Halliburton’s “Gouging”: What Really Happened
There's a good explanation — if anyone is interested.

by Byron York, National Review

New details are emerging that suggest the energy giant Halliburton did not overcharge the Defense Department for fuel in Iraq — contrary to the claims of critics in Congress and in the field of Democratic presidential candidates.

The Pentagon is investigating allegations that Halliburton overcharged it by $61 million for gasoline and other fuels delivered to Iraq. Halliburton delivered gasoline to Iraq from Kuwait at a price of $2.27 per gallon, while it delivered gas from Turkey for $1.18 per gallon.

The obvious question raised by the discrepancy was: Why would Halliburton deliver high-priced fuel from Kuwait when it could be obtained at a much lower price from Turkey?

The company says it did so because the Army demanded that it deliver fuel from Kuwait. "The U.S. Army Corps of Engineers said to find a fuel source in Kuwait," Halliburton said in a press release yesterday. " [Halliburton] sought and received bids from four suppliers in Kuwait. One met the Corps' specification, and that is the one the Corps approved."

But why did the Corps specify that fuel be delivered from Kuwait? The answer appears to lie with the nature of fuel shortages that swept Iraq in the late spring. After the war, the country's oil refineries were operating far below capacity. Both gasoline and liquefied petroleum gas, which millions of Iraqis use for cooking, were in very short supply.

American officials feared that the shortages might spark civil unrest. Of particular concern was Basra, the city in southern Iraq that had seen increasingly violent expressions of popular anger against coalition forces. According to a source in the Corps of Engineers, in May, Lt. General Ricardo Sanchez, leader of American forces in Iraq, demanded that fuel be supplied to Basra — fast.

"The initial import of fuel was in response to a request from General Sanchez to do this because there was an uprising in Basra over the lack of gas and cooking fuel," says the Corps source. "Basra is near the Kuwaiti border. The fastest way to get it there is Kuwait. So we directed them [Halliburton] to do that."

"Basra was a flash point; we were close to civil unrest," the source continues. "Probably at the time we didn't care what it cost, because we were trying to stop a riot. Cost was probably not an issue."

But the rest of Iraq was suffering from fuel shortages as well. On May 8, in an article headlined, "Angry Iraqis Blame U.S. for Fuel Shortage," the Washington Post reported on a "ubiquitous scene" in Iraq: "lines that stretch toward dusty horizons as people wait for gasoline, a problem that confronts U.S. authorities with both a complex engineering challenge and a continuing threat to their prestige."

Soon the U.S. military was ordering fuel shipments to the rest of Iraq as well. While the Kuwaiti source is relatively close to Basra, it is a great distance from northern Iraq, which made for very long shipping lines. And the violent insurgency then beginning inside Iraq made the work not only expensive but also dangerous for the crews hired by Halliburton to deliver the fuel.

"Not many people want to drive eight to fifteen days through a war zone with a truck full of flammable materials," the company says. "Three drivers have been killed and many others injured while performing this mission, and 60 vehicles have been damaged."

As a result, Halliburton officials say they came up with the idea of arranging for another fuel source in Turkey. "[Halliburton] initiated the idea to source fuel from Turkey," the company says. [Halliburton] presented this idea to its customer, and because of this, saved taxpayers well over $100 million."

Since that time, fuel has come into Iraq from both sources. According to both the Corps and Halliburton, neither country can, on its own, provide the amount of fuel needed inside Iraq.

So far, Halliburton says, about two-thirds of the fuel delivered to Iraq has come from Turkey, at the lower price, and about one-third has come from Kuwait, at the higher price. Given those proportions, Halliburton says the average fuel cost from both Turkey and Kuwait has been $1.60 per gallon, "well within what auditors think it should be."

Although Halliburton's actions have been intensely criticized by the administration's opponents, the Pentagon says it has not found any wrongdoing. Said Defense Department comptroller Dov Zakheim on Tuesday, "From what I've seen so far...I have no basis whatsoever to see anything nefarious."

http://www.nationalreview.com/york/york200312190859.asp

Eric The(Relieved)Hun