Wednesday, June 30, 2004

Busting Conspiracy Theories (#1) - Blood for Oil

Part 3: Haliburton - Dealing with the Devil or The Devil is in the Details

As in the last 3 postings, I have tried to show that conspiracies can be generally discounted through actual information, data and details. My own personal experience shows that people get most of their information from the "headline" section of the newspapers and other media resources. They apparently cannot take the time to read the entire story or look up other information or even strain their memories for historical activities that relate to the subject.

More so, even though we have "transparent" government, most people don't have a clue about government contracting, spending, defense programs, etc. I remember the 90's and the big push to eliminate "paper" in government and streamline practices to reduce costs (Clinton Administration). Today, nobody outside of government employees who had to "implement" the program, has any real idea how it worked or what it effected.

In this case, "Blood for Oil", nobody (including journalists) apparently cared enough to go find out how much oil and revenue was actually possible from Iraq. No one bothered to review the details of the contracts, where the money came from, how it was spent, who got it, why... I could go on. If it weren't for the fact that these folks are spreading "information" taken as "the truth" by the general population, I would feel some sympathy for them. Particularly as I have just pored over hundreds of pages of documents, news articles, etc. There were several nights I fell asleep reading it. It was definitely not the most exciting information to read and it takes some time to read through reams of information and legal jargon to get to the bottom line.

Having said that, I must, at this time, express my outrage, for lack of a better word, at what I see as a tremendous failure in journalistic integrity/ethics/investigative abilities. Not just about the missing information, but from the sheer laziness and apathy in this group which is apparent when you read 42 news articles on the same subject. In this case, the Halliburton defense contract.

After you read these articles, it becomes apparent that none, NONE of these people actually went out and investigated the story for additional information. Instead, they all read the same AP or UPI story and just kept parroting it over and over with, maybe, one or two additions of interviews with people like Sen. Waxman (D-California) who was re-enforcing the story with his own partisan diatribe.

I will be supplying a list of a good number of these news articles at the bottom of this entry, but I will summarize appx 6 months worth here:

  • Dick Cheney is the ex-CEO of Halliburton in the 1990's
    Actually, most of the stories started their first line with "Dick Cheney's company Halliburton" or "Dick Cheney's old company Halliburton", etc. Implying, over and over, that Dick Cheney still has a direct business link to, still operating, or owns Halliburton.
  • Dick Cheney still receives payments from Halliburton
  • Dick Cheney still owns stock in Halliburton
  • Halliburton was awarded a $7bn contract from Pentagon for Iraq reconstruction
  • Contract was awarded with no bidding
  • Halliburton Audited by GAO
  • Senate oversight committee demands investigation
  • Sen. Henry Waxman (D-California) says there's something sinister going on

That about sums it up. 41 of 42 articles said this, over and over again. 41 articles all fed us the same tripe, as if we were idiots and couldn't understand, without providing any background information on the allegations. NONE but one. Byron York, from National Review Online (admittedly right of center publication), was one of the few that actually investigated how contracts were awarded, where the estimated value came from, where Halliburton's relationship with the government came from, etc. I recommend reading his article before continuing on through the details I have supplied here.

The Conspiracy Theories: Blood for Oil

"Blood for Oil" as you can see by my postings, is a rather simplified chant taken up by the anti-war folks. Underneath that title is a whole host of sub-conspiracies which is why this particular "Busting Conspiracies" section is broken into so many parts. Once you get through one "conspiracy", the CTs add on the "but, ..." And go down a side road. Let's recapture the general theories we've heard to date:

  • The US went to war with Iraq to get it's oil
    • We cleared that. The US was already getting oil from Iraq under the "UN Food for Oil" program.
    • The US bought it at fair market value
    • The Iraqi oil production is negligible (2.5mil bbl/day)compared to other countries, total world production and US demands.
    • Even with additional drilling, the increase in production (4mil bbls/day by 2010) is negligible comparatively speaking
    • The US didn't need that oil. Could have offset any loss with increased production in the US
    • The US is not the sole beneficiary of this oil. Iraqi oil is now being sold to any number of countries, including the US

  • The US went to war with Iraq to get the revenue from oil
    • Cost of Iraqi oil compared to cost of war would equal no profit to US
    • Would have been cheaper to lift sanctions and deal with Saddam like France and Germany
    • All money made by sale of oil is going into the Iraqi Central Bank for spending by Iraq for reconstruction
    • US is actually paying the companies involved out of tax payer money, not Iraqi money
    • The US actually lost money on this deal

  • The military industrial/oil (Halliburton) complex convinced the President to go to war so they could get the Iraqi oil and make money
  • And/Or, after the war planning was underway, Halliburton was given a favorable deal to manage the oil wells, etc because of their past connection with Vice President Cheney in order to make Dick Cheney and friends rich.

The last two issues we are dealing with here.

Vice President Dick Cheney and Halliburton

In the cut and paste world of journalists and CTs (conspiracy theorists), this is the primary source of The Conspiracy. When I read the articles, it was interesting how none of the articles actually put the dates that Dick Cheney was CEO of Halliburton. They all put out some ambiguous "1990's". As if he was the CEO for at least 10 years and over saw all of Halliburton's deals with the US government and it was through his contacts with the Republican party that allowed Halliburton to obtain these contracts.

    Fact: Dick Cheney Secretary of Defense under George H. W. Bush from 1988 to 1992
    Fact: Dick Cheney was CEO of Halliburton from 1995 to 2000
    Fact: Dick Cheney left Halliburton in 2000 to accept the office of Vice President under George W. Bush
    Fact: Dick Cheney sold Halliburton shares ($6 million)when he left the company
    Fact: Dick Cheney assigned all profit from his stock options to charity ($8 million)
    Fact: Dick Cheney has received a yearly deferred pay out from Halliburton since he left (golden parachute)

    Fact: Dick Cheney will receive yearly deferred pay outs for the next 3 years based on his agreement when he left Halliburton.
    • Payments or payment amounts are not contingent on any revenue or share or stock value from the company. Payments and payment amount is based on a percentage of actual available cash.
    • For those unfamiliar with executive management and golden parachutes, this is neither unusual nor illegal. This is part of the "compensation" package that many CEOs get when taking the job. Part of their salary. For comparison, check out Lee Iacocca and Ford, GE, Coca-Cola, etc or read Forbes and Fortune 500 magazines.
    • Pay out based on percentage of cash flow over a period of years is not abnormal either. This is actually to protect the company that is doing the pay outs. They need to pay their bills first so they can stay in business. Pay outs to non-employees are way down on the list of things the company will spend money on when it has a business to run.

    Fact: Dick Cheney took out an insurance policy for this deferred payment. IE, if Halliburton goes under, bankrupt, runs out of cash, he will get paid no matter what. His payments are not contingent on the success or failure of Halliburton.
    • For any confused, this was done specifically to insure that there could be no conflict of interest between his Vice Presidency and a government contracted entity

If you don't have the picture yet, Vice President Cheney has no viable connection to Halliburton besides his past job. He has no vested interest in it's performance. He will get his cash when they have their cash and he will get paid even if the company goes under.

Ergo, he would have no good reason to interfere or promote Halliburton contracts within the government unless he just wanted to risk impeachment and embarrass the Presidency by making his friends rich. Of course, everyone leaves out the hundreds of thousands of shares held in mutual funds for average stock investors like you and me. I am more than positive that my 401k mutual fund plan has a chunk of Halliburton stock and is performing nicely, thank you, and I have no relationship to either Dick Cheney or Halliburton.

Halliburton History of Government Contracts

This may come as a shock to everyone, but Halliburton and it's subsidiaries have been doing business with the government since 1942 (Gasp!). That's right, they did not suddenly appear on the scene after President Bush and VP Cheney came into office. They just appeared on our radar because somebody decided that VP Cheney's relationship would make some good news/conspiracy fodder.

Here is another shocker: Halliburton is a for profit company. (Gasp!) Yes, they are in the business to make money. It would be disingenuous of me not point out that Halliburton, under Cheney's control, increased it's contracts with the US government during his time as CEO. What would be stupid is to assign any sinister intent to this activity. He was not in government at the time and it was his job as the CEO to increase revenues and insure dividends to the stock holders. That is the CEO's job.

    Fact: Halliburton grew revenue related to government contracts from $1.5bn to $2.3bn between 1995 and 2000
    Fact: Halliburton is a $15bn per year enterprise
    Fact: Government contracts amount to 16% of Halliburton Revenues
    Confused? This means Halliburton does not rely on government contracts to make or break the company. It has other, non-government contracts which make up the bulk of it's business.

Let's look at the timeline to see Halliburton's history and connections:

  • 1919: Haliburton is founded
  • 1942: Root & Brown builds the Corpus Christi, Texas Naval Air Station
    • Root & Brown not yet part of Halliburton

  • 1962: Halliburton purchases Root & Brown (UK company)
    • Augment civil engineering projects.
    • For a taste of journalism investigative technique, one article indicated Root & Brown was purchased during the 1970's. A little off, don't you think?

  • 1968: Halliburton contracts with NASA
      I'm only listing a few of the really historical contracts so you can get a feel for the long term relationship between this company and the government.

  • 1985: LOGCAP - Logistical Civilian Augmentation Program adopted by Pentagon
      This is a not a Halliburton project. This is a defense contracting program that has significant importance later

  • 1991: Halliburton contracts with Department of Defense to put out the oil well fires (320) in Kuwait after Desert Storm/Gulf War I
  • 1991: Root & Brown separate contract to rebuild infrastructure/public buildings, etc
      History lesson here. Saddam Hussein invades Kuwait. When attacked, he withdraws, adopting a "scorched earth" policy. Sets 320 oil wells on fire. Iraqi troops loot and destroy public and private property. Kill Kuwaiti prisoners, commit general rape and pillage.

  • 1992: Root & Brown wins LOGCAP bid for logistical support of troops
    • Somalia, Bosnia, Croatia, Hungary

  • 1995: Dick Cheney becomes CEO
  • 1995: Root & Brown gets $31.5mil to dismantle ICBM (inter-continental ballistic missile) silos in Kazakstan
  • 1996: Vice President Al Gore lauds LOGCAP program and Halliburton for performance in the field and reduction of government spending
  • 1997: DynaCorp wins LOGCAP bid. President Clinton's pentagon dismisses results and re-signs Halliburton as sole-purpose contractor
    • Sites Halliburton performance, knowledge of countries/areas/resources and cost (time and money)of changing providers in mid stream

  • 1998: Halliburton merges with Dresser Grp (Europe)
    • Subsidiary of Dresser, Wallace M. Kellog. Engineering and project management

  • 2000: Dick Cheney leaves Halliburton to become Vice President
    • Sales his stock and assigns profit from shares to charity

  • 2001: Halliburton wins LOGCAP bid
    • Logistic support to Saudi Arabia, Kuwait and Qatar

  • 2001, September 11
  • 2001, Oct: War on Taliban in Afghanistan
  • 2002: Halliburton spins off subsidiaries Kellog and Root & Brown to form separate engineering company and allow Halliburton to concentrate on oil business 2002
  • 2002, Sept 12: President addresses UN on Iraq's failure to comply with UN resolutions
  • 2002, Sept: Halliburton asked to create oil well fire contingency plan under LOGCAP agreement for Iraq
  • 2003, Mar: Final details of contingency plan for oil well fires completed and memo forwarded to White House. All systems go for invasion.

  • 2003, June: Allegations that Halliburton is over charging for gas and oil purchased from Kuwait

  • 2003,July: Two Halliburton employees fired and charged with taking $6mil in kickbacks from Kuwaiti oil company
  • 2003, Aug: GAO (General Accounting Office)launches review of charges and payments

  • 2003, Oct: Sen. Waxman (D-California) begins questioning Halliburton contracting and connections to White House.
    • Demands investigation into Halliburton contract and method of awarding contract
      To understand his possible motivation, Bechtel, one of the potential contractors in this situation, is a California based company. While it did not personally raise an objection to the contracting process, hoping to get subcontracts (which it did), it would not be politically incorrect to say that Sen. Waxman was looking out for his own constituency; trying to insure that some of the federal money made it's way into Californian's (and thus California's) pockets.

  • 2003, Oct: DoD pulls gas acquisition contract from Halliburton and opens it for bidding
  • 2004, Mar: Army Corp of Engineers assigns oil and fuel contracts to new providers
  • 2004, April: GAO clears "No Bid" contracting as legal

LOGCAP: Logistical Civilian Augmentation Program

Before we continue with any summations, a little education on Department of Defense contracting is required. Otherwise, the "No Bid" aspect of this conspiracy, does not go away. First, since the first flapping of fledgling wings of freedom in this country, civilian contractors have supported the US military. During the Revolution, the Continental Army requisitioned food, boats, shelter, animals, etc from civilians. This has continued through all the wars the United States has fought. Another good example would be World War II. The private sector was highly mobilized in order to provide material and logistic (merchant marines) support.

As threats to the US security changed, the size and scope of the military has changed as well. Starting in 1985, the government recognized that it was not effective to have our troops tied up in "support and logistics" missions instead of actual combat missions. Also, with the emerging threats and available weapons, it was necessary to insure that these support abilities were in place and ready to go at a moments notice. Under this guidance, the Pentagon developed the LOGCAP contract program.

LOGCAP contracts are almost open ended contracts with companies to supply any number of services under the general guidelines of the agreement. These include: building bases, supplying food, laundry services, basic commodities, electricity, transportation, etc, etc, etc. Honestly, the list of things that can be purchased through a LOGCAP contract is huge. Generally, the needs of the military are based on projections of possible hostilities from multiple theaters of action. For instance, there is an existing plan in place for peacekeeping forces in Uganda, based on a usual deployment and number of troops, these specific items will be required, in this estimated quantity per troop, per day.

LOGCAP contractors are signed and their contracts state: if we need you, you will supply these services, whenever or where ever that might be. LOGCAP bidding actually takes place every four years, coinciding with administration changes in the Pentagon. LOGCAP assignments are used during times of peace as well, whenever support to troops within or without the US is necessary. These contracts are not "conflict" driven.

Whenever an emergent situation arises, such as actual warfare, and quick roll out of logistic support, where every detail cannot be vetted for cost analysis, as required under the LOGCAP program, an ID/IQ (indefinite demand/indefinite quantity) agreement is developed and signed with the LOGCAP contractor. A new contractor is not looked for, nor open bidding demanded, unless the LOGCAP contractor cannot meet the demands of the project.

The dollar cap for this ID/IQ is $7bn. Every time this type of agreement is enacted, for every company that participates, the cap amount is the same: $7bn. This does not mean that the contractor automatically receives $7bn. It means, they can receive up to $7bn in task orders without additional approval. Most ID/IQ contracts do not result in $7bn in expenditures. Pre-Iraq war ID/IQ to Haliburton resulted in $270mil in expenditures. Last ID/IQ to Halliburton for Iraq activities is estimated at $3.5bn value.

  • LOGCAP contracts are normal Department of Defense activities
  • LOGCAP agreements do have open bidding processes
  • LOGCAP's are awarded every 4 years at the same time the administration changes by election
  • One contractor wins bid for major operations
  • ID/IQ agreements are normal Department of Defense activities
  • ID/IQ agreements are open specification agreements awarded under LOGCAP contracts
  • ID/IQ agreements do not require open bidding
  • ID/IQ agreements ALL have a cap spending value of $7bn
  • $7bn cap is the highest dollar value that can be paid to the contractor without additional analysis or contract language/details
  • $7bn cap does not mean the contractor receives $7bn dollars

Halliburton and LOGCAP

    Fact: Halliburton was awarded a LOGCAP contract at the beginning of 2001
    Fact: Halliburton's contract does not expire until January 2005
    Fact: Halliburton presented the "Iraqi Oil Well Fire" contingency plan under their LOCGAP agreement
    Fact: The Army Corp of Engineers did not seek out additional inquiries or bids because they did not believe it was necessary under the LOGCAP agreement
    Fact: Halliburton was awarded an ID/IQ agreement with a $7bn cap for putting out potential Iraqi oil well fires and getting the oil infrastructure in Iraq back on line
    Fact: Neither Halliburton nor Pentagon expects that the cost will be $7bn
    Fact: Kellog, Root and Brown received an ID/IQ agreement with a cap of $7bn for rebuilding public buildings and other infrastructure as well as building bases, field hospitals, etc for the military
    Fact: Neither KRB nor Pentagon expects that the cost will be $7bn
    Fact: Halliburton discovered their own over charge and reported it to the government (internal self audits are required by the government in order to maintain federal provider status)
    Fact: Halliburton fired employees it discovered was cheating the government
    Fact: Halliburton repaid the overpayment without being taken to court, because it is required in order to maintain federal provider status
    Fact: Pentagon reviewed contract for delivery of fuel in Iraq and determined that it could be had cheaper through another contract. Fuel delivery ID/IQ awarded to separate contractor
    Fact: LOGCAP contracts with Halliburton and agreement award process was deemed "legal" by the GAO
    Fact: Halliburton and KRB continue to do business with the government under their LOGCAP and ID/IQ agreements

Net Revenue, Profit Margins and Profiteering of the Military Industrial/Oil Complex

Well now, we must get down to the nitty gritty of The Conspiracy. According to the CTs, the military industrial/oil complex is so strong and powerful that it no longer serves the government, but the government serves the industry. This is not a new argument. During the days of the Civil War, there was a small group that insisted that the Union's battle against the Secessionist states was illegal. That they had the right to separate from the US. That the northern, more industrialized states were only fostering this war because they wanted total access to the raw materials that the south provided.

During Vietnam, these same arguments returned, insisting that Dow industries, the maker of Nepalm, Boeing, Lockheed and any number of other companies had tricked the US into going to war in Vietnam so they could test their "new toys" and make money off of the US by legally selling it weapons during a time of war. Those were the years that the term "military industrial complex" arose.

Looking over the information provided, it is simple to see that the US military has always needed, and will always need, support from the civilian sector. The joint operations of civilian and military groups help insure the ability for the military to deploy and be supported without delay or failure.

In terms of profit, the jury is still out. The estimates for profit under these contracts have been between $300mil and $400mil. No actual figures have been released by Halliburton or KRB regarding the specifics of these operations. However, first quarter reports $5.5bn total revenues (including all services provided, not just government contracts) with a $76mil profit (appx 13%). Halliburton has indicated that the profit figures could change (more or less) depending on additional "task orders" and the mission on the ground. Halliburton's stock has not suffered and will certainly be a boon for it's stock holders. However, the jury is still out on that as well, as continuing problems with projects and government contracts erode buyers confidence in the stock.

If their current profit assumption holds true, they will have made appx a 10-14% profit off of $3.5bn in revenue. Respectable profit, but hardly "profiteering".

Then there are the issues of over billing or other contract abuse. Certainly, Halliburton has issues that need to be addressed. The recent incident in Iraq with the $6 mil kickbacks resulting in the firing of 2 managers and the $7mil in kickbacks from Nigerian politicians that also resulted in terminating 2 managers, needs to be highly scrutinized by Halliburton. Obviously, it has been a little too busy making money and not paying enough attention to it's corporate culture and ethics.

Looking at the contracts that Halliburton has had and the potential for future contracts, it is not in Halliburton's best interest to routinely try to defraud the government of money. The GAO is very careful about routinely reviewing contracts, claims and dollars spent (I know, my company provides Medical services for Medicare patients). They will come after you and the money. You will not be able to do business with the US government again. There is far too much money to be made through legal means to risk purposeful fraud.

Having said that, in every organization, there are those that will take advantage of a situation for their own sake. All companies must guard against this and take quick, severe action where ever it is found. All the way to the top, if necessary.

What is probably the driving force for the Halliburton/Iraq Oil issue, is not what Halliburton is making from the US government now, but what it could make at the fore front of contractors for Iraqi oil when the hand over has occurred. These are years and years of potential contracts and money. Something that is not widely known is the fact that companies holding contracts on oil fields prior to the invasion, have had their contracts "held" for review by the Iraqi Interim Government, however, these same companies still operate in Iraq under their pre-invasion contracts (how do you think oil is leaving Iraq now?) actually pumping and distributing the oil. These countries and companies include Russia, France, Japan, etc.

Halliburton did not take over any of these operations, but instead focused on rebuilding infrastructure (like pipelines, terminals, etc). While Halliburton might have a foot in the door above other companies by dent of their current proximity to the situation, it does not mean that Iraq has to, or will, remain with Halliburton to continue these reconstruction efforts when paid by Iraqi money. They are free to obtain bids from any company, from any country and decide, based on capability and economy, who is the best to assist them in their endeavors.

There is a serious misconception about Halliburton's roll in the Iraq oil program. The proof of which is readily ignored by the press for sensationalist titles about corporate ties to the White House, no bid contracts and conflicts of interest to name a few. They would rather perpetrate the myth of the "military industrial complex" than to actually do some investigative reporting, show the facts and let the people decide. It is blatantly obvious that "tabloid TV" has bled over into our news and we should be ashamed.

The Next Four Years: Pentagon Contracting

The next four years will be no different than the last 20 in regards to government contracting. LOGCAP will stay in place and civilian industry will continue to augment the military capabilities. The ability to project power, both military and diplomatic, will continue to be the onus of the United States. It is that ability which continues to insure our enemies, both real and perceived, understand that we are ready and able to respond to any situation at a moments notice.

Contractors, including Halliburton, Bechtel, Sysco Foods, etc will continue as the back bone of support. This is not a "neo-con" creation. It is the extension of a doctrine, adopted by both Democrats and Republicans, which states that the private sector is more capable of providing these services on a short term or world wide basis, than the government to retain and maintain military personnel for the same activity. It is also the doctrine that states that this ability by the private sector is less expensive, less costly than operations solely held and operated by the government.

Stay tuned for out next installment of "Busting Conspiracy Theories - Blood for Oil" where we will discuss the relationship of oil, economy and terrorism and it's world wide effects. We will try to have a brief section on the Vice President's Energy Task Force and how it is playing a role in the conspiracy, particularly, not making the information public and why the Supreme Court ruled that it did not have to be released under the Freedom of Information Act.

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