* IG: State was not biased in its Keystone review
* Says State kept TransCanada "at arms length"
* Makes some suggestions for improvements
By Timothy Gardner and Roberta Rampton
WASHINGTON, Feb 9 An internal watchdog on Thursday cleared the U.S. State Department of conflict of interest allegations in its review of the stalled Keystone XL crude oil pipeline.
Lawmakers concerned about the environmental impact of TransCanada's pipeline requested the State Department's Inspector General take a closer look at the players involved in reviewing the project, which President Barack Obama has since put on ice for further environmental study,
In a 58-page report, Harold Geisel, State's deputy inspector general, said he found the department "did not violate its role as an unbiased oversight agency" in reviewing the Canada-to-Texas pipeline.
"TransCanada's influence was minimal," the review said.
Obama blocked the project last month, citing the need for further review of its route as the line would have traversed sensitive lands and an aquifer in Nebraska.
But the absolution of alleged conflicts shores up the argument for Republicans in Congress, who are trying to speed approval for the pipeline.
Republicans in both the Senate and House of Representatives have introduced legislation to try to fast-track the stalled project, which has become a prominent issue ahead of the 2012 elections.
But the report is unlikely to quell criticism from lawmakers and environmental groups who worry about pollution created by Canadian oil sands crude, and who want to stop the project.
SOME IMPROVEMENTS NEEDED
Environmentalists had claimed that the State Department was influenced by the company's lobbyists including Paul Elliott, who had served as the national campaign manager for Secretary of State Hillary Clinton, during her 2008 run for president.
The review concluded however that the department had kept TransCanada's officials "at arm's length" as it met with a wide range of groups holding different views.
TransCanada said that it had been confident its conduct would be ruled to be above-board.
"We are pleased that the latest claims put forward by activists who are opposed to Keystone XL are unfounded, as we knew they would be," spokesman James Millar said in an email.
Still, the Inspector General suggested some improvements, and said State could have done more to verify that there was no conflict of interest between Cardno Entrix, the contractor hired to manage the environmental review, and TransCanada.
"The findings confirm once again why the project should not be rubber-stamped for approval, despite efforts by Republicans in Congress to do just that," said Senator Bernie Sanders, an independent from Vermont who asked for the review.
Steve Cohen, a Democratic congressman from Tennessee who has led opposition to the project, noted the report found State Department did not have enough expertise and experience to review the project, and did not consider alternative routes.
"This report undermines the integrity of the project's review and underscores the point that the pipeline should not be approved based on a shoddy, unscientific review," said Cohen.
The Inspector General did suggest improvements to the way TransCanada conducts environmental reviews, including hiring a staff member with expertise.
The State Department has already begun to make the suggested changes and will have them in place within two months, a senior official said.