Mired in Corruption—Kellogg, Brown and Root in Nigeria

In 1998, the large Texas-based oil and gas service firm, Halliburton, acquired Dresser Industries. Among other businesses, Dresser owned M.W. Kellogg, one of the world’s largest general contractors for construction projects in distant parts of the globe. After the acquisition, Kellogg was combined with an existing Halliburton business and renamed Kellogg, Brown and Root, or KBR for short. At the time, it looked like a good deal for Halliburton. Among other things, Kellogg was involved in a four-firm consortium that was building a series of liquefied natural gas (LNG) plants in Nigeria. By early 2004, the total value of the contracts associated with these plants had exceeded $8 billion. In early 2005, however, Halliburton put KBR up for sale. The sale was seen as an attempt by Halliburton to distance itself from several scandals that had engulfed KBR. One of these concerned allegations that KBR had systematically overcharged the Pentagon for services it provided to the U.S. military in Iraq. Another scandal centered on the Nigerian LNG plants and involved KBR employees, several former officials of the Nigeria government, and a mysterious British lawyer named Jeffrey Tesler. The roots of the Nigerian scandal date back to 1994 when Kellogg and its consortium partners were trying to win an initial contract from the Nigerian government to build two LNG plants. The contract was valued at around $2 billion. Each of the four firms held a 25% stake in the consortium, and each had veto power over its decisions. Kellogg employees held many of the top positions at the consortium, and two of the other members, Technip of France and JGC of Japan, have claimed that Kellogg managed the consortium (the fourth member, ENI of Italy, has not made any statement regarding management). The KBR consortium was one of two to submit a bid on the initial contract, and its bid was the lower of the two. By early 1995, the KBR consortium was deep in final negotiations on the contract. It was at this point that Nigeria’s oil minister had a falling out with the country’s military dictator, General Abacha, and was replaced by Dan Etete. Etete proved to be far less accommodating to the KBR consortium, and suddenly the entire deal looked to be in jeopardy. According to some observers, Etete was a tough customer who immediately began to use his influence over the LNG project for personal gain. Whether this is true or not, what is known is that the KBR consortium quickly entered into a contract with Tesler. The contract, signed by a Kellogg executive, called on Tesler to obtain government permits for the LGN project, maintain good relations with government officials, and provide advice on sales strategy. Tesler’s fee for these services was $60 million. Tesler, it turned out, had long-standing relations with some twenty to thirty senior Nigerian government and military officials. In his capacity as a lawyer, for years Tesler had handled their London affairs, helping them to purchase real estate and set up financial accounts. Kellogg had a relationship with Tesler that dated back to the mid-1980s, when it had employed him to broker the sale of Kellogg’s minority interest in a Nigerian fertilizer plant to the Nigerian government.