Cheney company 'running Iraqi oil industry'

Halliburton, the company formerly run by US vice-president Dick Cheney, has been granted a far broader role in Iraq than previously disclosed and is already operating oil fields in the country, the US Army admitted yesterday.

Kellogg Brown and Root, a Halliburton subsidiary, is pumping oil from fields in the north and south of the country, despite earlier claims that its contract with the US government was for fighting oil fires, a spokesman for the Army Corps of Engineers told the Guardian.

The bigger role "was part of the original contract but we haven't emphasised that because we thought it would be handled by a [future] contract," Corps spokesman Scott Saunders said. "But due to the needs of the Iraqi people, that option has been exercised."

About 125,000 barrels a day were being produced, he said, and used entirely for domestic purposes.

The revelation came after Henry Waxman, a Democratic congressman, published correspondence in which the Army said KBR's emergency contract allowed for its involvement in "operation of facilities and distribution of products" as well as firefighting.

The existence of the contract, awarded without competition before the war as part of an existing deal between KBR and the US military, was only made public in March.

But General Robert Flowers' letter also disclosed that similar terms were expected to be included in a follow-up contract for which the Bush administration is preparing to invite bids. The news means that the winning bidder might end up playing a central role in running Iraqi oil production - something Washington has repeatedly said it would leave to a future Iraqi administration. The value of that future contract has been reported at $600m (£375m).

"We will limit orders under this [current] contract to those services required prior to the availability of competitively awarded contracts," Gen Flowers wrote.

Wendy Hall, a Halliburton spokeswoman, said that the company had made the scope of the contract clear in March, when it issued a release that mentioned "providing for the continuity of operations of the Iraqi oil infrastructure". She added in an email yesterday: "We are proud to help restore Iraq's oil infrastructure and are committed to help refurbish these needed services."

But Mr Waxman accused the US government of releasing information about the contract in "dribs and drabs". "Only now, over five weeks after the contract was first disclosed, are members of Congress and the public learning that Halliburton may be asked to pump and distribute Iraqi oil under the contract," he wrote. That arrangement "and the planned successor contract raise significant questions about the administration's intentions regarding Iraqi oil".

The congressman said he was "puzzled as to why the Corps is actively preparing a solicitation for a long-term contract to produce and distribute Iraqi oil. That contract would clearly seem to contradict [White House spokesman] Mr [Ari] Fleischer's statement that 'the oil fields belong to the people of Iraq'."

In April, the Army said that Halliburton stood to make up to $7bn from its contract, though it stressed at the time that this was a worst-case scenario figure and that only $50.3m had actually been paid. The month before, the Guardian revealed that Mr Cheney is still receiving annual payments of up to $1m from Halliburton, in the form of "deferred compensation" from his golden handshake.

Ms Hall said KBR might be bid for the follow-up contract. The company "would comply with a bid request if we determined the opportunity was a good business decision," she said.