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Mission Iraq: Profit Margins

Aired December 12, 2003 - 12:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, CNN ANCHOR: But up first, the money and of rebuilding Iraq and new concerns raised about a well-connected government contractor. The Defense Secretary Donald Rumsfeld is defending Halliburton amid suggestions that the company overcharged the government for some of the billion dollars of work it received without competitive biding.
Rumsfeld spoke just a short time ago here in Washington.

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, DEFENSE SECRETARY: There was no overpayment, to any company. And in fact, there is a fairly normal process going on where they submit bills from their subcontractors and for their own. It gets discussed and debated. We have got auditors that crawl all over these things.

And what you are reading about in the paper is not an overpayment at all. It is a disagreement between the United States government -- it may, I am not an expert, I shouldn't be speaking about this, but my understanding is it may be a disagreement between the company and the Department of Defense.

(END VIDEO CLIP)

BLITZER: Before Rumsfeld's comments, unnamed Pentagon officials were quoted as saying "the purported overcharging by Halliburton was a subject of deep concern."

Let's begin our coverage over at the White House. Our senior correspondent John King is going to explain to our viewers, make some sense out of this dispute. Is it a dispute -- John?

JOHN KING, CNN SENIOR WHITE HOUSE CORRESPONDENT: Wolf, what it is is part of an auditing process in which officials over at the Pentagon are saying that they are getting a bad deal. The U.S. government is getting a bad deal.

What they are not saying is that Halliburton is price gouging or profiteering from this. What the Pentagon has found in an audit of the contract is that Halliburton is not getting the best deal for gasoline supplies. This involves buying gas and sending it from Kuwait into Iraq. Halliburton is paying $2.27 a gallon, according to its contract. Well the Pentagon says it should be able to buy gas for about $1.18 a gallon.

So what the Pentagon is saying is this is bad management, in its view, by Halliburton. That Halliburton is not making a profit, a company in Kuwait appears to be making a profit. But the Pentagon's position, Wolf, is that if gasoline is available at a cheaper price on the market, Halliburton should go and find it and not charge the higher price to the Pentagon. They think that's what this is.

They are going back and forth with Halliburton on it. But, obviously, it always has political overtones, because Vice President Cheney was the former CEO of Halliburton. So whenever the issue of these contracts come up, Democratic critics of the administration suggest perhaps there is something afoul.

BLITZER: And, John, as you know, the issue is coming up at a time -- at a time when the contracts for subcontracts, contracts for prime business deals to reconstruct Iraq is a subject of great controversy. Close allies, France, Germany, Russia, Canada for that matter, barred from trying to bid for some of these contracts. What is the fallout today?

KING: Well the fallout right now is it appears that this dispute over the contracts and about $20 billion in U.S. money is going to make it more difficult for the administration to win pledges from France, from Germany, from Russia, to either forgive completely or significantly reduce billions of dollars in debts racked up by Iraq during the days of Saddam Hussein.

The president's new envoy, James Baker, will be making rounds to those key capitals next week. Those countries are outraged. They say the Bush administration appears to be trying to pick a fight again with them over this contracting dispute. Even the president's chief ally today, the British Prime Minister Tony Blair, said that well the American government certainly has the right to decide how to spend American taxpayer dollars, but Mr. Blair saying he hopes a compromise can be reached on this. Wolf, Secretary Baker will have some difficult diplomacy when he begins his travels next week.

BLITZER: But some could argue, though, that he does have some leverage. He can tell France, Germany, Russia, the others, if you reduce or eliminate the debt, you know what, we might reconsider your ability to bid for these contracts.

KING: And that is one interesting subplot. The White House will not come out and say so directly. But the Press Secretary Scott McClellan says -- quote -- "circumstances could change about the rules for these contracts if they see a significant contribution to the post-war effort." One thing the White House says clearly, people say in private conversations here, if those countries made major commitments on the debt issue and if they would stop criticizing U.S. policy, perhaps the rules might change a bit.

BLITZER: All right. John King at the White House. John, thanks very much.

Let's get some more perspective on all of this right now. Joining us, two noted experts on international affairs, CNN analyst, Ken Pollack. He is Director of the -- of Research at the Saban Center at the Brookings Institute here in Washington. Wendy Sherman, former counselor to the State Department, also here in Washington, a former lady (ph) and still a top aide to Madeleine Albright. Would that be fair?

WENDY SHERMAN, THE ALBRIGHT GROUP: Good to see you. Principal of The Albright Group -- Wolf.

BLITZER: All right.

SHERMAN: Thank you.

BLITZER: Want to make sure we get a good plug in for that.

SHERMAN: Great, thank you.

BLITZER: Thanks to both of you. Let's start, Wendy, with you, and let's talk about the Halliburton issue first. You know -- you know a lot about government contracts, how this is done. Halliburton has always had a pretty good reputation as a government contractor.

SHERMAN: I think Halliburton has had a decent reputation, and Brown & Root Group, Kellogg Brown & Root Group, the subcontractor we're talking about here. But what happened here is Halliburton got a huge sole source contract. They have already received billions of dollars.

And now they are bringing in fuel from Kuwait. They are extensively charging the U.S. government twice what government of Turkey is getting for the gas out of Kuwait. And it is raising all kinds of questions about the contracting process. And really, the underlying issue here is, is this really about an Iraq that is made in America for American interests, for American dollars and for American oil?

BLITZER: Well is that what you are suggesting?

SHERMAN: Well I am suggesting that it is raising those questions and the administration is going to have to answer those questions. Because for us to be successful in Iraq, we need to internationalize it, we need to turn Iraq over to the Iraqis as quickly as possible.

I think Ambassador Bremer understood that when he came here in February to push the president to change the policy. But we are not moving quickly enough, and we aren't moving in the smart and right ways. And certainly this decision, to say that France, Russia and Germany can't compete for contracts, Canada can't compete for contracts, is not taking away the made in America label.

BLITZER: All right. We're going to get more on that in a second. But let -- picking up on the Halliburton, Ken, you were just in Iraq. You know it is a dangerous situation. There aren't a whole lot of companies like Halliburton, which have the subsidiaries to do -- to support the U.S.-led occupation, to help the Iraqis rebuild their country. There aren't a whole lot of companies that could do that.

KENNETH POLLACK, CNN ANALYST: Right, that's certainly correct, although there are some other ones out there. Siemens is another big one, but of course they are a German firm, and that gets into exactly the issue that I know we're going to come to in just a minute.

For me, the biggest problem out there is not the fact that Halliburton is doing that, but it's the appearance and the way that it looks to the Iraqis. Wendy is absolutely right about the need to internationalize it. That's one of the issues out there.

But the other problem is that we have not yet convinced the Iraqis that we are doing this for their benefit. And out in Iraq, what you hear still constantly are a lot of people who are very fearful that we really are just there for the money, we're just there for the oil, we're looking to rob Iraq of its oil. And this kind of story, true or not, plays extraordinarily badly on the streets of Baghdad.

BLITZER: But at least in the short term, it is costing the U.S. taxpayer billions, billions. Maybe $150 billion to liberate Iraq. How can they legitimately claim the U.S. is seeking to rob their money, when in fact, it is costing the U.S., Wendy, billions and billions of dollars to do, so far since March, what the United States has done?

SHERMAN: Well I think that the Iraqi people understand that. But nonetheless, Oxford Research, which is a London-based company, just did a poll in Iraq. Three quarters of Iraqis do not have confidence in either the Provisional Authority or the Provisional Iraqi Council. So we have a terrible confidence problem going. And as Ken said, stories like this just undermine our efforts to get things on the right track.

BLITZER: Well I would be a little skeptical of that poll.

SHERMAN: Sure.

BLITZER: All polls in Iraq right now...

SHERMAN: Sure.

BLITZER: ... I would -- I would basically...

SHERMAN: Absolutely. But it is...

BLITZER: ... throw those polls out,...

SHERMAN: Sure.

BLITZER: ... because I don't think they have a whole lot of significance.

SHERMAN: Well.

BLITZER: Let's get to some e-mails. And I'll let you handle this one first, Ken, Mike in Indiana. "France, Germany, Russia opposed us in Iraq because of their extensive economic ties to Saddam Hussein's regime. They should have realized from the beginning that they would lose all existing contracts and that the new Iraq would not be responsible for Hussein's" -- Saddam Hussein's -- "debts."

POLLACK: Let me start by saying, I personally sympathize with Mike's point. You know I think any American would sympathize with the basic sentiment behind it. But there is a bigger issue, and it is the issue that you and John King were getting at, which is that whether or not they are participating in Iraq, we desperately need buy in, particularly from France and Russia, to agree to either reschedule or better still, forgive the debt.

Now the bid that you have laid out, the possibility that what the Bush administration is really doing here is kind of throwing down the gauntlet to France and Russia and they are going to be willing to walk that back and later say all right, you want in on the contracts, fine, forgive Iraq's debt. If that's the case, that might not be so bad. It's unclear that that really is what they are up to.

And I would say that even if it is what they are up to, I think they went about it very much the wrong way. Because what we have seen time and again is the rhetoric from the Bush administration so turns off the electorates in all of these countries. And we do need to remember that these are democracies, even dysfunctional ones, like Russia. It so turns off the electorates that it makes it very hard for their governments to come around and strike a compromise with us, even when we want to.

BLITZER: Wendy, you think this was trying to help James Baker and his effort to reduce the debt, especially from France, Russia, Germany, to Iraq, by giving him some leverage, giving him this carrot, you know what, go ahead and eliminate the debt, which they are never going to get repaid by any new Iraqi government no matter what, in any case. But at least now they will have an option of saying you know what, we will eliminate the debt, and then their companies can compete for these contracts.

SHERMAN: I basically think that story was a White House attempt to make lemonade out of lemons. If one wants to use that kind of leverage diplomatically, you start by doing it privately. You have a conversation with the heads of state, which the president did, and you say I'm sending Jim Baker. And I want to be clear with you, very privately, I really need you to take this seriously, I need you to hear him out, come up with a plan. You are not going to get repaid anyway and I will put you in the contracts. We will make sure that we all come together, but I really need you to do this for me. You use a carrot; you don't use a stick in public.

BLITZER: All right. Here is an e-mail from Evie in Massachusetts. "In regards to President Bush saying that only countries that risk lives in Iraq should get to bid on reconstruction contracts: What did -- what did places like Afghanistan, Palau, Rwanda, Tonga, Solomon Islands contribute to the war? If all those countries sent personnel risking their lives, how come we did not hear about it?"

POLLACK: Well, this is just it, in many cases, the numbers of personnel being sent are tiny. The Defense Department says that there are 32 nations providing 24,000 countries. If you just break that up by simple averages, about -- yes, troops, excuse me, that's about 850 troops per country. Now, obviously, some were contributing a lot more than others. There are some who are only contributing a few dozen. It is not a lot in any case.

And again, I get -- I think that this gets to the fact that the administration is so angry over the fact that France, Russia, Germany didn't come on board with the war, even though their diplomacy was so hamphased (ph) to begin with, that they are, to some extent, cutting off their nose despite their face.

BLITZER: Do you have any doubt, I asked this question to a guest yesterday, and let me get your thought, Wendy, that if the situation were reversed, if France went to war and the U.S. said don't go to war because we are not going to support you, we hate this idea of your going to war, but France did it anyway. They won the war. And then they are rebuilding some country that they were involved in, that they would have let the United States bid for contracts, U.S. companies to bid against French companies? Do you think France would even consider that notion?

SHERMAN: I think France might or might not consider the notion. But you know,...

BLITZER: You do think they might consider it?

SHERMAN: Well they might consider the notion if there was enough pressure. If France wanted to make sure the United States was on board for getting the job done, when they needed us, whether it might have been in Africa, in many instances, where they need us to come in and help us, in Vietnam after the French had to leave Vietnam and the United States came in, so they might.

But the point here, Wolf, is that as Senator Frist, the Majority Leader of the Senate, said, these countries are helping us get things done all around the world we need to get done. Whether it is through NATO in Afghanistan, whether it's helping on HIV/AIDS in Africa, we are all in this world together.

BLITZER: Because you know, Ken, I have heard several administration supporters, officials say to me over the past 48 hours since this became a flap, that why should the United States always turn the other cheek to these countries like France and Germany and Russia? Why should the United States always say, OK, never mind, we will do -- we'll be soft, we'll do whatever you want? You hated us going into this war, you didn't support us going into this war, but go ahead, make some money for your French companies, your German companies. Why should the United States always blink and let these other countries go and do whatever they want?

POLLACK: Look, Wolf, I think we have to separate our own feelings as human beings from what is in the best interest of this country. You and I and Wendy can all stand here and say, we really don't like the way that the French and the Russians and the Germans have handled themselves. I think they have handled themselves disgracefully both before and after. But that is ultimately irrelevant. We have vital national interests at stake. We have got to get the reconstruction of Iraq right. And getting the reconstruction of Iraq right means getting that debt forgiven. Whether or not they are going to get paid, it kills Iraq's credit rating.

BLITZER: Because their argument is the U.S. are patsies. No matter what these other countries do, the U.S. will always let them off the hook. And you have got to get tough with these countries, because the only thing they understand, Wendy, is a tough, firm posture, not always giving in.

SHERMAN: I absolutely believe we should be tough and we should be firm. The question is, do you do that publicly with a sledge hammer up front, do you do that privately and try to make them pay a price for what they have done?

BLITZER: Right.

SHERMAN: There is a way to do it and there is a wrong way to do it.

BLITZER: Let's get a caller. JR, are you in Texas?

CALLER: Yes, sir, I'm in Dallas. I was going to ask how active was Halliburton in Kuwait? And is there any other company who is more qualified to provide the specialty services that they provide in these circumstances?

BLITZER: Well I was...

CALLER: The pyroflagulations (ph) and landscaping and extra terrestrial negotiation.

BLITZER: Well I was in Kuwait, spent five weeks in Kuwait during the war, and I can tell you they were active. Halliburton had all sorts of contracts with the U.S. military of a couple of hundred thousand troops in the northern part of Kuwait and Halliburton was providing through their subsidiaries all sorts of services, vital services for the U.S. military. The answer is, and maybe you know the answer, are there any other U.S. companies that have that global capability to beef up the U.S. military with these kinds of services that could compete effectively with Halliburton, do you know?

POLLACK: There just aren't that many in the world, not just in the United States. In the world, there are only a very small number. That is why...

BLITZER: Because they argue at the Pentagon that Halliburton has a lock on -- there is no other company that can really do everything that Halliburton -- do you know any other company that could do it?

SHERMAN: I don't know of another American company. They are specialized. And Kellogg, Brown & Root is very specialized. We certainly used them all during the Clinton administration.

The point here isn't whether they are the right people, it is what is the process used to get there, was there a competitive bid? And if there wasn't time for a competitive bid, is there the kind of oversight that is necessary for what they are doing?

BLITZER: All right, here is another question from Gerald in California. "Sending James Baker to France, Germany and Russia to ask for help in Iraq -- and then denying these same countries the opportunity to build on -- bid on rebuilding contracts is a dangerous dichotomy, further isolating the U.S. from the rest of the world." It is further isolating the U.S. from the rest of the world or sending a message, Ken, to the rest of the world, you don't treat us nicely, we are not going to treat you nicely?

POLLACK: Well honestly, I think the rest of the world has figured that out already with this administration. And I think that the point that Wendy made before is absolutely the right one. There isn't anything wrong, per se, with what the administration is doing. And that's been the case for a lot of what the administration has done. But there are real problems with how they are doing it. There are ways to do this that are much more damaging to U.S. diplomacy than others. And the way that they have picked is a -- it is potentially a very damaging approach.

BLITZER: Do you sense, Wendy, there is a significant split in administration foreign policy right now or is all the top leaders basically on the same page?

SHERMAN: I think that we see some splits within the administration in the policy on Iraq, the policy in North Korea, how we are approaching the Middle East conflict, how we are dealing with Europe. On one hand, the president says we want to bring things together. Secretary Powell makes a trip to Europe and tries to tie knots. And then we have an incident like this. No, I think there are a lot of splits still going on about who is in charge. And I think at the end of the day, it is the president of the United States.

BLITZER: And he is clearly in charge. He is making these decisions. He is supporting the decision, not to let France, Germany, Canada and Russia participate. Some question about Canada right now, because, apparently, in a phone call conversation he had with Jean Chretien, he suggested well maybe Canada would be allowed to bid. So that question is still out there. On the question of split, is it Secretary of State Powell, Ken, as far as you can tell, on the one hand, Rumsfeld and Cheney on the other hand?

POLLACK: Certainly that is one of the splits out there. But with regard to the Iraq policy itself, probably the more important split is between Bremer, L. Paul Bremer, and the CPA, the Coalition Provisional Authority, in Baghdad, and folks back in Washington, particularly in the Pentagon, who have very different ideas about how they want the reconstruction of Iraq to proceed.

And you will remember that in early November, Bremer was summoned back to Washington. There was a knock down, drag out fight. And Bremer basically convinced the president that his route on Iraqi reconstruction was the right one.

I'll tell you, I think he is right. I think that the proposal that Bremer and the CPA came up with is probably the best that we are going to do in this situation. I think if the president sticks to that plan, there is every reason to believe that we can get reconstruction in Iraqi right. If we don't stick to that plan, I think things could start to slide into chaos very quickly.

BLITZER: All right. Ken Pollack, on that note, thanks very much. Wendy Sherman, always good to have you on the show as well.

SHERMAN: Thank you. Great to be here.

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