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BLM Office Made Improper Deals With Helium Refiners, Report Says

By Derek Kravitz
Washington Post Staff Writer
Friday, August 22, 2008

An office of the Bureau of Land Management, which supplies much of the country's crude helium, entered into sweetheart deals with a group of private refiners, potentially costing taxpayers more than $100 million, according to an inspector general's report released yesterday.

The Department of Interior report faulted the BLM's Amarillo, Tex., field office for making improper deals with four refiners who extract crude helium from a pipeline that stretches from a field northwest of Amarillo to central Kansas. The agency allowed the refiners -- who operate behind a private shell company they formed in July 2000 -- to net huge profits by overcharging for construction equipment, the report found.

Investigators said the arrangement could more than double the government's equipment costs by the time the contracts expire in 2015. The company was allowed to negotiate the favorable terms in private meetings, where overhead costs were adjusted to decrease the company's costs, and build much of the equipment that is used to extract helium, the inspector general's office found.

As a result of that arrangement, the federal government must renew its sole-source agreements with the company, auditors said.

The report did not name the private company involved in those agreements, but BLM officials confirmed yesterday that Amarillo-based Cliffside Refiners L.P. was the subject of the investigation.

Inspector General Earl B. Devaney's office said it began investigating the helium deals after a whistleblower flagged a "less-than-arms-length relationship" between government workers in the Amarillo field office and helium contractors. The inspector general's office cut short its review of the program, saying "immediate action is paramount," according to a letter Tuesday from Devaney to BLM Director James L. Caswell.

Helium was a key ingredient in the World War II-era development of the atom bomb, surveillance blimps along U.S. borders and weather observation balloons. Now it is an irreplaceable component of federal space shuttle operations, weapons development programs, welding and magnetic resonance imaging.

According to the report, a former Amarillo field office manager said the bureau agreed to the deals in violation of contracting and procurement rules "because it did not want to fight the refiners," who had lobbied Congress on behalf of a 1996 law that privatized helium refinement and production. The report blamed the violations in part on a lack of oversight by the bureau's New Mexico office and Fluid Minerals Division.

Tony Herrell, deputy state director of the bureau's minerals program, which oversees the helium program in New Mexico, said his office is taking the report "very seriously," but cautioned that the findings has not been independently substantiated.

"We want to bring in a team of experts in contracting and agreements to do a thorough review, so we can do the right thing," Herrell said.

Herrell noted that the agreements with Cliffside Refiners are based on existing antitrust law and have been "mutually beneficial" for the government and the company.

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