The
Bechtel Group, one of the world's biggest engineering
and construction companies, has dropped out
of the running for a contract to rebuild the
Iraqi oil industry, as other competitors have
begun to conclude that the bidding process favors
the one company already working in Iraq, Halliburton.
After
the United States Army Corps of Engineers quietly
selected Halliburton in the spring to perform
early repairs of the Iraqi oil business in the
aftermath of the war, other companies and members
of Congress protested that the work should have
been awarded through competitive bidding.
Halliburton's
role in the rebuilding has been under political
scrutiny because the company was formerly headed
by Vice President Dick Cheney. But the Bush
administration and the Corps of Engineers, which
is overseeing the Iraqi oil reconstruction effort,
have repeatedly said that Halliburton has no
inside track.
Preliminary
plans for a new contract, which industry executives
had thought might total $1 billion, were announced
late in June by the Corps of Engineers. The
bidding was meant, in part, to introduce competition
and a sense of fairness into the lucrative Iraqi
reconstruction market, an executive with a major
engineering concern said. Like many industry
executives, he would speak only on condition
of anonymity because his company does not want
to jeopardize its chances for future government
contracts.
But
in the last month, the corps, which is overseeing
the reconstruction efforts, has specified a
timetable for the work that effectively means
that the value of any contract companies other
than Halliburton could win would be worth only
about $176 million, according to Corps of Engineers
documents and executives in the engineering
and construction business.
Earlier
this week, Bechtel cited the timetable as its
reason for dropping out of the bidding. The
company now plans to deal directly with the
Iraqi oil ministry for future reconstruction
work, a spokesman, Howard N. Menaker, said.
Although
the oil ministry and the Army Corps of Engineers
nominally cooperate, industry analysts say the
Americans have the upper hand.
Officials
of the Corps of Engineers did not return numerous
phone calls yesterday seeking comment on the
contract. But last month, in response to questions
from other companies about Halliburton's role,
the corps said on its Web site that all potential
bidders had received the same information to
"eliminate any competitive advantage" Halliburton
might have from its involvement in the Iraqi
reconstruction work so far.
A
spokeswoman for Halliburton, Wendy Hall, would
not discuss whether its engineering unit, Kellogg
Brown & Root, would bid, saying only that "we
will evaluate the opportunity."
After
indicating in June that it planned to solicit
bids, the Corps of Engineers held a conference
of prospective bidders in Dallas on July 14.
Records of the meeting show that it was attended
by some of the most experienced engineering
and construction companies in the world - including,
besides Halliburton and Bechtel, Fluor, the
Parsons Group, Schlumberger and Foster Wheeler.
Among
those companies, only Fluor and Parsons have
indicated so far that they plan to make bids
by the Aug. 14 deadline. A winner will be announced
by Oct. 15, according to the Corps of Engineers.
At
the meeting and in the initial request for proposals,
the Corps of Engineers put forth what the industry
calls "an indefinite quantity, indefinite delivery"
contract. Industry executives said they were
told there could in fact be two principal contracts,
one for the oil industry in northern Iraq and
the other for the south. The value of each contract
could range from $500,000 to $500 million over
several years, according to the Corps of Engineers,
which cited the continued instability in Iraq
as a reason for keeping the terms so vague.
A
transcript of the July meeting shows that bidders
were concerned even then that Halliburton would
have a competitive advantage over other companies
because it was already working with the Corps
of Engineers in Iraq and helping to assess the
repairs needed at oil production sites and pipelines
after the war and years of an economic embargo.
The
corps denied that such a conflict of interest
existed, according to the transcript.
Over
the last three weeks, however, the Corps of
Engineers has provided additional information
to bidders indicating that by the July meeting,
it and Halliburton already had a fairly clear
understanding of the scope and financial value
of the work to be done and the timetable for
completing it.
The
newly released information indicates that a
week before the Dallas meeting, the Corps of
Engineers and Halliburton participated in a
large workshop in Baghdad that also included
representatives of the Iraqi oil ministry and
the ruling Coalition Provisional Authority to
draw up a detailed plan for rebuilding much
of the Iraqi oil industry by the end of March
2004.
A
week ago, the Corps of Engineers Web site carried
an amendment to the contract proposal, saying
that 220 projects, mostly at installations above
the ground, must be completed for Iraq's oil
production to reach prewar levels. The projects
are divided into three phases, with a total
estimated cost of $1.14 billion.
But
the corps notes in the plan that the first two
phases, which together would require about $967
million in investments, would have to be completed
by Dec. 31.
Halliburton's
competitors worry that if the winner of the
new contracts is not announced until Oct. 15,
that company could not even begin the work before
year's end. The only company that could do the
work based on that timetable is Halliburton,
its competitors say.
Only
the third and final phase, worth about $176
million and requiring the work to be completed
by March 31, could realistically be performed
by a Halliburton competitor, its rivals say.
"The
feeling at our company was `Yes, Halliburton
is the incumbent, but we had an opportunity
there,' " a representative of another engineering
concern said. "But if we had believed that from
the beginning we had no chance of winning this,
we wouldn't have bid."
Responding
to pointed questions about the timetable by
potential bidders, the Corps of Engineers' Web
site said the proposed schedule was "not intended
to change anything" about the bidding process.
For
its part, the Kellogg Brown & Root unit of Halliburton
will do whatever work the corps gives it, Ms.
Hall, the spokeswoman, said.
"It
is not known at this time how or if the future
award of another Corps of Engineers contract
will affect current K.B.R. operations or the
terms and conditions of its contract," she said.
The
first wave of Halliburton employees arrived
in Iraq in March, to oversee the extinguishing
of several oil well fires near Basra. Since
then, its responsibilities, under the direction
of the Corps of Engineers, have expanded from
its initial job of making emergency repairs.
Working
in Iraq has helped turn around Halliburton's
financial performance, its second-quarter results
showed. The company made a profit of $26 million,
in contrast to a loss of $498 million in the
period a year earlier. The company stated that
9 percent, or $324 million, of its second-quarter
revenue of $3.6 billion came from its work in
Iraq.
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