Webdiary - Founded and Inspired by Margo Kingston

As U.S. Vice President Cheney's star falls from the political firmament, the man who paved the way for Halliburton's expansion into Australia and Asia is left to clean up the mess the company has left behind. Feted as an engineering masterpiece when opened, in the wake of the worldwide financial meltdown the Adelaide to Darwin railway has become a white elephant whose shadow falls along the length of the country's backbone and can be seen all the way from Washington.

Nestled almost appropriately between a funeral parlour and a railway station, railway consortium Freightlink's office would seem too small a monolith to cast such a shade. However, when you consider who set the company up, who was at its head, and who was behind it, international interest in Freightlink's self-controlled collapse isn't surprising. The answers are: Halliburton, Dick Cheney and Malcolm Kinnaird.

In 1997, the year that Cheney visited Australia as Halliburton's CEO, the company bought what it planned to be its Asia-Pacific nexus for the princely sum of 44 million Australian dollars. As the company morphed from Kinhill Australia to Halliburton Australia to KBR Australia, long-term director Kinnaird departed the board to serve as a KBR consultant and as a director of a prominent local cement-making company. He was to become chairman of Freightlink's board.

As Halliburton's boss came down to lend a hand at the gala opening in 2004, the company's website proudly proclaimed how they'd "led the delicate financial negotiations between the three governments, the financial backers and the consortium that saw the private sector contribute about 60 per cent of the project cost ($850 million of the $1.4 billion project)." The deal, said Halliburton, won two international finance awards.

The consortium that created the railway, ADrail, was a joint venture between Macmahon Holdings (10%), KBR (50%), Barclay Mowlem (20%) and John Holland (20%).

In 2006 Freightlink's shareholders comprised of Kellogg Brown & Root (36.3%), Barclay Mowlem (13.9%), John Holland (11.4%), National Asset Management (7.3%), Macmahon (7.0%), Colonial First State (6.3%) and six other shareholders including investment funds and the Northern and Central Aboriginal Land Councils. According to Leonie Wood's report in today's Age, not much has changed since then.

KBR reported to the U.S.' S.E.C. that:

In 2006, we recorded $58 million of impairment charges related to an investment in a railway joint venture in Australia. This joint venture has sustained losses since the railway commenced operations in early 2004 and incurred an event of default under its loan agreements by failing to make an interest and principal payment in October 2006. The write-down of our investment in this joint venture in the first and third quarters of 2006 resulted from lower than anticipated freight volume, a slowdown in the planned expansion of the Port of Darwin and the joint venture's unsuccessful efforts to raise additional equity from third parties

The company's media release explained how KBR had copped $US 30 million in charges (more than it had spent in acquiring Kinhill) "related to an equity investment scheme in an Australian railroad and reduced activities for Government and Infrastructure activities in Iraq."

KBR's global Vice President for Infrastructure Andrew Fletcher was the chief engineer for the project. He has now departed the company to head Defence SA, reportedly Australia's only State Government operated Defence Department

Freightlink issued a media release yesterday to explain its decision to hand the business over to administrators:

Although the transaction was approved by all shareholders and a majority of mezzanine debt holders the board could not proceed with the sale because a small group of mezzanine debt holders would not consent. The minority group had requested that senior banks make some contribution to the mezzanine debt holders. This was not acceptable to the senior banks as the offer from the preferred bidder was well in excess of the senior debt

Whichever banks were involved in the "second tier" funding of Freightlink, it hardly seems coincidental that the financing partnership has turned sour just as the stockmarkets of the world began to collapse. Not that any of this affects Cheney or Halliburton.

On spinning-off KBR from its parent company, Halliburton CEO Dave Lesar moved their headquarters to Dubai. Last week the company announced the creation of a new operations base in Singapore.

And Cheney? His Vice Presidency may expire in January. but his Halliburton stock options do not.

After watching his business bloom after being assimilated into Cheney's empire, it would be understandable if Malcolm Kinnaird was feeling a little lonely and neglected at the moment. Surely, though, somebody will take care of him?

Epilogue, June 2009 

In last weeks Queen's Birthday Honours, Kinnaird was named a Companiion of the Order of Australia, the local equivalent of a knighthood.  The railway is still in bankruptcy, with a buyer searched for but not yet found.  Kinnaird, according to The Australian, still acts as a consultant for KBR.