Rebuilding Iraq
Status of Funding and Reconstruction Efforts Gao ID: GAO-05-876 July 28, 2005Rebuilding Iraq is a U.S. national security and foreign policy priority and constitutes the largest U.S. assistance program since World War II. Billions of dollars in grants, loans, assets, and revenues from various sources have been made available or pledged to the reconstruction of Iraq. The United States, along with its coalition partners and various international organizations and donors, has embarked on a significant effort to rebuild Iraq following multiple wars and decades of neglect by the former regime. The U.S. effort to restore Iraq's basic infrastructure and essential services is important to attaining U.S. military and political objectives in Iraq and helping Iraq achieve democracy and freedom. This report provides information on (1) the funding applied to the reconstruction effort and (2) U.S. activities and progress made in the oil, power, water, and health sectors and key challenges that these sectors face.
As of March 2005, the United States, Iraq, and international donors had pledged or made available more than $60 billion for security, governance, and reconstruction efforts in Iraq. The United States provided about $24 billion (for fiscal years 2003 through 2005) largely for security and reconstruction activities. Of this amount, about $18 billion had been obligated and about $9 billion disbursed. The State department has reported that since July 2004, about $4.7 billion of $18.4 billion in fiscal year 2004 funding has been realigned from large electricity and water projects to security, economic development, and smaller immediate impact projects. From May 2003 through June 2004, the Coalition Provisional Authority (CPA) controlled $23 billion in Iraqi revenues and assets, which was used primarily to fund the operations of the Iraqi government. The CPA allocated a smaller portion of these funds--about $7 billion--for relief and reconstruction projects. Finally, international donors pledged $13.6 billion over 4 years (2004 through 2007) for reconstruction activities, about $10 billion in the form of loans and $3.6 billion in the form of grants. Iraq had accessed $436 million of the available loans as of March 2005. As of the same date, donors had deposited more than $1 billion into funds for multilateral grant assistance, which disbursed about $167 million for the Iraqi elections and other activities, such as education and health projects. The U.S. reconstruction effort in Iraq has undertaken many activities in the oil, power, water, and health sectors and has made some progress, although multiple challenges confront each sector. The U.S. has completed projects in Iraq that have helped to restore basic services, such as rehabilitating oil wells and refineries, increasing electrical generation capacity, restoring water treatment plants, and reestablishing Iraqi basic health care services. However, as of May 2005, Iraq's crude oil production and overall power generation were lower than before the 2003 conflict, although power levels have increased recently; some completed water projects were not functioning as intended; and construction at hospital and clinics is under way. Reconstruction efforts continue to face challenges such as rebuilding in an insecure environment, ensuring the sustainability of completed projects, and measuring program results.
GAO-05-876, Rebuilding Iraq: Status of Funding and Reconstruction Efforts
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Report to Congressional Committees:
July 2005:
Rebuilding Iraq:
Status of Funding and Reconstruction Efforts:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-876]:
GAO Highlights:
Highlights of GAO-05-876, a report to congressional committees:
Why GAO Did This Study:
Rebuilding Iraq is a U.S. national security and foreign policy priority
and constitutes the largest U.S. assistance program since World War II.
Billions of dollars in grants, loans, assets, and revenues from various
sources have been made available or pledged to the reconstruction of
Iraq. The United States, along with its coalition partners and various
international organizations and donors, has embarked on a significant
effort to rebuild Iraq following multiple wars and decades of neglect
by the former regime. The U.S. effort to restore Iraq‘s basic
infrastructure and essential services is important to attaining U.S.
military and political objectives in Iraq and helping Iraq achieve
democracy and freedom.
This report provides information on (1) the funding applied to the
reconstruction effort and (2) U.S. activities and progress made in the
oil, power, water, and health sectors and key challenges that these
sectors face.
What GAO Found:
As of March 2005, the United States, Iraq, and international donors had
pledged or made available more than $60 billion for security,
governance, and reconstruction efforts in Iraq. The United States
provided about $24 billion (for fiscal years 2003 through 2005) largely
for security and reconstruction activities. Of this amount, about $18
billion had been obligated and about $9 billion disbursed. The State
department has reported that since July 2004, about $4.7 billion of
$18.4 billion in fiscal year 2004 funding has been realigned from large
electricity and water projects to security, economic development, and
smaller immediate impact projects. From May 2003 through June 2004, the
Coalition Provisional Authority (CPA) controlled $23 billion in Iraqi
revenues and assets, which was used primarily to fund the operations of
the Iraqi government. The CPA allocated a smaller portion of these
funds”about $7 billion”for relief and reconstruction projects. Finally,
international donors pledged $13.6 billion over 4 years (2004 through
2007) for reconstruction activities, about $10 billion in the form of
loans and $3.6 billion in the form of grants. Iraq had accessed $436
million of the available loans as of March 2005. As of the same date,
donors had deposited more than $1 billion into funds for multilateral
grant assistance, which disbursed about $167 million for the Iraqi
elections and other activities, such as education and health projects.
The U.S. reconstruction effort in Iraq has undertaken many activities
in the oil, power, water, and health sectors and has made some
progress, although multiple challenges confront each sector. The U.S.
has completed projects in Iraq that have helped to restore basic
services, such as rehabilitating oil wells and refineries, increasing
electrical generation capacity, restoring water treatment plants, and
reestablishing Iraqi basic health care services. However, as of May
2005, Iraq‘s crude oil production and overall power generation were
lower than before the 2003 conflict, although power levels have
increased recently; some completed water projects were not functioning
as intended; and construction at hospital and clinics is under way.
Reconstruction efforts continue to face challenges such as rebuilding
in an insecure environment, ensuring the sustainability of completed
projects, and measuring program results.
Funding Distribution by Sector of $18.4 Billion for Iraq Relief and
Reconstruction:
[See PDF for image]
Note: Other includes democracy, education, governance, agriculture,
transportation, telecommunications, health, employment, privatization,
and administrative costs.
[End of figure]
What GAO Recommends:
www.gao.gov/cgi-bin/getrpt?GAO-05-876.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Joseph Christoff at (202)
512-8979 or christoffj@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Multiple and Diverse Funding Sources Support Iraq Reconstruction and
Government Operations:
Some Progress Achieved in Select Sectors While Facing Significant
Challenges:
Conclusions:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Comments from the U.S. Agency for International
Development:
Appendix III: GAO Contact and Staff Acknowledgments:
Figures:
Figure 1: Transition of Reconstruction Management from DOD Authority to
State Authority:
Figure 2: Funding Distribution by Sector of the $18.4 Billion for Iraq
Relief and Reconstruction in the Fiscal Year 2004 Emergency
Supplemental:
Figure 3: Iraqi Oil Production, Export, and Revenue, June 2003 through
May 2005:
Figure 4: Daily Electricity Produced in Iraq, January 1, 2004-June 30,
2005:
Abbreviations:
bpd: barrels per day:
CERP: Commander's Emergency Response Program:
CPA: Coalition Provisional Authority:
DFI: Development Fund for Iraq:
DOD: Department of Defense:
IAMB: International Advisory and Monitoring Board:
IMF: International Monetary Fund:
IRFFI: International Reconstruction Fund Facility for Iraq:
IRMO: Iraq Reconstruction and Management Office:
PCO: Project Contracting Office:
PMO: Project Management Office:
UN: United Nations:
USACE: U.S. Army Corps of Engineers:
USAID: U.S. Agency for International Development:
Letter July 28, 2005:
Congressional Committees:
Rebuilding Iraq is a U.S. national security and foreign policy priority
and constitutes the largest U.S. assistance program since World War II.
In October 2003, the World Bank and United Nations reported that in the
summer of 2003 most Iraqis had limited or no access to essential
services, that water supplies were contaminated, and that the health
system was overburdened. In addition, the lack of basic infrastructure
and services, particularly in the electricity sector, had contributed
to a lack of security in various parts of the country.[Footnote 1] As
of March 31, 2005, billions of dollars in grants, loans, assets, and
revenues from various sources had been made available or pledged to the
reconstruction of Iraq. The U.S. effort to restore these services is
important to attaining U.S. military and political objectives in Iraq
and helping Iraq achieve democracy and freedom.
The reconstruction of Iraq is occurring in a difficult environment.
Looting and sabotage of many infrastructure facilities and offices were
pervasive after Operation Iraqi Freedom and have continued to varying
degrees. In addition, according to senior military officials, the
insurgency in Iraq has grown in size, complexity, and intensity and has
affected reconstruction priorities. Infrastructure in such areas as the
oil, water, and electricity sectors has been subject to attacks. In
addition, workers have been threatened, the ability to safely transport
materials has been compromised, and access to work sites has been
hindered. Another complicating factor in the reconstruction effort,
according to Coalition Provisional Authority (CPA) and U.S. officials,
has been the state of some Iraqi infrastructure, which was more
severely degraded than officials anticipated or initial assessments
indicated and was exacerbated by post-2003 conflict looting and
sabotage.
This report is part of our effort under the Comptroller General's
authority to monitor Iraq reconstruction and is being addressed to you
because of your committee's jurisdictions. It provides a broad overview
of funding made available for the relief and reconstruction of Iraq,
U.S. relief an reconstruction activities for select sectors in Iraq,
and challenges associated with these sectors. This report does not link
the funding to program results, nor does it evaluate the quality of
program results. Specifically, this report provides information on (1)
the funding applied to the reconstruction effort and (2) U.S.
activities and progress made in the oil, power, water, and health
sectors and key challenges that these sectors face.
To address these objectives, we obtained and analyzed records, reports,
and data from government officials and contractors, as well as multiple
funding databases. We also examined reports of other oversight entities
that performed reviews related to contract management, internal
controls, and oversight of some CPA and U.S. relief and reconstruction
activities. We interviewed U.S. government and former CPA officials and
contract personnel in the United States and Iraq. Although we did not
travel to Iraq to make project site visits during this period due to
security concerns, we interviewed U.S. and Iraqi officials via
teleconference and, when possible, in person when these officials
traveled to the United States. (See app. 1 for details on our scope and
methodology.) We conducted this part of our review from September 2004
through May 2005 in accordance with generally accepted government
auditing standards.
Results in Brief:
As of March 2005, more than $60 billion had been pledged or made
available from U.S. appropriations, Iraqi resources, and international
sources for Iraq's reconstruction and government operations. Of this
amount, the United States provided about $24 billion from fiscal year
2003 through 2005, largely for reconstruction activities in security
and essential services. As of March 2005, about $18 billion of this
amount provided by the United States had been obligated and about $9
billion disbursed for activities including infrastructure repair of the
electricity and oil sectors; infrastructure repair, training, and
equipping of the security and law enforcement sector; and CPA and U.S.
administrative expenses. Over the course of the reconstruction effort,
this funding has been realigned several times from large-scale
infrastructure projects in electricity and water to meet immediate
needs in security and economic development and to fund smaller, more
visible reconstruction projects. Since July 2004, the United States has
reportedly reallocated about $4.7 billion of the $18.4 billion fiscal
year 2004 emergency supplemental among the various sectors, as
priorities have changed. Iraqi revenues and assets--which totaled about
$23 billion in cumulative deposits from May 2003 through June 2004--
have largely funded Iraqi government operations. A smaller portion of
these funds, approximately $7 billion, was allocated for relief and
reconstruction projects, primarily for the import of refined fuel
products, security, regional programs, and oil and power projects.
Finally, most of the $13.6 billion pledged by international donors for
reconstruction assistance from 2004 through 2007 is in the form of
loans--about $10 billion. The remainder is in the form of grants to be
provided multilaterally or bilaterally. As of March 2005, Iraq had
accessed $436 million of the available amount pledged in loans. Donors
have deposited grants of more than $1 billion into a funding mechanism
for multilateral assistance to Iraq, which had obligated $683 million
and disbursed about $167 million to individual projects as of March
2005. These funds were used primarily for reconstruction activities in
public and essential services, including support for the Iraqi
elections and infrastructure rehabilitation, capacity building, and
governance and public sector reform projects.
The United States has undertaken many relief and reconstruction
activities in the oil, power, water, and health sectors in Iraq and has
made some progress; however, multiple challenges confront each sector.
The U.S. program has accomplished activities focused on restoring basic
essential services, such as rehabilitating oil wells and refineries to
restart Iraq's oil production and export, increasing electrical
generating capacity by reportedly adding about 1900 megawatts of
generation capacity to Iraq's power grid, restoring some water
treatment plants, and reestablishing Iraqi health services by providing
vaccines and completing initial health clinic rehabilitation and
training projects. However, restoring and sustaining Iraq's crude oil
production and export capacity have been slower than originally
planned, and these levels were lower in May 2005 than in March 2003.
Similarly, Iraq's overall power generation through May 2005 was lower
than before the 2003 conflict, although power generation exceeded this
level in the latter part of June 2005. Progress in the water sector is
difficult to measure, and some completed water construction projects
are not functioning as intended. Finally, health care projects to
expand the availability of basic health care, such as constructing
facilities and providing medical equipment, are under way as of May
2005. Reconstruction efforts continue to face challenges, such as
rebuilding in an insecure environment, ensuring the sustainability of
projects to be turned over to the Iraqis, and measuring program
results.
In commenting on a draft of this report, the U.S. Agency for
International Development (USAID) disagreed with our statement that
agency metrics for tracking water projects do not show how the U.S.
program affects the Iraqi people. USAID stated that the agency tracks
increases in the amount of water treated and estimates increases in
beneficiary numbers. However, these metrics do not address the quality
of water and sanitation services in Iraq, which may hinder the U.S.
ability to gauge progress toward its goal of providing essential
services. The Departments of Defense and State and USAID also provided
technical comments.
Background:
From May 2003 through June 2004, the CPA was the UN-recognized
coalition authority led by the United States and the United Kingdom
that was responsible for the temporary governance of Iraq and for
overseeing, directing, and coordinating the reconstruction effort.
Within the CPA, the Project Management Office (PMO) was established to
provide prioritization and management of projects and contract support
of U.S.-funded reconstruction projects. In May 2004, the President
issued a National Security Presidential Directive, which stated that
after the transition of power to the Iraqi government, the Department
of State (State) through its ambassador to Iraq would be responsible
for all U.S. activities in Iraq, with the exception of U.S. efforts
relating to security and military operations, which would be the
responsibility of the Department of Defense (DOD). On June 28, 2004,
the CPA transferred power to a sovereign Iraqi interim government, and
the CPA was officially dissolved. At that time, the U.S. role--under
DOD leadership--changed from being part of the coalition-recognized
authority for temporary governance of Iraq to supporting the sovereign
Iraqi government as an ally and friend, under State leadership.
Management authority and responsibility of the U.S. reconstruction
program also transitioned at that time from DOD to State.
The Presidential Directive also established two temporary offices: the
Iraq Reconstruction and Management Office (IRMO) to facilitate
transition of reconstruction efforts to Iraq; and the Project and
Contracting Office (PCO) to facilitate acquisition and project
management support for U.S.-funded reconstruction projects. Iraq-based
personnel from both offices are under U.S. chief of mission authority
in Baghdad, although the U.S. Department of the Army funds, staffs, and
oversees the operations of the PCO. IRMO is a State Department
organization and its responsibilities include strategic planning,
prioritizing requirements, monitoring spending, and coordinating with
the military commander. Under the authority of the U.S. Chief of
Mission in Baghdad, the PCO's responsibilities include contracting for
and delivering services, supplies, and infrastructure funded by $12.4
billion of the $18.4 billion for Iraq relief and reconstruction in the
fiscal year 2004 emergency supplemental passed by the
Congress.[Footnote 2] (See fig. 1.):
Figure 1: Transition of Reconstruction Management from DOD Authority to
State Authority:
[See PDF for image]
[End of figure]
Other U.S. government agencies also play significant roles in the
reconstruction effort. For example, USAID is responsible for projects
to restore Iraq's infrastructure, support healthcare and education
initiatives, expand economic opportunities for Iraqis, and foster
improved governance. The U.S. Army Corps of Engineers (USACE) provides
engineering and technical services to the PCO, USAID, and military
forces in Iraq, including planning, design, and construction management
support for military and civil infrastructure construction.
Multiple and Diverse Funding Sources Support Iraq Reconstruction and
Government Operations:
As of March 2005, U.S. appropriations, Iraqi revenues and assets, and
international donor pledges totaling about $60 billion had been made
available to support the relief and reconstruction and government
operations of Iraq. U.S. appropriations of more than $24 billion for
relief and reconstruction activities have been used largely for
security and essential services--including the repair of
infrastructure, procurement of equipment, and training of Iraqis--and
have been reallocated over time as priorities have changed.[Footnote 3]
Iraqi revenues and assets, which totaled about $23 billion in
cumulative deposits, were turned over to the new Iraqi government in
June 2004 and have largely funded the operating expenses of the Iraqi
government. International donor funds have been primarily used for
public and essential service reconstruction activities; however, most
of about $13.6 billion pledged over a 4-year period is in the form of
potential loans that have not been accessed by the Iraqis.[Footnote 4]
U.S. Appropriated Funding Focused on Infrastructure Repair and Training
of Forces; Funding Has Been Reallocated as Priorities Changed:
As of March 2005, of the $24 billion in appropriated U.S. funds made
available for relief and reconstruction in Iraq from fiscal years 2003
through 2005, about $18 billion had been obligated and about $9 billion
had been disbursed.[Footnote 5] These funds were disbursed for
activities that include infrastructure repair of the electricity and
oil sectors; infrastructure repair, training, and equipping of the
security and law enforcement sector; and CPA and U.S. administrative
expenses. Many current U.S. reconstruction efforts are consistent with
initial efforts the CPA developed before June 2004. As priorities
changed, particularly since the transition of power to the Iraqi
Interim Government, the U.S. administration reported that it had
reallocated about $4.7 billion of the $18.4 billion fiscal year 2004
emergency supplemental among the various sectors. (See fig. 2.) These
reallocations were reported in October 2004, January 2005, and April
2005. As of May 2005, the administration was assessing whether
additional reallocations would be needed for short-term reconstruction
efforts.
Figure 2: Funding Distribution by Sector of the $18.4 Billion for Iraq
Relief and Reconstruction in the Fiscal Year 2004 Emergency
Supplemental:
[See PDF for image]
Note: Other includes democracy, education, governance, agriculture,
transportation, telecommunications, health, employment, privatization,
and administrative costs.
[End of figure]
In October 2004, the administration reported that it had reallocated
appropriated funds from the $18.4 billion fiscal year 2004 emergency
supplemental based on a review of all U.S. reconstruction funding
priorities. The administration reported that it had reprogrammed about
$1.8 billion to security and law enforcement and about $1.2 billion to
economic and private sector development and governance activities.
These funds were reallocated from future water and electricity
infrastructure projects. In addition, about $450 million in the oil
sector had been reprogrammed from refined fuel imports to oil
reconstruction projects. This review, prompted by both the transition
from the CPA to a new State Department-led mission and a significant
increase in insurgent activity in mid-2004, determined that the
deteriorating security situation, the desire of the interim Iraqi
government to quickly expand its security forces, and the need to
create more jobs for the Iraqi people demanded a significant
reallocation of funding.
In January 2005, the administration reported that it had reallocated
$457 million. The administration reported that $246 million of this
amount was for smaller projects to provide immediate and visible
essential services in four cities--Fallujah, Samarra, Najaf, and Sadr
City--affected by coalition battles with the insurgents. According to
agency documents and officials, these services included critical health
needs, power distribution, and potable water projects. This funding was
shifted from longer term power generation, transmission, water, and
hospital projects. The remaining $211 million of the reallocated funds
was redistributed within the electricity sector from longer range
transmission projects to more immediate needs, such as spare parts
procurements, turbine upgrades, and repair and maintenance programs.
In April 2005, the administration reported that it had reallocated $832
million--$225 million for job creation activities and $607 million for
essential services projects and programs. To fund these efforts, the
embassy cancelled five longer term potable water projects and future
energy projects. The $225 million reallocation for job creation
activities primarily includes activities in targeted Baghdad
neighborhoods and through USAID's Community Action Program throughout
Iraq.[Footnote 6] Of the $607 million reallocation for essential
services, $444 million is for the electricity sector, including
operations and maintenance projects at a number of strategic power
plants to reportedly enhance the sustainability of ongoing projects,
the completion of several electricity generation and rehabilitation
projects, and the coverage of cost growth due to increased security
costs in the electricity sector. The remaining funds allocated for
essential services programs include funds for gas/oil separation
plants, operations and maintenance projects for water treatment plants
recently turned over to the Iraqis, and prison and courthouse security
projects.
Iraqi Revenues and Assets Funded Iraqi Government Operations with
Limited Focus on Reconstruction:
Iraqi funds, which totaled about $23 billion in cumulative deposits
from May 2003 through June 2004, are a mix of revenues and assets that
the CPA used primarily to support the Iraqi budget for operating
expenses, such as salary payments and ministry operations. A smaller
portion of the $23 billion--approximately $7 billion--was allocated for
relief and reconstruction projects, primarily for the import of refined
fuel products, security, regional programs, and oil and power projects.
These Iraqi funds came from revenues in the Development Fund for Iraq
(DFI)[Footnote 7] and vested and seized assets from the previous Iraqi
regime. Of the $23 billion, nearly $17 billion had been disbursed as of
June 28, 2004.
The DFI was initially comprised of Iraqi oil proceeds, UN Oil for Food
program surplus funds, and returned Iraqi government and regime
financial assets.[Footnote 8] From May 2003 to June 2004, nearly $21
billion had been deposited, $17 billion allocated, and $14 billion
disbursed. The CPA turned DFI stewardship over to the new Iraqi
government in June 2004.[Footnote 9] The majority of the funding had
been used for Iraqi ministry operations, including salaries and other
Iraqi budget support. Iraqi oil revenues continued to be deposited into
the DFI after June 28, 2004. According to State Department estimates,
about $18 billion in oil revenues had been deposited into the DFI since
the transition from the CPA to the interim Iraqi government, as of May
31, 2005.
The vested assets were former Iraqi regime funds frozen and held in
U.S. financial institutions after the first Persian Gulf War and
subsequently vested by the President in the U.S. Treasury in March
2003.[Footnote 10] In addition, assets of the former regime were seized
by coalition forces within Iraq. These combined vested and seized
assets totaled about $2.65 billion and had largely been obligated and
disbursed by the time the CPA transferred authority to the Iraqi
Interim Government.[Footnote 11] The vested and seized assets were used
primarily on ministry operations, salaries, and regional programs, such
as the Commander's Emergency Response Program.[Footnote 12]
International Reconstruction Assistance Supports Public and Essential
Service Reconstruction Activities, but Pledges Are Mostly Loans:
International donors' funds have been largely used to support public
and essential service reconstruction activities; however, most of
donors' pledges are in the form of loans that have not been accessed by
the Iraqis. International donors have pledged about $13.6 billion in
support of Iraq reconstruction over a 4-year period from 2004 through
2007. Of this amount, about $10 billion, or 70 percent, is in the form
of loans, primarily from the World Bank and International Monetary Fund
(IMF). Donors have pledged the remaining $3.6 billion as grants, to be
provided multilaterally or bilaterally.
Of the $10 billion in loans pledged over the 4-year period, about $1
billion was pledged to be provided to Iraq in 2004. As of March 31,
2005, Iraq had accessed $436 million of the available amount. The IMF
provided a $436 million emergency post-conflict assistance loan to Iraq
in September 2004 to facilitate Iraqi debt relief. According to a State
Department official, the Iraqi government is currently in discussions
with the World Bank and the government of Japan about lending programs,
which total $6.5 billion.
Of the $3.6 billion in grants pledged over the 4-year period, about
$700 million was pledged to be provided to Iraq in 2004, some of which
would be provided multilaterally and some bilaterally. The established
mechanism for channeling multilateral assistance to Iraq is the
International Reconstruction Fund Facility for Iraq (IRFFI), which is
composed of two trust funds, one run by the United Nations Development
Group and the other by the World Bank Group. As of March 31, 2005, more
than $1 billion had been deposited into these funds; the largest
deposits were made by Japan ($491 million), the European Commission
($227 million), and the United Kingdom ($127 million). Of that amount,
about $683 million had been obligated and about $167 million had been
disbursed to individual projects.
Of the $167 million disbursed by the IRFFI, the UN trust fund had
disbursed about $155 million for projects in 11 categories, as of March
2005. Currently, the largest portion of UN trust fund disbursements has
been made to activities that support the electoral process (about $87
million), education and culture (about $25 million), health (about $13
million), and infrastructure and housing (about $12 million). The
remaining disbursements have supported activities in refugee
assistance; agriculture, water resources, and the environment; food
security; governance and civil society; water and sanitation; poverty
reduction and human development; and mine action. Funds for projects
are disbursed to participating UN agencies for implementation. The
World Bank trust fund has disbursed $12 million for projects that
include capacity building, textbooks, school and health rehabilitation,
water and sanitation projects, and private sector development. The
World Bank is implementing a capacity-building project, and the Iraqi
ministries are implementing the remaining projects.
Donors have also provided bilateral assistance for Iraq reconstruction
activities; however, complete information on this assistance is not
readily available. As of April 6, 2005, the State Department had been
able to identify about $1.3 billion--of the $13.6 billion pledged--in
funding that donors had provided as bilateral grants directly to Iraqi
institutions, implementing contractors, and non-governmental
organizations for reconstruction projects outside the International
Reconstruction Fund Facility for Iraq. As we reported in June 2004, the
United States was working with the Iraqis to develop a database for
tracking all bilateral commitments made to reconstruction activities in
Iraq. One year later, this database for tracking all donor assistance
projects in Iraq remained under development with assistance from the
United States and the UN.[Footnote 13] In March 2005, the UN gave Iraqi
staff of the Ministry of Planning and Development Cooperation a 7-day
training session in the use and management of this database. The UN
plans to provide technical and management support to the ministry and
additional training over the next year. According to a State Department
official, the database was planned to be operational in time for the
IRFFI Donor Committee meeting in Amman, Jordan, which was held July 18-
19, 2005.
Some Progress Achieved in Select Sectors While Facing Significant
Challenges:
The U.S. efforts to reconstruct Iraq's essential services sectors have
shown some progress to date yet continue to face significant
challenges. Of the approximately $9 billion of appropriated funds the
United States had disbursed for reconstruction, as of March 31, 2005,
approximately $3.1 billion had been spent on restoring Iraq's oil,
electricity, water and health sectors.[Footnote 14] Overall, the U.S.
program in these sectors has accomplished activities that focused on
essential services restoration, such as refurbishing and repairing oil
facilities, increasing electrical generating capacity, restoring water
treatment plants, and expanding the availability of basic health care.
Initial activities to restart the oil infrastructure have largely been
completed; however, activities to sustain production and export levels
have been slower than originally planned and these levels remained
below pre-March 2003 conflict capacity, as of May 2005. Progress has
been made in rehabilitating electric facilities and generation capacity
has been increased. Overall production levels for the electricity
sector were lower in May 2005 than before the March 2003 conflict,
although power generation exceeded this level for the latter part of
June 2005. While the water and sanitation program has made some
progress toward completing a reduced scope of activities, this progress
has been difficult to measure and some completed projects have not
functioned as intended. The U.S. program to expand basic health care
has made progress in helping reestablish health services in Iraq, but
larger health infrastructure projects remained under way as of May
2005. Implementation of the U.S. reconstruction program in these
sectors continues to face challenges, such as security, sustainability,
and the measurement of program results.
Restoring and Sustaining Iraq's Crude Oil Production and Export Have
Been Slower Than Originally Planned:
U.S. efforts in the oil sector have focused largely on (1) restoring
Iraq's oil infrastructure to prewar production and export capacity, (2)
delivering refined fuels for domestic consumption, and (3) developing
oil security and pipeline repair teams. More than $5 billion in U.S.
and Iraqi funds has been made available for these efforts. Progress to
date on U.S. activities has been slower than planned due to a number of
factors, including the security environment and difficulties associated
with funding, project prioritization, contractor reporting, the
contract management processes, and Iraq's political transitions. The
oil sector faces challenges that include establishing effective
infrastructure security forces and pipeline repair teams; addressing
issues related to domestic refined fuel supply and consumption; and
defining the oil sector's organizational structure, foreign investment
framework, and energy priorities.
Background:
Iraq's economy is highly dependent on revenues from crude oil export,
and its population is dependent on having sufficient refined fuels for
power generation, cooking, heating, and transport. According to the
State Department, Iraq's oil export revenues are expected to account
for at least 90 percent of Iraq's projected 2005 budget revenues. This
revenue is essential to Iraq's ability to provide for its own needs,
including reconstruction. Iraq's oil infrastructure is an integrated
network that includes oil fields and wells, pipelines, pump stations,
refineries, gas/oil separation plants, gas processing plants, and
export terminals and ports. This infrastructure has deteriorated
significantly over past decades due to war damage, inadequate
maintenance, and the limited availability of spare parts, equipment,
new technology, and financing. U.S. agency documents estimated Iraq's
2003 actual pre war crude oil production at 2.6 million barrels per day
(bpd) and export levels at 2.1 million bpd.[Footnote 15] Considerable
looting after Operation Iraqi Freedom and continued attacks on crude
and refined product pipelines have contributed to Iraq's reduced oil
production and export capacities.
U.S. Activities and Projects:
About $2.7 billion of U.S. appropriated funds and $2.7 billion in Iraqi
funds have been made available for U.S. efforts to support Iraq's oil
sector.[Footnote 16] These efforts focus largely on (1) restoring
Iraq's oil infrastructure to sustainable prewar crude oil production
and export capacity, (2) delivering and distributing refined fuels for
domestic consumption, (3) developing oil security and pipeline repair
teams, and (4) providing technical assistance for organizing and
sustaining Iraq's oil industry. Specific U.S. activities and projects
for the restoration of Iraqi's oil production and export capacity
include restoring the Qarmat Ali water reinjection and treatment plant
to create and maintain sufficient oil field pressure in the Rumailah
oil field; repairing the Al-Fathah oil pipeline crossing; restoring
several gas and/or oil separation plants near Kirkuk and Basrah; and
repairing natural gas and liquefied petroleum gas plant facilities in
southern Iraq.[Footnote 17] U.S. activities also include the
restoration of wells, pump stations, compressor stations, export
terminals, and refineries, and providing electrical power to many of
these oil facilities.[Footnote 18] According to agency and contracting
officials, the United States provides primarily procurement,
engineering, technical expertise and some construction services for
these projects. Iraq oil company employees conduct some repair
operations and construction.
In addition to infrastructure restoration activities, the United States
facilitated and oversaw the purchase, delivery, and distribution of
refined fuels throughout Iraq, primarily using DFI funds from late May
2003 through August 2004. Used for cooking, heating, personal
transportation, and private power generation, these imports were
required to supplement domestic production due to increased demand and
Iraq's limited refining capacity.[Footnote 19] The responsibility for
this effort was transferred to Iraq's State Oil Marketing Organization
after August 2004. The United States also assisted in developing an oil
security force and pipeline repair teams to respond to looting,
sabotage, and sustained attacks, primarily on oil pipelines. Finally,
the United States also provided technical assistance and support to the
Iraqi Ministry of Oil to define Iraq's operational, legal, policy, and
investment frameworks for the industry.
Assessment:
Although some activities to restart Iraq's oil production and export
have been completed, the implementation of the U.S. program to assist
in restoring and sustaining Iraq's crude oil production and export
levels to pre-March 2003 capacity has been slower than originally
planned. Of the $2.7 billion in appropriated funds for the oil sector,
the United States had obligated about $2 billion and disbursed $1.1
billion, as of March 31, 2005. In addition, of the $2.7 billion in
Iraqi funds, about $215 million had been spent on these infrastructure
restoration efforts. Initial production and export targets were reached
in 2003 and early 2004 as U.S. efforts were made to complete
assessments and quick repair projects, provide dedicated power, and
procure spare parts and equipment.[Footnote 20] Since November 2004,
however, crude oil production and export levels have not been sustained
primarily due to pipeline attacks and a natural decline in production
resulting from years of improper reservoir management, according to
U.S. and former CPA officials. From December 2004 through May 2005,
estimated production and export levels remained relatively constant at
about 2.1 million bpd and 1.4 to 1.6 million bpd, respectively. (See
fig. 3.) Targets for December 2005 are to reach 2.8 million bpd in
production and 1.8 million bpd in exports.[Footnote 21]
Figure 3: Iraqi Oil Production, Export, and Revenue, June 2003 through
May 2005:
[See PDF for image]
[End of figure]
Several U.S. government, former CPA, and contractor officials stated
that funding uncertainties, project reprioritizations, inadequate
contractor reporting,[Footnote 22] and frequent changes in contract
management procedures or processes have impeded progress. In addition,
some officials stated that the overall security environment has slowed
their ability to obtain or move equipment, materials, and personnel, in
some cases delaying project progress. Some officials estimated that a
combination of these factors have contributed to delays of 2 to 6
months at different points in the oil sector program's overall
implementation. Some significant projects experienced further delays
from late 2004 to early 2005 due to security, technical, or legal
problems that over the past several months, according to agency
officials, resulted in lower crude oil production or export. For
example, one significant project to provide water and field pressure
maintenance in southern Iraq could not be fully utilized, primarily due
to associated infrastructure degradation, thus limiting the facility's
operations and Iraq's level of crude oil production. In general, most
larger scale, higher dollar projects are either under way or scheduled
to begin by August 2005, and IRMO officials stated that sector efforts
are focused on a defined set of projects that the Ministry of Oil
agreed to in November 2004. As of May 2005, U.S. officials and
reporting indicated that the overall program is scheduled to be
completed by mid-to late-2006.
U.S. efforts directly facilitated the CPA's purchase and delivery of
imported gasoline, liquefied petroleum gas, kerosene, and diesel for
domestic use in Iraq. About $2.3 billion of the $2.7 billion in Iraqi
funds was used to purchase, supply, and distribute these refined fuel
products. These efforts required the coordination of significant
trucking operations and military convoys to move considerable
quantities of fuels and to increase the capacity to download these
fuels at several supply points throughout Iraq. Although no longer
responsible for the purchase and delivery of these refined fuels, U.S.
agencies continue to monitor Iraq's efforts to maintain a 15-day supply
of refined fuel stocks. Although estimated national supply levels were
low from November 2004 to March 2005, U.S. agency documents report that
levels of these products improved and, as of May 2005, only diesel
stocks remained significantly below the 15-day supply targets. However,
agency reporting also noted distribution problems such as criminal
attacks on delivery trucks, sabotage to domestic product lines, and
black market activity related to the sale of these products. These
problems continue to negatively affect the population's access to these
fuels for their daily needs.
Of the $2.7 billion of Iraqi funds made available for the oil sector,
about $170 million was used to develop oil security and pipeline repair
teams.[Footnote 23] CPA oil security efforts included the establishment
of a U.S. task force to manage the training and equipping of an oil
security force. This effort began in late 2003 and focused primarily on
guarding fixed facilities and, to a lesser extent, patrolling
pipelines. The oil security force numbers reached over 14,000 as of
June 2004, according to agency officials; however, in responding to our
draft report State indicated that this force was not staffed, trained,
or equipped to patrol pipelines. Because the number and intensity of
pipeline attacks increased during the summer and fall of 2004, the
overall effectiveness of this force has been difficult to gauge. In
responding to our draft report, State indicated that this level of
attacks demonstrates the effectiveness of the insurgency in Iraq and
the inability of coalition forces to register the security of the oil
infrastructure as a high priority. According to agency documents, the
Ministry of Oil assumed responsibility for these security personnel in
December 2004.
In a related effort, the CPA established an emergency response
organization in early 2004 to rapidly return damaged pipelines to
service. The primary contractor was responsible for a certain number of
repairs; it was also responsible for training repair crews and
providing new tools and techniques to sustain this effort after its
August 2004 contract expiration. In July 2004, the U.S. government
indicated that the contractor's performance was unsatisfactory and
withheld funds. According to U.S. officials and documents, in August
2004 IRMO mobilized an emergency repair team; in February 2005, the
Ministry of Oil mobilized a second emergency repair team; and
responsibilities for these efforts were being transitional to the
Iraqis as of June 2005.
Challenges:
Iraq's economy relies on oil revenues to support its budget. In the
near term, Iraq is dependent on the completion of several of the U.S.
program's infrastructure projects, whose successful operations are
expected to generate revenues to support Iraq's 2005 budget. In
addition to this challenge, the Iraqis face shorter and longer term oil
sector challenges that include training, equipping, and funding
effective infrastructure security forces and pipeline repair teams;
addressing issues related to domestic refined fuel supply and
consumption; and defining the oil sector's organizational structure,
foreign investment framework, and energy priorities, among others.
* Attacks against the oil infrastructure continue and limit Iraq's
ability to export crude oil and distribute refined products
domestically. The United States and Iraq have attempted to establish
infrastructure security forces as well as emergency response teams to
address this issue. However, difficulties in determining organizational
responsibility and funding for such efforts have impeded their
completion and contributed to insufficient protection of oil
infrastructure, particularly pipelines. According to agency reporting
in April 2005, plans were being discussed to provide mobile security
for pipelines. In addition, in response to our draft report DOD told us
in July 2005 that the Iraqi government, with Coalition support, is
leading an effort to enhance oil infrastructure security.
* CPA and U.S. officials have emphasized the importance of restoring
Iraq's refinery capacity to increase the supply of refined fuel
products for domestic use and to decrease the amount spent on refined
product imports. According to a former agency official, replacing
existing refineries with modern technology facilities may require $6 to
$7 billion over a 10-year period, while fuel imports cost over $2
billion annually. Iraq subsidizes the refined fuels it imports and
produces, and the price of these fuels is less than a few cents per
liter. U.S. officials have reported that low prices also encourage
black market activity such as smuggling or the purchase and resale of
refined products, both of which can ultimately result in local
distribution shortages and insufficient access to these needed fuels.
CPA and U.S. officials have provided assistance to the Iraqis in
developing refined fuel pricing reform strategies. Iraq committed to
increase the domestic prices of refined products to generate an
estimated $1 billion in revenues in 2005, according to IMF and agency
documents. However, potentially negative popular reaction may make it
difficult for the Iraqis to implement any repricing strategies at this
time.
* Iraq's framework for managing its oil industry and the use of its
energy resources is not yet defined. Decisions by Iraq's new government
may alter how the country runs its oil operations and may also
influence the amount and type of capital investment that Iraqis and
foreigners are willing to provide. In addition, establishing
regulations for resource management and revenue distribution are part
of the Iraqi government's current effort to draft a constitution.
Outcomes of these activities will affect Iraq's overall economic goals
and priorities.
Electricity Production Lower in May 2005 Than before the March 2003
Conflict:
U.S. efforts in the electricity sector have focused on restoration and
construction of Iraq's electrical system. As of March 31, 2005, about
$5.7 billion--about $4.9 billion in appropriated funds and $816 million
in Iraqi funds--had been made available to provide electricity services
that meet Iraq's national needs. Some progress was made in restoring
Iraq's electricity infrastructure, reportedly adding about 1900
megawatts[Footnote 24] of generating capacity to Iraq's power grid
between March 2003 and May 2005. Iraq's overall power generation was
lower through May 2005 than before the 2003 conflict, although power
generation exceeded this level for the latter part of June 2005. The
causes for lower overall power generation included planned and
unplanned maintenance needs for power stations and fuel shortages. The
electricity sector faces a number of challenges to meeting Iraq's
electricity needs, including the lack of appropriate fuel supplies,
Iraqi operation and maintenance capacity, the unstable security
environment, financing needs for distribution projects, and effective
management of electricity generation and distribution.
Background:
According to senior U.S. agency officials, Iraq's electricity
infrastructure was in worse condition following the 2003 conflict than
initially anticipated or reported in the 2003 UN/World Bank needs
assessment. The report noted the severe degradation of Iraq's
generating capacity--from about 5,100 megawatts in 1990 to about 2,300
megawatts post-1991 Gulf War--largely due to war damage to generation
stations. Although the report notes that production was restored to
about 4,500 megawatts before the 2003 conflict, U.S. officials said
that Iraq's electrical infrastructure had experienced significant
deterioration due to the war and years of neglect under Saddam's
regime. Spare parts were largely unavailable when UN sanctions were in
place between 1991 and 2003. Equipment and facilities had not been
maintained and required significant overhauls. In addition, some
facilities and transmission lines were damaged by U.S. forces during
the 1991 Gulf War or by the looting and vandalism of facilities
following the 2003 conflict.
U.S. Activities and Projects:
About $4.9 billion in appropriated and $816 million in Iraqi funds from
the DFI have been made available for U.S. reconstruction efforts in the
electricity sector. These efforts focus on restoring or constructing
generation, transmission, distribution, and automated monitoring and
control systems in Iraq's electrical system. Other projects have
included capacity building[Footnote 25] and training security forces to
protect the electrical infrastructure. According to agency
documentation, the majority of financial assistance in this sector has
focused on generation projects, such as rehabilitating and repairing
existing equipment or procuring and installing new turbines and
generators. Transmission projects, such as erecting transmission towers
and stringing transmission lines, have been another significant focus.
Assessment:
Although some progress has been made in rehabilitating many Iraqi
electric facilities as of May 2005, electricity production in Iraq was
lower than before the March 2003 conflict. However, for the latter part
of 2005 power generation exceeded this level. Of the $4.9 billion
appropriated as of March 31, 2005, the United States had obligated $3.7
billion and disbursed $1.7 billion, mostly for generation projects to
repair existing equipment or procure new turbines and generators for
power plants.[Footnote 26] In addition, of the $816 million in Iraqi
funds authorized for U.S. activities in the electricity sector, about
$758 million had been disbursed as of March 31, 2005.
Two key targets of the U.S. reconstruction effort are increasing total
generating capacity and daily megawatt hours of electricity produced.
The first key target is to increase Iraq's total generating capacity by
3,100 megawatts by June 2005.[Footnote 27] As of May 2005, U.S.-funded
projects reportedly had added or restored about 1900 megawatts of
generating capacity to Iraq's power grid. However, U.S. program and
contracting officials have raised concerns about the ability of the
Ministry of Electricity and local power plant operators to sustain the
added generation capacity.
The other key target has been to help Iraq produce 120,000 megawatt-
hours of electricity per day by June 2005. In May 2005, agency reports
show this target was revised to producing 110,000 megawatt-hours by
December 2005. As shown in figure 4, Iraq produced more than 100,000
megawatt-hours of electricity most days between July and November 2004;
however, production dropped below prewar production levels through May
2005, varying between 51,000 and 99,800 megawatt-hours daily. Agency
reports attribute the decreased production figures to several causes,
including planned and unplanned maintenance on power stations, fuel
shortages due to insurgent attacks on oil pipelines that provide fuel
to the power plants, and limited supply of fuels allocated by the
Ministry of Oil. In commenting on our draft report, State noted that
planned outages are necessary operational procedures to ensure reliable
and sustainable operations at the plants and that the central reason
for high unplanned outages is that Ministry of Electricity workers do
not yet have the necessary skills to ensure adequate operations and
maintenance practices. As of June 2005, Iraq's electricity production
was increasing to meet greater summer demand and exceeded 100,000
megawatts in the latter half of the month. U.S. officials attributed
the increased production to (1) power plants that were returned to
service after maintenance was completed, (2) imported power and fuel
supply from neighboring countries, and (3) activation of U.S. funded
power projects.
Figure 4: Daily Electricity Produced in Iraq, January 1, 2004-June 30,
2005:
[See PDF for image]
[End of figure]
Challenges:
The electricity sector faces a number of challenges to meeting Iraq's
electricity needs. These challenges include the lack of appropriate
fuel supplies, Iraqis lack of capacity in operation and maintenance,
the unstable security environment, financing needs for distribution
projects, and ineffective management of electricity generation and
distribution.
* Iraq's limited accessible supply of natural gas and diesel fuel
affects the operation of the new gas combustion turbines provided by
the United States[Footnote 28] and continues to affect the operations
and production capacity of Iraq's electrical power plants. The United
States purchased and installed gas combustion turbines to operate
several Iraqi power plants, including Bayji and Qudas. These turbines
were readily available for purchase, could be installed in less than 1
year, and could also be modified to burn oil-based fuels, although with
some negative effect on the turbines' efficiency and operation.
Although Iraqi power plants have largely relied on steam turbines that
use crude oil or oil-derived fuels, these turbines are less readily
available for purchase on the world market and require a longer
installation time. Due to limited access to natural gas, some gas
combustion turbines at Iraqi power plants are operating on low grade,
oil-based fuels. The use of liquid fuels, without adequate equipment
modification and fuel treatment, decreases the power output of the
turbines by up to 50 percent, requires three times more maintenance,
and could result in equipment failure and damage that significantly
reduces the life of the equipment, according to U.S. and Iraqi power
plant officials.
* U.S. agencies report they have incorporated operations and
maintenance training into the reconstruction program. However, the
Iraqis' capacity to operate and maintain the power plant infrastructure
and equipment provided by the United States remains a challenge.
Contractors cited several instances where the Iraqis had significant
problems operating and maintaining projects after they were transferred
to the government. For example, in December 2004, the Iraqis' inability
to operate a recently overhauled plant at Bayji led to a widespread
power outage. U.S. officials said that contractors installed the
equipment and provided the Iraqis onsite training in operating the new
or refurbished equipment. However, Iraqi power plant officials from 13
locations throughout Iraq, including Bayji, indicated that the training
did not adequately prepare their staff to operate and maintain the new
gas turbine engines. U.S. officials have acknowledged that more needs
to be done to train plant operators and ensure that advisory services
are provided after the turnover date of the projects. To address this
issue, in February 2005, USAID implemented a project to train selected
electricity plant officials (plant managers, supervisors, and equipment
operators) in various aspects of plant operations and
maintenance.[Footnote 29] According to DOD, PCO also has awarded one
contract and is developing another to address operations and
maintenance concerns. A June 29, 2005, USAID Inspector General report
stated that until the operations and maintenance challenges are
addressed at both the Iraqi power plants and ministry levels and
practices at the power plants are significantly improved, reports of
damaged equipment and infrastructure will continue and the electrical
infrastructure rebuilt and refurbished by USAID's program will remain
at risk of sustaining damage following its transfer to the Ministry of
Electricity. In comments on our draft report, State department said
that there has not been enough focus on strengthening operations and
maintenance capacity and that such strengthening had not been a U.S.
government priority in the early phases of the reconstruction effort.
* Providing security for power plants, transmission lines, and
distribution stations is another key challenge to electricity
reconstruction projects and to meeting Iraq's electricity needs.
According to U.S. agency officials and contractors, insurgent attacks
on people and infrastructure have increased project costs and caused
scheduling delays. Our analyses of five U.S.-funded electricity sector
contracts indicate that security costs to obtain private security
services and security-related equipment as of December 31, 2004, ranged
from 10 to 36 percent of project costs.[Footnote 30] In March 2004, the
United States awarded a $19 million contract to train and equip Iraq's
Electrical Power Security Service to protect electrical infrastructure,
including power plants, transmission lines, and Ministry of Electricity
officials. Although the program was designed to train 6,000 guards over
a 2-year period, fewer than 340 guards had been trained when the
contract was terminated early. According to agency reporting in April
2005, current plans are for the Iraqi Ministry of Defense to provide
mobile security for linear assets such as transmission lines and
pipelines.
* The Iraqi electricity sector will require additional financial
assistance to restore its infrastructure to meet the national needs.
The Ministry of Electricity estimates that Iraq needs about $20 billion
to restore its electricity sector, including over $3 billion to update
the distribution network system, that provides electricity from the
distribution station to the end user. The activities of the U.S.
assistance program have focused on generation, transmission, and
distribution projects to improve the electricity sector and have
provided about $100 million to address the provision of power from the
distribution station to the end user.
* Effective management of electricity generation, transmission, and
distribution is affected by illegal connections to existing power lines
and the lack of metering. According to industry officials, the
inability of system operators to balance the amount of electric
generation with consumer demand can cause severe failures in both
equipment and service, as evidenced in January 2005 when the national
grid collapsed following an electrical circuit imbalance near Bayji.
Further, limited and inaccurate metering in Iraqi homes precludes the
Ministry of Electricity from measuring the amount of electricity that
end users consume. Experts indicate that the demand for electricity has
increased dramatically since UN sanctions were removed in 2003 and
estimate that the demand for electricity will exceed 8,500 megawatts
this summer. In commenting on our draft report, the State department
stated that the demand had passed 8,500 megawatts and may reach 9,000
megawatts.
Progress in the Water Sector Is Difficult to Measure and Some Completed
Projects Are Not Functioning:
U.S. reconstruction efforts in the water and sanitation sector focus on
improving Iraq's potable water, sewage, and sanitation systems. State
reallocations have reduced available U.S. funding for improving Iraq's
severely degraded water and sanitation sector from a peak of $4.6
billion to a current level of $2.4 billion. The United States has made
some progress in completing large and small water and sanitation
projects, but it is difficult to determine the impact of its
reconstruction effort on this sector due to limited performance data
and measures. The U.S. reconstruction program has also suffered from
delays in completing projects, and some completed projects lack
sufficient Iraqi staff and supplies to function properly or are not
operating at all due to a lack of electricity and diesel fuel.
Background:
Water and sanitation services in Iraq deteriorated significantly after
the 1991 Gulf War due to the lack of maintenance, inadequate skilled
manpower, and war damage. In 2003, post war looting destroyed equipment
and materials needed to operate treatment and sewerage facilities.
Before the 1991 Gulf War, Iraq produced enough water to supply more
than 95 percent of urban Iraqis and 75 percent of rural Iraqis,
according to the 2003 UN/World Bank needs assessment. Actual access was
much lower due to significant losses from leaks in the delivery
network. By 2003, these production levels had fallen to 60 percent of
urban Iraqis and 50 percent of rural Iraqis. According to the same
assessment, the sewage system primarily served Baghdad, where it
reached about 80 percent of the population. However, according to the
report the sewage system was inadequate for moving and processing
waste, leading to backups of raw sewage in the streets and treatment
plants were not operational. Less than 10 percent of the urban
population outside Baghdad was served by sewage systems. The rural
areas and northern Iraq--including the cities of Kirkuk and Erbil--had
no access to piped sewage systems. According to the UN/World Bank
report, some of these areas had access to pour flush latrines.
U.S. Activities and Projects:
U.S. reconstruction efforts in the water and sanitation sector focus on
projects to improve Iraq's potable water, sewage, and sanitation
systems. Specific activities funded by the U.S. reconstruction program
include repairing water and sewage treatment plants, rehabilitating dam
facilities, and conducting irrigation projects. Work has been
implemented through a combination of longer term, large scale projects
and quick impact, smaller scale projects. Agencies are executing most
of their largest efforts through five large contracts with three U.S.
companies. These efforts include rehabilitation of water and sewage
treatment plants, dams, pump station, and irrigation canals, as well as
repairs of sewer lines and drinking water canals. Smaller scale
projects include neighborhood cleanups, water supply improvements, and
the rehabilitation of smaller scale sewage systems and water treatment
plants.
Assessment:
The U.S. reconstruction program in Iraq's water and sanitation sector
has made some progress toward completing a reduced scope of activities.
As of April 5, 2005, the State Department had reallocated funding for
water and sanitation to other priorities such as security, thus
reducing available funding by 48 percent to about $2.4
billion.[Footnote 31] As of the end of March 2005, U.S. agencies had
obligated about $1.2 billion, or 50 percent, and disbursed about $280
million, or 12 percent, of the U.S. funding to specific projects for
the sector.[Footnote 32] USAID's accomplishments included the repair of
six sewage treatment plants, two water treatment plants, and a primary
urban water supply in southern Iraq. As of April 3, 2005, State
reported that 64 projects were complete and 185 were in progress.
However, State was unable to provide a list of those completed
projects, which would enable us to evaluate the significance of the
project numbers in terms of scope of work, cost, or size. The United
States has also funded a number of smaller scale, quick impact
projects. The primary goals of these quick impact projects have been to
meet pressing local needs and provide employment for the Iraqi people.
Although they are designed to show impact more quickly in some cases
small-scale projects do not have the potential long-term effect of the
larger projects.
Reduced funding and increased costs have limited the work done in the
water and sanitation sector. As of March 2005, PCO had begun 52
projects. Although PCO initially planned to execute 137 projects with
fiscal year 2004 appropriated funds, the full list of 137 projects will
not be completed using appropriated funds given the funding
reallocations and State's focus on completing projects under way and
sustaining completed projects. The reduction in the number of planned
projects is the result of a more than $2 billion decrease in program
funding and underestimates of the cost of doing business in Iraq.
According to PCO, the initial CPA cost estimates for completing
projects in Iraq were too low. Increased security requirements,
inflation in the cost of construction materials and labor, and the
unexpectedly poor condition of Iraqi facilities have all contributed to
increases in project cost.
In commenting on the draft of this report, the U.S. Agency for
International Development (USAID) disagreed with our statement that
agency metrics for tracking water projects do not show how the U.S.
program affects the Iraqi people. USAID stated that the agency tracks
increases in the amount of water treated and estimates increases in
beneficiary numbers. However, these metrics do not address the quality
of water and sanitation services in Iraq, which may hinder the U.S.
ability to gauge progress toward its goal of providing essential
services.
Challenges:
The effect of U.S. water and sanitation sector reconstruction is
difficult to quantify, and metrics used by U.S. agencies to track
progress do not provide a complete picture of results. The program has
encountered delays in execution due to security conditions and other
factors, and completed projects are at risk of failing due to lack of
needed staff and supplies after transfer to the Iraqis.
* Iraq has no comprehensive metering of water usage. Without metering,
the ministries lack information on the amount of water consumed or
lost. U.S. officials estimate that approximately 60 percent of water
produced in Iraq is unaccounted for--lost to illegal taps, unmetered
usage, and leaking water pipes. Because of water losses and the lack of
metering, the extent to which clean potable water from improved
facilities is reaching users is unknown.
* Agency metrics for tracking progress in the water and sanitation
sector do not show how the U.S. program is affecting the Iraqi people.
PCO and State have developed metrics to track the progress of the U.S.
water and sanitation reconstruction program in terms of projects
completed, treatment capacity, and agricultural area irrigated. While
these measures provide some insights on progress, they do not track the
contribution of projects toward the overall objective of providing
essential services or measure increased access to clean water and
improved sanitation in Iraq, as this data from the end user is
difficult to gather. In commenting on our draft report, USAID said that
the agency tracks increases in the amount of water treated and
estimates increases in beneficiary numbers. However, these metrics do
not address the quality of water and sanitation services in Iraq, which
may hinder the U.S. ability to gauge progress toward its goal of
providing essential services. For example, because of problems with the
distribution network, water that is potable at the treatment plants may
be contaminated by the time it reaches users. According to a senior PCO
official in the water sector, potable water and sewage mains in Iraq
are sometimes adjacent to each other, allowing leaking sewage to enter
the water mains. In response to our draft report, State also noted that
there are significant difficulties in accurately measuring water
quantity and water quality delivered to Iraqi households and that the
measurement of access to potable water and improved sanitation is
generally done through the use of surveys. However, State commented
that the department has elected not to reallocate funding away from
projects to conduct regular surveys on essential services.
* The U.S. effort to rehabilitate Iraq's water and sanitation sector
has faced challenges from the insurgency, coordination and management
difficulties, and poor onsite conditions. Contractor and agency
reporting cite numerous instances of project delays due to unsafe
conditions. PCO has estimated that deteriorating security has added an
average of about 7 percent to project costs in the water and sanitation
sector. Contractors and agency officials also cited difficulties in
defining project scope and coordinating with Iraqi ministries as
further impeding progress. For example, Iraqi ministry and local
officials disagreed on the proper scope of one project, and PCO's
resolution of the issue was delayed by security conditions limiting its
ability to meet with Iraqi officials. Unusable project sites and the
unexpectedly poor condition of Iraqi facilities have also contributed
to delays and increased costs. USAID abandoned one landfill project,
projected to cost $20 million if completed, because the Iraqi
government provided an unusable site. Contractors arriving in the field
also found unanticipated conditions, such as sewer blockages and
treatment equipment that required repair.
* Both USAID and PCO have incorporated employee and management training
efforts into their reconstruction programs. However, the projects
completed by USAID and PCO have encountered significant problems in
facility operations and maintenance after project handover to Iraqi
management. Iraqis lacked adequate resources and personnel to operate
these facilities in the long term. To address these issues, in April
2005 State reallocated $25 million for a USAID pilot project to provide
continuing operations, maintenance, and supply acquisition training and
support at selected sites after handover. PCO has also developed a risk
assessment process designed to anticipate potential sustainability
issues by evaluating various factors that contribute to the successful
transition of projects to the Iraqis.
Progress Made in Expanding Basic Heath Care, and Larger Infrastructure
Projects Are Under Way:
U.S. reconstruction efforts in the health sector focus on restoring and
expanding the availability of basic health care in the country. The
United States has provided about $866 million in appropriated funds for
health activities to reestablish, restore, and expand the availability
of health care in Iraq. The majority of this funding--about $750
million--is focused on infrastructure projects and medical equipment
supplies; the remainder provides for medical staff training and
management training for the Ministry of Health. While U.S. agencies
have completed initial activities to reestablish Iraqi health services,
larger infrastructure, equipment, and training projects to restore and
expand the availability of basic health care are still under way. The
Iraqi health sector faces a number of challenges in providing basic and
preventive health services, including procurement and delivery of
medical equipment and supplies and measuring program results. At the
same time, long-term technical assistance will be required to build the
management and infrastructure capacity needed to provide access to a
quality health care system over time.
Background:
More than 30 years ago, Iraq was a regional leader in health care, but
years of neglect and mismanagement under Saddam's regime left the Iraqi
health system in a deteriorated state and a segment of the Iraqi
population and the poor with little or no health care. The 2003 UN/
World Bank needs assessment described the Iraqi health care system as
inefficient and inequitable, noting that health care facilities and
equipment were in poor condition. The Iraqi health system was a
hospital-oriented model that did not emphasize sustainable health
development; care was centralized in urban areas and services only
partially matched the needs of the population. The 2003 UN/World Bank
needs assessment further noted that the health system did not provide
equitable access to basic health services; lacked cost-effective public
health interventions; required large-scale imports of medicines,
medical equipment, and health workers; and collected little health
service data. The 2003 assessment determined that basic health care
services needed to be restored and that the system needed to be
transformed into a national health care system based on primary care,
that provides health services reflecting population needs and
priorities with a focus on prevention and treatment.[Footnote 33]
According to the 2003 UN/World Bank needs assessment, Iraqi health care
spending during the 1990s had fallen by as much as 90 percent and
Iraq's health outcomes were among the poorest in the region--well below
the levels found in comparable income countries. Infant, child, and
maternal mortality rates more than doubled from 1990 to 1996 with 65
percent of births occurring outside of health institutions; adult
mortality increased, and life expectancy fell to 60 years of age.
Widespread looting after Operation Iraqi Freedom, the subsequent
unpredictability of electricity and the water supply, and attacks by
insurgents further weakened the functional capacity of Iraqi health
care services. According to the Iraqi Ministry of Health, about one-
third of primary care clinics, more than 12 percent of hospitals, 30
percent of family planning clinics, and 15 percent of child care
clinics were looted or damaged or both; two main public health
laboratories were destroyed; and four of seven central warehouses for
storage of drugs and supplies were partially looted and their vaccine
supply was lost.[Footnote 34]
Activities and Projects:
The U.S. program for the Iraqi health sector is primarily focused on
restoring and expanding the availability of basic health care,
including maternal and child health care, to the majority of the
population. Activities funded by the U.S. reconstruction program (1)
address medical facility needs to support an evolving health care model
for equitable access to basic health care;[Footnote 35] (2) provide
medical equipment and training of medical staff; and (3) provide
training to strengthen management by the Ministry of Health. The
majority of U.S. financial assistance in this sector--over 80 percent-
-is focused on rehabilitating and constructing hospitals and health
care centers and supplying medical equipment for hospitals and clinics.
The remainder of this assistance provides for the training of medical
staff and capacity building within the Ministry of Health, including
management training for infectious disease control, national health
policy reform, and decentralization of health care activities at the
local, governorate, and ministry levels. U.S. activities in the Iraqi
health sector fall into four key areas: health phase I ($80
million[Footnote 36]), nationwide hospital and clinic improvements
($439 million), equipment procurement and modernization training ($297
million), and the construction of the Basrah Pediatric Facility ($50
million).
Assessment:
The United States has made some progress in its effort to restore and
expand the availability of basic health care in Iraq; however, the
majority of large-scale infrastructure projects remain under
construction. As of March 31, 2005, U.S. agencies had obligated $533
million and disbursed $116 million of the $866 million allocated for
health activities in Iraq.[Footnote 37] According to agency reporting,
initial activities to reestablish Iraqi health services have been
largely completed, including the vaccination of 70 percent of eligible
Iraqi children, about 5 million Iraqi children against measles, mumps,
and rubella and 3 million children against polio; rehabilitation of 110
health clinics; training of about 700 health care trainers; and the
procurement of medical equipment kits for 600 health centers. However,
due to the security environment and procurement delays, 37 of 600
medical equipment kits had not been delivered as of May 20, 2005,
according to U.S. officials.
Further efforts to improve hospitals and clinics, procure equipment,
and provide training are under way. For example, according to IRMO
reporting, as of April 6, 2005, of the planned renovations for 20
hospitals and new construction for 1 hospital, the United States had
started planned renovations on the 20 hospitals and begun construction
of the Basrah Pediatric Facility. According to agency documentation,
the execution phase of these health projects took longer than expected
to complete due to the complex designs for health care facilities, long
lead times for medical equipment manufacturing and delivery,
construction delays due to land ownership issues, the poor quality of
sites, and security issues related to the contractors and the delivery
of construction supplies. In addition, according to U.S. officials, the
training program for the medical staff for the new primary health
clinics was expected to begin in June 2005.
Challenges:
Iraq's health sector needs long-term financial support for its health
care system. In addition, the U.S. program to restore and expand the
availability of basic health care faces challenges in the procurement
and delivery of medical equipment and supplies and in measuring program
results.
* According to the UN/World Bank assessments, Iraqi and agency
documents, and U.S. officials, the Iraqi health sector will require
continued long-term financial assistance to restore and strengthen its
health system to modern day medical levels; support infrastructure
maintenance and medical supply requirements; and support management
operations--assistance that is not available in the U.S. program or
through the international community. The activities of the U.S.
assistance program--largely focused on improving the physical
infrastructure of the health system--is likely to have a longer term
impact on the health sector; however, the impact of these
infrastructure improvements is not likely be visible until construction
is complete, new equipment is in service, and management capacity of
the Iraqi health ministry has been strengthened. U.S. officials
acknowledge that additional resources will be needed over the next 3 to
5 years for Iraq to address health services and strengthen the delivery
of primary health care services, although the continuation of such
activities is not an element of the U.S. program in Iraq at this time.
* The U.S. program to provide medical equipment and supplies to
hospitals and health clinics across Iraq is an important element in
strengthening Iraqi health service delivery. Delays in the delivery of
U.S.-provided equipment may affect the Iraqis' ability to provide
primary health care. For example, the completed delivery of USAID-
funded health kits, coupled with primary health care provider training,
is expected to result in an increase in the capability of primary
health care providers to deliver care to the Iraqi population. Although
the equipment items for these health kits were received by May 2004,
the delivery of these kits to Iraqi health clinics was still
incomplete, as of May 2005. Agency documents and officials indicated
several reasons why medical equipment had not been delivered, including
long lead times for medical equipment manufacturing and delivery, the
security environment, the timing of equipment delivery with the
completion of infrastructure construction, and the need to obtain
agreement on equipment lists from the Ministry of Health. To address
the Ministry of Health's limited capacity to accept, store, and
distribute large shipments of supplies and equipment, the PCO has
developed a revised distribution plan, according to a U.S. official.
Further, as of May 2005, the construction plans for 150 primary health
clinics did not have an identified procurement plan for backup power
generators, furniture, consumable supplies, incinerators, or a security
perimeter. According to a U.S. official, without full power supply--by
generators or from the power grid--these clinics will be able to
provide only the most basic services and limited or no maternal and/or
pediatric services. In response to our draft, DOD told us that they
plan to build 142 primary health clinics supplied with generators,
furniture, and three months of consumables.
* IRMO has developed metrics to track the progress of the U.S. health
reconstruction program in Iraq. Limitations to the available metrics
and data make it difficult to assess the outcome of U.S. activities in
the health sector. For example, IRMO's measurements of progress track
the completion of facilities, which is an indicator of increased access
to health care. However, the measures available do not indicate how
well these facilities are equipped or staffed to provide primary health
care services. The measures used by IRMO do not relate the progress of
U.S. projects to the overall effort of improving the quality and access
of health care in Iraq.
Conclusions:
The United States, along with its coalition partners and various
international organizations and donors, has undertaken a challenging
and costly effort to stabilize and rebuild Iraq. Over the past 2 years,
the United States, coalition partners, and, more recently the Iraqis
have undertaken and accomplished numerous activities to stabilize and
rebuild Iraq, including efforts to help restore basic essential and
social services. This enormous effort has been undertaken in an
unstable security environment, and is concurrent with the institutional
development of Iraqis to govern and secure the country. As we reported
in June 2004, these challenges continue to affect the pace and cost of
reconstruction. A key challenge to the success of the rebuilding effort
will be the Iraqis' ability to sustain the rehabilitated and new
infrastructure and to address continuing maintenance and basic service
needs. U.S. reconstruction efforts include requirements to build
operational and ministerial capacity to sustain this infrastructure. As
U.S. activities that have already started reach completion by the end
of the year, the options and plans developed and actions taken to
address this challenge will be critical to the success of the U.S.
reconstruction program and the overall reconstruction effort in Iraq.
Agency Comments and Our Evaluation:
We provided drafts of this report to the Departments of Defense and
State and the U.S. Agency for International Development. The
Departments of Defense and State did not provide written comments;
however, they provided technical comments, which we incorporated where
appropriate.
The U.S. Agency for International Development provided written
comments, which are reprinted in appendix II. In particular, in
response to our statement that agency metrics for tracking water
projects do not show how the U.S. program is affecting the Iraqi
people, USAID stated that the agency tracks increases in the amount of
water treated and estimates increases in beneficiary numbers. However,
these metrics do not address the quality of water and sanitation
services in Iraq, which may hinder the U.S. ability to gauge progress
toward its goal of providing essential services. For example, because
of problems with the distribution network, water that is potable at the
treatment plants may be contaminated by the time it reaches users.
USAID also provided technical comments, which we incorporated where
appropriate.
We are sending copies of this report to interested congressional
committees. We will also make copies available to others on request. In
addition, this report is available on GAO's Web site at [Hyperlink,
http://www.gao.gov].
If you or your staff have any questions, please contact me at (202) 512-
8979 or [Hyperlink, christoffj@gao.gov]. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in
appendix III.
Signed by:
Joseph A. Christoff:
Director, International Affairs and Trade:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
In monitoring resources supporting the reconstruction of Iraq, we
focused on the sources and uses of U.S., Iraqi, and international
funding. U.S. agencies provided us with electronic data files for
appropriated funds, the Development Fund for Iraq (DFI), vested assets,
and seized assets. These files generally included objective or project
descriptions with allocated, obligated, and disbursed amounts. We
assigned each of the funding line items to broad categories based on
the descriptive information available in the data files. To assign the
data to a category, we relied on project descriptions from agency data
files.
In addressing the amount of U.S. funds that have been appropriated,
obligated, and disbursed for the Iraq reconstruction effort, we
collected funding information from the Department of Defense (DOD),
including the Project and Contracting Office (PCO), the U.S. Army Corps
of Engineers (USACE), and others; Department of State; the Department
of the Treasury; U.S. Agency for International Development (USAID); and
the Coalition Provisional Authority (CPA). Data for U.S. appropriated
funds are as of March 31, 2005. We also reviewed Defense Contract Audit
Agency reports, U.S. agency inspector generals' reports, Special
Inspector General for Iraq Reconstruction (SIGIR) reports, other audit
agency reports, and Office of Management and Budget (OMB) documents.
Although we have not audited the funding data and are not expressing
our opinion on them, we discussed the sources and limitations of the
data with the appropriate officials and checked them, when possible,
with other information sources. We determined that the data were
sufficiently reliable for broad comparisons in the aggregate and the
category descriptions we have made.
To identify sources and uses of DFI funds, vested assets, and seized
assets, we relied on funding data from the CPA and DOD through June 28,
2004. To determine the reliability of these data, we examined the
financial files and interviewed CPA officials responsible for the data.
Based on these evaluations, we determined the data are sufficiently
reliable to describe the major deposits to the DFI and the allocations
and disbursements by major categories. We did not audit these data and
are not expressing our opinion on them. After June 28, 2004, the
stewardship of the DFI was turned over to the Iraqi Interim Government.
We continued to obtain data from DOD regarding DFI funds obligated
before June 28, 2004, and vested and seized funds balances.
To address international assistance for rebuilding Iraq, we collected
and analyzed information provided by the State Department's Bureau of
Economic and Business Affairs. We also collected and reviewed reporting
documents from the International Reconstruction Fund Facility for Iraq
(IRFFI). To describe the activities of international donors, we
reviewed documents pertaining to the international donor conferences
and the IRFFI and interviewed U.S. officials. To assess the reliability
of the data on the pledges, commitments, and deposits made by
international donors, we interviewed officials at State who are
responsible for monitoring data provided by the IRFFI and donor
nations. We determined that the data on donor commitments and deposits
made to the IRFFI were sufficiently reliable for the purposes of
reporting at the aggregate level.
For the U.S. reconstruction program, we focused our effort on U.S.
activities in the Iraqi oil, electricity, water, and health sectors.
Specifically, we focused on the condition of the sectors, the status of
the U.S. effort in these sectors, and the challenges affecting overall
sector progress. To determine the condition of the sectors, we reviewed
assessments made by the United Nations and World Bank, USAID, CPA, and
contractors. We also discussed sector conditions with cognizant U.S.
agency officials, contractors, and Iraqi officials.
To determine the status of the U.S. effort in the oil, electricity,
water, and health sectors, we reviewed documents obtained from the
United Nations, World Bank, CPA, State's Iraq Reconstruction Management
Office (IRMO), the PCO, USAID, the USACE, agency contractors, and
selected Iraqi ministries. We reviewed reports and planning documents
prepared by USACE, USAID, CPA, State, PCO, and contractors. We also
interviewed U.S. government and former CPA officials and contract
personnel in the United States and Iraq and participated in
videoconferences between USACE headquarters and Baghdad personnel.
Specifically, we interviewed USAID, State, PCO, USACE, and former CPA
officials, in Washington, D.C. and Iraq and their contractor
representatives in the United States and Iraq.
To determine the challenges affecting sector progress, we reviewed
contractor and agency reporting and interviewed agency officials in the
United States and Iraq. Specifically, we reviewed CPA, PCO, State,
USAID, the USACE, and other reporting. We also interviewed agency
officials in Washington, D.C. and Iraq from USAID, State, PCO, USACE,
Defense Intelligence Agency, and former CPA officials; their contractor
representatives in the United States and Iraq; and Iraqi
representatives from the Ministry of Electricity, including Iraqi plant
operators.
To assess the reliability of the data in the oil, power, water, and
health sectors, we interviewed officials at CPA, DOD, State, and USAID
responsible for gathering and monitoring data on reconstruction
efforts. We reviewed the data for discrepancies and checked them
against other sources, when available. We determined that the data were
sufficiently reliable to report general trends in each sector. Data
obtained on crude oil production and refined fuels inventories are
based on Iraqi estimates provided to State. Data on exports are based
on U.S. agency estimates related to daily export activities at
terminals. Data on revenue are based on U.S. agency estimates that use
internationally recognized financial sources for pricing calculations,
such as Bloomberg and Platts. According to State, the information that
it periodically reports on production, export, and revenue represents
analysis based on the best available information. Data obtained on
daily electricity produced are from Iraqi, USAID, or DOD estimates
provided to State.
We conducted this part of our review from September 2004 through May
2005 in accordance with generally accepted government auditing
standards. Although we did not travel to Iraq to make project site
visits during this period due to security concerns; we interviewed U.S.
officials via teleconference and videoconference. In addition, when
possible we interviewed Iraqi officials when these officials traveled
to the United States.
[End of section]
Appendix II: Comments from the U.S. Agency for International
Development:
USAID:
From The American People:
Ms. Jacquelyn L. Williams-Bridgers:
Managing Director:
International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
JUL 26 2005:
Dear Ms. Williams-Bridgers:
I am pleased to provide the U.S. Agency for International Development's
(USAID) formal response on the draft GAO report entitled Rebuilding
Iraq: Status of Funding and Reconstruction Efforts [GAO-05-876].
The bullet point at the bottom of page 29 states that, "Agency metrics
for tracking projects do not show how the U.S. program is affecting the
Iraqi people." USAID tracks both increases in the amount of water
treated as well as estimating increases in beneficiary numbers. To
date, USAID through it infrastructure contractor, Bechtel National, has
completed drinking water projects in Baghdad, Basrah, Najaf, Mosul,
Kirkuk and Dujayl. It is estimated that these projects will provide
over 350 million gallons per day (MGD) of drinking water per day to an
additional 4 million Iraqis. Similarly, USAID has completed sewage
projects in Baghdad, Basrah, Najaf, Al Hilla, Ad Diwaniyah, Mosul and
Dujayl. These projects are estimated to treat almost 300 MGD of
wastewater benefiting over 5 million Iraqis.
USAID also has issues regarding some small technical details that are
addressed separately.
Thank you for the opportunity to respond to the GAO draft report and
for the courtesies extended by your staff in the conduct of this review.
Sincerely,
Signed By:
John Streufert:
Acting Assistant Administrator:
Bureau for Management:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Joseph A. Christoff, (202) 512-8979.
Staff Acknowledgments:
Key contributors to this report include Monica Brym, Lynn Cothern,
Aniruddha Dasgupta, Muriel Forster, Charles D. Groves, B. Patrick
Hickey, John Hutton, Sarah J. Lynch, Jodi Prosser, Michael Simon, and
Audrey Solis. Martin de Alteriis, Sharron Candon, Patrick Dickriede,
Philip Farah, Hynek Kalkus, Mary Moutsos, Nanette Ryen, Josie Sigl, and
George Taylor provided technical assistance.
(320315):
FOOTNOTES
[1] United Nations/World Bank, Joint Iraq Needs Assessment (New York,
October 2003).
[2] This was the amount apportioned to PCO as of April 2005. See
Emergency Supplemental Appropriations Act for Defense and for the
Reconstruction of Iraq and Afghanistan, 2004, P.L. 108-106.
[3] Reconstruction activities include infrastructure rehabilitation and
construction, equipment procurement, operations and maintenance
training, and capacity building.
[4] The World Bank Group defines a pledge as an indication of intent to
mobilize funds for which an approximate sum of contribution is
specified. International donor pledges for Iraq range from $13.6
billion to $17.3 billion, reflecting the range of loans pledged by the
World Bank and International Monetary Fund (IMF). This amount does not
include identified humanitarian assistance or export credits and
guarantees. Given the uncertainty of the ultimate amount of loans to be
provided by the World Bank and IMF, we have used the lower pledge
amount in this report.
[5] This amount does not include $5.7 billion appropriated in May 2005
for assistance to the Iraqi security forces in the Emergency
Supplemental Appropriations Act for Defense, the Global War on Terror
and Tsunami Relief, 2005, P.L. 109-13. In addition, it does not include
$325 million from the same Act, which according to DOD, was released
for the Commander's Emergency Response Program in Iraq.
[6] Subsequently, in July 2005, the administration reported that in
response to congressional action it intended to reallocate $20 million
of this amount to democracy-building activities.
[7] According to U.N. Security Council Resolution 1483, the funds
deposited into the DFI were to be used to meet the costs of Iraqi
civilian administration, humanitarian needs, infrastructure repairs,
economic reconstruction, and other purposes benefiting the people of
Iraq. The resolution also noted that independent public accountants,
approved by the International Advisory and Monitoring Board (IAMB), are
to audit the DFI. The IAMB's terms of reference define its oversight
responsibilities, which include evaluating the public accountant's
reports, monitoring internal controls and financial reporting, and
directing special audits.
[8] As directed under U.N. Security Council Resolution 1483, 95 percent
of oil proceeds are to be deposited into the DFI. The remaining 5
percent of oil proceeds are to be deposited into a U.N. Compensation
Fund account to process and pay claims for losses resulting from Iraq's
invasion and occupation of Kuwait.
[9] According to agency documents and officials, after the transition,
the Iraqis approved the transfer of about $3 billion in funds for
remaining obligations that had been made by the CPA before June 28,
2004. As of April 30, 2005, about $1 billion of this $3 billion
remained to be disbursed.
[10] In March 2003, the President used authorities in the International
Emergency Economic Powers Act (50 USC § 1701 et seq.), as amended by
provisions in the USA PATRIOT Act of 2001 (P.L. 107-56), to confiscate
the property of the former Iraqi regime under U.S. jurisdiction and
vest the assets in the U.S. Treasury.
[11] As of April 30, 2005, about $145 million remained to be paid
against liabilities incurred using these assets, according to agency
documents and officials.
[12] As of June 2005, the Commander's Emergency Response Program (CERP)
has received about $1.4 billion, which includes DFI, Iraqi seized
assets, and appropriated funds, according to DOD. According to agency
documents and officials, these funds are disbursed in the form of small
grants to military commanders to support a range of local relief,
reconstruction, and rule of law activities.
[13] In response to our draft report, the State Department told us that
this database had been transferred to the Iraqis.
[14] This amount does not include appropriated funding for
reconstruction activities in these sectors under the Commander's
Humanitarian Relief and Reconstruction Program, Commander's Emergency
Response Program, USAID's Community Action Program, USAID's Office of
Transition Initiatives, or Office of Foreign Disaster Assistance
programs.
[15] According to Iraqi estimates, 2002 production and export levels
averaged about 2.2 million bpd and 1.5 million bpd, respectively, and
2003 crude production levels reached 2.8 million bpd.
[16] Iraqi fund amounts are based on reporting by U.S. government
officials and KPMG, the external auditor for the International Advisory
and Monitoring Board, and are as of December 31, 2004.
[17] According to USACE documents, Iraq's gas/oil separation plants, or
GOSPs, separate crude from natural gas liquids and serve approximately
12 to 50 oil wells. Processing some of these liquids results in the
production of liquefied petroleum gas, which is used primarily in Iraq
for cooking and heating.
[18] The electrical power element of this activity is specifically
dedicated to oil production, pumping, refining, and other oil sector
operations separate from the national electricity system.
[19] U.S. activities to improve refineries have focused on assisting
the Iraqis in improving the reliability and capacity of existing
refineries. According to agency officials, this included providing
expertise to help identify key areas for project improvements and
procuring associated spare parts, materials, and equipment to operate
the refineries at levels close to maximum capacity.
[20] As of June 2005, DOD and the contractor were reaching agreement on
the number and final cost of these oil restoration projects, including
the expected price of the work completed.
[21] A large portion of the crude oil that is not exported is used to
create refined fuels for domestic use, such as liquefied petroleum gas
for cooking. According to a UN document, 600,000 bpd of crude oil is
needed to meet the domestic requirement. Iraq's 2005-2007 National
Development Strategy stated that Iraq's refining capacity is
approximately 550,000 bpd. In commenting on our draft report, State
noted that actual performance of the refining sector has been less than
500,000 bpd.
[22] U.S. officials and documents reported that a prime contractor's
inadequate reporting of costs has been detrimental to the oil sector
program's ability to accurately assess project progress and associated
costs. According to U.S. officials and documents, primarily due to this
issue, some remaining unawarded work was moved from this contractor to
another contractor. According to agency and contractor officials and
documents as of June 30, 2005, the action taken by the contractor to
improve its reporting had been determined to meet government
requirements.
[23] According to agency documents and officials, $9 million of U.S.
appropriated funds were also set aside for emergency pipeline response
repair.
[24] A megawatt is a measurement of the rate at which electric energy
can be transferred and is used as a measure of electric generation
capacity.
[25] Capacity building includes training to build management capability
within the ministry and operations and maintenance capability at the
power stations.
[26] This amount does not include appropriated or Iraqi funding
disbursed for electricity sector activities from the Commander's
Humanitarian Relief and Reconstruction Program, Commander's Emergency
Response Program, Rapid Regional Response Program, Accelerated Iraqi
Reconstruction Program, or USAID's Community Action Program, Office of
Transition Initiatives programs, or Office of Foreign Disaster
Assistance programs.
[27] The date for meeting this target was extended to December 2005.
[28] The UN Oil for Food Program also purchased gas combustion turbines
for Iraq's electricity sector.
[29] USAID-sponsored training is being provided for select participants
in Amman, Jordan, and Atlanta, Georgia.
[30] Several contractor officials noted the cost of security relative
to total contract costs can vary over time. For example, they noted
that initial security costs, such as for mobilizing and equipping
security personnel and purchasing armored vehicles, can be considerable
in relation to the amount of reconstruction work authorized. As
additional work is authorized, the relative percentage accounted for by
security costs could decrease considerably.
[31] As of March 31, 2005, the amount apportioned to U.S. agencies from
this total was about $2 billion.
[32] This disbursement amount is an estimate and does not include
appropriated or Iraqi funding disbursed for water sector activities
from the Commander's Humanitarian Relief and Reconstruction Program,
Commander's Emergency Response Program, Rapid Regional Response
Program, Accelerated Iraqi Reconstruction Program, USAID's Community
Action Program, or USAID's Office of Transition Initiatives programs,
or USAID's Office of Foreign Disaster Assistance programs.
[33] The World Health Organization defines primary health care by the
principles outlined in the 1978 Declaration of Alma-Ata, which states
that primary health care is essential health care based on practical,
scientifically sound and socially acceptable methods and technology
made universally available to individuals and families in the community
through their full participation and at a cost the community and the
country can afford to maintain.
[34] Iraqi Ministry of Health, Health in Iraq: A Review of the Current
Health Situation, Challenges Facing Reconstruction of the Health
Sector, and Our Vision for the Immediate Future (September 2004).
[35] According to the Iraqi Ministry of Health, the core elements of
its health system reform include population empowerment with patient
choice, community involvement, integration of health services delivery
system with strengthened primary healthcare, financial risk protection,
health provider management autonomy, quality improvement, and human
resources supply and development.
[36] The Health Phase I program reflected USAID activities funded by
fiscal year 2003 appropriated funds for the reestablishment of health
services. Activities included the rehabilitation of primary health
clinics, a vaccination program for Iraqi children against measles,
mumps, rubella and polio, procurement of equipment for primary health
clinics, and technical assistance to the Iraqi Ministry of Health.
[37] This amount does not include appropriated or Iraqi funding
disbursed for health sector activities from the Commander's
Humanitarian Relief and Reconstruction Program, Commander's Emergency
Response Program, Rapid Regional Response Program, Accelerated Iraqi
Reconstruction Program, or USAID's Community Action Program, Office of
Transition Initiatives programs, and Office of Foreign Disaster
Assistance programs.
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