Halliburton’s failures of rebuilding Iraqi pipelines

Apr 25, 2006 02:00 AM

When Robert Sanders was sent by the Army to inspect the construction work an American company was doing on the banks of the Tigris River, 130 miles north of Baghdad, he expected to see workers drilling holes beneath the riverbed to restore a crucial set of large oil pipelines, which had been bombed during the invasion of Iraq.
What he found instead that day in July 2004 looked like some gargantuan heart-bypass operation gone nightmarishly bad. A crew had bulldozed a 300-foot-long trench along a giant drill bit in their desperate attempt to yank it loose from the riverbed. A supervisor later told him that the project's crews knew that drilling the holes was not possible, but that they had been instructed by the company in charge of the project to continue anyway.

A few weeks later, after the project had burned up all of the $ 75.7 mm allocated to it, the work came to a halt. The project, called the Fatah pipeline crossing, had been a critical element of a $ 2.4 bn no-bid reconstruction contract that a Halliburton subsidiary had won from the Army in 2003. The spot where about 15 pipelines crossed the Tigris had been the main link between Iraq's rich northern oil fields and the export terminals and refineries that could generate much-needed gasoline, heating fuel and revenue for Iraqis.
For all those reasons, the project's demise would seriously damage the American-led effort to restore Iraq's oil system and enable the country to pay for its own reconstruction. Exactly what portion of Iraq's lost oil revenue can be attributed to one failed project, no matter how critical, is impossible to calculate.

But the pipeline at Al Fatah has a wider significance as a metaphor for the entire $ 45 bn rebuilding effort in Iraq. Although the failures of that effort are routinely attributed to insurgent attacks, an examination of this project shows that troubled decision-making and execution have played equally important roles.
The Fatah project went ahead despite warnings from experts that it could not succeed because the underground terrain was shattered and unstable. It continued chewing up astonishing amounts of cash when the predicted problems bogged the work down, with a contract that allowed crews to charge as much as $ 100,000 a day as they waited on standby.

The company in charge engaged in what some American officials saw as a self-serving attempt to limit communications with the government until all the money was gone. And until Mr Sanders went to Al Fatah, the Army Corps of Engineers, which administered the project, allowed the show to go on for months, even as individual Corps officials said they repeatedly voiced doubts about its chances of success.
The Halliburton subsidiary, KBR, formerly Kellogg Brown & Root, had commissioned a geotechnical report that warned in August 2003 that it would be courting disaster to drill without extensive underground tests.
"No driller in his right mind would have gone ahead," said Mr Sanders, a geologist who came across the report when he arrived at the site.

KBR defended its performance on the project, and said that the information in the geotechnical report was too general to serve as a warning. Still, at least two other technical experts, including the northern project manager for the Army Corps, warned that the effort would fail if carried out as designed. None of the dozen or so American government and military officials remembered being told of the geotechnical report, and the company pressed ahead.
Once the project started going bad, senior American officials said, an array of management failures by both KBR and the Corps allowed it to continue. First, some of those officials said, they seldom received status reports from the company, even when they suspected problems and made direct requests.

An independent United States office, The Special Inspector General for Iraq Reconstruction, began an investigation of the project and issued a report earlier this year. It sharply criticized KBR for not relaying the problems, and concluded that "the geological complexities that caused the project to fail were not only foreseeable but predicted."
The company received a slap on the wrist when it got only about 4 % of its potential bonus fees on the job order that contained the contract; there was no other financial penalty.

Two of the top Army Corps commanders who have had involvement at Al Fatah were reluctant to criticize the work done by KBR in Iraq. That was also the case in February when the Army Corps agreed to pay Halliburton most of its fees on a large fuel supply contract in Iraq, even though Pentagon auditors had found more than $ 200 mm of the charges were questionable.
Congressional Democrats have accused Halliburton of enjoying special privileges because Vice President Dick Cheney was its chief executive before he became vice president. Although independent experts have noted that it is one of a handful of companies with the experience and size to handle enormous jobs like the reconstruction effort, KBR is often sheltered by a military that is heavily dependent on it.

Source: Dow Jones
Market Research

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