A US military fuel procurement agency will soon begin importing and distribution refined oil products to Iraq, effectively ending a controversial deal with oil service giant Halliburton that came under widespread criticism for overcharging the US government. The Defense Energy Support Center (DESC) said it expected to sign new contracts with private contractors within the next 60 to 90 days. Until then, Halliburton’s Kellogg Brown and Root (KBR) subsidiary will continue its fuel purchases for Iraq.
The switchover had been expected, especially after a Pentagon audit released a couple weeks ago reported that KBR had overcharged the government by some $61 million to import Kuwaiti gasoline to Iraq under the no-bid contract the company signed with the US Army Corp of Engineers (USACE) # a charge the company and the USACE denies (IOD Dec.19,p7).
The DESC plans to send a team to Iraq in mid-January, a center spokesman said. In a statement, the center said its “goal is to have full and open competition” in picking suppliers, but added that the agency could limit the competition until it has enough time to complete a competitive process.
Such a “bridge” contract could restrict the bidding to select companies invited to participate. Senior Democrats in the US Congress have blasted the Bush administration for favoring Halliburton in similar “time-saving” contracts in Iraq.
“The Center will strive to put competitively awarded contracts in place as quickly as possible for this mission,” said DESC Director Richard Connelly. “Existing contracts will remain in place until adequate DESC contract solutions are implemented. Paramount in this transition process will be the assurance that petroleum support to the Iraqi people will not be interrupted.”
The DESC will work alongside the Iraqi oil ministry and its marketing arm Somo to import diesel, gasoline, kerosene and liquefied petroleum gas. US officials have not said when they expect to be able to phase out the imports made necessary after power shortages, repeated looting and sabotage have hampered domestic refineries and pipeline flows.
Halliburton and the USACE contend that KBR’s fuel procurement role in Iraq was always intended to be a short-term solution.
“KBR has repeatedly tried to transfer the fuel delivery mission to a local supplier because it is dangerous for our people,” Halliburton spokeswoman Wendy Hall said. “We will work with the DESC to perform a smooth transition of the transportation mission.”
The USACE said it had recommended that the DESC take over for KBR. Spokesman Bob Faletti said the USACE initially assumed the task and awarded the contract to KBR on the assumption that it would be for a relatively short period of time.
“Once it became evident that it was going to be a long-term contract it made sense to transfer that mission over to an agency whose purpose is to deliver fuels,” he told International Oil Daily.
Faletti said the USACE believed it would be premature to comment on allegations that KBR overcharged on the basis of a draft audit.
Both KBR and the Corps have complied with requests for further information that is currently being evaluated. “Let’s let the audit process work,” Faletti said.
The fuel procurement task is part of Halliburton’s controversial no-bid contract to restore the Iraqi oil industry. The USACE is currently evaluating bids to replace KBR’s contract with two contracts that have been competitively bid. KBR is eligible to participate in the tenders, which were supposed to be awarded by October but have been delayed until mid-January.