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.