$1.4 billion cost of fuel to Iraq by KBR questioned

A Halliburton subsidiary charged the Iraqi government as much as $25,000 per month for each of as many as 1,800 fuel trucks that were to deliver gasoline to Iraq after the 2003 invasion, but the trucks often spent days or weeks sitting idle on the border, says a report released yesterday by an auditing agency sponsored by the United Nations.

The agency said in a statement that the auditing firm it hired had found that some of the contract costs that had been questioned earlier seemed to be justified. But the agency said the findings raised new questions about hundreds of millions of dollars billed by the company under a $2.4 billion contract that the Army awarded on the eve of the conflict to KBR, the Halliburton subsidiary formerly known as Kellogg Brown & Root.

The new audit gives the first detailed picture of how the company incurred many of those costs.

The audit said the Kuwaiti government had set the price of its gasoline at $1.13 a gallon. But with the delivery charges, the effective cost of the gas was calculated to be much higher, about $8 a gallon, according to a participant in a meeting in Paris last week at which the audits were presented to the auditing agency and the Iraqi government.

Questions have been raised about the contract since 2003, when it first became public that the contract had been awarded without competitive bidding.

Pentagon auditors challenged more than $200 million of KBR’s charges under the contract as potentially excessive or unjustified, and the agency designated by the United Nations to oversee Iraq’s vast oil revenues later recommended that the United States might have to repay some or all of that money to Iraq.

The Army later decided that most of those costs were justified by the peculiar nature of the contract and the wartime conditions in which the company was operating and decided to reimburse KBR for them.

The new audit, commissioned by the oversight agency, the International Advisory and Monitoring Board of the Development Fund for Iraq, contains a mixed message for KBR and the American officials who administered its contracts in Iraq.

The audit firm, Crowe Chizek, based in Chicago, agreed that in the wartime conditions of Iraq, the Army was justified in reimbursing KBR for the original $200 million in disputed costs.

But the monitoring board said Crowe’s detailed findings on how KBR came up with $1.4 billion in charges on the contract between May 2003 and March 2004 raised new questions on hundreds of millions of dollars more.

In the chaos after the invasion, the contract was divided into various work orders that called for services like fuel deliveries and the repair of Iraqi oil infrastructure. The audit found, for example, that in an $871 million work order for delivering fuel to Iraq, just $112 million was actually spent on the fuel itself — gasoline, kerosene and liquid petroleum gas.

But $694 million was paid to a Kuwaiti subcontractor, “primarily for fuel transportation,” the audit says. The audit lays out a prime reason for those costs. KBR leased a fleet of tanker trucks from a well-connected Kuwaiti company, Altanmia, at a cost of up to $25,575 a month for each truck “irrespective of the number of deliveries” to Iraq, the audit says.

Because of deteriorating security in Iraq — and apparently because of severe limits on the number of armed escorts the Army could provide — KBR was able to run only two fuel convoy runs per month from Kuwait to Iraq and back, the audit says. That meant that from 200 to 1,800 trucks racked up charges as they sat idle for long stretches on the border.

Read the rest at the NY Times

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