles working for
the Pentagon-created reconstruction agency balloons. In blocks-long convoys
from Kuwait, the firm is hauling in everything from prefabricated offices,
showers, generators and latrines the size of trailer homes to food and
bottled water.

As supplies for the Americans continue to arrive by the ton, little of the
millions KBR is spending have gone into the Iraqi economy that Washington
has pledged to restore. KBR's logistics job gives it no direct role in the
rebuilding of this shattered country; that falls to the Bush
administration's ambitious $2.4-billion reconstruction program, which is
being overseen by the State Department.

The company's most lucrative subcontracts are with trucking, catering and
security companies based in neighboring Kuwait and Saudi Arabia, oil-rich
nations with the best land routes into Iraq.

KBR and Pentagon officials say hiring Iraqis and buying local goods are a
top priority. Although the company subcontracted with one Iraqi-owned firm
that has bought local goods and recruited more than 350 Iraqis to work for
the Americans, the firm estimates that the move has put just $100,000 into
the local economy so far.

Fodder for Critics

Antiwar activists have asserted that U.S. corporate profits were among the
motives in waging the campaign in Iraq, which has the second-largest oil
reserves on the globe. Other critics have charged that the Dallas-based
Halliburton has received preferential treatment from the Bush

Cheney was Halliburton's chief executive officer for five years until he
resigned in August 2000 to be George W. Bush's running mate. Cheney no
longer owns stock in the company, and spokesmen for both the Pentagon and
KBR deny favoritism; both said the Army logistics contract sanctioning the
company's work for the Iraq reconstruction agency was competitively bid
before it was awarded in 2001.

But another contract that KBR won to repair Iraq's oil fields and put out
postwar oil and gas fires was not competitively bid. And it has been a
lightning rod for criticism.

The Army Corps of Engineers, citing urgency and the need for secrecy,
awarded KBR the exclusive, classified oil contract March 8, after KBR had
done a similarly classified study on how to solve Iraq's postwar oil

Rep. Henry A. Waxman (D-Los Angeles) is spearheading an effort to expose
details of the KBR oil contract, and his latest exchange of letters with
Army Corps commander Lt. Gen. Robert Flowers this week disclosed that the
scope of work for Halliburton's subsidiary in Iraq's oil industry goes well
beyond firefighting and emergency repairs.

In a May 2 letter, Flowers wrote that the Halliburton contract also includes
"operation of facilities and distribution of products" for the Iraqi oil

Flowers added that the contract, which has a ceiling of $7 billion but is
expected to cost much less, will continue at least until August, when the
corps is planning to issue a competitively bid contract to repair Iraq's oil
infrastructure that could run through 2004.

Lesser-Known Contract

Far lesser known is the contract that the Pentagon used to deploy KBR to set
up, cater to and care for the Iraq-based officials of the postwar
reconstruction agency here. That contract has no cost ceiling.

Dubbed the Logistics Civil Augmentation Program, the contract was awarded in
December 2001 and can remain in place for up to 10 years. Specifically, it
requires KBR "to deploy within 72 hours of notification and to deliver
combat support and combat service support for 25,000 troops within 15 days,"
according to Halliburton's corporate documents on file with the U.S.
Securities and Exchange Commission.

The logistics program "provides the war fighter with additional capabilities
to rapidly support and augment the logistical requirements of its deployed
forces through the use of a civilian contractor," the company stated in the
press release that announced the contract award, which was dated Dec. 14,

The company has billed the Pentagon for hundreds of millions of dollars for
work done under the contract during America's rapidly expanding military
presence abroad since the Sept. 11 attacks. It has built and maintained
bases and other facilities and catered to the needs of U.S. troops in
Afghanistan and even Djibouti, a key East African outpost in the
U.S.-declared war on terrorism.

An official in Baghdad with the Pentagon's Office of Reconstruction and
Humanitarian Assistance, known as ORHA, insisted that the company's work for
the agency is appropriate under the contract: "This was an Army mission.
It's supporting the Army, which is supporting ORHA."

The official said he doubted that KBR's work for the reconstruction agency
would exceed $200 million, but he added that it already has eclipsed
original estimates because the agency and its mission have grown
exponentially - and far beyond what KBR and the Pentagon had projected when
they planned the job in January.

The company's initial work order for the Iraq job was for $69.5 million,
based on an ORHA work force of about 350 in three sectors - the north, the
south and central Iraq.

As of this week, ORHA staff has ballooned to more than 1,000 people
throughout the country, which the agency has now divided into four sectors,
and the ORHA official said he expects the agency's staff to grow to as many
as 2,000 in the months ahead.

A second "task order" for an additional $20 million was issued by the Army
last month, and the Pentagon is in the process of awarding a third one.
"We're expecting a significant increase," the ORHA official said, indicating
that the increase will be more than what KBR already has spent.

KBR's task has been logistically taxing and dangerous, and most defense
industry analysts say few other companies could manage it.

Its truck convoys move through several hundred miles of desert and urban
areas that the U.S. military still has not fully secured. And the massive
Republican Palace in Baghdad that serves as the agency's national
headquarters is a contrast in grand opulence and harsh subsistence: More
than 650 agency personnel sleep in grand halls of Florentine marble, crystal
chandeliers and gold leaf - on cots.

The palace still has no running water. Electricity has been spotty, and
until this week, most of the reconstruction agency's staff was dining solely
on military meals-ready-to-eat rations.

The Babel Tourist Hotel, which the agency commandeered last week as the
headquarters of its "south-central sector" in Hillah, an hour's drive south
of the capital, is in similar shape. On Wednesday, KBR-contracted trucks
were bringing in prefabricated buildings, office pods and generators.

And in Baghdad, a small army of the Iraqi workers hired by the newly formed,
London-based Iraq Project & Business Development Co. is grateful for work
that starts at $2 a day to clear garbage, clean latrines and mop the palace

A scene at the palace one typical afternoon this week underscored the
contrasting economies that are part and parcel of KBR's job here.

As several Iraqi supervisors assembled a group of carefully selected KBR
cleaning recruits from Baghdad's desperate work force, Saudi and Kuwaiti
truckers making as much as 200 times the Iraqis' salaries were bringing in
imported computers, desks, chairs and other furniture.

When asked specifically what is covered by KBR's "task order" to serve the
basic needs of the reconstruction agency, the ORHA official in Baghdad
replied: "I guess the real question is, what doesn't it cover?"

B. Snow Discusses Iraq's Financial System
Thu May 8, 6:01 PM ET  Add White House


WASHINGTON - Treasury Secretary John Snow said Thursday a U.S. team in Iraq
(news - web sites) is moving to get a financial system in place in hopes
that within six months there will be a strong flow of oil revenue to support

Snow said that the $1.7 billion in Iraqi government assets in U.S. banks
that were frozen in 1990 as part of economic sanctions against the country
were starting to be used in the rebuilding effort. But he said the major
source that the United States hoped to use was revenue from Iraq's sizable
oil fields.

"Iraq is a very wealthy country and if those oil revenues are used
appropriately, they will be the most important source of revenue to rebuild
Iraq," Snow told a House Appropriations subcommittee during a hearing on the
Treasury Department (news - web sites) budget.

"I would hope within six months that we would have pretty robust oil flows,"
Snow told the panel.

In his appearance before the House panel, Snow did not address the effort
the administration is undertaking to get the United Nations (news - web
sites) to lift sanctions against Iraq. Diplomats at the United Nations said
the administration plans to introduce a resolution on Friday that would call
for the immediate lifting of U.N. sanctions and a phase-out of the
oil-for-food aid program over the next four months.

Snow told the House panel the administration planned to hold a donors
conference seeking international support for the rebuilding effort and was
also looking to the International Monetary Fund (news - web sites) and the
World Bank (news - web sites) to provide loans.

He said a team of about 20 Treasury Department officials was either already
in Baghdad or arriving in the next few days.

John Taylor, Treasury's undersecretary for international affairs, has also
been in Baghdad. The entire Treasury team got a morale-boosting telephone
call Wednesday morning from Snow and Federal Reserve (news - web sites)
Chairman Alan Greenspan (news - web sites).

"This call was to let them know how committed we were in supporting their
efforts," Snow said.

He said Greenspan, who happened to be in Snow's office for their weekly
breakfast, told the group they had "a chance that comes to few people to lay
out the foundations for a well-functioning economy and your work will pay
dividends for generations to come."

Snow said U.S. officials were still trying to determine whether more than
$600 million in new $100 U.S. bills found behind a false wall in Baghdad was
real or counterfeit currency and where the money had come from.

"We are still trying to find out what that $600 million is and whether it is
real or not," Snow told the House panel.

Treasury officials said they were also still trying to track down $900
billion that reportedly was taken from Iraq's central bank under orders from
Saddam Hussein (news - web sites) just before the start of the U.S. bombing

After the hearing, Snow told reporters that the Treasury team in Iraq was
trying to move quickly on a number of fronts to get the country's financial
system working again.

He said the effort was aimed at establishing a system for paying bills;
developing a working ministry of finance and a central bank; and getting a
national currency in circulation.

"All the fundamentals of a well-functioning set of economic institutions,"
Snow said.

He said Peter McPherson, who will head up the administration effort in the
financial area, was scheduled to leave for Iraq later Thursday.

McPherson, who is on leave from his job as president of Michigan State
University until September to handle the financial aspects of Iraq
rebuilding, told reporters last week that top goals of the Treasury team
will be to establish a sound currency, a functioning banking system and
rules of law that will encourage international investment.

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