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U.S. auditor’s report slams Iraq oilfield restoration projects

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by Daily Commercial News

A US$722 million project to restore Iraq’s oil production facilities was undermined by weak management, contractor mistakes and Iraqi neglect, U.S. auditors say in a new report similar to many others examining the country’s reconstruction.

WASHINGTON

A US$722 million project to restore Iraq’s oil production facilities was undermined by weak management, contractor mistakes and Iraqi neglect, U.S. auditors say in a new report similar to many others examining the country’s reconstruction.

Released January 13, 2009, the report from the office of the special inspector general for Iraq reconstruction points to security concerns, postwar looting and the shoddy shape of the oil network as primary contributors to the cost of the contract awarded to KBR Inc. in January 2004.

As if this were not a challenging enough climate, the effort, administered by the U.S. Army Corps of Engineers, was hampered by a lack of direction, the report says. Cost overruns and frequent contract changes led to work being delayed or cancelled.

Nearly US$563 million of the contract costs were paid for by the U.S. The rest came from the Iraqis, who need a vibrant petroleum sector to drive their economy.

Yet the special inspector general’s report says there are signs the Iraqis are not properly maintaining the rebuilt oil facilities and equipment. For example, gas plants in southern Iraq were renewed by KBR. A final step in the process was for the Iraqis to install rotors for a turbine gas compressor. That hasn’t been done.

“As a result, gas production at the plant is below goal, and a portion of the U.S. investment is being wasted,” the report says.

Oversight of the oil infrastructure contract suffered from too little stability among personnel. Since the contract was awarded, 13 government contracting officers served an average of four months, terms too short to keep proper watch.

The effort became so complicated that a separate company, Foster Wheeler, was paid $8.4 million to help run the program. The report indicates there was disagreement among government officials about how well Foster Wheeler performed.

KBR, the largest defense contractor in Iraq, has been heavily criticized by congressional Democrats who say the company has used its ties to former Vice President Dick Cheney to gouge U.S. taxpayers. While the report credits KBR for much of the work it did on the oil reconstruction contract, it also gives more ammunition to the company’s opponents.

KBR was not able to stick to cost and schedule goals, the reports says, and failed to track its expenditures accurately.

And in January 2007, the government notified KBR of concern over the use of substandard piping material and a fraudulent material certification by one of the company’s suppliers. A month later, KBR submitted a plan for fixing the problem. It also said it had referred the matter to the Army’s Criminal Investigation Command. But the special inspector general said it contacted the Army and it had no record of any inquiry.

KBR spokeswoman Heather Browne said the difficult conditions in Iraq in early 2004 “impacted KBR’s performance.” Yet the company was still able to improve Iraq’s oil facilities, she said.

In comments printed along with the report, the Army Corps of Engineers generally agreed with the findings, but said the report doesn’t emphasize enough the dangerous environment in which the work was being done.

Associated Press

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