Fill 'er up -- with taxpayer dollars

Congressional watchdog Henry Waxman attacks Dick Cheney's former employer Halliburton for pumping up the price of gas in Iraq.

By Mark Follman
Published December 13, 2003 12:45AM (EST)

On April 30, 2003, shortly after U.S. forces toppled Saddam Hussein's government, U.S. Rep. Henry Waxman, D-Calif., wrote a letter to Secretary of Defense Donald Rumsfeld inquiring about evidence that American oil services giant Halliburton Corp. had profited from doing business with countries that sponsor terrorism. He got no response. On Sept. 30, Waxman wrote to Joshua Bolten, the Bush administration's director of the Office of Management and Budget, with concerns about overspending and a lack of oversight in the reconstruction operations in Iraq. He got no response. For almost six months now the California Democrat has been asking the Bush administration to explain why Halliburton, formerly run by Vice President Dick Cheney, has been charging what appears to be five times the necessary cost of importing millions of gallons of gasoline from Kuwait into Iraq. To date, the White House hasn't responded.

The reconstruction of Iraq's oil and gas infrastructure appears to be costing American taxpayers millions of dollars more than it should -- dollars which are currently flowing into Halliburton's corporate treasury. Pentagon officials acknowledged as much Thursday, telling the New York Times that an investigation has turned up evidence that Halliburton may have overcharged the U.S. government "tens of millions of dollars" for fuel the company is shipping into Iraq. Waxman sees this as part of pattern in which the Bush administration is enriching its corporate friends -- precisely as it snubs key U.S. allies with its "macho unilateralist" approach to foreign policy. That will cost U.S. taxpayers dearly, he says.

"The Bush administration's apparent indifference to the evidence we've brought to them about overcharging, and their failure to respond to our previous letters, even though hundreds of millions of taxpayer dollars are at stake, is astounding to me," Waxman told Salon in an interview Thursday.

Since the Bush administration declared the war over in April, Halliburton has been given exclusive control of rebuilding Iraq's oil infrastructure, with no other companies allowed to bid competitively against it. According to the Times, the company has since amassed $1.4 billion in U.S.-controlled oil and gas contracts. And in that time, Waxman has amassed information on the cost of Halliburton's operations in Iraq, sometimes with information provided by the Pentagon and the U.S. Army Corps of Engineers.

It's the cost of Halliburton's exorbitant gas contracts that appears to jump completely off the scale. Without more details from the White House, Waxman is at a loss to justify Halliburton's extraordinarily high prices -- as much as $3.06 per gallon, according to his most recent letter of Dec. 10 to National Security Advisor Condoleezza Rice. "At best, I would think it's mismanagement," he told Salon. "But at worst it's government-sanctioned profiteering."

Waxman, the ranking Democrat on the Committee on Government Reform, has coauthored the series of letters to the Bush administration with Rep. John Dingell, D-Mich., which cite mounting evidence that Halliburton's 26-cent-per-gallon "markup" on gas trucked in from Kuwait -- on top of an already astronomical transportation cost of $1.21 per gallon -- makes no sense. In a Nov. 5 letter to the U.S. Army Corps of Engineers, Waxman cites energy expert Jeffrey Jones, the director of the Pentagon's own Defense Energy Support Center, who says Halliburton's prices are "extraordinarily high" and "way out of range." Officials at the support center have told Waxman that it is able to import gasoline from Kuwait into Iraq for $1.08 to $1.19 per gallon -- less than half Halliburton's alleged cost.

Whether the high gas prices are a reflection of the Bush administration's poor oversight or a carefully conceived plan to provide a lucrative role for big business in the Middle East, Waxman's allegations come at a time when the administration appears to be at war with itself over Iraq reconstruction policy. This week, Deputy Secretary of Defense Paul Wolfowitz announced that the Pentagon would shut out several key U.S. allies, including Russia, France and Germany, from bidding on $18.6 billion in future reconstruction contracts. Those nations responded angrily, with Russia promptly stating it would no longer consider debt relief for the $8 billion sum owed to it by Saddam's Iraq. Just a few days earlier the White House had mobilized former Secretary of State James Baker to travel overseas and ask for exactly such relief.

Waxman says the Pentagon's slap in the face to America's key partners will undermine Baker's mission and prove a costly diplomatic error. "Rather than increasing international cooperation in Iraq, this decision will have exactly the opposite effect," he says flatly. "It's retribution against countries that didn't buy the arguments this administration advanced for going to war in Iraq -- arguments which, for the most part, turned out to be untrue."

With billions of dollars and the future of Middle East peace at stake, Waxman believes American taxpayers deserve to know exactly how their money is being spent on the reconstruction.

He spoke with Salon by phone on Thursday from his Washington office.

What kind of response have you received from the Bush administration to your letters concerning the Halliburton contract in Iraq?

I've been sending letters and trying to get answers to some fairly simple questions for close to six months. Four letters have gone to the administration itself, two to [National Security Advisor] Condoleezza Rice and two to OMB [Office of Management and Budget] director Joshua Bolten. I haven't gotten an answer from them yet that would explain why we are overpaying Halliburton Corporation to bring in gasoline from Kuwait into Iraq, and paying two and a half to three times as much as it would otherwise cost to do the same job.

Why do you think that you've received no response? Surely the reconstruction of Iraq is at the top of the White House priority list.

There is such a lack of interest by both the administration and Republicans in the Congress about the fact that the American taxpayers may be getting gouged by Halliburton. It's hard for me to understand. At best, I would think it's mismanagement. But at worst it's government-sanctioned profiteering.

Let's talk about the Halliburton numbers for a minute. In your Dec. 10 letter to Condoleezza Rice, you cite that the Bush administration, per the Army Corps of Engineers which directly oversees the operations, has justified what appears to be the unusually high cost of Halliburton's work by pointing to "security" concerns. Does that seem reasonable to you? Iraq is a war zone after all.

I've also heard that explanation from Halliburton itself, which has said that security issues are responsible for the cost, or that they're limited to [expensive] 30-day contracts, or that it's hard to find enough trucks. These are all the excuses that we've heard.

The fact of the matter is that the Iraqi state oil company, SOMO, which is also bringing in gasoline from Kuwait, faces the exact same situation. They transport it through the same routes, deliver it to the same depot and receive the same protection from the U.S. military as Halliburton does. Yet the Iraqi company charges only 96 cents per gallon compared to Halliburton's $2.64 per gallon. How is this possible? The administration has not given us an answer to that question.

How could Halliburton be citing security as a cost if it's being provided to them by the U.S. military? Does Halliburton pay for that security?

The U.S. military is providing the security for the convoys, and the American taxpayers are paying for the U.S. military to do that. If you look at the breakdown of the figures put out by the Army Corps of Engineers, Halliburton is paying $1.21 per gallon to transport gasoline 400 miles from Kuwait to Iraq. This is astounding, especially since Halliburton transports gasoline from Turkey for just 22 cents per gallon. Why does it cost more than five times as much to transport gasoline from Kuwait?

One thing I found especially perplexing in your Dec. 10 letter is the fact that "Halliburton itself does not purchase or transport the gasoline [to Iraq]." So is it essentially acting as a consultant or manager of the operation? What exactly is Halliburton's role in rebuilding the oil and gas infrastructure there, and how would that explain its extra costs?

Halliburton says it has a "markup" fee of 24 cents per gallon and another 2 cents for "other" charges. Their role in the actual fuel importation is limited. Essentially Halliburton's function is to hire an integrator as a subcontractor to purchase the gasoline in Kuwait and transport it into Iraq. It's very difficult to understand how this justifies an additional 26 cents per gallon charge [in addition to the cost of the fuel itself and its transport] on millions of gallons of gasoline.

According to the New York Times, Halliburton has already received more than $1.4 billion in contracts to rebuild Iraq's oil industry. To what degree is President Bush responsible for the decision making around this? Does he personally have to sign off on a project of this magnitude and import?

The Army Corps of Engineers issues the contract for Halliburton to work in Iraq -- which is the contract they were given without facing any competition. But ultimately this administration has to be responsible for handling the issues of what its contractors are doing. They should be exercising oversight, and they should be assuring that the American taxpayers are not being ripped off.

The administration's apparent indifference to the evidence that we've brought to them about overcharging, and their failure to respond to our previous letters even though hundreds of millions of taxpayer dollars are at stake, is astounding to me. I think this matter deserves immediate attention, and that's why we've kept writing to them and asking for answers to what ought to be easy questions, if they had any interest in answering them. I would think they would want, even for themselves, to be sure that they're carrying out their job adequately.

So there seems to be a dearth of detailed information. Do you feel it's reasonable to expect the American public to trust the Bush administration with the oversight of this whole operation, especially given that it has such strong personal ties to the energy industry?

Well, I don't think there's a dearth of information. I think we actually have a lot of information, in light of which any reasonable person would have to conclude that there is a great deal of overcharging going on for the work Halliburton is doing in Iraq. But it appears that this administration is not concerned about the taxpayers overpaying. Perhaps there is a certain mental or cultural attitude at work -- that as long as it's somebody else paying the bill, the Defense Department is not concerned about it, and Halliburton is not concerned about it. That does not strike me as a responsible position to take.

How do you see Vice President Dick Cheney fitting into this whole picture? We know he had a very hands-on role in planning the war in Iraq, and that he has a close relationship with the leadership in the Defense Department. We also know he is a former CEO of Halliburton.

Yes, and we also know that Vice President Cheney receives money from Halliburton in deferred compensation. But putting all that aside, the issue is not essentially a question of politics. It is a question of management and protecting the taxpayers' dollars.

Now, if the war in Iraq is an excuse simply to shift dollars to Halliburton and Bechtel and other private contractors by overpaying them, that would be a horrible thing, especially in light of the fact that we've got young men and women putting their lives on the line. This war shouldn't be used as an opportunity to do something that's essentially like a tax break for the rich, or just another exclusion from liability for an oil company -- as we've seen with the direct grants and tax breaks for billions of dollars which are part of the energy bill that the administration is supporting.

I hope that's not what we're looking at here. That's one of the reasons I feel strongly that we need to get an explanation from the administration. I would've thought that all the information that's already out there about this would have alerted them, and made them concerned about the issue.

But can we really sidestep "politics" in this discussion? Doesn't Vice President Cheney's relationship with Halliburton make the situation all the more compelling in terms of a need for transparency, the need to scrutinize costs and have a competitive bidding process for the contracts?

Absolutely. I would have thought that the relationship that the vice president had with Halliburton would have made people in the Bush administration even more sensitive to the appearance of all this. Halliburton got very special treatment from the Army Corps of Engineers. At first we were told that Halliburton got a contract, which no other company was given a chance to bid on, because they were prepared to deal with emergencies of putting out oil well fires in the case of going to war. Ironically, the reason they planned for that is because under another contract they had been asked to come up with a plan for that contingency. So then the argument became, "Well, since they had a plan for that contingency in place, they should get the contract without anybody else competing for it." But there are other companies that can put out oil well fires.

We pressed this issue, especially because the contract was a "cost-plus" contract which encourages higher costs, and because Halliburton has a history of overcharging the U.S. government in previous contracts. We found out that [the Iraq deal] wasn't just a short-term contract, it was a two-year contract with the potential for up to $7 billion in work. And it wasn't just to put out oil well fires -- it was to run the oil industry in Iraq.

It took a while to get that information. After that came out, we were told that the [Defense Department] was going to bid the contract; so while Halliburton already had it, that was supposedly only temporary. They said they would have competition for this contract by August, and then they changed it to October, and then to December, and now they're talking about some time next year.

So to the best of your knowledge Halliburton is still controlling the entire operation to date?

Yes, Halliburton is controlling the entire operation.

I've also raised questions with the administration about a Halliburton subsidiary that was dealing with Saddam Hussein and breaking the embargo when we had one on Iraq, and the same regarding a Halliburton subsidiary that was breaking our trade embargo with Iran and Libya. I was told by a person I spoke with at the Defense Department, "Well, we don't deal with that issue."

So who does deal with that issue?

Well, that same person said, "The Justice Department might look at it, but they're not concerned about it."

To me it's baffling how this administration has been so insensitive to the obvious appearance of impropriety in the way that they've given Halliburton special treatment. The lack of oversight about the Iraq contract, and having a contract that is so prone to abuse.

For as long as I've been in office, I've heard Republicans talk about how they're against waste, fraud and abuse. In the contract we have with Halliburton, there is clearly waste, and, I think, abuse. I don't know if there is fraud or not, but it appears that the Republicans who control the Congress don't want to do any oversight, and the Bush administration, which has ultimate responsibility, also seems uninterested.

In terms of my Republican colleagues in the Congress, this stands in my mind in stark contrast to the way they were so vigorous in doing oversight during the Clinton administration -- when there wasn't an accusation too small for them to issue subpoenas and call hearings.

Are you concerned that there's fraud going on with the Halliburton contract?

I don't have enough information to reach a conclusion on that subject, but I've certainly reached the conclusion that there's waste of taxpayers' dollars. That in and of itself, when hundreds of millions of dollars are being wasted, ought to catch somebody's attention in this government.

What's your view of Deputy Secretary of Defense Paul Wolfowitz's announcement that the Pentagon is shutting out several key U.S. allies, including France, Germany and Russia, from the contract bidding process for the next $18.6 billion in projects in Iraq?

I think it's a mistake for a number of reasons. For starters, this is not a good deal for U.S. taxpayers. With 26 massive new contracts funded with $18.6 billion from the Iraq supplemental, the whole point of full and open competition is to get the best value for taxpayers by comparing bids from different companies. If the administration is going to exclude a Canadian firm that could do the work for less, the taxpayer is out of luck.

It's also a bad idea because it undermines U.S. efforts to win international support for the reconstruction of Iraq. It's so arbitrary in the way the administration decided which countries will be permitted to bid, and which will be excluded. For example, Turkish firms will be allowed to compete even though Turkey refused to allow U.S. aircraft to use its airspace [and refused to allow the staging of U.S. ground troops on its soil] during the war. But German companies can't compete, even though Germany did permit the U.S. to use airbases in Germany during the invasion. On the other hand, Egypt is allowed to compete, though it is hardly a leader in fostering Arab democracy. And then you have Canada, which has pledged $300 million to the humanitarian reconstruction effort and is sending police trainers to Jordan to help train Iraqi police officers, but Canadian companies aren't welcome to bid. [The New York Times reported late Thursday that President Bush had reassured Prime Minister Jean Chrétien Thursday morning that Canada would not be excluded after all.] So this line drawing just doesn't make sense.

What does this mean for former Secretary of State James Baker's diplomatic efforts to reduce Iraqi debt as part of the reconstruction?

Ultimately, it's counterproductive and it doesn't help James Baker at all. Rather than increasing international cooperation in Iraq, this decision will have exactly the opposite effect. Look what's already happening with Russia: We've been trying to get them to forgive the huge debt that Iraq owed them, and now they've promptly turned around and said "absolutely not" in response to being excluded from potentially working with us on these contracts.

If we decide that certain countries are not our friends -- which is a strange notion, because some of these countries that are being excluded have been our allies since before World War II -- it becomes self-fulfilling. They're going to think of themselves as no longer our allies. To me that hardly seems a good result.

According to the Times, Paul Wolfowitz said the primary basis for this policy of exclusion is "national security and national defense." Does that seem like a plausible explanation? What is the administration thinking here?

No, it doesn't seem plausible to me. It appears that the administration's thinking is to get even. It appears to be retribution against countries who they think weren't helpful in the U.N. Security Council, or who weren't part of the initial alliance to go to war in Iraq. It's retribution against countries that didn't buy the arguments this administration advanced for going to war in Iraq -- arguments which, for the most part, turned out to be untrue.

Could there be any reason to think that this type of hardball politics would be a useful or effective way to pursue our foreign policy goals, ostensibly to achieve international peace and security in the Middle East?

This is a policy that rejects diplomacy. It's full of macho unilateralism. I think we've had enough of that. We can't rebuild Iraq alone, and it's primarily U.S. men and women there today who are making the greatest sacrifice that they could be called upon to make for their country.

Mark Follman

Mark Follman is Salon's deputy news editor. Read his other articles here.

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