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Bush Tries to Quell Halliburton Uproar

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By Maura Reynolds and Esther Schrader

Los Angeles Times
December 13, 2003
President points to the oversight process as Democratic candidates play up a Pentagon audit citing excess charges for oil deliveries in Iraq.

President Bush tried Friday to tamp down a political ruckus over Vice President Dick Cheney's former company, saying he expects Halliburton Co. and its subsidiaries working in Iraq to repay the government for any improper charges. Democrats on the campaign trail and in Congress pounced on the news Thursday that a Pentagon audit had found as much as $61 million in excess charges for oil deliveries to Iraq, accusing the president of allowing Halliburton to engage in "war-profiteering" at taxpayer expense.


"If there's an overcharge, like we think there is, we expect that money to be repaid," Bush told reporters. But Bush's words did little to quell the uproar, fueled by indignant Democratic presidential candidates. "I find it discouraging, to say the least, that the president of the United States appears to value his connections with Halliburton more than he does his connections with ordinary people in the United States," former Vermont Gov. Howard Dean told reporters after a campaign stop in Council Bluffs, Iowa.

The allegations go back to October, when California Rep. Henry A. Waxman, the ranking Democrat on the House Government Reform Committee, complained that Halliburton had charged more than double what other government agencies paid to import fuel into Iraq. On Friday, Waxman said the Pentagon investigation showed that "the Bush administration has a lot of things to answer for…. At best, you could come to the conclusion it's mismanagement. At worst, it's substantial profiteering."

White House spokesman Scott McClellan tried to downplay the matter, suggesting that the Pentagon-oversight process was working. "The Pentagon discovered some things that they felt needed to be looked into further, and we expect them to get to the bottom of it. That's the White House view," McClellan said. "There are appropriate oversight measures and procedures that are in place. We expect those to be followed."

The allegations about Halliburton, if confirmed, could hold political peril for Bush because they reinforce the views of critics who accuse the president of doing favors for his friends and contributors — especially large oil companies. The accusations also may bolster the suspicions of many in the Arab world who believe the real motivation for the U.S. operation in Iraq is a desire to control or profit from the Iraqi oil industry.

"Bush's statement today suggests the White House sees the potential political damage and is trying to keep it from developing into a major story," said Thomas Mann, a political analyst with the centrist Brookings Institution. "The Democrats will press the argument that Bush takes care of his friends at the expense of ordinary citizens, and this feeds into that charge."

Halliburton, which is based in Houston, provides construction, engineering and logistics services to the oil and gas industry. After serving as secretary of Defense in the first Bush administration, Cheney became Halliburton president and CEO in 1995 and held the positions until he ran for vice president in 2000. In leaving Halliburton, Cheney sold stock and options in the company worth more than $30 million; he says he now has no direct or indirect stake in the firm's financial performance.

However, according to Cheney's financial disclosure filings for 2002, he held 433,333 unexercised stock options in the company. He also received about $205,000 in deferred salary payments in 2001 and $162,000 in 2002. Halliburton says that Cheney bought an insurance policy that guaranteed his deferred compensation regardless of how the company performed. And he "irrevocably" assigned any future profits from the sale of his stock options to charities, the company says.

The current political storm built after the Pentagon announced this week that auditors had found evidence of "substantial overcharging" of $1.2 billion of gasoline sales by the company. An internal audit of charges for fuel trucked into Iraq found that Halliburton's construction and engineering subsidiary, Kellogg, Brown & Root, may have overcharged the Army by $1.09 per gallon for nearly 57 million gallons of gasoline.

Defense officials asserted that the Halliburton subsidiary didn't profit from the fuel price discrepancy. They said the problems were likely "stupid mistakes" by Halliburton, which may have paid a Kuwaiti subcontractor too much for the gasoline in the first place. They said Halliburton and the Pentagon were negotiating a possible settlement of the matter, which could include repayment by Halliburton.

But the alleged overcharges by KBR are part of a series of irregularities in business practices by Halliburton and its subsidiary being investigated by Pentagon auditors, said defense officials speaking on condition of anonymity. The companies have been awarded two contracts for the reconstruction of Iraq, one of which was awarded without competition. Together, they are worth more than $5 billion.

Auditors, whose work is not yet complete, said they believed KBR might have delayed for unacceptable lengths of time in providing cost estimates to the government for dozens of separate projects already under way in Iraq, the officials said. One of the contracts is a $2.3-billion, no-bid contract it received in March to help rebuild Iraq's oil industry, with about $1.2 billion of that to supply gasoline and other fuels to Iraqi citizens. The other contract, for $3 billion, is to provide logistical support to U.S. troops.

Defense Secretary Donald H. Rumsfeld said Friday he believed the Pentagon caught the overcharge in time to avoid paying the Halliburton subsidiary. There has not, "to my knowledge, been any overpayment," Rumsfeld said. "We've got auditors that crawl all over these things, and what you're reading about in the paper is not an overpayment at all," Rumsfeld said, responding to a question from the audience at a conference of state legislators. The discrepancies were uncovered in what was described as a routine audit.

Halliburton CEO David Lesar denied in a statement released by e-mail Thursday night that KBR had overcharged the Army. He said the company would be cleared of any wrongdoing once the audit is completed. "We welcome a thorough review of any and all of our government contracts," Lesar said. He added that Halliburton only makes "a few cents on the dollar" from the fuel deliveries.

Pentagon officials said Halliburton's KBR subsidiary had also submitted a proposal for cafeteria services that was $67 million too high. The officials said the Pentagon rejected it. Lesar said no invoice had been sent for the project and what the auditors were investigating was only a proposal.


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.