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[casi] Iraq oil, Halliburton, CPA and Oil-For-Food Program

[Iraq's oil minister, Ibrahim Bahr al-Ulum, at an OPEC meeting last month
said Iraq, long an oil producer, must still import much of its fuel]

October 22, 2003
New Information May Bolster Questions on Halliburton

Correction Appended

The head of an Iraqi oil agency said yesterday that his group had been
trucking in gasoline and other fuel to Iraq for considerably less money than
Halliburton, which has so far received more than $700 million from the Army
Corps of Engineers to stave off shortages there.

Separately, a report earlier this month by the Congressional Research
Service, a nonpartisan public policy research arm, warned that the Corps of
Engineers might be paying too much to import fuel.

The disclosures support assertions by two senior House Democrats,
Representatives Henry A. Waxman of California and John D. Dingell of
Michigan, that Halliburton may be overcharging American taxpayers and
Iraqis. The lawmakers sent a letter to the head of the Corps of Engineers
yesterday asking it to look into the price disparity between the Iraqi
agency's imports and Halliburton's.

The letter also noted new information released by the corps that most of the
money to buy the fuel had come from a fund established by the United Nations
meant to provide humanitarian aid to Iraq. The fund is under American

"Although it initially appeared that Halliburton was gouging only American
taxpayers," the lawmakers said in the letter to Lt. Gen. Robert B. Flowers,
head of the Corps of Engineers, "it now seems that the company is
overcharging the humanitarian Oil for Food program and the Iraqi people as
well. This significantly compounds the implications of Halliburton's

Halliburton, which is paid a fee of 2 percent of the cost of the fuel it
delivers, has strongly denied the accusation of overcharging, if not the
pricing cited by the lawmakers. It contends that it buys fuel by soliciting
competitive bids and that the high cost stems from the price of transporting
and distributing fuel in a volatile country. The Army Corps of Engineers and
the Coalition Provisional Authority, the American-led civil administration
in Iraq, have so far stood by Halliburton.

But Iraq's State Oil Marketing Organization is now importing fuel, too, and
from the same countries nearby as Halliburton. An Oct. 16 fax from the
agency to the House Committee on Government Reform, where Mr. Waxman is the
ranking Democrat, indicates that the Iraqis are bringing in gasoline at a
much lower price than is Halliburton.

Halliburton said in response to the Congressional letter last week that it
charges $1.59 a gallon for its gasoline imports, which includes the 2
percent profit margin. In the fax, the Iraqi marketing organization's
general manager, Mohammed al-Jibouri, said that gasoline from Turkey costs
$347 a metric ton delivered to Baghdad, which he said translates to about 98
cents a gallon.

Halliburton did not dispute that the Iraqis were buying fuel for a much
lower price, saying instead that the nature of the company's contracts with
the Corps of Engineers made it harder to get a better price from suppliers.
The corps did not respond to an e-mail message seeking comment on the
contract conditions.

Referring to a Halliburton unit working in Iraq, Wendy Hall, a Halliburton
spokeswoman, said in an e-mail message from Houston that "contractually, KBR
has been prevented from procuring fuel contracts for longer than a 30-day

"In addition," she said, "all services and their associated costs to execute
the mission are subject to the same 30-day procurement limit, including
trucks, trailers, depots and labor. Simple economics dictate that companies
who are not bound by these guidelines, and are able to negotiate price on a
long-term contract basis, can negotiate lower prices."

The Corps of Engineers has shown on its Web site that most of the money paid
to Halliburton to import the petroleum products has until now come from the
Development Fund for Iraq, established by the United Nations Security
Council to give the American-led occupying authority control over money Iraq
had earned under the Oil for Food program.

But in its supplemental financing package for Iraq, the Bush administration
has asked Congress to approve $900 million for fuel imports.

The Congressional Research Service said in its memorandum, on Oct. 8, that
the request for $900 million to import fuel to Iraq suggested that the
Coalition Provisional Authority "is asking for substantially more money than
is called for by current fuel prices in the Persian Gulf trading area."

Based in part on that memo, two other Democrats, Senators Byron L. Dorgan of
North Dakota and Ron Wyden of Oregon, have added an amendment to strip away
$200 million for fuel imports from the Senate-passed version of the $20.3
billion supplemental finance bill. That would be in line with the $197
million to $249 million the Congressional Research Service memo says the
government may be overpaying for fuel.

The memo includes a caveat that costs for delivery and particularly
distribution could add greatly to the total price of fuel imports. And
Halliburton has argued that the costs of its imports are high because it
"incurs costs for transportation, storage, distribution, quality assurance
and labor required to manage the operation." Halliburton also implied in its
statement last week that security concerns contributed to the $1.59-a-gallon
cost of gasoline.

American taxpayers foot most of the bill; Iraqis pay 4 cents to 15 cents a
gallon at the pump.

"Based on the entire picture," Ms. Hall of Halliburton wrote in her e-mail
message, "to allege that KBR is overcharging for this needed service insults
the KBR employees who are performing this dangerous mission to help bring
fuel to the people of Iraq. The drivers transporting the fuel face the real
risk of being killed or wounded, and vehicles and contents being

The 2 percent fee, she added, "is less than the markup for products at a
local gas station or supermarket."

Yet in an e-mail message to staff members of the House committee, the
Washington office of the Coalition Provisional Authority suggested that
Halliburton and the Iraqi marketing agency do not seem to have different
security and distribution costs.

The message quoted Larry Rogers, deputy for program management at Team Rio,
the Corps of Engineers-led project to rebuild the Iraqi oil industry, as
saying that Halliburton and the Iraqi agency's oil "are generally being
delivered to the same depots and distribution systems." The message also
says that "fuel truck convoys are required to be escorted by coalition
military forces regardless of ownership."

But Mr. Jibouri, the Iraqi marketing group's chief, said by telephone from
Baghdad that the 98 cents a gallon it pays for the priciest gasoline it
imports "includes everything."

"The contractor we sign with is obliged to buy the gasoline and deliver it
into our depots," he said. "There are no extra costs."

What explains the difference between the Halliburton and Iraqi prices? "They
are not actually accustomed to this business," Mr. Jibouri said. "They
probably don't know the region that well. We know the area very well. We
used to sell petroleum products to the people we now buy from."

Correction: Oct. 23, 2003, Thursday

An article in Business Day yesterday about fuel sales in Iraq referred
incorrectly at one point to subsidies for gasoline sales. They come from the
United Nations oil-for-food program, not from United States taxpayers. In an
appropriations bill, the Bush administration is proposing that American
taxpayers subsidize them

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