Halliburton's Iraqi Fuel Imports Raise Eyebrows

The U.S. government is paying the Halliburton Co. an average of 69 cents per liter to import gasoline and other fuel to Iraq from Kuwait, more than twice what others are paying to truck in Kuwaiti fuel, government documents show.

Halliburton, which has the exclusive contract to import fuel into Iraq, subcontracts the work to a Kuwaiti firm, government officials said. But Halliburton receives 7 cents per liter to cover overhead costs and its fee, according to documents from the Army Corps of Engineers.

The cost of importing fuel to Iraq first came to public attention in October when two senior Democrats in Congress, Representative Henry Waxman of California and Representative John Dingell of Michigan, criticized Halliburton, the huge Houston-based oil-field services company, for "inflating gasoline prices at a great cost to U.S. taxpayers." At the time, it was estimated that Halliburton was charging the U.S. government and Iraq's oil-for-food program an average of about 42 cents per liter for fuel that was available wholesale in the Persian Gulf region for 18 cents.

But a breakdown of fuel costs, contained in Army Corps documents recently provided to Democratic congressional investigators and shared with The New York Times, shows that Halliburton is charging 69 cents for a liter of fuel it imports from Kuwait and 32 cents per liter for fuel from Turkey. The price of fuel sold in Iraq, set by the state oil company, is 1 to 4 cents per liter. The price is a political issue and has not been raised to avoid another hardship for Iraqis.

The Iraqi state oil company and the Pentagon's Defense Energy Support Center import fuel from Kuwait for less than half of the cost per liter charged by Halliburton, according to government records.

A spokeswoman for Halliburton, Wendy Hall, defended the company's pricing. "It is expensive to purchase, ship and deliver fuel into a wartime situation, especially when you are limited by short-duration contracting," she said.

Hall said the company's Kellogg Brown & Root unit, which administers the contract, must work in a "hazardous" and "hostile environment," and that its profit on the contract is small.

She said Halliburton's subcontractor has had more than 20 trucks damaged or stolen, nine drivers injured and one driver killed making fuel runs into Iraq.

Hall said the contract was also expensive because it was difficult to find a company with the trucks necessary to transport the fuel, and also because Halliburton is only able to negotiate a 30-day contract for fuel.

"It is not as simple as dropping by a service station for a fill-up," Hall said.

A spokesman for the Army Corps of Engineers, Bob Faletti, also defended the price of imported fuel.

"Everyone is talking about high costs, but no one is talking about the dangers, or the number of fuel trucks that have been blown up," Faletti said. "That's the reason it is so expensive." He said recent government audits had found no improprieties in the Halliburton contract. Gasoline imports are one of the largest costs of the Iraqi reconstruction effort so far. Although Iraq sits on the third-largest oil reserves in the world, the demand for fuel has outstripped production, which has been hampered by pipeline sabotage, power failures and an antiquated infrastructure hurt by 11 years of UN sanctions.

Nearly $500 million has already been spent to transport gas, benzene and other fuels into Iraq, according to the Army Corps of Engineers. And as part of the $87 billion supplemental financing package for Iraq operations that President George W. Bush signed into law last month, $18.6 billion will be spent on additional Iraqi reconstruction projects, including an additional $690 million appropriated for gasoline and other fuel imports into Iraq in 2004.

Between May and late October, Halliburton imported about 232 million liters of fuel from Kuwait and about 680 million from Turkey, for a total cost of more than $383 million.

A company's profits on the transport and sale of gasoline are usually razor-thin, with companies losing contracts if they overbid by half a penny. Independent experts who reviewed Halliburton's percentage of its gas importation contract said the company's 7 cents charged for each liter of gas imported from Kuwait appears to be extremely high.

"I have never seen anything like this in my life," said Phil Verleger, a California oil economist and the president of the consulting firm PK Verleger LLC. "That's a monopoly premium. That's the only term to describe it. Every logistical firm or oil subsidiary in the United States and Europe would salivate to have that sort of contract."

In March, Halliburton was awarded a no-competition contract to repair Iraq's oil industry, and it has already received more than $1.4 billion in work. That award has been the focus of congressional scrutiny in part because Vice President Dick Cheney is the former chief executive officer of Halliburton. As part of that contract, Halliburton began importing fuel in the spring when gasoline was in such short supply in Baghdad and other large Iraqi cities that long gas lines clogged the streets and tempers flared.

The government's accounting of imported fuel costs shows that Halliburton paid its subcontractor 30 cents per liter in Kuwait, when gas was selling for 19 cents per liter on the wholesale market in the Middle East. In addition, Halliburton is paying 31 cents per liter to transport the fuel an estimated 640 kilometers from Kuwait to Iraq, the documents show. It is paying 6 cents per liter to transport gas into Iraq from Turkey.

The 7 cents per liter kept by Halliburton includes a 0.5 cent fee and 6.5 cents for "markup costs," the documents show. The "markup" portion is intended to cover the company's overhead costs of administering the contract.

Hall of Halliburton said it was "misleading" for the Army Corps to call the charge a markup. "This simply means overhead costs, which includes the general and administrative costs like light bulbs, paper and employees," Hall said. "These costs are specifically allowable under the contract with the Corps of Engineers, are defined by detailed regulations, and are scrutinized and approved by U.S. government auditors."

In recent weeks, the costs of importing fuel from Kuwait have spiraled higher. Figures provided recently to congressional investigators by the Corps show that Halliburton was charging as much as 80 cents per liter to bring fuel from Kuwait into Iraq in late November.

If the U.S. Army Corps of Engineers concludes that Halliburton has successfully administered the gas importation contract, the company could be paid an additional 5 percent of the total value of all the gas imported. This could mean the company could make an additional 3.7 cents per liter for a total of 10.5 cents per liter, congressional investigators and independent petroleum experts said.

The work of importing the fuel is performed by a subcontractor that Halliburton hired last May, but both Halliburton and the Army Corps refused to identify the firm for security reasons. Aides to Waxman said that government officials have identified the subcontractor as a Kuwaiti firm named Altanmia Commercial Marketing Co. Several independent petroleum experts in the Middle East and the United States said they had not heard of Altanmia.

Copies of the Army Corps documents were given to Mr. Waxman's office, which provided them to The New York Times.

Iraqi's state oil company, SOMO, which also imports gasoline from Kuwait, pays 25 cents per liter, which includes the cost of gasoline and transportation costs, according to the aides to Waxman. The Pentagon's Defense Energy Support Center is also importing gas from Kuwait, paying between 28 and 31 cents per liter, congressional aides said. That price includes the price of the gas and its transportation costs.

The money for Halliburton's gas contract has come principally from the UN oil-for-food program, though some of the costs have been borne by U.S. taxpayers. In the appropriations bill signed by Bush last month, U.S. taxpayers will subsidize all gas importation costs beginning early next year.

In an interview Tuesday, Waxman responded to the latest information related to costs of the Halliburton contract. "It's inexcusable that Americans are being charged absurdly high prices to buy gasoline for Iraqis and outrageous that the White House is letting it happen," Waxman said.