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Tuesday, June 21, 2005
US-based Halliburton, a major oil services company has been operating in Nigeria since 1959. Today you can turn on the newsor pick up a newspaper and chances are you will see or read a story on the company, and again chances are it won’t be a positive piece. Most recently the stories will be on the company’s operations in Nigeria and Iraq. Below is an interview with the company’s Executive Vice President, Andrew Lane, as published in THISDAY, commenting on these issues:
THISDAY–It has some problems on tax with the Federal Inland Revenue Service (FIRS), some of which have been subject of litigation in the law courts. There is the issue of alleged bribery of Nigerian officials involved in the NLNG project by the TSKJ consortium of which Halliburton was a member. Very recently the theft of its radio active sources which were later found in Germany also generated a lot of discussions about the company’s corporate behaviour. At the international scene, Halliburton which once had current US Vice President Dick Cheney as Chairman/ Chief Executive Officer is handling huge contracts in war-torn Iraq, which project has earned good money but also a few headlines in the US and elsewhere. Perhaps for all these and more, the House of Representatives recently passed a motion banning the Federal Government from further patronizing the company with fresh contracts. Executive Vice President and Chief Operating Officer of the company, Mr. Andy Lane was in Abuja Wednesday, to meet with President Olusegun Obasanjo and other top government officials to iron out issues relating to its operations in Nigeria. Lane who has worked for 24 years in Halliburton is an international business man with deep understanding of the operating environment in over 100 countries where Halliburton Group does one kind of business or the other.
You were in Nigeria and met with the Nigerian government. What did you discuss?
AL: We met with the President; there were members of parliament, members of Senate and many other officials of Nigerian government. We talked about issues resolving around grey areas of Halliburton’s operations in Nigeria. One was radio active sources, the second one is the TSKJ and the NLNG project and the whole issue. And the third one is the tax matter with FIRS which revolves around the Big Bowl project and interpretation of the new tax law. We discussed all three issues and we reached agreement on the issues. On the TSKJ project which has been on for years, we are going to support the Nigerian government to retrieve those funds as we have done already and we resolved the tax issue with the FIRS.
How did you resolve the tax issue with the FIRS and what are the details of the resolution?
AL: We appointed a tax consultant for the Big Bowl project who claimed he knew the Nigerian tax law extremely well to interprete the law. So we gave him money to pay the taxes with FIRS AND we paid him for the advice. There was no attempt to fix anything. We did not pay any consultant to defraud the Inland Revenue or to fix taxes in Nigeria We paid that guy to advice on Nigerian tax law and to determine what the tax liability was and instead of paying directly to Inland Revenue, we paid to this individual to pay the Inland Revenue. The people who took that decision did not follow due process. What he did was remit part of the money to Inland Revenue and pockets the rest. When we found out, we fired those guys who didn’t follow due process and then reimbursed Inland Revenue Service to the amount of money that he did not pay. The Economic and Financial Crimes Commission is following this guy to retrieve the amount of money that was not paid and Nuhu Ribadu has said that they have recovered some money but they are still going to court to prosecute this guy. We don’t even know whether this particular guy has been found. Some people have asked why an individual, why not a company? This guy had a company, at that particular time we felt that we were dealing with a company. The mistake the guys made was that they paid him instead of paying FIRS, may be there was a mistake or there was collusion but we fired the guys. We have gone to pay back FIRS and its done. The mistake was that we had a project team which said we wanted to handle every thing, we can handle tax, we can handle government relations, we are project team, we gave then too much autonomy.
Do you have tax consultants in every country where you operate?
AL: Yes we have many tax consultants to help us in our tax processes. We have Vice President tax in Houston who oversees our tax processes.
How much money did you pay to FIRS?
AL: We paid $3.2 million.
That covered which period? That covered the whole life of the Big Bowl project.
What loss did you incure?
AL: First of all we paid $3.2 million and we had to pay FIRS again, we had to double pay the tax.
The second issue, the corrupt practices in TSKJ?
AL: Really I want to talk a little bit about the history. It was Technip of France, MW Kelogg of the UK who got together and formed a consortium in the early 1990s. We met one of the consortium members and made us to understand the project was very complex, it was a grassroot project in Nigeria, Bonny island was not developed like it is today a very big plant that you are adding capacity to the plant. Back to the TSKJ, when the consortium won the contract in the early 1990s, they had to hire a consultant agent Trikestar which was an expert and they signed up a contract which was not abnormal at the time, to pay the agent 2 per cent of the revenue. A consultant agent, at that time was to give advice on Nigeria, open the doors set up meetings, to help you get certain things in Nigeria and that was in 1992 or ’94. And at the time there were discussions about the possibility of making payments and that is part of the documentation that we have turned over. We have not found proof that those kinds of payments were made but that payment was considered.
You have not found proof that Halliburton made payment.
AL: This was not our company but we have not found proof that payments were actually made to individuals in Nigeria.
But you paid your consultant agent?
AL: Yes, there was nothing illegal about that. The consortium signed a contract with the agent and paid him.
Why did you have to pay 2 per cent of such a huge amount?
AL: The nature of the project. It was a big project but that was not uncommon practice that agents get that range of 2 to 3 per cent payment. Agents have relationships, agents know areas of operation. This was the way MW Kelogg operated and that was long before Halliburton became part of the consortium.
Was it not clear to the consortium companies then that the money was being passed to officials?
AL: It was 1992-94 and that consortium won the first NLNG train in ’95. They built on it and won that project and then in 1998, Halliburton bought Dresser and Dresser had MW Kellog and Halliburton had Brown and Root. In November 1998, when Halliburton bought MW Kellog, we put our companies together, then we were construction companies then we formed Kellog, Brown and Root (KBR) That’s how KBR came to be. And that’s only in November 1998 that we did have anything to do with the joint venture.
The allegation is that Kellog company was involved in the bribe?
AL: I can’t speak for the consortium of which Halliburton was not a part of at that time.
So you don’t know what they did before 1998?
AL: Right.
But in 1998 the payment still continued?
AL: In 1998, it was on the contract because the contract had already been signed for the work in Nigeria, so the consortium was paying. We actually didn’t get to the details of that issue until much later,
When ?
AL: I don’t’ know the exact month. It was 2003 or 2004 time frame when we felt that there was a problem and that’s when we started investigation.
Why did you think there was a problem?
AL: I think we started investigation from the internal audit. Also, the French Magistrate had started investigation that there is something going on in Nigeria that worth to be investigated. So I don’t know the exact timing.
It was until 2003 that you felt that there was something wrong, but when you took over the company, you did a due diligence, didn’t you?
AL: It wasn’t a small company. When we bought Dresser, Halliburton was about $7billion revenue and Dresser was about $5billion and both companies were operating in about 100 countries and both had business in construction and doing oil service business so we put in two huge companies together you can’t look at every country.
What was the size of the contract in Nigeria?
AL: I don’t know, they were working on Train II in 1998. If you say it was $1billion, it was $1billion over four years so we owned $250 million and we don’t consolidate joint venture business so we were paid a quarter or 25 per cent of that. It was actually $60million revenue. In the first three years of a big model, you had put MW Kellog and Brown and Root together, you had to get a new management, you had to rationalize all the projects, what kind of service are you going to provide, what kind of business you are going to be in, what kind of business model you are going to follow because as I said earlier MW Kellog was very much driven by a joint venture project model, Brown and Root was very much into Engineering construction. So over those couple of years up to 1998, we allowed the construction business, we got much more heavily involved in Engineering business, then at the same time we got involved in the LNG plant. It was a very small project. In the middle of 1990s it became a very big project so we got many more of those joint ventures. There were quite a number of things we had to work on as a new company.
What did the President say?
AL: The president together with Nuhu (Ribadu) and the Attorney General recognized the assistance that Halliburton has provided. He asked that no money be paid again and that kind of thing. The President understands that we are just 25 per cent of the consortium and we cannot go there and say this cannot be done. We tried our best and what the President said to us go, you continue to help us we also have our own method of seeing how this money can be recovered because N112 million of that money has been frozen in Swiss bank account and a lot of it was as a result of documents that had been turned in by Halliburton, a member of this consortium. It is on record that more than any other member of the consortium, we have worked to help the Federal Government of Nigeria. The position of other members of the consortium is that we have a legal contract with agent we are talking about. We have gone out of our way and the Attorney General and Nuhu Ribadu and the President acknowledged this and said we know what you have done , continue to do that and we do what we can do to recover the money that has been stolen from Nigeria.
Why did the House of Representatives ban you?
AL: I think that is a bad question from THISDAY (laughter). They want to see the end of the investigation. But the problem with the investigation is that it is very complex, its going to take years. All the issues around TSKJ have been investigated by the Securities and Exchange Commission, the Department of Justice in the US, the French Magistrate, the Economic Commission here so it’s going to take a long time. I am sure the House of Representatives want a quick answer to this thing. The other thing is the Big Bowl tax issue. They want to know what happened there and the other thing is the radio active source which they misrepresented.
Let me tell you what happened about the source. We are a very responsible company and handle large radio active sources. We’ve been in Nigeria since 1959 and we never lost any one source until now. And the very important issue is that we have over 146 radio sources in Nigeria right now. At every given day for the services we run, we have a pact with a company and they use radio source in oil well formation. These two sources were in transit from a customer’s location and hadn’t come back to our operations and they were stolen. The source was probably stolen when somebody needed a scrap metal. They sold it to a scrap metal company here and that company sold it to a scrap metal company in Germany and then in Germany, they had to cross check before they use it and they found out it was stolen from Nigeria because every radio active source in the world has a unique serial number and they identified in international atomic energy data base and called Halliburton. We went to Germany, found the sources we had to take them back to Houston because that’s where we have a laboratory. We wanted to make sure they hadn’t tempered with the integrity of the sources and when we wanted to re-import them to Nigeria , we got them back in the country. We were victims of theft and we did everything right to recover and get them. But the story around us is that we are very irresponsible company handling radio active sources and that’s far from the truth.
Those who stole the radio active source, what happened to them?
AL: But we never found those who stole them. And the Economic and Crimes Commission is investigating they might come up with something but all we did was to recover the sources. They still might not have known that they were stealing radio active sources they were just interested in scrap metals. Stealing radio active sources is really a serious issue. What happened on the Big Bowl tax issue, the radio active source and the TSKJ issue then as a company we have a lot of headlines because we are a political watchdog in Iraq.
How did the company get into Iraq?
AL: There is a government services business, and it was very small part of the Halliburton business. The US government used to provide the services, when they mobilized troops somewhere they provided the services. If you move troops you needed housing, communications, so they used to do all their services themselves In the mid 1990s they decided to outsource it to the private sector. So we signed a contract that says anywhere in the world the military goes with 20,000 troops we will be there within 48 hours to provide housing, communications and often times there is a big misunderstanding. We never signed up to go to war. We signed up to provide basic services to a military operation. That has grown our business but also that has grown the headlines but really we have a contract for any where 20,000 troops are deployed. In Iraq, we had 250,000 troops and that became a big war issue and then at the same time we had re-election campaign of George Bush and Dick Cheney and then all the headlines about Dick Cheney, the former CEO and Chairman of Halliburton and then the working of that team together in 2004 in the war and that became a huge war story. So everybody that is against the war, the war protests and everybody that has a kind of business with government and there was a huge focus on how Halliburton. It was a wrong issue of our rights. I have 24 years with Halliburton, 23 years with the service group the other side of the business and in July 2004, I was asked to go over to KBR, to take over and improve its performance and resolve some of the issues that we had in KBR. I was running KBR up to the last half of 2004. Then in December 2004, we eliminated the position of CEO and Chairman position in the service group at KBR and handed over their responsibilities to a Chief Operating Officer. The good thing and the change is that we run all the daily operations at KBR, from the way we approach business the way things were done. That was the last time we were dealing with these issues we talk about KBR in Iraq and one of the issues we were getting a lot of headlines is the single largest civilian build up ever in the history of the world of a contract with a civilian contractor. In January 2003, we had 200 employees in Kuwait, Iraq and Afghanistan that were working for the company and now we have 50,000. We have 25,000 employees and 25,000 contractors directly working for us within Iraq and Afghanistan. No company in history has ever built a project with 50,000 and also you were doing in the middle of a war zone. Some of the headlines we get for not having right people, for not having the controls in place is related to the fact that there was nothing in Iraq. We had to build up the whole communications system, we had to build over 80 bases and it was just in the middle of war, you don’t have freedom of movement. So what we did was to provide a lot of logistics. We are one of the biggest construction companies in the world so to do what we want to do we must be able to move quite a number of people around Iraq.
How many people did you lose in Iraq?
AL: We lost 69 employees and contract employees and we had 260 injured.
Any regret about it?
AL: That’s a pretty difficult question. From just the human life aspect you never just say any business is worth losing so many lives and this is a business the company decided to be into it without knowing it will run into a war. Actually, we have done work for the military all the way from World War II and we do a lot of work for the UK and not just the US Defense Department. You have to decide whether you want to do Government business, then sometimes you are faced with very hard considerations you have to decide as a company whether that is the kind of business you want to do. As part of what we are going through, people want to know whether KBR is going to continue to be part of Halliburton or not. Right now we have to decide what Halliburton will be in the next 10 years, what kind of company do we want to be, what kind of business we want to do and one of the issues we want consider is government service business.
Are you going to be there for a long time?
AL: I don’t know how long we are going to there. If I say tomorrow we want to go out, it will take years to get another company in there because there is none of the companies with 50,000 people and everybody knows is a very harsh environment So we have to complete our contract. We have a legal contract, we have to complete it. We have to really complete the mission but then we have to really sit back and decide.
Are you taking new contracts?
AL: No, that is one contract anywhere the Army goes in the world.
Do you still want to do business in Nigeria?
AL: Yes, we have been in Nigeria since 1959 and we are going to be here 2059, I am sure.
It seems there are problems, the tax people and everybody is messing you up, why don’t you pull out?
AL: It is really an industry issue. If you create a new tax environment, businesses will react to that. We have to raise prices of services because we have to return a profit. If you are operating in an environment with a very high tax, the only thing we are going to do as a company is to isolate those countries so that you don’t pay or you have to raise your prices and get acceptable return after tax. Nigeria is a very important energy market. If the government fixes the tax to something crazy, any company would question a great deal. So I don’t think the moves we are making is anything different.
So essentially Nigeria is good for business?
AL: It’s difficult but we have been here for a long time, we know how to do business in Nigeria. I am convinced we are going to work through these issues; we are going to put them behind us.
Which other parts of Africa do you operate?
AL: We are big in Algeria, we are very big in Angola and Egypt,?
I have just been to Egypt and Algeria.
How do you do business in Angola given the corruption there?
AL: Angola is a hard place to do business; Algeria is a hard place to do business. I will just say every country is difficult to do business. Every country presents unique challenges. In virtually every country we are operating, some have more problems than others
You have to inspect processes, you have got to have a lot of oversight, you can’t let local people get too much of autonomy and you have to get people moving you can’t keep people in one place for too long that is where there is control and you give them new environment. They also get wise about how things are done in different countries. But the biggest thing you have to do is to make sure that you have controls and processes. In all our operations, we have two things and that’s legal and accounting aspects of our operations and that’s the way for a good check and balances so accounting checks on operations and legal checks on operations and you have the right structures there to oversee the business. We need some level of transparency and this issue of Extractive Industries Transparency Initiative (EITI), the world asking for that level of accountability helps companies operating in those kinds of environment. The anti-corruption movement here, the transparency is quite good for the industry, its good for business; it creates a good environment so that everyone knows what rules he has to follow.
Are things changing in Nigeria then?
AL: Yes, things are changing in Nigeria.
How?
AL: I think its becoming much more transparent, much more accountability. There are a lot of regulations and I think that it’s good for the industry.
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