Army Corps weighs replacing Iraq gasoline contractor

The Army Corps of Engineers is considering terminating its contract with oil services firm Halliburton to purchase gasoline for the citizens of Iraq, amid allegations the company is overcharging the U.S. government.

Under the contract with Halliburton, the Houston-based firm formerly run by Vice President Dick Cheney, the Army Corps buys gasoline for $2.65 per gallon, which is then distributed by the Iraqi Oil Ministry. Halliburton purchases the fuel in neighboring Kuwait. The price includes the cost of transporting the gasoline into Iraq.

However, the Defense Energy Support Center, which also imports gasoline from Kuwait for use by the military services, charges only $1.08 to $1.19 per gallon, lower than the average price in the United States.

Lynette Ebberts, a spokeswoman for the Defense Energy Support Center, said the price also reflects the cost of transportation to a central distribution station in Iraq located 150 miles from where the fuel is purchased.

The gap between the contractor and the government's prices was revealed by lawmakers who've been investigating Halliburton's war contracts. Reps. Henry Waxman, D-Calif., and John Dingell, D-Mich., wrote in a letter to National Security Adviser Condoleeza Rice last month that the prices Halliburton charges the government were "grossly excessive," and that experts had told them the total price for buying and transporting the fuel should be less than $1 per gallon. Rice is overseeing reconstruction efforts in Iraq.

As of Oct. 19, Halliburton had imported more than 61 million gallons of gasoline as part of operation Iraqi Freedom, and had been paid nearly $163 million under its Army Corps contract, the lawmakers reported.

Now, the Army Corps is reconsidering whether it wants to keep Halliburton on as a fuel contractor. "We're in the early stages of discussions with the [Defense Energy Support Center] to see if maybe they can take over this mission," said Scott Saunders, a Corps spokesman.

Saunders said the agency had anticipated only using Halliburton's services for about 30 days. Since the company has been working much longer than that, Saunders said, "it's time to pull out." Saunders had no explanation for why Halliburton has been charging the government the higher gasoline price.

Ebberts said the Defense Energy Support Center is evaluating the scope of the Army Corps' requirements and the agency's ability to meet them. She couldn't say when that evaluation would be completed.

Halliburton holds a number of contracts with the military for logistics and troop support as well as oil-related services, and has been accused of overcharging the government in the past. In 1997, for instance, Halliburton subsidiary Brown & Root Services, then building and managing military camps in the Balkans, charged the Army more than six times the commercial cost of plywood, the General Accounting Office reported.

According to the Army and GAO, Halliburton and its subsidiaries have earned more than $3 billion providing support services in the past decade. The company has followed troops into a number of war zones, including the Balkans, Somalia and now Iraq.

The Defense Energy Support Center charges what's known as the "standard price" for fuel, a rate determined using pricing forecasts and factoring in the costs of transporting, storing and managing fuel. In some years, that price is higher than the market price, but it also can be lower.

The standard pricing system is used to "insulate the military services from the normal ups and downs of the fuel marketplace," according to documents on the agency's Web site. Ebberts said that since military operations began in Afghanistan two years ago, the Defense agency has imported more than 2 billion gallons of gasoline and jet fuel into that country and Iraq.

A Halliburton spokeswoman said the company was "uniquely qualified" for the fuels work because of its past experience with wartime contracts. "Delivery of the fuels is difficult and hazardous in a hostile environment and must be delivered when and where needed," said the spokeswoman, Wendy Hall. "It is not as simple as dropping by a service station for a fill-up."

Halliburton "only recovers a few cents on the dollar" for purchasing, storing and delivering fuel, and for labor costs associated with the process, Hall said.