[Senate Hearing 109-851]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-851
 
                 IRAQ STABILIZATION AND RECONSTRUCTION

=======================================================================

                                HEARING



                               BEFORE THE



                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE



                       ONE HUNDRED NINTH CONGRESS



                             SECOND SESSION



                               __________

                            FEBRUARY 8, 2006

                               __________



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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota              JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio            RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee           BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
LISA MURKOWSKI, Alaska               BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page

Biden, Joseph R., Jr., U.S. Senator from Delaware, opening 
  statement......................................................    13
    Prepared statement...........................................    14
Bowen, Stuart W., Jr., Special Inspector General for Iraq 
  Reconstruction (SIGIR), Office of the SIGIR, Arlington, VA.....     3
    Prepared statement...........................................     6
    Responses to questions submitted by Senator Lugar............    75
    Responses to questions submitted by Senator Biden............    83
Christoff, Joseph A., Director, International Affairs and Trade, 
  Government Accountability Office, Washington, DC...............    15
    Prepared statement...........................................    17
    Responses to questions submitted by Senator Lugar............    77
Jeffrey, Hon. James, Senior Advisor to the Secretary and 
  Coordinator for Iraq Policy, Department of State, Washington, 
  DC.............................................................    27
    Prepared statement...........................................    29
    Responses to questions submitted by Senator Lugar............    78
    Responses to questions submitted by Senator Biden............    84
    Response to question submitted by Senator Nelson.............    91
Kunder, Hon. James R., Assistant Administrator for Asia and the 
  Near East, U.S. Agency for International Development, 
  Washington, DC.................................................    31
    Prepared statement...........................................    33
    Responses to questions submitted by Senator Lugar............    81
    Responses to questions submitted by Senator Biden............    90
Lugar, Hon. Richard G., U.S. Senator from Indiana, opening 
  statement......................................................     1

                                 (iii)

  


                 IRAQ STABILIZATION AND RECONSTRUCTION

                              ----------                              


                      WEDNESDAY, FEBRUARY 8, 2006

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:35 a.m., in 
room SH-216, Hart Senate Office Building, Hon. Richard G. Lugar 
(chairman of the committee) presiding.
    Present: Senators Lugar, Hagel, Chafee, Voinovich, 
Murkowski, Martinez, Biden, and Feingold.

 OPENING STATEMENT OF HON. RICHARD G. LUGAR, U.S. SENATOR FROM 
                            INDIANA

    The Chairman. The committee will come to order.
    The Committee on Foreign Relations meets today to examine 
ongoing efforts to achieve the reconstruction and development 
of Iraq. We will be considering testimony from two government 
oversight agencies tasked with investigating and evaluating 
United States programs in Iraq. We have invited officials from 
the State Department and USAID to provide their Agencies' 
perspectives on the rebuilding efforts.
    We welcome Stuart Bowen, Jr., Special Inspector General for 
Iraq; Joseph Christoff, the Director of International Affairs 
and Trade at the GAO; Ambassador James Jeffrey, the Senior 
Adviser to the Secretary of State and Coordinator for Iraq 
Policy; and James Kunder, the Assistant USAID Administrator for 
Asia and for the Near East.
    We thank our witnesses for their service to our country and 
for their appearance before us today.
    The Foreign Relations Committee frequently has reviewed the 
progress of Iraq reconstruction and economic development 
efforts. At various intervals since the invasion of Iraq, we've 
expressed the urgency of moving forward with the reconstruction 
effort and of increasing the percentage of aid that actually 
benefits Iraqis. Prospects for a better economic future and the 
development of an open, transparent political process are 
intertwined. If Iraqis perceive that their daily lives are 
improving, they are more likely to take risks to oppose 
insurgents and restrain factional groups that seek to fragment 
their country.
    Today, we will ask Mr. Bowen and Mr. Christoff to outline 
the findings of their investigations and to summarize the 
problems and challenges described in their reports. Many of 
their findings about reconstruction efforts during the time 
period immediately following the 2003 invasion have been 
discussed in the press. While lessons can be learned from those 
early days, I have asked Mr. Bowen and Mr. Christoff to focus 
on the period since June 28, 2004, when the State Department 
became the lead executive branch agency overseeing 
stabilization and reconstruction in Iraq.
    This committee has jurisdiction over the State Department 
and USAID. As we perform oversight over these Agencies, we are 
seeking lessons that can improve our ongoing operations. 
Consequently, the objective of this hearing is to look to the 
future. With that in mind, we should recognize that a 
discrepancy has existed between our reconstruction ambitions 
and the projects and programs that we've actually been able to 
deliver. What is needed is a realistic assessment of what our 
reconstruction mission can achieve with the money Congress has 
appropriated. Beyond that, we must gauge what the Iraqi 
Government, itself, can achieve and whether other international 
support will be forthcoming.
    The Inspector General's report calls 2006 the year of 
transition for the United States reconstruction program in 
Iraq. We must make certain that funds are being distributed 
according to a clear set of priorities. We must work with the 
new Iraqi Government to help it stem corruption that results in 
funds being siphoned away from important goals, and we must 
work to ensure that local and regional leaders are capable of 
protecting water, electrical, and other infrastructure projects 
as we phase down our military involvement.
    It has become common in discussions of Iraq to say that 
without security little can be achieved politically or 
economically. Our witnesses will share with us estimates of the 
tangible costs of security. We are interested in knowing if 
these security costs are decreasing, either because attacks are 
being reduced or because Iraqis are taking over a larger role 
of protecting reconstruction activities.
    Given the current situation in Iraq, what more should we be 
doing to consolidate the reconstruction progress that has been 
made? That will be a central focus for us today. And can the 
Iraqi Government effectively go forward on its own with 
reconstruction? Do we have sufficient funds to finish the large 
infrastructure projects that have begun? And are we getting 
enough value out of these projects to justify their expense?
    One key to long-term Iraqi stability is the revenue from 
oil exports. Is the reconstruction of Iraqi oil infrastructure 
adequately prioritized? Is our reconstruction schedule being 
sufficiently coordinated with plans to phase down our military 
presence?
    We appreciate the study and analysis that our witnesses 
have given to these questions, and we look forward to their 
insights.
    Let me mention that the distinguished ranking member of the 
committee is on a train and has been delayed, and he will be 
here shortly. And so, I'll recognize him for his opening 
statement, as that is appropriate in our hearing, but we'll 
proceed with our witnesses.
    And I want to call first upon Stuart W. Bowen, Jr., Special 
Inspector General for Iraq Reconstruction, Office of SIGIR, 
Arlington, Virginia.
    Mr. Bowen, would you proceed with your testimony?

 STATEMENT OF STUART W. BOWEN, JR., SPECIAL INSPECTOR GENERAL 
     FOR IRAQ RECONSTRUCTION (SIGIR), OFFICE OF THE SIGIR, 
                      ARLINGTON, VIRGINIA

    Mr. Bowen. Thank you, Mr. Chairman. And thank you for the 
opportunity to address you today on my office's oversight of 
Iraq reconstruction. The Special Inspector General for Iraq 
Reconstruction has been about this work for almost exactly 2 
years now, first, as the CPA-IG and, for the last 18 months, as 
the SIGIR.
    This hearing is particular timely, in light of the fact 
that, just last week, we released our eighth quarterly report 
to Congress. The report details 20 new audits and inspections 
that address the most current and compelling challenges facing 
the United States reconstruction effort in Iraq. SIGIR has now 
completed 70 audits and inspections since its inception, and 
together they provide an important perspective on United States 
progress in Iraq.
    Today, I want to announce SIGIR's intent to begin an audit 
that addresses what we see as the most compelling and paramount 
issue in this year of transition, and that is infrastructure 
security. Specifically, we're going to look at capacity-
building in infrastructure security.
    It is common to hear observers of Iraq talk about the fact 
that current outputs are below prewar levels, but that sort of 
snapshot analysis doesn't tell you very much. It's fine to 
observe that the megawatts currently on the grid are about 
3,800, whereas, they were at 4,500, prewar. But it misses the 
point. Last summer, they were at 5,300.
    So, what has happened since last summer? And what has 
happened is an incessant--an insidious insurgency has 
repeatedly attacked the key infrastructure targets, reducing 
outputs. It raises the issue, Is there adequate security for 
the infrastructure in place? And, more specifically, are the 
Iraqis being empowered to protect their own infrastructure? The 
infrastructure is the lifeblood of the economy. The oil output 
is essential to the national income.
    I have provided charts to the committee that show the rate 
of attacks on oil facilities over the last year, and how it 
relates to output. And you'll notice on those charts that last 
September there was a surge in attacks on oil facilities. The 
Beji facility was attacked and taken offline for a while, and 
we saw, immediately after that, a dramatic drop in oil output. 
Again, in December, heavy attacks on the oil infrastructure; 
and, again, a significant drop in output.

    [Editor's note.--The charts mentioned were not reproducible 
in this hearing but will be maintained in the committee's 
permanent record.]

    The key issue, I think, to ensure that the lifeblood of 
Iraq's economy, its infrastructure, is in place and functioning 
in the short and the long term, is that they have sufficient 
capacity to protect their infrastructure. That's a security 
issue, but it's a refined security issue, and it's what we see 
as the most important security issue for the U.S. 
reconstruction program right now.
    For the past 2 years, SIGIR has provided aggressive 
oversight to prevent fraud, waste, and abuse in the dangerous 
operating environment that is Iraq. Our emphasis has been on 
realtime auditing, where guidance is provided immediately to 
management upon the discovery of the need for a change. This 
approach provides for independent assessments while 
effectuating rapid improvements.
    Of note, last quarter we made our first four arrests, and 
last week a conviction arose from the investigations we 
conducted regarding the corrupt practices in the south-central 
region of the Coalition Provisional Authority. One important 
lesson of these arrests is that oversight works, and it works 
well, when it's on the ground and aggressive. The crimes we 
uncovered were committed in the early days of the CPA, and it's 
important to note that they involved Iraqi money, not 
appropriated dollars. They, in fact, occurred before formal 
oversight was in place. In fact, most of the criminal scheme 
was unfolding before I arrived in Iraq, in February 2004.
    But your focus today, Mr. Chairman, rightly, is on the 
current management of U.S.-appropriated money, and it's the 
focus of our current work. Our mission at SIGIR is to look at 
the IRRF. And we have 57 ongoing investigations, many of which 
involved the IRRF. But what I can tell you is that fraud and 
corruption has not been, and is not currently, a pervasive 
factor in the United States program in Iraq, certainly nothing 
compared to what we found in Hillah, and continue to find, as 
we investigate and examine what occurred during CPA almost 2 
years ago.
    I can also report that we have, over the past year, 
observed continuous improvement in the management of projects 
funded by the IRRF, and the many organizations engaged in Iraq 
reconstruction have improved their coordination, beginning to 
push back against the stovepiping that burdened the early days 
of Iraq reconstruction.
    Moving forward, as you noted, we see 2006 as the Year of 
Transition for the United States reconstruction program in 
Iraq; indeed, for the United States presence in Iraq. The 
successful 2005--December 2005 elections launched Iraq into a 
new phase of its history, now has its first stable government 
in 3 years. We've had three governments in 2 years. Now we have 
one in place for 4 years. We're going to see that stability 
begin to bleed into, and reflected in, stability of the 
infrastructure as that security issue that I've mentioned gets 
addressed.
    By the end of this fiscal year the United States expects to 
have fully obligated the Iraq Relief and Reconstruction Fund, 
and the latest forecast by the Army Corps and USAID indicate 
that project completion will be by August 2007.
    Eighteen billion in IRRF dollars have provided a 
substantial downpayment on what will be a lengthy restoration 
process of Iraq's infrastructure, a process that even early 
estimates by the World Bank pegged at $56 billion. We know that 
that number, in fact, will be much higher.
    The progress made, thus far, with United States 
reconstruction funds have supplied the new Iraqi Government 
with a significant basis for establishing an effective 
infrastructure, but we cannot walk away from this huge 
investment without knowing that the new Iraqi Government will 
have the capacity to sustain what we have built.
    SIGIR has announced a new audit on transition planning. 
This will complement our audits on security. What are the plans 
to move the assets over? Is there sufficient O&M money in place 
to ensure that what we've built keeps running? Have the Iraqis 
been empowered to operate that infrastructure? And, most 
importantly, I now see, and as our report indicates the 
evidence shows, can we protect that infrastructure? Can they 
protect that infrastructure, more to the point?
    Meanwhile, this quarter's audits tell a story of projects 
that will not be completed and outputs that are below prewar 
standards, but first let me clarify to the committee what we 
mean by ``the reconstruction gap.'' It identifies projects that 
won't be completed in electricity and oil and water because of 
a shift of dollars into security. As the committee well knows, 
in 2004 we had to make a reassessment based on the insurgency. 
And $5.8 billion was reallocated, a large portion of it into 
security, an appropriate reallocation, as we've all seen. We 
are now beginning to see the fruits of that reallocation as 
Iraqi battalions take the field, supplanting United States 
battalions.
    But when you look at the outputs from each of those 
infrastructure sectors, you see that in the summer of 2005 we 
exceeded our goals, as I mentioned. But due to incessant 
attacks in the last 6 months, our current focus is on 
infrastructure security.
    One other issue I want to quickly touch upon is the 
importance of United States support for anticorruption efforts 
in Iraq. I am encouraged by Ambassador Khalilzad's calling for 
an anticorruption summit with the Iraqis in November, which he 
held, and to great benefit. The Commissioner on Public 
Integrity was there. Judge Rhadi al Rahdi, who I meet with 
whenever I'm there--I'm leaving for Iraq tonight, on my 11th 
trip. I will be meeting with him next week, and I'll meet the 
Board of Supreme Audit, I'll meet with the IGs, and, again, 
continue to express directly to them our support for their 
important efforts to fight corruption. We are fighting two 
insurgencies, really, in Iraq. We're fighting the one in the 
field, the one that's hitting the infrastructure, but we're 
also fighting a hidden insurgency that--the corruption issue 
that confronts us. And the most important effort we can make to 
fight corruption in Iraq is to support the Iraqi entities 
charged with that mission--and two of them are new. The IGs are 
new to that culture. The Commission on Public Integrity is new. 
That's their FBI. They--they're still getting their ``sea 
legs,'' so to speak, in fighting corruption over there, and 
we've got to keep pushing it, because it's an issue that has 
dogged the effort and continues to burden Iraq's new democracy.
    Moving beyond IG's traditional role of providing audits, 
SIGIR has also undertaken the development of a retrospective 
analysis of the United States reconstruction experience in Iraq 
through a lessons-learned initiative. Our first report on human 
capital management will be out next week. We have, ongoing 
right now, a detailed look at contracting and procurement. How 
did it happen? There are several phases of the very fluid 
process regarding how contracting was executed there. That'll 
be out in May. We'll be looking at program management, which 
will be out in the summer. At the end of the year, we'll 
publish a single-volume treatise that tells that story.
    But this lessons-learned initiative has a key purpose, and 
that's to pull out and support the new systemic shift in the 
government, focused on reconstruction and stabilization. NSPD-
44 points the direction, and we're going to try and help 
advance that effort.
    I am pleased to say that the cooperation we're receiving 
now from those who are executing Iraq reconstruction has been 
engaged and effective, and that has helped my organization 
advance the overall success of what is going on in Iraq now. 
When I get back there next Sunday--I'll be there for almost a 
month--I'll be meeting with Ambassador Speckhard, at IRMO, and 
General McCoy, at the Corps of Engineers, and General Casey and 
Ambassador Khalilzad. And I'm pleased to say that they have 
been responsive and that I'm pleased with the coordination now. 
It's better now than it's been since we started.
    So, our bottom line is, our relations with those who are 
managing Iraq reconstruction are positive and productive, 
they're providing our auditors, inspectors, engineers, and 
investigators with the access they need to provide the 
oversight and the information you need to understand exactly 
how are we doing in Iraq reconstruction.
    I'm also gratified that Congress has recognized the impact 
of our office and extended our tenure. I will continue to serve 
Congress and the Secretaries of State and Defense by providing 
rigorous oversight to prevent fraud, waste, and abuse in Iraq.
    I appreciate this opportunity to participate in this 
important hearing, and I look forward to answering any 
questions that the committee may have.
    Thank you.
    [The prepared statement of Mr. Bowen follows:]

 Prepared Statement of Stuart W. Bowen, Jr., Special Inspector General 
      for Iraq Reconstruction, Office of the SIGIR, Arlington, VA

                              INTRODUCTION

    Mr. Chairman, Ranking Member Biden, and members of the committee, 
thank you for the opportunity to address you today on important matters 
regarding the role of the United States in the reconstruction of Iraq 
and the oversight of such efforts provided by my office, the Special 
Inspector General for Iraq Reconstruction (SIGIR). I hope for a 
productive exchange of views and ideas in this hearing to illuminate 
issues and challenges regarding Iraq reconstruction that we are now 
confronting.
    This hearing is particularly timely as I released, last week, the 
January 30, 2006, Quarterly Report to Congress and to the Secretaries 
of State and Defense containing seven new audit reports detailing 
challenges, issues, and concerns in Iraq reconstruction efforts. SIGIR 
has now completed a total of 70 audit reports and project inspections. 
These provide an important perspective on U.S. progress in Iraq.
    Throughout 2005, SIGIR provided aggressive oversight to prevent 
waste, fraud, and abuse in the, at times, lethal operating environment 
in Iraq. My emphasis on real-time auditing--where guidance is provided 
immediately to management authorities upon the discovery of a need for 
change--provides for independent assessments while effecting rapid 
improvements.
    Your letter inviting me to appear before you, today, asked me to 
focus primarily on the management of appropriated funds, rather than 
the Iraqi funds that were used primarily during the era of the 
Coalition Provisional Authority. You emphasized the importance of 
understanding how funds provided, so far, have been managed, what 
lessons we have learned from our mistakes, and how we can improve the 
way we do business so that every dollar is effectively spent.
    Your charge for this hearing is ``right down the middle'' of our 
mission in our oversight of Iraq reconstruction. Today, I will focus, 
as requested, on the management of appropriated funds. However, I would 
first note that a primary lesson learned is rooted in the handling of 
the Iraqi money by the CPA. This lesson: Oversight delayed is oversight 
denied.
    Last week, an individual who had been employed by the CPA to manage 
reconstruction funds in south-central Iraq, was convicted of bribery 
and fraud--the conclusion of a criminal case opened by SIGIR 
investigators in 2004. This individual is one of four subjects 
currently identified in connection with criminal activities involving 
Iraqi money that was intended for the benefit of the Iraqi people.
    Court documents released last week contained a number of electronic 
messages between these individuals as they coordinated their criminal 
activities. Many of these e-mails were transmitted in January 2004--a 
period when their activities, which had gone on for months, were in 
full swing.
    Coincidentally, in January 2004, January 20 to be precise, I was 
appointed as the Coalition Provisional Authority Inspector General. 
This appointment was the first substantive measure to provide oversight 
of Iraq reconstruction programs and operations. Unforttmately, the 
establishment of an inspector general came months too late to deter 
these criminal activities.
    However, while we were not in place to keep these crimes from 
occurring, the trails of those who committed crimes in Iraq are still 
warm enough for us to follow. In partnership with the Department of 
Homeland Security Bureau of Immigration and Customs Enforcement, the 
Internal Revenue Service Criminal Investigation, and the Department of 
State Inspector General, we have created an interagency Special 
Investigative Task Force for Iraq Reconstruction, or SPITFIRE. With our 
SPITFIRE partners, and with the strong cooperation of the Department of 
Justice, we will continue to identify, arrest, and prosecute those 
relative few who dishonored our Nation's efforts in the reconstruction 
of Iraq.
    Thus, the lesson is that oversight works, and it works well when it 
works hard. But, it works more efficiently the earlier it is put in 
place. Provisions for formal oversight of Iraq reconstruction should 
have been established at the very beginning of the endeavor.
    While there has been much attention given to our work involving the 
Iraqi funds that were used by CPA for Iraq reconstruction, our current 
work chiefly involves the funds appropriated in the Iraq Relief and 
Reconstruction Fund (IRRF). I believe it is important to address 
apparent confusion in reports about the funds that were lost from the 
criminal activities we are investigating: We have found limited 
evidence of crimes involving appropriated funds provided by the 
American taxpaying public. Corruption is not a pervasive problem on the 
U.S. side of the reconstruction program. While we have found and 
reported inefficiencies and waste in the management of reconstruction 
contracts, projects, and finances, the problems and lack of controls in 
spending appropriated funds were far less serious than those that we 
found, and investigated, in the management of Iraqi funds used in 
reconstruction.
    Even under the difficult conditions of Iraq, we have observed 
continuous improvement. The multiple organizations engaged in Iraq 
reconstruction have improved their coordination. The recent 
reorganization to integrate the Project and Contracting Office (PCO) 
with the Gulf Regional Division of the Army Corps of Engineers has 
contributed to these improvements.
    Today, to focus on the management of appropriated funds applied to 
the relief and reconstruction of Iraq, I will discuss the findings from 
our audits of programs and inspections, and our continuing interactions 
with reconstruction management.
    In addition to providing these typical products of inspector 
general oversight, SIGIR has also undertaken development of a 
retrospective analysis of the U.S. reconstruction experience in Iraq. 
This lessons-learned initiative is unfolding in three parts: Human 
capital management, contracting and procurement, and program and 
project management.
    Our lessons-learned process is rigorous. In addition to the 
significant data we have collected in our normal oversight activities, 
we have gathered information from a broad range of sources, especially 
from those who had boots-on-the-ground Iraq reconstruction experience. 
As well, we have been successful in attracting the participation of 
experts, in and out of government, to help us to understand clearly, 
what our Nation must learn from the Iraq reconstruction experience. I 
will discuss the progress of this effort during this hearing.
    Let me first review and highlight some of our findings from the 
most recent SIGIR Quarterly and Semiannual Report to the U.S. Congress, 
which we delivered last week.

                               TRANSITION

    2006 is a year of transition for the U.S. reconstruction program in 
Iraq. The successful December 2005 elections launched Iraq into a new 
phase of its history. The first government elected under Iraq's new 
Constitution is now forming and will soon assume responsibility for 
managing Iraq's economy and infrastructure.
    By the end of this fiscal year, the United States expects to have 
fully obligated the Iraq Relief and Reconstruction Fund (IRRF). IRRF 
dollars represent only a portion of the amount estimated by the World 
Bank and United Nations (U.N.) to be necessary to restore Iraq's 
infrastructure. The IRRF has provided a substantial downpayment on what 
will be a lengthy restoration process. The progress made thus far with 
U.S. reconstruction funds has supplied the new Iraqi Government with a 
significant start toward establishing an effective infrastructure and 
eventual prosperity.
    As more and more IRRF-funded projects are completed, the U.S. 
agencies and elements that currently manage and implement the overall 
U.S. reconstruction effort, including the Iraq Reconstruction 
Management Office (IRMO), U.S. Agency for International Development 
(USAID), and the U.S. Army Corps of Engineers Gulf Region Division 
Project and Contracting Office (GRD-PCO), will implement transition 
strategies to ensure that completed projects and related assets are 
turned over to the appropriate Iraqi officials who have the training 
and budgetary resources necessary to sustain them.
    As the transition process gains momentum, the U.S. reconstruction 
presence in Iraq should begin to shift toward foreign assistance 
programs managed by the Department of State (DOS) and the U.S. Agency 
for International Development (USAID).
    Regarding the reconstruction transition, SIGIR has several 
concerns:

   Do all of the U.S. reconstruction implementing agencies in 
        Iraq have strategic plans in place for transitioning their 
        respective parts of the reconstruction program?
   Are there sufficient resources to support capacity 
        development for national and local government officials, 
        operations and maintenance, infrastructure security?
   Have Iraqi officials sufficiently budgeted and planned for 
        the essential maintenance of the new, U.S.-provided, 
        infrastructure?
   Is the United States prepared to sustain the reconstruction 
        presence required to complete planned projects that may take 
        another 3 or 4 years to complete?

    There are significant signs that transition planning is being 
implemented--the Iraq Reconstruction and Management Office, Department 
of State, and Department of Defense are reviewing critical issues of 
funding and transition. The importance of this issue compels SIGIR to 
announce a new audit to review all reconstruction transition planning.

                           RECONSTRUCTION GAP

    SIGIR introduced the concept of the Reconstruction Gap with our 
October 30 report to Congress. We define the Reconstruction Gap as the 
difference between what was originally planned for reconstruction in 
the various sectors and what will actually be delivered.
    To be clear, this is not an alarm bell, but merely an observation 
of a current reality: Changing conditions in Iraq, including 
deteriorating security conditions and evolving political and economic 
priorities, required IRRF reprogramming that altered sector funding 
levels and projected outcomes.
    During the last quarter, we conducted an audit to examine the 
Reconstruction Gap further. We found that the U.S. Government will not 
complete the number of projects anticipated by the IRRF program 
allocations in the November 2003 legislation. Our audit found these 
shortfalls:

   Of the 136 projects originally planned in the water sector, 
        only 49 (36%) will be completed. Most of the projects planned 
        in sewerage, irrigation and drainage, major irrigation, and 
        dams have been cancelled.
   Of the 425 projects originally planned by CPA in the 
        electricity sector, only 300 (70.5%) will be completed. Of the 
        3,400 additional megawatts planned for the generation 
        subsector, 2,200 megawatts will be delivered.

    These shortfalls are substantially attributable to the autumn 2004 
IRRF reprogramming, which increased the funding available for security 
by reducing the allocations to the water sector from $4.3 billion to 
$2.1 billion (down 51.2%). The electricity sector dropped from $5.560 
billion to $4.309 billion (down 22.5%). Allocations to certain other 
sectors in addition to security increased: The Private Sector 
Development sector grew from a very low by 420 percent, and the 
Justice, Public Safety, Infrastructure, and Civil Society sector rose 
by 70 percent.
    A number of factors combined to make these program changes 
necessary, the most significant being the rise of the insurgency. A new 
strategy that was more responsive to the new security and political 
situation in Iraq resulted in the reallocation of a total of $5.6 
billion in IRRF funding since August 2004. Additionally, administrative 
costs of the U.S. agencies implementing IRRF programs caused another 
$425 million in program cuts. Another $350 million is now budgeted for 
new sustainment activities that were not included in original planning. 
Finally, the following factors have also contributed to the 
reconstruction gap:

   Inadequate or nonexistent cost estimates for many projects 
        in the original November 2003 plan;
   Increased costs of materials, particularly in the oil and 
        gas sector, aggravated by smuggling of subsidized construction 
        materials across Iraq's borders;
   High costs of contractor security;
   High costs of project delays caused by intimidation and 
        violence;
   Evolving reconstruction priorities to fit the Multi-National 
        Force-Iraq campaign plan and political requirements; and
   Lack of oversight of reconstruction projects as they 
        developed.

    I believe that more resources must be allocated to sustainability--
the ability of a program to deliver its intended benefits for an 
extended period of time after major financial, managerial, and 
technical assistance from an external donor is terminated.
    But the story of the Reconstruction Gap is fundamentally about 
security needs driven by a lethal and persistent insurgency. In 
addition to the reallocation by DOS of $1.8 billion to training and 
equipping Iraqi security forces, the costs for the security of 
contractors have risen on average to more than 25 percent.
    While this security spending reduces the funds available for actual 
reconstruction, it is vital. This is demonstrated most clearly by the 
number of contractors killed, kidnapped, or wounded. Intimidation of 
workers continues to delay projects, and the insecure environment has 
driven away critically needed foreign technicians in the essential 
service sectors.
    It is difficult to overstate the impact of violence on the 
reconstruction program. Often, those commenting on Iraq reconstruction 
begin by stating that electrical capacity is lower than prewar levels. 
They are correct. However, not many realize that electrical capacity 
grew above prewar levels in mid-2004 and peaked in July 2005. Since 
then, however, the insurgents have targeted the electrical 
infrastructure, sabotaging the towers that carry high-voltage lines to 
Baghdad from generating facilities in the south. As well, increasing 
demand for electricity, provided to consumers at no cost, the influx of 
new appliances and new customers, and the creation of new industries, 
businesses, factories, and jobs also contribute to nationwide 
shortages.

                             SUSTAINABILITY

    SIGIR audit report published October 24, 2005, noted: ``There is a 
growing recognition that the Iraqi Government is not yet prepared to 
take over the near- or long-term management and funding of 
infrastructure developed through the IRRF projects.'' Key 
recommendations from the October quarterly report--including the 
creation of a sustainment coordinator--have been implemented, but the 
coordinative function should continue to be a high priority for 
reconstruction managers in Iraq.
    SIGIR audits conducted this quarter made these key sustainability 
recommendations:

   Create a single database of IRRF-related assets and provide 
        it to the Iraqi Government to support planning and budgeting.
   Coordinate plans and funding for the sustainment of 
        Commander's Emergency Response Program (CERP) construction 
        projects with DOS, IRMO, GRD-PCO, and USAID.

    Through our project inspections, which are conducted by teams of 
SIGIR auditors and engineers, we also gain insight into the 
sustainability of reconstruction projects.

                            COST-TO-COMPLETE

    The cost-to-complete a project is defined as the total estimated 
cost of the project, less the actual cost of work performed to date. 
Nearly a year ago, SIGIR reported that the U.S. reconstruction program 
did not have reliable cost-to-complete estimates for its projects. The 
failure to compile and report cost-to-complete information, as required 
by Public Law 108-106, has made it difficult for implementing agencies 
to exercise effective fiscal management of IRRF dollars. Without 
current and accurate cost-to-complete data, management cannot determine 
whether sufficient funds will be available to complete ongoing work, 
nor can it project the availability of funds for any new programs or 
projects. This has also deprived SIGIR of the financial visibility I 
need to execute my oversight responsibility.
    For the past year, SIGIR auditors have continually pressed for 
accurate cost-to-complete data. DOS confronted the issue last spring: 
In March 2005, a DOS team went to Baghdad to press for cost-to-complete 
data from agencies implementing the IRRF. This effort has produced 
limited success.

                         ANTICORRUPTION EFFORTS

    Success in the reconstruction could be eroded in the long term 
unless Iraq is successful in developing and implementing substantial 
anticorruption measures. SIGIR is committed to intensifying U.S. 
efforts to promote an effective anticorruption system within the Iraqi 
Government and commends the U.S. mission's efforts thus far to support 
anticorruption institutions in Iraq. In the October 2005 Quarterly 
Report, we urged the Ambassador to hold an anticorruption summit, which 
he did in November 2005. The summit resulted in a proposal for a joint 
United States-Iraqi Anticorruption Working Group and initial agreement 
on the need for more training for officials from the Board of Supreme 
Audit, the Commission on Public Integrity, and the inspectors general 
of the Iraqi Ministries. The Embassy Anticorruption Working Group 
previously identified several major priorities, including:

   Promoting market reforms and reducing subsidies;
   Helping to reinforce the weak law enforcement structure; and
   Creating a public education campaign on the corruption 
        issue.

    SIGIR continues to support the Iraqi inspectors general system 
since its inception in 2004. The Iraqi IGs are charged with auditing, 
investigating, and reviewing the accountability and integrity of the 
Ministries, and with preventing, deterring, and detecting waste, fraud, 
and abuse. Although this is a new system in Iraq, and in the region, 
and will take time to function effectively, the continued development 
and progress is encouraging.
    In addition, the Board of Supreme Audit (BSA), though a holdover 
from the prior regime, is well respected by senior Iraqi officials and 
provides effective audit work across all Ministries. Despite the 
hazardous environment in which we all find ourselves working, the BSA 
has expressed interest in using SIGIR's audit work in its own efforts.
    As the anticorruption efforts continue, SIGIR will audit to 
evaluate progress.

                             THE HUMAN TOLL

    The lethal environment in Iraq continues to pose extraordinary 
challenges to reconstruction contractors. Since reconstruction began in 
March 2003, 467 death claims for contractors of all nationalities have 
been submitted under the Defense Base Act, according to the U.S. 
Department of Labor. The daily situation reports of the Gulf Region 
Division of the U.S. Army Corps of Engineers present the full range of 
dangers facing those who work on reconstruction projects in Iraq. The 
reports routinely list kidnappings, murders, attacks, bombings, armed 
vandalism, and threats. The January 13, 2006, report, for example, 
listed a car bombing, a gunshot through a car window, armed vandalism, 
a threat delivered by five armed and masked men on a jobsite, and six 
attacks on contractors.

                     INFORMATION SYSTEMS MANAGEMENT

    Throughout 2005, SIGIR advised IRMO of the need for a single 
database for reconstruction projects in Iraq. Last quarter, IRMO 
mandated the creation of a consolidated database by December 2005, but 
this system has yet to become operational. As a result, it is difficult 
for me to assess the current progress of the overall project portfolio 
or to identify potential problems with individual projects. The 
reconstruction effort is too large and too important to be managed 
without access to accurate and complete data about the projects 
involved. IRMO and the implementing agencies in Baghdad are trying to 
develop a common policy and process to facilitate the legal, financial, 
and logistical transfer of assets to the Iraqi Government. Two 
interagency working groups in Baghdad are addressing the problem. We 
continue to develop the SIGIR Iraq Reconstruction Information System 
(SIRIS), but the difficulties in extracting data from U.S. Government 
agencies in Iraq hinder our responsiveness.

                            LESSONS LEARNED

    Recognizing an exceptional opportunity to fulfill an important 
need, SIGIR has undertaken the task to derive the lessons that should 
be learned and retained from our Nation's experience in the rebuilding 
of Iraq. While this goes beyond the normal functions of an inspector 
general, we feel we have a responsibility to provide valuable advice as 
the United States develops new approaches to stabilization and 
reconstruction operations.
    Through a process as rigorous as is to be expected from an 
inspector general, we are identifying and cataloging the most 
significant challenges the U.S. Government has faced, and making 
recommendations to guide efforts both to develop national capabilities, 
and planning for contingencies. This process involves substantial 
research; we have drawn on the expertise and experiences of those who 
served in Iraq and those who participated or observed from the outside. 
Perspectives gathered through interviews and inputs of individuals are 
then incorporated into white papers, which provide the foundation for 
discussions by panels of senior executives and experts from government, 
industry, and academia. From these discussions emerge more substantial 
white papers and specific recommendations, which are then refined 
through a review and comment process by the participants. Once we 
achieve consensus, the final, and authoritative, report is published.
    Begun in September 2004, the SIGIR Lessons Learned Initiative 
focuses on three substantive areas that have affected the success of 
Iraq reconstruction programs and operations:

   Human Capital Management;
   Contracting; and
   Program and Project Management.

    The first lessons-learned forum, held on September 20, 2005, 
focused on human capital management and the range of personnel issues 
that emerged. The resulting report, ``Iraq Reconstruction Lessons 
Learned: Human Capital Management,'' will be released shortly, but 
several conclusions can be clearly drawn:

   There was no template for recruiting personnel to staff a 
        temporary surge relief and reconstruction effort.
   There was no contingency organization to lead the 
        reconstruction and relief process.

    The efforts in Iraq would have been greatly enhanced if a reserve 
civilian corps existed to deploy in such a situation, and contracting 
out the many responsibilities led to a lack of coordination. But it is 
important to remember that the Iraq reconstruction experience was 
affected by special circumstances that inhibited the ability to execute 
workforce planning. These circumstances included the temporary nature 
of the Coalition Provisional Authority, the deteriorating security 
environment, and inaccurate prewar intelligence on the existing Iraqi 
bureaucracy.
    SIGIR began research on Iraq reconstruction contracting in early 
autumn 2005. In December 2005, we completed a draft Contracting Lessons 
Learned Report, which we presented to two forums made up of experts 
involved with Iraq Reconstruction contracting. The first forum was for 
government officials, academics, and officials of nonprofit 
organizations and think tanks. The second forum was for private sector 
personnel who held (or hold) Iraq reconstruction contracts from USAID 
and/or DOD. We are currently in the process of incorporating the 
information gained from these two events, further research, and 
interviews into the draft report. The revised paper will then be sent 
to forum members and other appropriate persons for vetting, before 
final publication.
    Based on our research thus far, SIGIR has made the following key 
observations concerning Iraq reconstruction contracting:
    The need for cooperation and collaboration is the overarching 
requirement for successful post-conflict reconstruction contracting. 
The job in Iraq proved just too big for one agency or contractor. U.S. 
agencies and departments have various capacities, flexibilities, and 
differing areas of expertise in terms of contracting and program 
management. In Iraq, efforts seemed to be most successful when 
different agencies understood and leveraged each other's mandates, 
needs, skills, and strengths. Unfortunately, SIGIR research found many 
situations in which agencies' lack of cooperation contributed to 
contracting inefficiencies.

                           OTHER OBSERVATIONS

 Inclusion of Contracting Staff From the Beginning of Any 
    Reconstruction Effort. SIGIR research found that there was general 
    agreement among agencies concerned with Iraq reconstruction that 
    contracting plays a central role in mission execution and cannot be 
    an afterthought in the planning process. Whether for stabilization 
    or reconstruction, contracting officials can provide an accurate 
    and holistic picture of the resources needed to efficiently 
    contract for a given mission. This understanding extends to the 
    number of personnel required, their skills and functional areas, 
    and the systems and procedures required for them to operate 
    efficiently.
 Use of Flexible Contracting Mechanisms. There is mixed opinion 
    in the government contracting community about whether a ``wartime 
    FAR'' or other additional contracting regulations are required for 
    post-conflict reconstruction efforts. Our information to date 
    indicates that there needs to be a broader understanding of the 
    flexibilities that currently exist in the FAR and its supplements, 
    as well as the acceptable use of waivers and other provisions that 
    apply when speed and flexibility are critical. SIGIR research 
    indicates that not all contracting personnel in Iraq were properly 
    informed about FAR flexibilities and thus were sometimes hesitant 
    to use them, fearing that they might be subject to penalties for 
    incorrect or improper use of these options. Methods are needed that 
    would ensure personnel have the necessary knowledge and also the 
    confidence to use such flexible mechanisms when necessary.
 The Need for Better Requirements. In order to efficiently 
    procure an item or a service, contracting personnel must be 
    provided with an adequate description of customers' needs. The 
    inability to properly define and prepare these ``requirements 
    statements'' for projects appears to be a significant and 
    continuing shortcoming of the Iraq reconstruction process. To 
    remedy this, customers and contracting personnel must work closely 
    together on a continuing basis. There also needs to be sufficient 
    personnel on the customer side--both in the field and in the United 
    States--capable of laying out requirements with appropriate detail 
    and accuracy. Moreover, in Iraq, this ability must be transferred 
    to local personnel through capacity-building, in order to 
    strengthen long-term contracting capabilities.
 Use of Special Contracting Programs. During the reconstruction 
    effort in Iraq, various programs containing flexible funding and 
    contracting mechanisms were used in order to enable quick execution 
    of small-scale projects. Some of these, such as USAID's Office of 
    Transitional Initiatives (OTI), predated the U.S. intervention in 
    Iraq, while others apparently evolved out of necessity during the 
    conflict, such as the Commanders' Emergency Response Program (CERP) 
    and the Commanders' Humanitarian Relief and Reconstruction Program 
    (CHRRP). Other such programs included CPA's ``Accelerated Iraq 
    Reconstruction Program (AIRP)'' and the Project and Contracting 
    Office's (PCO) Rapid Contracting Initiative for the electricity 
    sector.

   The focus of these programs was to meet immediate needs--
        especially employment generation that would help ameliorate 
        security conditions--and not necessarily the long-term 
        reconstruction of the country. Yet, these smaller programs 
        appear to be vital to creating an environment conducive to and 
        able to absorb larger, more sustainable reconstruction efforts.
   Given the generally positive performance of these programs, it 
        would be important in future reconstruction efforts to make 
        available designated pools of flexible funds for such 
        initiatives, and to create standardized, but unconstrictive, 
        mechanisms for contracting and managing these funds. It should 
        be noted, however, that these programs can present 
        accountability challenges due to their speed and flexibility.

 Sustainment of Advances and Innovations. Lessons have been 
    learned throughout the experience of Iraq reconstruction 
    contracting, resulting in improvements to contracting and related 
    processes. Examples include: The development of civilian-military 
    partnerships, creation of centralized contracting coordination, 
    flexible contracting mechanisms, and personnel who arrive in-
    country better prepared to carry out their required tasks. This 
    gain in understanding and capability needs to be institutionalized 
    within the concerned U.S. Government agencies for application in 
    future post-conflict reconstruction events.

    Overall Impact of the Security Situation on Contracting. This is an 
area where SIGIR continues to carry out research and looks forward to 
providing more information as our findings develop.
    The third and final topic we are reviewing in our lessons-learned 
initiative is program and project management. We are in the process of 
compiling a list of subject matter experts, and we plan to convene a 
forum in April.
    I hope that the lessons-learned initiative will enhance ongoing 
efforts in Iraq as well as to inform future U.S. reconstruction and 
stabilization planning and programs.

                             THE WAY AHEAD

    As I have noted, 2006 is a year of transition for Iraq 
reconstruction, and, of course, the Congress will face key decisions. 
As of February 1, the State Department reports that 84 percent of the 
$18.4 billion Iraq Relief and Reconstruction Fund is obligated, under 
contract. What remains is less than $3 billion, which we estimate will 
not permit the completion of all projects that were envisioned when the 
requirement for $18.4 billion was being determined in late 2003.
    While SIGIR has identified a Reconstruction Gap based on these 
initial requirements, and noted that water and electrical projects will 
not be completed, I reiterate that this is an observation--not an alarm 
bell.
    Our conclusions on this matter do not constitute an evaluation of 
the original list of projects. We are not saying that all of these 
problems must be finished to complete successfully the U.S. investment 
in the reconstruction of Iraq. In our view, rather than to focus the 
remaining resources on finishing up this list of projects, our 
investment in ensuring the sustainment of projects that are, or will 
be, completed, and efforts toward building the capacity of the Iraqis 
to take over the repair of their infrastructure will bring a much 
higher return.
    Also, among the improvements we have observed in the past year is 
the development of an integrated information management system to 
provide a more accurate picture for program management.
    I am pleased to say that the cooperation that this inspector 
general is receiving from those engaged in Iraq reconstruction is 
refreshing. When I return to Iraq later this week, I will be in regular 
contact with senior reconstruction management, including IRMO director, 
Ambassador Dan Speckhard, Army Corps of Engineers Gulf Regional 
Division commander, BG Bill McCoy, and MG Darryl A. Scott, who recently 
relieved MG John Urias, as Commander, Joint Contracting Office-Iraq. As 
well, I regularly meet with Ambassador Zalmay Khalilzad and the Multi-
National Force-Iraq commanding general, George W. Casey, Jr. Our 
relations are positive and productive and they are providing our 45 
SIGIR auditors, inspectors, engineers, and investigators in Iraq the 
access they need to provide this important oversight.

                               CONCLUSION

    We at SIGIR are vigorously carrying out the duties and 
responsibilities assigned by Congress in a highly hazardous 
environment. I am proud of my staff's commitment and willingness to 
serve in a dangerous land far from their families. We will continue to 
ensure effective oversight and timely reporting, and to promote the 
success of the Iraq reconstruction plan.
    I am gratified that Congress has recognized the impact of my office 
through the extension of our tenure. On November 10, the Congress 
passed Foreign Operations, Export Financing, and Related Programs 
Appropriations Act, 2006 containing an amendment to extend the duration 
of SIGIR oversight by modifying the SIGIR termination clause to base it 
upon the level of IRRF expenditures, instead of obligations. I will 
continue to serve Congress and the Secretaries of State and Defense by 
providing rigorous oversight to prevent waste, fraud, and abuse in 
Iraq.
    I appreciate this opportunity to participate in this important 
hearing, and I look forward to answering any questions that the 
committee may have.

    The Chairman. Thank you very much, Mr. Bowen, for your 
testimony.
    As promised, the ranking member is here, and, at this 
point, I would like to ask him for his opening comments.

 OPENING STATEMENT OF HON. JOSEPH R. BIDEN, JR., U.S. SENATOR 
                         FROM DELAWARE

    Senator Biden. Well, I'll be very brief, Mr. Chairman.
    I'd like to ask that my opening statement be placed in the 
record.
    The Chairman. It will be placed in the record in full.
    Senator Biden. I will just reference two parts of it.
    First of all, I want to thank all the witnesses for being 
here, and thank you for having this hearing, Mr. Chairman.
    And, Mr. Bowen, your report, I thought, was first rate, and 
I'm happy to hear that you're getting full cooperation. It does 
not surprise me. At this point, I think we have a first-rate 
Ambassador in place, and I think people want to straighten 
things out. The problems are legion. Some of them have been 
inherited, some we made ourselves: A lack of prewar planning, 
decrepit infrastructure that had been looted and raided, a 
security vacuum--as your report points out, security's worse 
now than it was in 2003 and 2004 and, I would argue, in the 
beginning of 2005, a misguided focus on massive centralized 
projects, in my view, and, to my surprise, the extent of the 
corruption. And you don't even know how wide that is yet.
    We have missed all of our major reconstruction targets by 
significant amounts, whether it was oil, electricity, water. 
There has been progress. We've built hundreds of schools and 
clinics in an incredibly difficult environment. Men and women 
in the State Department and AID have performed with 
extraordinary bravery and skill. But they're working against 
significant odds. And the irony is, after being told--I think, 
accurately--that we had to move quickly with this $18.4 billion 
a couple of years ago, because it had to have an immediate 
impact, here we are with $9 billion of it not spent yet, a 
significant portion being built on security, roughly $5,000 per 
Iraqi, so far. And I'm being a little facetious, but sometimes 
I wonder if we might have not been better writing a check for 
$5,000 for every Iraqi, in terms of changing their attitude.
    But I'm anxious to hear the rest of the witnesses. And, 
most importantly--and I think the whole committee would say 
this, on both sides--we're anxious to get this right. There's 
not much time left. There's not much time left. So, we look 
forward to your continued effort to, for lack of a better 
phrase, ``clean things up.'' And now that the transfer of this 
responsibility is at State, a lot of it, I'm looking for 
continued improvement, but we need significant, significant 
improvement.
    So, I thank you, Mr. Chairman, and I apologize to all of 
you for watching the caboose of the train leave as I jumped in 
my car and tried to get down here in time. And I apologize for 
that.
    So, thank you, Mr. Chairman.
    [The prepared statement of Senator Biden follows:]

  Prepared Statement of Hon. Joseph R. Biden, Jr., U.S. Senator From 
                                Delaware

    The next 6 months will help determine whether Iraq comes together 
or falls apart, and whether our mission is a success or a failure.
    The drawdown of American troops is already underway--I believe we 
will be down to 100,000 Americans by the end of this year, and half 
that number by the end of 2007.
    The critical question now is whether we will leave Iraq with our 
security interests intact, or whether we will have traded a dictator 
for chaos.
    The answer will depend on our success in three areas:
          First, we need to generate international pressure on Iraq's 
        main communities to form an inclusive government and agree to a 
        consensus constitution;
          Second, we must build Iraqi police and army forces with the 
        leadership, training, equipment, and logistical capabilities to 
        operate on their own;
          Third, we must develop Iraq's governing capacity and ability 
        to deliver basic services.
    Until recently, the administration's reconstruction effort in Iraq 
has been a textbook case of how not to go about rebuilding post-
conflict.
    The problems are well known and legion. Some we inherited. Some we 
made ourselves.
    A lack of prewar planning. A decrepit infrastructure run into the 
ground by three decades of neglect. A security vacuum that made 
reconstruction sites even more vulnerable to sabotage. A misguided 
focus on massive, centralized projects run by multinationals instead of 
small bore, Iraqi-led efforts with short-term payoffs. Gross 
mismanagement and corruption.
    Now, many Iraqis have less electricity than they did before the 
war. Last week, for example, the residents of Baghdad had just 5 hours 
a day.
    Oil exports lag 700,000 barrels a day below target, depriving Iraq 
of up to $15 billion a year.
    Too many homes have dirty water flowing from their taps and 
untreated sewage on their doorsteps. Unemployment is estimated at 40 
percent--providing a steady supply of recruits to the insurgency.
    Yes, there has been progress--we've built hundreds of schools and 
clinics--in an incredibly difficult environment. Men and women from the 
State Department and AID have performed with extraordinary bravery and 
skill. But they are working against the odds--odds made even longer by 
the miscalculations of their leadership here in Washington.
    The result is what Mr. Bowen has accurately described as a 
``reconstruction gap'' between what was promised and what has been 
delivered.
    This is not what the American people expected when Congress 
committed over $20 billion to rebuild Iraq. That translates to roughly 
$5,000 per Iraqi household--more than 5 years salary for an average 
Iraqi.
    Given the mismanagement, graft, and astronomical security costs, 
Mr. Bowen and others have described, one wonders whether we would have 
been better off simply writing a $5,000 check to every Iraqi family.
    During hearings the chairman and I held before the war, it was 
obvious that military planning was far ahead of civilian planning for 
the day after--or what we called the ``Decade After.''
    Now, almost 3 years later, the question is: Are we 3 years too 
late? Can we still turn this reconstruction effort around and deliver 
real results for the benefit of Iraqi people--and for the sake of our 
own interests in Iraq? If so, what will it take to do that? That's what 
I hope our witnesses will talk to us about today. Thank you.

    The Chairman. Thank you very much, Senator Biden.
    I'm going to call now on Mr. Christoff, then Ambassador 
Jeffrey, and then Mr. Kunder, so you will know the sequence.
    Joseph Christoff is Director of the International Affairs 
and Trade of the Government Accountability Office, the GAO, in 
Washington, DC.
    And we're very pleased to have you. If you'll please 
proceed with your testimony.

   STATEMENT OF JOSEPH A. CHRISTOFF, DIRECTOR, INTERNATIONAL 
     AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY OFFICE, 
                         WASHINGTON, DC

    Mr. Christoff. Thank you, Mr. Chairman and members of the 
committee. Thanks for inviting GAO to this important hearing.
    My testimony today is based upon numerous reports that GAO 
has issued on security, cost, and reconstruction issues in 
Iraq. First, I'd like to discuss three key challenges that the 
United States faces in both stabilizing and rebuilding Iraq.
    And, again, the first challenge is security. The continuing 
strength of the insurgency has made it difficult for the 
multinational force to transfer security responsibilities to 
Iraq and to draw down United States forces. Iraqi forces are 
growing in number, and they're taking an increasing lead in 
counterinsurgency operations. However, these forces will not be 
able to operate independently for some time, because they need 
logistical capabilities, ministry capacity, and command, 
control, and intelligence structures.
    Security has also affected the cost and schedule of 
reconstruction efforts. The State Department has reported that 
security represents 16 to 22 percent of the cost of 
infrastructure projects. But security is not the only problem. 
Other problems include disagreements among United States 
agencies, contractors, and Iraqi authorities on priorities, 
uncertain site ownership, high staff turnover, inflation, and 
unanticipated site conditions.
    The second challenge the United States faces is developing 
performance measures. Most measures do not assess how United 
States efforts are making a difference in the lives of the 
Iraqi people. In the electricity sector, the United States 
tracks the number of megawatts added to the power grid, but 
does not track the hours of uninterrupted service Iraqis 
receive daily. In the water sector, the United States reports 
the number of projects completed, rather than the number of 
clean water reaching Iraqi households.
    The third challenge is sustainability. The Iraqi Government 
has not been able to sustain the rebuilt infrastructure, due to 
shortages of power, trained staff, and supplies. As of July 
2005, $52 million in water and sanitation projects were not 
operating, or were operating at low capacity, due to these 
problems. In the electricity sector, some powerplants are using 
low-grade oil to fuel turbine engines designed to operate on 
natural gas. Iraqi powerplant officials told us that they had 
not received the additional training needed to operate and 
maintain these new engines. In response to our findings, the 
State Department has begun to develop metrics for measuring 
progress and plans for sustaining the U.S.-built 
infrastructure. And the fiscal year 2007 budget proposes 
resources for sustaining Iraq's infrastructure and building 
ministry capacity.
    Let me also turn to the challenges that a new Iraqi 
Government will face.
    Iraq will likely need more money for reconstruction than 
the $56 billion the World Bank estimated in 2006. The country's 
needs have increased, due to additional security costs, 
looting, sabotage, and more severely degraded infrastructure. 
In the oil sector alone, the Iraqi Government estimates that it 
will need $30 billion over the next several years to achieve 
its oil production goals. However, Iraq's contributions will be 
constrained by the cost of continuing subsidies, generous wages 
and pensions, and an expanding security force. Current 
government subsidies have kept prices low for food, fuel, and 
electricity. Low fuel prices have encouraged overconsumption 
and smuggling to neighboring countries. As part of an agreement 
with the IMF, Iraq plans to raise fuel prices to levels 
comparable to other gulf countries by the end of 2006. However, 
it's unclear whether the Iraqi Government will have the 
political commitment to raise fuel prices.
    It is equally unclear how the government will reduce food 
subsidies, since at least 60 percent of the Iraqi population 
depends on food rations. Food and energy subsidies account for 
about 18 percent of projected GDP in 2006.
    The Iraqi Government also owes billions of dollars to 
international creditors and victims of its invasion of Kuwait. 
Iraq's debt to creditors is about $51 billion, according to the 
IMF. In addition, Iraq owes about $33 billion to war victims. 
Depending upon the growth of oil revenues, Iraq may be paying 
for war reparations through the year 2020.
    So, in conclusion, the United States must ensure that the 
billions it has already invested in Iraq and its infrastructure 
are not wasted. The Iraqis need additional training to operate 
and maintain the powerplants, water treatment facilities, and 
healthcare centers that the United States has built. At the 
same time, Iraq's new government must work to reduce subsidies, 
control public salaries and pensions, and pay for its growing 
security force. These collective actions will encourage the 
international community and the private sector to invest in 
Iraq, and will demonstrate Iraq's commitment to rebuilding its 
own country.
    Mr. Chairman, that concludes my statement. Thank you for 
inviting us.
    [The prepared statement of Mr. Christoff follows:]

  Prepared Statement of Joseph A. Christoff, Director, International 
  Affairs and Trade, Government Accountability Office, Washington, DC

    Mr. Chairman and members of the committee, I am pleased to be here 
today to discuss U.S. efforts to rebuild and stabilize Iraq. The United 
States, along with its coalition partners and various international 
organizations, has undertaken a challenging and costly effort to 
stabilize and rebuild Iraq following multiple wars and decades of 
neglect by the former regime. This enormous effort is taking place in 
an unstable security environment, concurrent with Iraqi efforts to 
transition to its first permanent government. The United States 
reconstruction assistance goal is to help the Iraqi Government develop 
a democratic, stable, and prosperous country, at peace with itself and 
its neighbors, a partner in the war against terrorism, enjoying the 
benefits of a free society and a market economy.
    My testimony today is based on the four reports that we have issued 
to the Congress since July 2005 and our recent trips to Iraq. Since 
July 2005, we have reported on (1) the status of funding and 
reconstruction efforts in Iraq, focusing on the progress we have 
achieved and the challenges we face in rebuilding Iraq's 
infrastructure; (2) U.S. reconstruction efforts in the water and 
sanitation sector; (3) U.S. assistance for the January 2005 Iraqi 
elections; and (4) U.S. efforts to stabilize the security situation in 
Iraq (a classified report). We continue to review U.S. efforts to train 
and equip Iraqi security forces, develop the oil and electricity 
sectors, reduce corruption, and enhance the capacity of Iraqi 
Ministries.
    Based on these four reports and recent audit work conducted in 
Iraq, I will discuss the challenges (1) that the United States faces in 
its rebuilding and stabilization efforts and (2) that the Iraqi 
Government faces in financing future requirements.
    This statement includes unclassified information only and is based 
on recent GAO reports. We conducted our reviews for these reports 
between September 2004 and October 2005 in accordance with generally 
accepted government auditing standards. In addition, we recently 
conducted audit work in Iraq in November 2005 and January 2006.

                                SUMMARY

    The United States faces three key challenges in rebuilding and 
stabilizing Iraq. First, the continuing strength of the insurgency has 
made it difficult for the multinational force to develop effective and 
loyal Iraqi security forces, transfer security responsibilities to 
them, and progressively draw down U.S. forces in Iraq. The security 
situation in Iraq has also affected rebuilding efforts. The security 
situation has deteriorated since June 2003, with significant increases 
in attacks against the coalition and coalition partners. Second, 
inadequate performance data and measures make it difficult to determine 
the overall progress and impact of U.S. reconstruction efforts. 
Although the United States has set broad goals for providing essential 
services in Iraq, limited performance measures present challenges in 
determining the overall impact of U.S. projects. Third, the U.S. 
reconstruction program has encountered difficulties with Iraq's 
inability to sustain new and rehabilitated infrastructure projects and 
to address maintenance needs in the water, sanitation, and electricity 
sectors. U.S. agencies are working to develop better performance data 
and plans for sustaining the rehabilitated infrastructure.
    As the new Iraqi Government forms, it must plan to secure the 
financial resources it will need to continue the reconstruction and 
stabilization efforts begun by the United States and international 
community. Iraq will likely need more than the $56 billion that the 
World Bank, United Nations (U.N.), and the Coalition Provisional 
Authority (CPA) estimated it would require for reconstruction and 
stabilization efforts from 2004 through 2007. More severely degraded 
infrastructure, post-2003 conflict looting and sabotage, and additional 
security costs have added to the country's basic reconstruction needs. 
It is unclear how Iraq will finance these additional requirements. 
While the United States has carried the primary financial 
responsibility for rebuilding and stabilizing Iraq, its commitments are 
largely obligated and remaining commitments and future contributions 
are not finalized. Further, U.S. appropriations were never intended to 
meet all Iraqi needs. In addition, international donors have mostly 
committed loans for the reconstruction of Iraq that the government is 
just beginning to access. Iraq's ability to contribute financially to 
its own rebuilding and stabilization efforts will depend on the new 
government's efforts to increase revenues obtained from crude oil 
exports, reduce energy and food subsidies, control government operating 
expenses, provide for a growing security force, and repay $84 billion 
in external debt and war reparations.

                               BACKGROUND

    From May 2003 through June 2004, the CPA, led by the United States 
and the United Kingdom, was the U.N.-recognized coalition authority 
responsible for the temporary governance of Iraq and for overseeing, 
directing, and coordinating the reconstruction effort. In May 2003, the 
CPA dissolved the military organizations of the former regime and began 
the process of creating or reestablishing new Iraqi security forces, 
including the police and a new Iraqi army. Over time, multinational 
force commanders assumed responsibility for recruiting and training 
some Iraqi defense and police forces in their areas of 
responsibility.\1\ 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 except for security and military operations. 
U.S. activities relating to security and military operations would be 
the responsibility of the Department of Defense (DOD). The Presidential 
Directive required the U.S. Central Command (CENTCOM) to direct all 
U.S. government efforts to organize, equip, and train Iraqi security 
forces. The Multi-National Security Transition Command-Iraq, which 
operates under Multi-National Force-Iraq (MNF-I), now leads coalition 
efforts to train, equip, and organize Iraqi security forces.
---------------------------------------------------------------------------
    \1\ The CPA was responsible for police training at the Baghdad and 
Jordan academies. The Iraqi army units were trained by the Multi-
National Security Transition Command-Iraq.
---------------------------------------------------------------------------
    Other U.S. Government agencies also play significant roles in the 
reconstruction effort. The U.S. Agency for International Development 
(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 provides engineering and technical services to 
USAID, State, and military forces in Iraq. In December 2005, the 
responsibilities of the Project Contracting Office (PCO), a temporary 
organization responsible for program, project, asset, and financial 
management of construction and nonconstruction activities, were merged 
with those of the U.S. Army Corps of Engineers Gulf Region Division.
    On June 28, 2004, the CPA transferred power to an interim sovereign 
Iraqi Government, the CPA was officially dissolved, and Iraq's 
transitional period began. Under Iraq's transitional law,\2\ the 
transitional period included the completion of a draft constitution in 
October 2005 and two subsequent elections--a referendum on the 
Constitution and an election for a permanent government.\3\ The Iraqi 
people approved the Constitution on October 15, 2005, and voted for 
representatives to the Iraq Council of Representatives on December 15, 
2005. As of February 3, 2006, the Independent Electoral Commission of 
Iraq had not certified the election results for representatives.
---------------------------------------------------------------------------
    \2\ Law of Administration for the State of Iraq for the 
Transitional Period, March 2004.
    \3\ See GAO, ``Iraq's Transitional Law,'' GAO-04-746R (Washington, 
DC: May 25, 2004), for more information on key events during Iraq's 
transitional period.
---------------------------------------------------------------------------
    Once certified, the representatives are to form a permanent 
government. According to U.S. officials and Iraqi constitutional 
experts, the new Iraqi Government is likely to confront the same issues 
it confronted prior to the referendum--the power of the central 
government, control of Iraq's natural resources, and the application of 
Islamic law. According to U.S. officials, once the Iraqi Legislature 
commences work, it will form a committee that has 4 months to recommend 
amendments to the Constitution. To take effect, these proposed 
amendments must be approved by the Iraqi Legislature and then Iraqi 
citizens must vote on them in a referendum within 2 months.\4\
---------------------------------------------------------------------------
    \4\ The referendum is successful if it is approved by the majority 
of the voters and is not rejected by two-thirds of the voters in three 
or more governorates.
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SECURITY, MEASUREMENT, AND SUSTAINABILITY CHALLENGES IN REBUILDING AND 
                            STABILIZING IRAQ

    The United States faces three key challenges in stabilizing and 
rebuilding Iraq. First, the unstable security environment and the 
continuing strength of the insurgency have made it difficult for the 
United States to transfer security responsibilities to Iraqi forces and 
to engage in rebuilding efforts. Second, inadequate performance data 
and measures make it difficult to determine the overall progress and 
impact of U.S. reconstruction efforts. Third, the U.S. reconstruction 
program has encountered difficulties with Iraq's inability to sustain 
new and rehabilitated infrastructure projects and to address 
maintenance needs in the water, sanitation, and electricity sectors. 
U.S. agencies are working to develop better performance data and plans 
for sustaining rehabilitated infrastructure.

Strength of the insurgency has made it difficult to transfer security 
        responsibilities to Iraqi forces and engage in rebuilding 
        efforts
    Over the past 2\1/2\ years, significant increases in attacks 
against the coalition and coalition partners have made it difficult to 
transfer security responsibilities to Iraqi forces and to engage in 
rebuilding efforts in Iraq. The insurgency in Iraq intensified through 
October 2005 and has remained strong since then. Poor security 
conditions have delayed the transfer of security responsibilities to 
Iraqi forces and the drawdown of U.S. forces in Iraq. The unstable 
security environment has also affected the cost and schedule of 
rebuilding efforts and has led, in part, to project delays and 
increased costs for security services. Recently, the administration has 
taken actions to integrate military and civilian rebuilding and 
stabilization efforts.

Insurgency has intensified and delayed the transfer of security 
        responsibilities
    The insurgency intensified through October 2005 and has remained 
strong since then. As we reported in March 2005, the insurgency in 
Iraq--particularly the Sunni insurgency--grew in complexity, intensity, 
and lethality from June 2003 through early 2005.\5\ According to a 
February 2006 testimony by the Director of National Intelligence, 
insurgents are using increasingly lethal improvised explosive devices 
and continue to adapt to coalition countermeasures.\6\
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    \5\ For more information on security trends and the makeup of the 
insurgency, see GAO, ``Rebuilding Iraq: Preliminary Observations on 
Challenges in Transferring Security Responsibilities to Iraqi Military 
and Police,'' GAO-05-431T (Washington, DC: Mar. 14, 2005).
    \6\ U.S. Senate, Senate Select Committee on National Intelligence, 
``Current and Projected National Security Threats to the United 
States,'' Washington, DC: Feb. 2, 2006.


    As shown in figure 1, enemy-initiated attacks against the 
coalition, its Iraqi partners, and infrastructure increased in number 
over time. The highest peak occurred during October 2005, around the 
time of Ramadan and the October referendum on Iraq's Constitution. This 
followed earlier peaks in August and November 2004 and January 2005. 
According to a senior U.S. military officer, attack levels ebb and flow 
as the various insurgent groups-almost all of which are an intrinsic 
part of Iraq's population--rearm and attack again.
    As the administration has reported, insurgents share the goal of 
expelling the coalition from Iraq and destabilizing the Iraqi 
Government to pursue their individual and, at times, conflicting 
goals.\7\ Iraqi Sunnis make up the largest portion of the insurgency 
and present the most significant threat to stability in Iraq. In 
February 2006, the Director of National Intelligence reported that the 
Iraqi Sunnis' disaffection is likely to remain high in 2006, even if a 
broad, inclusive national government emerges. These insurgents continue 
to demonstrate the ability to recruit, supply, and attack coalition and 
Iraqi security forces. Their leaders continue to exploit Islamic 
themes, nationalism, and personal grievances to fuel opposition to the 
government and recruit more fighters. According to the Director, the 
most extreme Sunni jihadists, such as al-Qaeda in Iraq, will remain 
unreconciled and continue to attack Iraqi and coalition forces. The 
remainder of the insurgency consists of radical Shia groups, some of 
whom are supported by Iran, violent extremists, criminals, and, to a 
lesser degree, foreign fighters. According to the Director of National 
Intelligence, Iran provides guidance and training to select Iraqi Shia 
political groups and weapons and training to Shia militant groups to 
enable anticoalition attacks. Iran also has contributed to the 
increasing lethality of anticoalition attacks by enabling Shia 
militants to build improvised explosive devices with explosively formed 
projectiles, similar to those developed by Iran and Lebanese Hezballah.
---------------------------------------------------------------------------
    \7\ Department of Defense, ``Report to Congress, Measuring 
Stability and Security in Iraq,'' July 20, 2005. National Security 
Council, ``National Strategy for Victory in Iraq,'' November 2005.
---------------------------------------------------------------------------
    The continuing strength of the insurgency has made it difficult for 
the multinational force to develop effective and loyal Iraqi security 
forces, transfer security responsibilities to them, and progressively 
draw down U.S. forces in Iraq.\8\ The Secretary of Defense and MNF-I 
recently reported progress in developing Iraqi security forces, saying 
that these forces continue to grow in number, take on more 
responsibilities, and increase their lead in counterinsurgency 
operations in some parts of Iraq. For example, in December 2005 and 
January 2006, MNF-I reported that Iraqi army battalions and brigades 
had assumed control of battle space \9\ in parts of Ninewa, Qadisiyah, 
Babil, and Wasit provinces. According to the Director for National 
Intelligence, Iraqi security forces are taking on more-demanding 
missions, making incremental progress toward operational independence, 
and becoming more capable of providing security. In the meantime, 
coalition forces continue to support and assist the majority of Iraqi 
security forces as they develop the capability to operate 
independently.
---------------------------------------------------------------------------
    \8\ As we previously reported, the multinational force attempted to 
shift responsibilities to Iraqi security forces during spring 2004 but 
did not succeed. In response, resources available for developing Iraqi 
security forces were increased during fiscal years 2004 and 2005. In 
November 2003, the United States decided to maintain a force level of 
about 138,000 troops until at least the end of 2005, rather than 
drawing down to 105,000 troops by May 2004 as DOD had announced in 
November 2003. In December 2005, DOD announced a drawdown from 17 to 15 
U.S. combat brigades, a decrease to about 131,000 U.S. military 
personnel, by spring 2006.
    \9\ Battle space can be defined as the physical space in which 
Iraqi security forces are conducting operations.
---------------------------------------------------------------------------
    However, recent reports have recognized limitations in the 
effectiveness of Iraqi security forces. For example, DOD's October 2005 
report notes that Iraqi forces will not be able to operate 
independently for some time because they need logistical capabilities, 
Ministry capacity, and command and control and intelligence 
structures.\10\ In the November 2005 National Strategy for Victory in 
Iraq, the administration cited a number of challenges to developing 
effective Iraqi security forces, including the need to guard against 
infiltration by elements whose first loyalties are to institutions 
other than the Iraqi Government and to address the militias and armed 
groups that are outside the formal security sector and government 
control. Moreover, according to the Director of National Intelligence's 
February 2006 report, Iraqi security forces are experiencing difficulty 
in managing ethnic and sectarian divisions among their units and 
personnel. GAO's classified report on Iraq's security situation 
provided further information and analysis on the challenges to 
developing Iraqi security forces and the conditions for the phased 
drawdown of U.S. and other coalition forces.\11\
---------------------------------------------------------------------------
    \10\ Department of Defense, ``Report to Congress, Measuring 
Stability and Security in Iraq,'' October 2005.
    \11\ GAO, ``DOD Reports Should Link Economic, Governance, and 
Security Indicators to Conditions for Stabilizing Iraq,'' GAO-06-152C 
(Washington, DC: Oct. 2005).
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Security situation and management issues have affected rebuilding 
        efforts
    The security situation in Iraq has affected the cost and schedule 
of reconstruction efforts. Security conditions have, in part, led to 
project delays and increased costs for security services. Although it 
is difficult to quantify the costs and delays resulting from poor 
security conditions, both agency and contractor officials acknowledged 
that security costs have diverted a considerable amount of 
reconstruction resources and have led to canceling or reducing the 
scope of some reconstruction projects. For example, in March 2005, 
USAID canceled two task orders \12\ related to power generation that 
totaled nearly $15 million to help pay for the increased security costs 
incurred at another power generation project in southern Baghdad. In 
another example, work was suspended at a sewer repair project in 
central Iraq for 4 months in 2004 due to security concerns. In January 
2006, State reported that direct and indirect security costs represent 
16 to 22 percent of the overall cost of major infrastructure 
reconstruction projects.\13\
---------------------------------------------------------------------------
    \12\ Task orders are placed against established contracts for the 
performance of tasks during the period of the contracts.
    \13\ Department of State, ``Report to Congress, Section 2207 Report 
on Iraq Relief and Reconstruction,'' January 2006.
---------------------------------------------------------------------------
    In addition, the security environment in Iraq has led to severe 
restrictions on the movement of civilian staff around the country and 
reductions of a U.S. presence at reconstruction sites, according to 
U.S. agency officials and contractors. For example, the Project 
Contracting Office reported in February 2006, the number of attacks on 
convoys and casualties had increased from 20 convoys attacked and 11 
casualties in October 2005 to 33 convoys attacked and 34 casualties in 
January 2006. In another example, work at a wastewater plant in central 
Iraq was halted for approximately 2 months in early 2005 because 
insurgent threats drove away subcontractors and made the work too 
hazardous to perform. In the assistance provided to support the 
electoral process, U.S.-funded grantees and contractors also faced 
security restrictions that hampered their movements and limited the 
scope of their work. For example, IFES \14\ was not able to send its 
advisors to most of the governorate-level elections administration 
offices, which hampered training and operations at those facilities 
leading up to Iraq's Election Day on January 30, 2005.
---------------------------------------------------------------------------
    \14\ IFES is a nonpartisan, nonprofit organization founded in 1987 
that provides technical assistance concerning democracy and governance 
to transitional democracies. In 2004, USAID gave IFES a $40 million 
grant to provide technical assistance to the Independent Electoral 
Commission of Iraq through the end of 2005 to help it administer 
elections.
---------------------------------------------------------------------------
    While poor security conditions have slowed reconstruction and 
increased costs, a variety of management challenges also have adversely 
affected the implementation of the U.S. reconstruction program. In 
September 2005, we reported that management challenges such as low 
initial cost estimates and delays in funding and awarding task orders 
have led to the reduced scope of the water and sanitation program and 
delays in starting projects. In addition, U.S. agency and contractor 
officials have cited difficulties in initially defining project scope, 
schedule, and cost, as well as concerns with project execution, as 
further impeding progress and increasing program costs. These 
difficulties include lack of agreement among U.S. agencies, 
contractors, and Iraqi authorities; high staff turnover; an 
inflationary environment that makes it difficult to submit accurate 
pricing; unanticipated project site conditions; and uncertain ownership 
of project sites.
    Our ongoing work on Iraq's energy sectors and the management of 
design-build contracts will provide additional information on the 
issues that have affected the pace and costs of reconstruction.

Recent actions to integrate military and civilian rebuilding and 
        stabilization efforts
    The administration has taken steps to develop a more comprehensive, 
integrated approach to combating the insurgency and stabilizing Iraq. 
The National Strategy for Victory in Iraq lays out an integrated 
political, military, and economic strategy that goes beyond offensive 
military operations and the development of Iraqi security forces in 
combating the insurgency. Specifically, it calls for cooperation with, 
and support for, local governmental institutions, the prompt dispersal 
of aid for quick and visible reconstruction, and central government 
authorities who pay attention to local needs.
    Toward that end, U.S. agencies are developing tools for integrating 
political, economic, and security activities in the field. For example, 
USAID is developing the Focused Stabilization Strategic City Initiative 
that will fund social and economic stabilization activities in 
communities within 10 strategic cities. The program is intended to jump 
start the development of effective local government service delivery by 
directing local energies from insurgency activities toward productive 
economic and social opportunities. The U.S. Embassy in Baghdad and MNF-
I are also developing provincial assistance teams \15\ as a component 
of an integrated counterinsurgency strategy. These teams would consist 
of coalition military and civilian personnel who would assist Iraq's 
provincial governments with (1) developing a transparent and sustained 
capability to govern; (2) promoting increased security, rule of law, 
and political and economic development; and (3) providing the 
provincial administration necessary to meet the basic needs of the 
population. It is unclear whether these two efforts will become fully 
operational, as program documents have noted problems in providing 
funding and security for them.
---------------------------------------------------------------------------
    \15\ As of late January 2006, these teams were called Provincial 
Reconstruction Teams, or PRTs. A U.S. Embassy document, however, called 
for changing the name to Provincial Assistance Teams, or PATs, to 
reflect the main effort of the teams--capacity development and 
sustainability of the provincial government. Three provincial teams 
were operational as of mid-January 2006.
---------------------------------------------------------------------------
Limited performance data and measures and inadequate reporting present 
        difficulties in determining progress and impact of rebuilding 
        effort
    State has set broad goals for providing essential services, and the 
U.S. program has undertaken many rebuilding activities in Iraq. The 
U.S. program has made some progress in accomplishing rebuilding 
activities, such as rehabilitating some oil facilities to restart 
Iraq's oil production, increasing electrical generation capacity, 
restoring some water treatment plants, and building Iraqi health 
clinics. However, limited performance data and measures make it 
difficult to determine and report on the progress and impact of U.S. 
reconstruction. Although information is difficult to obtain in an 
unstable security environment, State reported that it is currently 
finalizing a set of metrics to track the impact of reconstruction 
efforts.

   In the water and sanitation sector, the Department of State 
        has primarily reported on the numbers of projects completed and 
        the expected capacity of reconstructed treatment plants. 
        However, we found that the data are incomplete and do not 
        provide information on the scope and cost of individual 
        projects nor do they indicate how much clean water is reaching 
        intended users as a result of these projects. Moreover, 
        reporting only the number of projects completed or under way 
        provides little information on how U.S. efforts are improving 
        the amount and quality of water reaching Iraqi households or 
        their access to sanitation services. Information on access to 
        water and its quality is difficult to obtain without adequate 
        security or water-metering facilities.
   Limitations in health sector measurements also make it 
        difficult to relate the progress of U.S. activities to its 
        overall effort to improve the quality and access of health care 
        in Iraq. Department of State measurements of progress in the 
        health sector primarily track the number of completed 
        facilities, an indicator of increased access to health care. 
        However, the data available do not indicate the adequacy of 
        equipment levels, staffing levels, or quality of care provided 
        to the Iraqi population. Monitoring the staffing, training, and 
        equipment levels at health facilities may help gauge the 
        effectiveness of the U.S. reconstruction program and its impact 
        on the Iraqi people.
   In the electricity sector, U.S. agencies have primarily 
        reported on generation measures such as levels of added or 
        restored generation capacity and daily power generation of 
        electricity; numbers of projects completed; and average daily 
        hours of power. However, these data do not show whether (1) the 
        power generated is uninterrupted for the period specified 
        (e.g., average number of hours per day); (2) there are regional 
        or geographic differences in the quantity of power generated; 
        and (3) how much power is reaching intended users. Information 
        on the distribution and access of electricity is difficult to 
        obtain without adequate security or accurate metering 
        capabilities.

    Opinion surveys and additional outcome measures have the potential 
to gauge the impact of the U.S. reconstruction efforts on the lives of 
Iraqi people and their satisfaction with these sectors. A USAID survey 
in 2005 found that the Iraqi people were generally unhappy with the 
quality of their water supply, waste disposal, and electricity services 
but approved of the primary health care services they received. In 
September 2005, we recommended that the Secretary of State address this 
issue of measuring progress and impact in the water and sanitation 
sector. State agreed with our recommendation and stated in January 2006 
that it is currently finalizing a set of standard methodologies and 
metrics for water and other sectors that could be used to track the 
impact of U.S. reconstruction efforts.

Iraq's capacity to operate and maintain U.S.-funded projects presents 
        sustainability problems
    The U.S. reconstruction program has encountered difficulties with 
Iraq's ability to sustain the new and rehabilitated infrastructure and 
address maintenance needs. In the water, sanitation, and electricity 
sectors, in particular, some projects have been completed but have 
sustained damage or become inoperable due to Iraq's problems in 
maintaining or properly operating them. State reported in January 2006 
that several efforts were under way to improve Iraq's ability to 
sustain the infrastructure rebuilt by the United States.

   In the water and sanitation sector, U.S. agencies have 
        identified limitations in Iraq's capacity to maintain and 
        operate reconstructed facilities, including problems with 
        staffing, unreliable power to run treatment plants, 
        insufficient spare parts, and poor operations and maintenance 
        procedures.\16\ The U.S. Embassy in Baghdad stated that it was 
        moving from the previous model of building and turning over 
        projects to Iraqi management toward a ``build-train-turnover'' 
        system to protect the U.S. investment. However, these efforts 
        are just beginning, and it is unclear whether the Iraqis will 
        be able to maintain and operate completed projects and the more 
        than $1 billion in additional large-scale water and sanitation 
        projects expected to be completed through 2008. In September 
        2005, we recommended that the Secretary of State address the 
        issue of sustainability in the water and sanitation sector. 
        State agreed with our recommendation and stated that it is 
        currently working with the Iraqi Government to assess the 
        additional resources needed to operate and maintain water and 
        sanitation facilities that have been constructed or repaired by 
        the United States.
---------------------------------------------------------------------------
    \16\ See GAO-06-179T and GAO, ``Rebuilding Iraq: U.S. Water and 
Sanitation Efforts Need Improved Measures for Assessing Impact and 
Sustained Resources for Maintaining Facilities,'' GAO-05-872 
(Washington, DC: Sept. 2005), on limitations in the Iraqis' capacity to 
maintain and operate reconstructed facilities.

   In the electricity sector, the Iraqis' capacity to operate 
        and maintain the powerplant infrastructure and equipment 
        provided by the United States remains a challenge at both the 
        plant and Ministry levels. As a result, the infrastructure and 
        equipment remain at risk of damage following their transfer to 
        the Iraqis. In our interviews with Iraqi powerplant officials 
        from 13 locations throughout Iraq, the officials stated that 
        their training did not adequately prepare them to operate and 
        maintain the new U.S.-provided gas turbine engines. Due to 
        limited access to natural gas, some Iraqi powerplants are using 
        low-grade oil to fuel their natural gas combustion engines. The 
        use of oil-based 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 
        powerplant officials. 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. In 
        January 2006, State reported that it has developed a strategy 
        with the Ministry of Electricity to focus on rehabilitation and 
---------------------------------------------------------------------------
        sustainment of electricity assets.

    Although agencies have incorporated some training programs and the 
development of operations and maintenance capacity into individual 
projects, problems with the turnover of completed projects, such as 
those in the water and sanitation and electricity sectors, have led to 
a greater interagency focus on improving project sustainability and 
building Ministry capacity. In May 2005, an interagency working group 
including State, USAID, PCO, and the Army Corps of Engineers was formed 
to identify ways to address Iraq's capacity-development needs. The 
working group reported that a number of critical infrastructure 
facilities constructed or rehabilitated under U.S. funding have failed, 
will fail, or will operate in suboptimized conditions following 
handover to the Iraqis. To mitigate the potential for project failures, 
the working group recommended increasing the period of operational 
support for constructed facilities from 90 days to up to 1 year. In 
January 2006, State reported that it has several efforts under way 
focused on improving Iraq's ability to operate and maintain facilities 
over time. As part of our ongoing review of Iraq's energy sector, we 
will be assessing the extent to which the administration is providing 
funds to sustain the infrastructure facilities constructed or 
rehabilitated by the United States.

            IRAQ FACES CHALLENGES IN FINANCING FUTURE NEEDS

    As the new Iraqi Government forms, it must plan to secure the 
financial resources it will need to continue the reconstruction and 
stabilization efforts begun by the United States and international 
community. Initial assessments in 2003 identified $56 billion in 
reconstruction needs across a variety of sectors in Iraq. However, 
Iraq's needs are greater than originally anticipated due to severely 
degraded infrastructure, post-conflict looting and sabotage, and 
additional security costs. The United States has borne the primary 
financial responsibility for rebuilding and stabilizing Iraq; however, 
its commitments are largely obligated and remaining commitments and 
future contributions are not finalized. Further, U.S. appropriations 
were never intended to meet all Iraqi needs. International donors have 
provided a lesser amount of funding for reconstruction and development 
activities; however, most of the pledged amount is in the form of loans 
that Iraq has just begun to access. Finally, Iraq's ability to 
contribute financially to its additional rebuilding and stabilization 
needs is dependent upon the new government's efforts to increase 
revenues obtained from crude oil exports, reduce energy and food 
subsidies, control government operating expenses, provide for a growing 
security force, and repay external debt and war reparations.
Iraqi needs may be greater than orignally anticipated
    Initial assessments of Iraq's needs through 2007 by the United 
Nations, World Bank, and the CPA estimated that the reconstruction of 
Iraq would require about $56 billion. The October 2003 joint U.N./World 
Bank assessment identified $36 billion, from 2004 through 2007, in 
immediate and medium-term needs in 14 priority sectors, including 
education, health, electricity, transportation, agriculture, and 
crosscutting areas such as human rights and the environment. For 
example, the assessment estimated that Iraq would need about $12 
billion for rehabilitation and reconstruction, new investment, 
technical assistance, and security in the electricity sector. In 
addition, the assessment noted that the CPA estimated an additional $20 
billion would be needed from 2004 through 2007 to rebuild other 
critical sectors such as security and oil.
    Iraq may need more funding than currently available to meet the 
demands of the country. The state of some Iraqi infrastructure was more 
severely degraded than U.S. officials originally anticipated or initial 
assessments indicated. The condition of the infrastructure was further 
exacerbated by post-2003 conflict looting and sabotage. For example, 
some electrical facilities and transmission lines were damaged, and 
equipment and materials needed to operate treatment and sewerage 
facilities were destroyed by the looting that followed the 2003 
conflict. In addition, insurgents continue to target electrical 
transmission lines and towers as well as oil pipelines that provide 
needed fuel for electrical generation. In the oil sector, a June 2003 
U.S. Government assessment found that more than $900 million would be 
needed to replace looted equipment at Iraqi oil facilities. These 
initial assessments assumed reconstruction would take place in a 
peacetime environment and did not include additional security costs.
    Further, these initial assessments assumed that Iraqi Government 
revenues and private sector financing would increasingly cover long-
term reconstruction requirements. This was based on the assumption that 
the rate of growth in oil production and total Iraqi revenues would 
increase over the next several years. However, private sector financing 
and government revenues may not yet meet these needs. According to a 
January 2006 International Monetary Fund (IMF) report, private sector 
investment will account for 8 percent of total projected investment for 
2006, down from 12 percent in 2005.\17\ In the oil sector alone, Iraq 
will likely need an estimated $30 billion over the next several years 
to reach and sustain an oil production capacity of 5 million barrels 
per day, according to industry experts and U.S. officials. For the 
electricity sector, Iraq projects that it will need $20 billion through 
2010 to boost electrical capacity, according to the Department of 
Energy's Energy Information Administration.
---------------------------------------------------------------------------
    \17\ International Monetary Fund, ``Iraq: Request for Stand-By 
Arrangement'' (Washington, DC, January 2006).
---------------------------------------------------------------------------
Future contributions for Iraq reconstruction may be limited
    The United States is the primary contributor to rebuilding and 
stabilization efforts in Iraq. Since 2003, the United States has made 
available about $30 billion for activities that have largely focused on 
infrastructure repair and training of Iraqi security forces. As 
priorities changed, the United States reallocated about $5 billion of 
the $18.4 billion fiscal year 2004 emergency supplemental among the 
various sectors, over time increasing security and justice funds while 
decreasing resources for the water and electricity sectors.\18\ As of 
January 2006, of the $30 billion appropriated, about $23 billion had 
been obligated and about $16 billion had been disbursed for activities 
that included infrastructure repair, training, and equipping of the 
security and law enforcement sector; infrastructure repair of the 
electricity, oil, and water and sanitation sectors; and CPA and U.S. 
administrative expenses. These appropriations were not intended to meet 
all of Iraq's needs.
---------------------------------------------------------------------------
    \18\ See Emergency Supplemental Appropriations Act for Defense and 
for the Reconstruction of Iraq and Afghanistan, 2004, P.L. 108-106.
---------------------------------------------------------------------------
    The United States has obligated nearly 80 percent of its available 
funds. Although remaining commitments and future contributions have not 
been finalized, they are likely to target activities for building 
ministerial capacity, sustaining existing infrastructure investments, 
and training and equipping the Iraqi security forces, based on agency 
reporting. For example, in January 2006, State reported a new 
initiative to address Iraqi ministerial capacity development at 12 
national Ministries. According to State, Embassy Baghdad plans to 
undertake a comprehensive approach to provide training in modern 
techniques of civil service policies, requirements-based budget 
processes, information technology standards, and logistics management 
systems to Iraqi officials in key Ministries.
    International donors have provided a lesser amount of funding for 
reconstruction and development activities. According to State, donors 
have provided about $2.7 billion in multilateral and bilateral grants--
of the pledged $13.6 billion--as of December 2005.\19\ About $1.3 
billion has been deposited by donors into the two trust funds of the 
International Reconstruction Fund Facility for Iraq (IRFFI),\20\ of 
which about $900 million had been obligated and about $400 million 
disbursed to individual projects, as of December 2005.\21\ Donors also 
have provided bilateral assistance for Iraq reconstruction activities; 
however, complete information on this assistance is not readily 
available. Most of the pledged amount is in the form of loans that the 
Iraqis have recently begun to access. About $10 billion, or 70 percent, 
of the $13.6 billion pledged in support of Iraq reconstruction is in 
the form of loans, primarily from the World Bank, the IMF, and Japan. 
In September 2004, the IMF provided a $436 million emergency post-
conflict assistance loan to facilitate Iraqi debt relief, and in 
December 2005, Iraq secured a $685 million Stand-By Arrangement (SBA) 
with the IMF.\22\ On November 29, 2005, the World Bank approved a $100 
million loan within a $500 million program for concessional 
international development assistance.
---------------------------------------------------------------------------
    \19\ According to State information provided in October 2005, in 
addition to the $13.6 billion, donors pledged an additional $203 
million for Iraq reconstruction at the IRFFI Donors' committee meeting 
in Jordan in July 2005.
    \20\ The IRFFI was established in response to the June 24, 2003, 
U.N. technical meeting and the 2003 Madrid conference's calls for a 
mechanism to channel and coordinate donor resources for Iraq 
reconstruction and development activities. The IRFFI is composed of two 
trust funds, one run by the United Nations Development Group and the 
other by the World Bank Group.
    \21\ Data for the U.N. Iraq Trust Fund portion of the IRFFI are as 
of November 31, 2005.
    \22\ lf Iraq needs balance-of-payment support, the IMF has agreed 
to provide $685 million as part of the SBA.
---------------------------------------------------------------------------
Iraq must address budget constraints to contribute to future rebuilding 
        and stabilization efforts
    Iraq's fiscal ability to contribute to its own rebuilding is 
constrained by the amount of revenues obtained from crude oil exports, 
continuing subsidies for food and energy, growing costs for government 
salaries and pensions, increased demands for an expanding security 
force, and war reparations and external debt.
    Crude oil exports account for nearly 90 percent of the Iraqi 
Government revenues in 2006, according to the IMF. Largely supporting 
Iraq's government operations and subsidies, crude oil export revenues 
are dependent upon export levels and market price. The Iraqi 2006 
budget has projected that Iraq's crude oil export revenues will grow at 
an annual growth rate of 17 percent per year (based on an average 
production level of 2 million bbl/d in 2005 to 3.6 million bbl/d in 
2010), estimating an average market price of about $46 per barrel. Oil 
exports are projected to increase from 1.4 million bbl/d in 2005 to 1.7 
million bbl/d in 2006, according to the IMF. Iraq's current crude oil 
export capacity is theoretically as high as 2.5 million bbl/d, 
according to the Energy Information Administration at the Department of 
Energy. However, Iraq's crude oil export levels have averaged 1.4 
million bbl/d as of December 2005, in part due to attacks on the energy 
infrastructure and pipelines. In January 2006, crude oil export levels 
fell to an average of about 1.1 million bbl/d.\23\
---------------------------------------------------------------------------
    \23\ According to State Department monthly estimates from January 
2005 to January 2006, crude oil production averages ranged from 1.71 to 
2.17 million bbl/d and monthly crude oil export averages ranged from 
1.05 to 1.61 million bbl/d.
---------------------------------------------------------------------------
    Further, a combination of insurgent attacks on crude oil and 
product pipelines, dilapidated infrastructure, and poor operations and 
maintenance have hindered domestic refining and have required Iraq to 
import significant portions of liquefied petroleum gas, gasoline, 
kerosene, and diesel. According to State, the Iraqi Oil Ministry 
estimates that the current average import cost of fuels is roughly $500 
million each month.
    Current government subsidies constrain opportunities for growth and 
investment and have kept prices for food, oil, and electricity low. 
Before the war, at least 60 percent of Iraqis depended on monthly 
rations--known as the public distribution system (PDS)--provided by the 
U.N. Oil-for-Food Programme to meet household needs. The PDS continues 
to provide food subsidies to Iraqis. In addition, Iraqis pay below-
market prices for refined fuels and, in the absence of effective 
meters, for electricity and water. Low prices have encouraged 
overconsumption and have fueled smuggling to neighboring countries. 
Food and energy subsidies account for about 18 percent of Iraq's 
projected gross domestic product (GDP) for 2006.
    As part of its Stand-By Arrangement with the IMF, Iraq plans to 
reduce the government subsidy of petroleum products, which would free 
up oil revenues to fund additional needs and reduce smuggling. 
According to the IMF, by the end of 2006, the Iraqi Government plans to 
complete a series of adjustments to bring fuel prices closer to those 
of other gulf countries. However, it is unclear whether the Iraqi 
Government will have the political commitment to continue to raise fuel 
prices.
    Generous wage and pension benefits have added to budgetary 
pressures. Partly due to increases in these benefits, the Iraqi 
Government's operating expenditures are projected to increase by over 
24 percent from 2005 to 2006, according to the IMF. As a result, wages 
and pensions constitute about 21 percent of projected GDP for 2006. The 
IMF noted that it is important for the government to keep nondefense 
wages and pensions under firm control to contain the growth of civil 
service wages. As a first step, the Iraqi Government plans to complete 
a census of all public service employees by June 2006.
    Iraq plans to spend more resources on its own defense. Iraq's 
security-related spending is currently projected to be about $5.3 
billion in 2006, growing from 7 to about 13 percent of projected GDP. 
The amount reflects rising costs of security and the transfer of 
security responsibilities from the United States to Iraq.
    The Iraqi Government also owes over $84 billion to victims of its 
invasion of Kuwait and international creditors. As of December 2005, 
Iraq owed about $33 billion in unpaid awards resulting from its 
invasion and occupation of Kuwait. As directed by the United Nations, 
Iraq currently deposits 5 percent of its oil proceeds into a U.N. 
compensation fund.\24\ Final payment of these awards could extend 
through 2020 depending on the growth of Iraq's oil proceeds. In 
addition, the IMF estimated that Iraq's external debt was about $51 
billion at the end of 2005.
---------------------------------------------------------------------------
    \24\ The U.N. Security Council established the U.N. Compensation 
Commission in 1991 to process claims and pay compensation for damages 
and losses resulting from Iraq's invasion and occupation of Kuwait; 
along with the Oil-for-Food Programme, the commission received funding 
from Iraqi oil proceeds. In May 2003, U.N. Security Council Resolution 
1483 directed that 5 percent of oil proceeds are to be deposited into 
the U.N. Compensation Fund account. As of January 2006, the Commission 
had awarded $52.5 billion to more than 1.5 million claimants and paid 
out about $20 billion of this amount.
---------------------------------------------------------------------------
                               CONCLUSION

    For the past 21 years, the United States has provided $30 billion 
with the intent of developing capable Iraqi security forces, rebuilding 
a looted and worn infrastructure, and supporting democratic elections. 
However, the United States has confronted a lethal insurgency that has 
taken many lives and made rebuilding Iraq a costly and challenging 
endeavor. It is unclear when Iraqi security forces will be able to 
operate independently, thereby enabling the United States to reduce its 
military presence.
    Similarly, it is unclear how U.S. efforts are helping Iraq obtain 
clean water, reliable electricity, or competent health care. Measuring 
the outcomes of U.S. efforts is important to ensure that the U.S. 
dollars spent are making a difference in the daily lives of the Iraqi 
people. In addition, the United States must ensure that the billions of 
dollars it has already invested in Iraq's infrastructure are not 
wasted. The Iraqis need additional training and preparation to operate 
and maintain the powerplants, water and sewage treatment facilities, 
and health care centers the United States has rebuilt or restored. In 
response to our reports, State has begun to develop metrics for 
measuring progress and plans for sustaining the U.S.-built 
infrastructure. The administration's next budget will reveal its level 
of commitment to these challenges.
    But the challenges are not exclusively those of the United States. 
The Iraqis face the challenge of forming a government that has the 
support of all ethnic and religious groups. They also face the 
challenge of addressing those constitutional issues left unresolved 
from the October referendum--power of the central government, control 
of Iraq's natural resources, and the application of Islamic law. The 
new government also faces the equally difficult challenges of reducing 
subsidies, controlling public salaries and pensions, and sustaining the 
growing number of security forces. This will not be easy, but it is 
necessary for the Iraqi Government to begin to contribute to its own 
rebuilding and stabilization efforts and to encourage investment by the 
international community and private sector.
    We continue to review U.S. efforts to train and equip Iraqi 
security forces, develop the oil and electricity sectors, reduce 
corruption, and enhance the capacity of Iraqi Ministries. Specifically, 
we will examine efforts to stabilize Iraq and develop its security 
forces, including the challenge of ensuring that Iraq can independently 
fund, sustain, and support its new security forces; assess issues 
related to the development of Iraq's energy sector, including the 
sectors' needs as well as challenges such as corruption; and examine 
capacity-building efforts in the Iraqi Ministries.
    Mr. Chairman, this concludes my prepared statement. I will be happy 
to answer any questions you or the other committee members may have.

    The Chairman. Well, thank you very much for that statement, 
for the data, and your prepared statement. We appreciate that.
    We'd like now to call upon the Honorable James Jeffrey, 
Senior Advisor to the Secretary and Coordinator for Iraq 
Policy, Department of State.
    Ambassador Jeffrey.

    STATEMENT OF HON. JAMES JEFFREY, SENIOR ADVISOR TO THE 
SECRETARY AND COORDINATOR FOR IRAQ POLICY, DEPARTMENT OF STATE, 
                         WASHINGTON, DC

    Ambassador Jeffrey. Thank you.
    Mr. Chairman, Senator Biden, members of the committee, it 
is an honor to be here today to talk about our programs in 
support of our strategy for victory in Iraq.
    President Bush, in the past several months, has laid out, 
repeatedly, his strategy for moving forward on Iraq. It is 
based upon three strategic tracks--security, political, and 
economic--with the intent of having the Iraqis take over 
responsibility for these tracks as soon as possible. Our 
experience has demonstrated that this transition cannot be 
sustained without integrated progress on all three tracks, in 
full consultation with the Iraqis every step of the way. 
Foreign assistance, led by the flagship US Programs, the Iraqi 
Relief and Reconstruction Fund 1 and 2, or IRRF, totaling $20.9 
billion, is essential to progress on all tracks.
    Supporting the security track, Senator, is not enough. 
Progress on the economic and political tracks is equally 
critical to victory, and this progress requires United States, 
other international, and Iraqi funding. As Mr. Bowen mentioned, 
the World Bank has estimated that Iraqi reconstruction needs 
were at least $56 billion, and we think probably more. The IRRF 
program was not designed to address all of that, but rather to 
focus on immediate needs--getting oil exports, that was down 
almost to nothing, up to over 2 billion--or 2 million barrels a 
day; to promote exports; start training and equipping Iraqi 
security forces; working on the dilapidated infrastructure, and 
improving government capabilities--until the Iraqis can take up 
the burden.
    By and large, despite many reverses and problems, we have 
achieved many of our goals. We have increased Iraq's total 
potential electrical generation capability by 30 percent. We 
have brought on-stream 1.5 million barrels of restored oil 
capacity. We have brought safe water and sewage disposal to 
millions, stood up, equipped, and trained several hundred 
thousand Iraqi troops and police, and supported, with funds and 
sound advice, a remarkable democratic political transformation. 
We have pushed the Iraqis to reduce, as my GAO colleague has 
just mentioned, their oil subsidies, and they have done that by 
a factor of five, and they're going to take another step this 
year. That will bring their cost of fuel products to the 
consumer at least equal, if not above, that of other gulf 
states.
    We have certainly not done as much as we originally hoped 
for. We have needed to adjust the situation on the ground, 
which has often required projects be canceled, be rescoped; in 
some cases, slowed down. Mr. Bowen has illustrated well the 
various problems from three governments in 2 years to terrorist 
attacks that have impacted the program. But, nonetheless, we 
have forged ahead. Of the $20.9 billion provided less than 3 
years ago, we have obligated all but $2.9 billion of that, and 
we have disbursed a remarkable almost $13 billion of the total, 
sir.
    In response to the problems we've seen, and as we gained 
experience with operating in Iraq's hostile environment, we 
have shifted our focus away from the larger wholesale projects 
run by design/build contractors to smaller, faster moving 
projects better integrated with our political and security 
lines of operation. Examples of this approach abound. I'll cite 
two: Then-Ambassador Negroponte's shifting of funds in 2004 to 
democracy programs and to the military's Commander's Emergency 
Relief Program just before the January 2005 elections, or the 
USAID construction support for the 1st Cavalry Division's 
combat in Baghdad in the fall of 2004.
    I am also delighted to be here today with my colleagues 
from the GAO and from SIGIR. Mr. Bowen's work, that of the 
Special Inspector General for Iraq Reconstruction, and those of 
the other inspector and audit operations that monitor our 
activities in Iraq, one vitally important to us, as well as to 
you and to the American people. Just as with other U.S. 
military and civilian personnel on the ground, they are doing a 
tremendous job under austere conditions and a very dangerous 
situation. Secretary Rice reiterated her commitment to what Mr. 
Bowen is doing, last week in a meeting with him, and I know 
Ambassador Khalilzad shares these views.
    We believe in SIGIR, because we are fully aware of our 
responsibilities to you and to the American people for the 
immense amount of money that you have placed in our trust, and 
for the life-and-death responsibilities we all bear in carrying 
out our work in Iraq.
    I want to particularly highlight the signature work of 
SIGIR in evaluating management operations and big-picture 
issues related to our IRRF strategy.
    We listen too closely to SIGIR suggestions in many of our 
actions, from direct contracting, including with Iraqis, to our 
focus on cost-to-complete. And plans for operations and 
maintenance of our projects reflect SIGIR's input. For example, 
we have put over $150 million into our fiscal year 2007 budget 
submission for operations and maintenance sustainment followup, 
and have begun a program called ``Asset Recognition and 
Transfer'' to ensure that Iraqis are ready to take over 
projects we have helped put in place.
    What we do recognize is that IRRF alone will not complete 
our work, as Mr. Bowen has suggested. But, right now, our 
priority will be to complete the IRRF program's projects that 
are vital to boosting Iraq's economy and capacity. At the same 
time, we will work to convince our friends and allies to 
disburse the remainder of the $13.5 billion that they pledged 
at the Madrid Conference, and to consider additional new 
funding, as Secretary Rice suggested to you several months ago.
    Our fiscal year 2007 assistance submission to Congress of 
$771 million represents another shift away from the large 
infrastructure projects that the IRRF has funded to a focused 
capacity-building program that will help enable Iraqis to build 
and sustain a democratic society and healthy economy. Some of 
the programs funded will include infrastructure sustainment, 
capacity-building at core Iraqi Ministries, and rule-of-law 
programs. We will look to your support, and that of the entire 
House and Senate, for our continued activities in Iraq, 
including our own State Department operating budget.
    Finally, let me again, today, commit the Department of 
State and our Embassy in Baghdad to the most efficient, 
transparent, and cost-conscious execution of funds entrusted to 
us in the service of extraordinary national objectives.
    Thank you.
    [The prepared statement of Ambassador Jeffrey follows:]

 Prepared Statement of Ambassador James Jeffrey, Senior Advisor to the 
Secretary of State for Iraq and Coordinator for Iraq Policy, Department 
                        of State, Washington, DC

    Mr. Chairman, Senator Biden, members of the committee, it is an 
honor to be here today, to talk about our programs in support of our 
Strategy for Victory in Iraq.
    The U.S. goal in Iraq is a pluralistic, democratic, federal, and 
united Iraq, stable, at peace with its neighbors, prosperous, and an 
ally in the Global War on Terrorism. To accomplish this, all our 
efforts support the President's three strategic tracks--security, 
political, and economic--with the intent of having the Iraqis take 
responsibility for these tracks as soon as possible. Our experience has 
demonstrated that this transition cannot be sustained without 
integrated progress on all three tracks, in full consultation with the 
Iraqis. Foreign Assistance, led by the flagship US Programs, IRRF I and 
II, totaling $20.9 billion, is essential to progress on all tracks. 
Supporting simply the security track is not enough. Progress on the 
economic and political tracks is equally critical to victory, and this 
progress requires United States, other international, and Iraqi 
funding.
    In 2003, the World Bank estimated that rebuilding Iraq's 
dilapidated infrastructure would require over $50 billion. The IRRF II 
$18.4 billion program was designed by the administration and Congress, 
not to take on that entire burden, but, rather, to quickly respond to 
the most pressing needs in oil production and export, and in key 
essential services, security forces, and government capacity, and 
repair a dilapidated infrastructure until Iraqis can take up the 
burden. To a considerable degree, IRRF II, supplementing the initial 
$2.5 billion in IRRF I, is accomplishing that mission.
    We have increased Iraq's total potential electrical generation 
capability by 30 percent, brought safe water and sewerage disposal to 
millions, stood up, equipped, and trained several hundred thousand 
Iraqi troops and police, and supported, with funds and sound advice, a 
remarkable democratic political transformation. We certainly have not 
done as much as we originally had hoped for. We have needed to adjust 
the situation on the ground, which has often required projects be 
cancelled, rescoped, or slowed down because of the insurgency and the 
extent of the dilapidated infrastructure. Working with three different 
Iraqi governments in 2 years has also, at times, slowed progress. 
Targeted terrorist attacks on the infrastructure, designed to deprive 
the Iraqi people of essential services and cripple the economy, 
significant project security costs, the need to shift several billion 
dollars from water and electricity projects to training and equipping 
the security forces and other key areas, have all slowed us down and 
driven some costs up. Projects in some cases have had to be cancelled 
or rescoped.
    In response to some of these factors, and as we gained experience 
with operating in Iraq's hostile environment, we adapted our strategy 
and shifted our focus, away from major projects run by large wholesale 
contractors, to smaller, faster moving projects better integrated with 
our political and security lines of operation. Examples of this 
approach abound, be it the funds then-Ambassador Negroponte shifted to 
democracy programs, CERP funding before the January 2005 elections, or 
the innovative, creative USAID construction support for the 1st Cavalry 
Division's operations in Baghdad against the Mahdi militia.
    Thus, while we had intended that our funding would enable 
completion of a greater number of projects, we are pleased with its 
contribution to the overall strategy for stability and security in 
Iraq. The political process has made immense progress, Iraqi security 
forces are making a powerful difference, and the Iraqi population 
strongly rejects the insurgency and participates in the political 
process.
    To ensure that the benefits of this progress reach the entire Iraqi 
population, we have initiated Provincial Reconstruction Teams to 
strengthen provincial and regional governments.
    I am also delighted to be here today with my colleague and fellow 
Baghdad veteran, Mr. Stuart Bowen. The work of his organization, the 
Special Inspector General for Iraq Reconstruction (SIGIR), and that of 
the other inspector and audit operations that monitor our activities in 
Iraq, are vitally important. Just as with other U.S. civilian and 
military people on the ground, they are doing a tremendous job under 
austere and dangerous conditions. Secretary Rice encouraged my presence 
here today and reiterated her commitment made just last week to Mr. 
Bowen to support his agency's activities in every way possible. I know 
Ambassador Zal Khalilzad echoes these sentiments.
    We believe in SIGIR because we are fully aware of our 
responsibilities to you and to the American people for the immense 
amount of money placed in our trust, and for the life and death 
responsibilities we all bear in carrying out our work in Iraq as part 
of the broader war on terror. But to do our job, we need advice, 
oversight, transparency, and immediate response to allegations of fraud 
and mismanagement. Mr. Bowen and SIGIR, ably assisted by the other 
inspection and audit agencies in the field, have fulfilled these 
missions with great professionalism.
    I want to particularly highlight the signature work of SIGIR in 
evaluating management strategy and big picture issues related to our 
IRRF strategy, to complement its invaluable auditing, inspecting, and 
investigatory missions. We listen closely to SIGIR's suggestions, and 
many of our actions, from direct contracting, including with Iraqis, to 
our focus on cost-to-complete, and plans for operations and maintenance 
of our projects, reflect SIGIR's input. For example, we have put over 
$150 million in our FY 2007 budget submission for operations and 
maintenance followup, and have begun a program we call ART, or Asset 
Recognition and Transfer, to ensure the Iraqis are ready to take over 
projects we have helped to rebuild or put in place. We do not agree 
with everything which SIGIR has proposed but we have the highest 
professional respect for our SIGIR colleagues, and take their views 
most seriously.
    What we do recognize is that the IRRF, alone, will not complete our 
work, as Mr. Bowen has suggested. But right now, our priority will be 
to complete the IRRF program's projects that are vital to boosting the 
Iraqi economy and capacity. At the same time, we will continue to work 
to convince our friends and allies to disburse the remainder of the 
$13.5 billion pledged at the Madrid Conference and consider additional 
funding.
    Our FY 2007 assistance submission of $771 million represents a 
shift away from the large infrastructure projects the IRRF funded to a 
focused capacity-building program that will help enable Iraqis to build 
and sustain a democratic society and healthy economy. Some of the 
programs funded will include infrastructure sustainment, capacity-
building at core Iraqi Ministries, agricultural development, and rule 
of law programs. We will look to your support and that of the entire 
Senate and House for our continued activities in Iraq, including our 
own State Department operating budget.
    Finally, let me again, today, commit the Department of State and 
our mission in Baghdad to the most efficient, transparent, cost-
conscious execution of funds entrusted to us, in the service of 
extraordinary national objectives, and to the best possible working 
relationship with Mr. Bowen and his colleagues.

    The Chairman. Thank you very much, Ambassador Jeffrey.
    The Chair would like to recognize, now, the Honorable James 
R. Kunder, Assistant Administrator for Asia and the Near East 
of the U.S. Agency for International Development.
    You may proceed.

STATEMENT OF HON. JAMES R. KUNDER, ASSISTANT ADMINISTRATOR FOR 
     ASIA AND THE NEAR EAST, U.S. AGENCY FOR INTERNATIONAL 
                  DEVELOPMENT, WASHINGTON, DC

    Mr. Kunder. Thank you, Mr. Chairman, Senator Biden, members 
of the committee. We appreciate the opportunity to be here 
today.
    Although we appreciate the opportunity to bring USAID's 
perspective to this important discussion, I do want to commend 
Ambassador Jeffrey and Ambassador Khalilzad for their 
coordination leadership. We do have a seamless team, and that 
extends to working with our United States military colleagues, 
both back here in Washington and in the various outposts in 
Iraq. It has been very much a team effort.
    I just want to make two points to supplement what's been 
said so far. We, also, take the accountability issues, that 
this committee has emphasized, very seriously. We've had a very 
productive relationship with Mr. Bowen and the entire SIGIR 
staff. The USAID Inspector General has also been heavily 
involved since day one. In fact, recognizing the complexity of 
working in Iraq, we asked our own inspector general to deploy 
with us from day one. We have seven of our own inspector 
general personnel living within the USAID compound in Baghdad 
now, and those folks have conducted 27 performance audits and 
73 financial audits since we first deployed to Iraq in 2003. 
So, we have taken accountability seriously. We value the 
recommendations that Mr. Bowen and the GAO have brought to our 
attention. We take them seriously, and we're working on their 
recommendations.
    The second point I would make is just to emphasize what 
Ambassador Jeffrey has said about transition and capacity-
building. Mr. Bowen referred to a Year of Transition. We really 
are reshaping the program. I've tried to visually represent 
this in the slide that's appended to my testimony. We have done 
a lot of good reconstruction work in Iraq over the last couple 
of years. We did not meet all of the goals, the ambitious goals 
we originally intended.



    But I want to emphasize for the committee how much the 
program has shifted in the next coming years to a capacity-
building program for the Iraqis. What's critical now is that 
this new permanent government have the capacity, both at its 
central ministerial level and down at the provincial level and 
local level, to harness Iraqi oil revenues to the service of 
the Iraqi people. And we're putting a lot of effort into that. 
I sometimes am concerned, frankly, that we focus solely on the 
O&M aspects of this, the operations and maintenance aspects. 
Certainly, protecting the U.S. taxpayers' investment in large-
scale infrastructure projects in electricity and water is a 
critical part of it. But that is symptomatic of the systems 
change that needs to be made within the Iraqi Government 
structure to convert a Stalinist command economy into a free-
market effective governance system that will service the Iraqi 
people. And that's going to require years of work.
    The only point I may disagree with Mr. Bowen on is, it's 
more than a year of transition. It's going to take some time, 
just as it takes time in Bangladesh or in Africa and other 
places where the systems have deteriorated, as they did under 
Saddam's rule, and you simply don't have the accountability 
systems, the financial-management systems, the computer 
systems, the anticorruption systems that will be required to 
really make this a functioning government.
    So, I just want to emphasize--I put an exclamation point on 
that--on that thrust of what we're trying to do. We really are 
finishing up the reconstruction projects, but we're taking this 
next couple of years to focus on building-capacity within the 
Iraqi Government. And now is the time to do it. Now is the 
window of opportunity. We have had, as Ambassador Jeffrey has 
pointed out in his statement, three transitional governments 
over the last couple of years. Now's the time to get the 
traction on changing these systems.
    And, in closing, Mr. Chairman, I'd just make a personal 
comment about the work that this committee has done in trying 
to improve the U.S. Government's post-conflict reconstruction 
capacity in the CRS Office at State, and so forth. I noted that 
Mr. Bowen talked about the fact that, while cooperation and 
accountability and performance have improved dramatically in 
Iraq in the last couple of years, naturally there were those 
rough spots in the early period, as multiple U.S. Government 
agencies tried to coordinate, and clearly the Secretary of 
State's request to the Congress in 2007 talks about the need to 
put money into a reconstruction fund so that the U.S. 
Government can respond more rapidly when we have these kinds of 
situations in the future. So, I think these two issues of great 
interest to the committee are related, the somewhat slow start 
here to get to the point where we are now, and the need to have 
a standing capacity in this area.
    Again, we thank the committee for the opportunity. I'd be 
glad to take any questions. Thank you, sir.
    [The prepared statement of Mr. Kunder follows:]

Prepared Statement of James R. Kunder, Assistant Administrator for Asia 
     and the Near East, U.S. Agency for International Development, 
                             Washington, DC

    Mr. Chairman, members of the committee, it is an honor to appear 
before you today. I welcome the opportunity to testify on behalf of the 
U.S. Agency for International Development (USAID). Before I proceed, I 
want to take a moment to thank Congress for providing the Special 
Inspector General for Iraq (SIGIR). Today, I would like to describe to 
the committee USAID's contributions to the President's Victory in Iraq 
Strategy as well as USAID's perspective on the most recent report from 
SIGIR.
    The administration has a clearly defined plan of action in Iraq, 
and USAID's programs, including our goals and benchmarks, support the 
President's National Strategy for Victory in Iraq in all three tracks--
security, political, and economic. The goal of the administration's 
strategy is to create a new Iraq with a constitutional, representative 
government that respects civil and human rights; is able to maintain 
domestic order; keep Iraq from becoming a safe haven for terrorists; 
capable of proving essential and other services to Iraqi citizens; and 
able to harness its economic potential to create jobs and other 
opportunities for its people. The fundamental operating principle of 
this strategy is that transition to Iraqi self-sustainment and 
responsibility cannot be made without integrated progress on all three 
tracks.
    I would like to talk about what USAID doing now as well as what we 
are planning for the future. The civilian USG effort is crucial to our 
success in Iraq. It supports the Multi-National Force-Iraq (MNF-I) and 
the Government of Iraq's (GOI) security actions against the insurgency. 
We have all heard how Iraqi and coalition forces have wrested control 
of many cities and areas from the terrorists. In most cases, Iraqi 
troops, with the help of the coalition, are maintaining security. Their 
success in these post-conflict areas will allow our forces to come 
home. But these Iraqi units cannot be expected to maintain peace and 
stability without the help of Iraqi civilian institutions, and without 
assurances that Iraqis can depend upon essential services provided by 
their government and can look forward to economic opportunities. 
Specifically, the United States and international civilian effort helps 
to enable and consolidate gains made in the security situation in 
several ways:

   It strengthens Iraq's capacity at the local and national 
        level to govern and provide essential services to Iraqi 
        citizens.
   It supports economic and social stabilization programs to 
        minimize local support for the insurgency and foster support 
        for the GOI.
   It assists the public sector's sustainable economic 
        development by creating the enabling environment that will 
        allow the private sector to flourish and by providing the 
        private sector with the resources for the economic growth that 
        creates jobs.

    Since March 2003, USAID has been allocated approximately $5.2 
billion in Iraq emergency relief and reconstruction funds. Of this 
amount, we have disbursed approximately $3.7 billion and we expect to 
disburse most of the remaining funds by this summer. Now, let me 
briefly summarize some of our accomplishments with these funds.

                            ACCOMPLISHMENTS

    USAID works with U.S. and multinational units to help cities 
recover from the effects of battle and to gain a sense of balance after 
the insurgency has departed. Projects are funded with combinations of 
military and USAID money. Projects are aimed at a combination of small, 
rapid programs that are followed by more complex projects that return 
public services to operation, promote representative local government, 
and reactivate the economy. Military patrols do much of the project 
monitoring.
    USAID-managed programs enable the democratic transformation in 
Iraq. USAID worked with the United Nations and the European Community 
for a successful constitutional referendum in October 2005 and two 
national elections in January and December 2005. Our programs have 
provided expert assistance, drawing from the international community 
and Iraqi civil society to assist the Iraqi Constitutional Drafting 
Committee. USAID continues to support decentralization, empowering 
provincial and city authorities to provide essential services so that 
Iraq will be less likely to return to authoritarian national 
government. In the field, assistance teams work with the Provincial 
Reconstruction and Development Councils to help them shoulder the 
burden of decentralized power.
    Assistance to the Iraqi Central Bank helped stabilize the dinar, 
prevented hyperinflation, and enabled Iraqis to qualify for 
International Monetary Fund (IMF) resources and debt reduction. At the 
Ministry of Finance, a financial management information system is 
beginning to track the Iraqi Government's budget and expenses. USAID 
supports agriculture, which employs 25 percent of the Iraqi workforce, 
and seeks to better target the social safety net, the Public 
Distribution System, to reach those who cannot purchase enough food. 
Infrastructure repairs are plugging gaps in power and water delivery. 
At present, USAID projects have added 1,200 MW of new or rehabilitated 
generation capacity to the national grid. Further generation increases 
are planned by contractors under the Department of the Army. USAID 
partners provide operation and maintenance programs that will safeguard 
the investment of U.S. assistance.
    A demographic bulge threatens Iraq's future. In 2004, half of all 
Iraqis were under the age of 20 years. The population will double by 
2030. Despite vast oil reservoirs, Iraq currently has some of the 
lowest literacy rates and poorest health statistics in the region. 
USAID's education and health projects smoothed the way for the United 
Nations (U.N.) to work with schoolchildren and administer vaccinations 
against polio. The World Bank expanded a USAID pilot program for 
textbooks--our 8 million books leveraged their program of 70 million 
books. Poor girls bear the greatest burden of discrimination, 
reinforcing the need for equal education and adequate health programs 
for young mothers.

                    OUR COMMITMENT TO ACCOUNTABILITY

    USAID has been, and continues to be, committed to ensuring that the 
resources that Congress has provided are managed effectively and 
transparently. Indeed, ensuring that these funds are used and managed 
in such a manner only strengthens their impact on Iraq and improves our 
chances for success in Iraq. Accountability for Iraq funds is fortified 
by the right mix of experience and teamwork between our field mission 
in Baghdad and USAID in Washington. Experienced controllers, 
contracting officers, and inspector general staff have been in Iraq 
since 2003 working with technical staff to help ensure program 
accountability.
    Accountability starts with a fair and open procurement process. 
USAID complies with all applicable federal regulations and works 
closely with our Office of the Inspector General (OIG) to identify and 
address any weaknesses USAID may have had in its procurement processes. 
USAID's accounting and procurement systems ensure that the 
responsibility for procurement authorizations, justifications, and 
payments are segregated and recorded. A summary audit report on the 
contract award process found that USAID has generally complied with 
these regulations.
    The President's Management Agenda shows USAID with ``green light'' 
progress on improvements in financial management. The Iraq Budget and 
Finance Team received the Administrator's 2005 Management Improvement 
Award for innovative financial information tracking.
    USAID's on-the-ground presence is critical to project oversight. 
Well-trained, onsite contracting staff and project managers use 
informed judgment to oversee USAID projects. USAID's project managers 
are trained through a certification program in acquisition management 
practices. These personnel, located in Baghdad and regional offices, 
provide the technical oversight of these programs. USAID on average 
makes 10 to 15 project site visits per week. Our colleagues in the U.S. 
military have been forthcoming in providing not only security support 
for our staff but assistance in monitoring USAID projects in those 
areas deemed to be insecure. USAID has also taken proactive measures, 
such as fraud awareness training, for Government employees, 
contractors, and grantees to reduce the likelihood of undetected fraud, 
waste, or abuse of funds. OIG audit staff in Baghdad conduct 
performance audits of USAID programs on a regular basis, and often 
concurrently, to enable USAID to identify problem areas early on. As of 
December 31, 2005, there have been 27 OIG performance audits and 
reviews and 73 financial audits completed.
    Finally, USAID's most valuable resources in ensuring program 
effectiveness and accountability are Iraqis themselves, who have 
greater freedom of movement than expatriates. USAID has 114 Iraqi 
national staff in its mission in Baghdad and through its implementing 
partners, an extensive network of Iraqi organizations that are critical 
to the design and implementation of USAID's projects. As of the 
beginning of this year, nearly 39,000 Iraqis were employed implementing 
USAID projects. These staff have the community ties that facilitate 
Iraqi ownership and contribute to proper oversight of USG resources.
    To date, there have been three audits completed by SIGIR directed 
toward USAID. One had a recommendation for USAID and that involved the 
``Cost to Complete'' (CTC) estimates. SIGIR's January 27, 2006, report 
entitled ``Methodologies for Reporting Cost-To-Complete Estimates,'' 
recommended that USAID develop written guidance for a methodology for 
calculating CTC reports. The report also recommended that USAID develop 
a review process to eliminate errors in its reporting spreadsheets; 
create and maintain a permanent central file to document estimates-at-
completion by project; and develop policies to define significant 
contract scope changes.
    In response to these recommendations, USAID is developing written 
policies and procedures for estimating CTC that include controls for 
validating and revalidating estimates. Moreover, USAID is working with 
the Iraq Reconstruction Management Office (IRMO) to develop a mutually 
agreeable methodology for calculating CTC estimates and creating a 
permanent central file to document the calculation of estimates-at-
completion by project. USAID is also developing policies to define 
significant scope changes. USAID will meet these recommendations using 
its current resources and personnel. The mission will comply with SIGIR 
recommendations so that there will be no replication of similar 
findings.
    In conclusion, I want to assure you that USAID is taking every 
measure it can to ensure that U.S. Government resources and are used 
effectively and transparently. The successes that have been achieved to 
date in Iraq are the tangible results of these efforts. I believe with 
Congress's continued support, USAID will be able to make further 
strides in helping to achieve victory in Iraq
    Mr. Chairman, thank you for offering me this opportunity to discuss 
USAID's role in Iraq with your committee. I am prepared to answer any 
questions that the committee has. Thank you.

    The Chairman. Well, thank you very much, sir.
    We'll have a round of questions now, and the Chair would 
suggest that we have an 8-minute limit for the first round, and 
we may then have a second round, as members have supplemental 
questions.
    I'll begin the questioning by asking you, Ambassador 
Jeffrey, for some general discussion of this proposition. Mr. 
Christoff has mentioned, and so have you, that originally the 
World Bank estimated about $56 billion would be required for 
reconstruction of Iraq. Both of you have felt that that's 
inadequate and is likely to go upward. And you offer good 
reason for this; namely, some moneys have been reappropriated 
for security of what we've already built. There is money 
still--of the $13.5 billion pledged in loans and grants by 
other countries--still to be paid toward the reconstruction. 
But probably more fundamental in the political situation, is 
the thought that 60 percent of the country is still on food 
rations. This dates back to the much-discussed Oil-for-Food 
Programme. The fact is that, in a humanitarian way, a very 
large percentage of the population has been fed in this way. We 
had testimony at an earlier hearing that gasoline, in 
equivalent dollar terms, was maybe 8 cents a gallon. That may 
understate it, but not by far. Subsequently, after that 
hearing, we saw evidence that that price was raised, and we 
also saw evidence of protests by motorists, in Baghdad and 
elsewhere, who were very unhappy with the government for making 
such a change.
    So, you have a political philosophy of the past, a lot of 
free food, virtually free gasoline. And suddenly you begin to 
talk about market prices for the area, not necessarily for the 
world. That's critical in this situation, because the budget 
forecast that we've seen--we haven't got into this today--would 
show a deficit right off the bat, in terms of requirements of 
the fledgling government and the money coming in, principally 
from oil exports, but not much else in terms of taxation or 
other revenue generation that has not been worked out very 
well.
    Clearly, we are faced with a multiyear project. Each year, 
the State Department, USAID, and others are going to request 
funds. The Department of Defense will be requesting funds, in 
one form or another. And the American people will be trying to 
evaluate, when does it end? If, in fact, reconstruction of Iraq 
is required, how about reconstruction of parts of the United 
States? This may seem insensitive, but, nevertheless, these are 
the sorts of arguments our constituents raise. And so, we will 
have a new government there, but we will maybe criticize that 
government for failure to take a look at food or fuel costs or 
market principles or how you formulate a budget, quite apart 
from the point you made, Mr. Christoff, that there's still $51 
billion of debt, even after all the debt forgiveness that many 
countries have forgiven. The irony being that some nations may 
not be as forgiving. They may want their pound of flesh, as we 
are appropriating money to fund reconstruction or to supplement 
the Iraqi budget.
    Now, to my question. How did your discussions go with the 
Ambassador and the Iraqi Government or with the Secretary of 
State and others, as you were trying to determine where all of 
this is headed? We can criticize momentarily a little 
corruption here or there on the part of Iraqis or the 
contractors or so forth, the security problem, the insurgents, 
but this is a monumental project, the rebuilding of a whole 
nation, and with many people not being very cooperative in the 
process. And many have different philosophies as to how the 
money should be allocated, and what the reconstruction ought to 
be. And, ultimately, the irony of it is that the oil, which was 
prophesied by many who came before this committee as the way 
you pay for all of it, doesn't pay for all of it. There may be 
less produced some months than there was under Saddam.
    How do you rationalize this? Or, in the big picture, how do 
you portray to people what our mission ought to be, and the 
reason for constancy over the coming years, not just over the 
coming year?
    Ambassador Jeffrey. Senator, you paint a daunting picture. 
And, first of all, all the facts you've cited are correct. And 
let me try to lay out very briefly where we do see this, going 
forward, and what assumptions we make to continue on that road.
    First of all, in looking at the Iraqi budget, a very large 
percent of it, as you said, in the past was tied up in just the 
food subsidy alone. It's $4 billion. The real cost of importing 
fuels, largely because of problems in producing oil, refining 
oil, and security attacks, reduces the amount that they can 
produce domestically, was up to almost $5 billion this past 
year. Now, some of that is because of a huge climb in demand as 
people bring in generators to respond to electricity outages. 
And, of course, hundreds--literally hundreds of thousands of 
automobiles that they didn't have before. So, there's a good-
news aspect to that, as well, but, it's, all in all, something 
that we have to deal with.
    The Iraqis are dealing with it. As we mentioned, at the end 
of last year, they raised fuel prices for the key consumption 
items--diesel and gasoline--by a factor of about 500 percent, 
and they're planning another tranche of that. The goal is to 
cut their imports for fuel by the end of this year to about 
$2.4 to $2.8 billion, so that will be a savings of several 
billion dollars. And we're pushing them very hard to do this. 
But that also means, as was mentioned here, protecting 
infrastructure, keeping the refineries from being hit, keeping 
the pipelines flowing.
    In terms of the longer term, we don't see the United States 
as continuing with anything like the IRRF. As I mentioned, 
we're moving more, in the FY07 budget, to a traditional program 
similar, in general terms, to that which we have done in the 
Balkans, in Africa, South Asia, and other areas to build 
capacity, focus on key things like education, agriculture, 
government Ministries.
    What we are looking for is, first of all, the international 
community, but also eventually the private sector. The private 
sector, particularly in the oil field, has tremendous 
capacities, but to bring in the private sector, of course, you 
have to have a secure situation on the ground militarily, and 
you have to have a stable government. So, therefore, again, 
that's where all of the security elements come together.
    We're also looking, first and foremost, to the Iraqis 
themselves. Their budget this year does have a deficit of $3 
billion, but we believe that there will be $3 billion left from 
their DFI account that will cover that. They have $6 billion in 
their budget this year for capital expenditures. And of the 
capital expenditures, a large percent of that, $3.5 billion, 
will be devoted to their oil infrastructure. Their goal is to 
get production up, in the near term, to 3 million barrels a 
day, and to then double that again, with almost all of it being 
exported.
    We think over time, with foreign investment, with foreign 
assistance, with more of our assistance, and, importantly, with 
victory on the political and on the military security lines of 
operation, we can achieve this within the next few years.
    In terms of debt, for example, it looks bad, but, in fact, 
the Iraqis are not paying interest on this debt. We have had 
great success in the Paris group with forgiveness of 80 percent 
or more of one-third of Iraqi debt. We are working--the 
Secretary personally, with the Arab Gulf States, who hold 
another 50--roughly $50 billion of debt. We're also working on 
the $20-plus billion of commercially held debt. Again, I think 
that that's going to be a good-news story, sir.
    Thank you.
    The Chairman. Thank you very much, Ambassador.
    Senator Biden.
    Senator Biden. Mr. Ambassador, is there any good news about 
a political settlement?
    Ambassador Jeffrey. Sir, where we are right now is that the 
Iraqi court, their special panel that will investigate all of 
the election challenges, has basically ruled, by today, on all 
of the large ones from the major parties. So, we believe that 
we will be on track for two things within the next few days. 
First of all, that, by or about the 11th, the final results 
will be announced for the Parliament, and, second, we believe--
and this is a prediction, it's not a fact--that the parties 
will, while there will be some additional grumbling, basically 
accept the results. And that's a huge step forward. We took a 
lot of additional time and urged the Iraqis, which they did, to 
bring in international monitors to really go over this election 
several times to ensure that people would believe in it, 
because we are basing everything on both the election results 
and what Zal Khalilzad calls a ``national compact'' to bring in 
the various groups. There's work going on every day out there, 
Senator, with the major Sunni groups, with the Kurds, with 
Allawi's folks, what we call the secular Shia, and Sunnis and 
with the various factions of the United Iraqi list, Shia 
cleric----
    Senator Biden. Who, beyond us, is doing any of that work?
    Ambassador Jeffrey. A great deal of it is being done by the 
British, and, to some degree, other coalition allies, but also 
the U.N. Ambassador on the scene. Ambassador Qazi has not only 
played an important role in the technical support for the 
elections, but he is also working with these folks. In 
addition, we're reaching out to other Arab countries. The 
Secretary, Assistant Secretary David Welch, I, and Zal 
Khalilzad have made about seven different trips in the region 
in the past 4 months to work with our Arab friends to get them 
to weigh in, as well, sir.
    Senator Biden. Let me ask you--I think, as we all agree, 
it's important to be realistic with the American people, to 
tell them the truth--I'm not suggesting that any of you aren't 
telling the truth--but to tell them the truth about what to 
expect. I know many of you, and probably some of my colleagues 
here, are tired of hearing me, over the last 3 years, echo the 
refrain that no foreign policy can be sustained without the 
informed consent of the American people. And ``informed 
consent'' means leveling with them. And I just want to make 
something clear, from my perspective, and find out whether any 
of you disagree with it, that, absent a coalition government, 
absent a Sunni buy-in, absent a constitution that's viewed as a 
document that unites that country, including the Sunni buy-in, 
as opposed to dividing it, all of which needs to occur by this 
summer--absent that, none of this is going to matter, that 
there's no possibility of getting foreign investment in that 
country. Zero. None, absent that. And I wonder whether any of 
you would disagree with that assertion.
    Ambassador Jeffrey. Senator, we believe in this. This is 
why we do think that----
    Senator Biden. That's not my question. I understand you 
believe in it. And I believe you believe in it. That's not my 
question. My question is, Do you believe there is any? You said 
there's a combination of three things that are needed. You need 
foreign assistance, you need private investment, and you need 
continued U.S. support, financially, in order to deal with the 
economic side of this equation. My question is, Do you think 
you will get any of the remaining $13 billion pledged, do you 
think you'll get any serious private investment, and do you 
think you're going to be able to convince the American people 
to continue to spend--we've now spent over--we have now 
authorized over $300 billion for Iraq--$300 billion--do you 
think there's any possibility, absent a political settlement 
where all three major parties buy in to a coalition government 
and a constitution--do you think there's any possibility of 
those three things coming together?
    Ambassador Jeffrey. I don't disagree with that. But, two 
caveats. First of all, I wouldn't put a deadline of the 
summer--and it's on or off--and, second, we believe that we're 
going to get it, sir.
    Senator Biden. Well, I sincerely hope so. I think we should 
just level with the folks, though. Absent a constitution that 
is a uniting document, which is supposed to occur by the 
summer--supposed to; maybe it gets kicked down the road 
further, and maybe the Iraqi Parliament decides to deal with it 
a different way; that's theoretically possible--but, absent 
that, this is one guy you're going to lose, in terms of a guy 
who's supported every penny that's been asked for.
    Of the roughly $30 billion for reconstruction, Mr. 
Ambassador, you've indicated $13.6 billion has been disbursed. 
How much of that $13.6 billion is for security, and how much 
went directly to projects?
    Ambassador Jeffrey. It's about $13 billion, sir. We've 
disbursed a high percent of the $5 billion we put into the 
security portion--that is, for the training and equipping. In 
fact, I have that figure right here. Just a second.
    Senator Biden. I want to make sure I'm asking--you 
understand the question----
    Ambassador Jeffrey. I am, Senator.
    Senator Biden [continuing]. I'm asking. Of the $13 billion 
disbursed, how much was for security?
    Ambassador Jeffrey. For starters, we've disbursed almost 
$4.8 billion--I'm sorry, we've disbursed $4.2 billion of that 
$13 billion, roughly, for security, in the narrow sense of 
training and equipping the police and the security forces. Of 
the approximately $8 billion remainder, a rough estimate would 
be--and this isn't as precise as the figures I just gave you--
would be 20 to--roughly 20 percent would have gone to the 
security of the projects--that is, hiring PSDs, hiring Iraqis, 
and that kind of thing. So, with $8 billion, that would be 
about $1.6 billion, added onto the $4.1 billion, so roughly 
$5.8 billion of the $13 billion, sir.
    Senator Biden. So, in fact, in terms of the actual 
projects, we anticipated the money not to be for security. We 
anticipated, when we voted for the money--I'm not suggesting we 
had any alternative, but the anticipation was it would go 
directly into projects, whether it was water purification, 
sewage, electricity, et cetera. We have, in fact, actually put 
on the ground, in the ground, and around the ground, in terms 
of projects, something considerably less than $7 billion. And, 
again, I just think it's important for us to level with folks.
    I mean, if you look at the inspector general's report--this 
isn't about blame, this is about reality--oil production: 
Prewar, is 2.6 million barrels a day; currently it's 2.1 
million barrels a day. In terms of water sanitation: Prewar, 
people with sewage coverage, 6.2 million; today, 5 million. 
People with potable water available: 12.9 million before the 
war, 8.3 million after the war. I mean, since we have invested 
this time and money. And electricity: Generating capacity 
before the war, 4.5--4,500 megawatts; currently, 3,995. Hours 
of power in Iraq: 4 to 8 hours per day prewar, 10.2 per day 
currently. Hours of power in Baghdad: 16 to 24 per day; today, 
3.7. Now, in part, that was because Saddam was stealing power, 
in effect, from other--from the grid to keep Baghdad going.
    So, my concluding question is this. Can you tell me, if you 
can--this is both to Ambassador Kunder and Jeffrey--will more 
Iraqis have access to potable water at the end of the year than 
before the war? Will they have--will Baghdad's political, 
commercial, and cultural capital of Iraq have half the power it 
had before the war by the end of the year? And will Iraqi oil 
production reach prewar levels by the end of the year? And, I 
might add, in the hearing we had before the war, oil experts 
came and testified before this committee, including 
representatives from the Cambridge--what's it called?--
Cambridge Energy Associates--and they indicated that it would 
take $30 billion in investment in the ground before we could 
get to the levels of actually producing sufficient amount of 
oil for the Iraqis to even begin to meet their needs and pay. 
Interestingly enough, we were told that, no, no, that wasn't 
true, we'd be able to pay for it right away. Now the number I 
heard from GAO is $30 billion. So, no one should be surprised. 
We wrote that in a report we wrote over 2 years ago.
    So, my question is, How about--what do you expect at the 
end of the year, on water, power, and sewage?
    Ambassador Jeffrey. Sure. Senator, let me start, and Jim 
Kunder can jump in.
    On water, we've added about--we've added water, potable 
water, to about 3 million Iraqis since the war. And, again, the 
prewar statistics have to be bounced against what happened 
during the war and immediately after, when much of the 
infrastructure crashed. And so, we had to do a lot of work to 
get back up. We've added about, as I said, 2.75 million people 
to the potable-water stream. And we hope to do almost 4 million 
more. That will get us up to the 12.9, roughly, that had 
water--potable water before the war. In terms of sewage, 
again----
    Senator Biden. No, excuse me, you expect to do that by 
year's end?
    Ambassador Jeffrey. We expect to do that when the program 
completes, sir. Now, the program will be all obligated by the 
end of the fiscal year. And how long it will take for that to 
roll out, I don't know, but certainly by the end of the year or 
into 2007 the program will be substantially complete.
    Senator Biden. Mr. Secretary, do you know how long it will 
take to roll out? You guys are doing it.
    Mr. Kunder. We're doing part of it, sir. I'm not trying to 
duck your questions, sir, because I take your point, but 
clearly we're trying to do a number of things simultaneously, 
which is, improve the security situation, invest in O&M--
operations and maintenance--so that the existing investment is 
protected, and roll out the different services. I mean, it's a 
calculus of how those variables come together. But I would 
agree with Ambassador Jeffrey's point on what our plans are for 
our projections by the end of the year. The other thing I think 
we need to raise----
    Senator Biden. That's what I'm asking. What are they? What 
are they? You just got finished saying, ``By the end of the 
fiscal year, they'll be obligated.'' But when--what do you 
expect by the end of the calendar year, by January of next 
year? Do you expect those obligations to have borne fruit and 
these projects, X number, finished? What do you expect? And 
maybe you could submit it for the committee.
    Mr. Kunder. I would submit that.
    [The submitted information follows:]

    While we are currently in the process of transitioning our focus 
from infrastructure reconstruction to capacity-building, USAID has 
contributed significantly to the larger USG infrastructure 
reconstruction effort. By the end of this calendar year USAID will have 
added or restored 1292 MW of electrical capacity, increased access to 
clean drinking water for 3.1 million Iraqis, and provided sewage 
treatment capacity for 5.1 million Iraqis.

    Mr. Kunder. But that was the point I was going to make, 
sir. And the way--and, again, I don't want to quibble with the 
main point you're making, which I understand, but the term 
``disbursement''--not to bog the Senators down on this issue, 
but the term ``disbursement'' does mean ``bills paid,'' so that 
when we obligate the money, that may well mean that the 
construction is taking place, the benefits are beginning to 
flow. So, we do say ``funds obligated'' and ``funds 
disbursed.'' And in terms of impact on the ground, I would 
argue that the obligation rate is probably a greater indication 
of what's happening on the ground, as opposed to the 
disbursement rate. So, the way the numbers line up may 
underestimate the impact on the ground.
    Senator Biden. I'm over my time. I apologize. Thank you.
    The Chairman. Thank you very much, Senator Biden.
    Senator Hagel.
    Senator Hagel. Mr. Chairman, thank you. Gentlemen, welcome.
    Ambassador Jeffrey, you have responded to questions of 
Senator Biden regarding debt forgiveness, and have framed a 
rather positive picture. When Secretary Rice was before this 
committee last year, she talked about the $13 billion in 
international commitments to Iraq, and I--if I recall, about $3 
billion had been met. Where are we with that $13 billion number 
today?
    Ambassador Jeffrey. Senator, we're at about--$3.2 billion 
has been obligated. The next two big----
    Senator Hagel. $3.2 million or billion?
    Ambassador Jeffrey. Billion, sir. The next two big tranches 
will be from the Japanese, who have done very well. They 
pledged $5 billion, $1.5 billion of the $5 billion was direct 
grants, and they have pretty well completed that. And they're 
now moving into structured loans, and they're being very 
active, and we're very, very optimistic about that. The World 
Bank has done very well, too, sir. And the IMF, as well. The 
World Bank has begun a special $500 million program for Iraq. 
The IMF provided about $485 million for a special post-conflict 
agency for Iraq last year. They have now, with the signing of a 
standby agreement, which was another accomplishment we had in 
December, have agreed to another $600-plus million that they 
will provide for currency support.
    So, the international funding institutions and the Japanese 
are doing very well. The British have done very well. The 
European Union has increased its pledges after Madrid, where 
they pledged about $235 million, up to almost $700 million, and 
they're working on capacity-building, in particular, in law 
enforcement and other areas. That will take longer to roll out. 
We're pushing real hard on the Kuwaitis and the Saudis, for 
example, who, between them, pledged a billion dollars, and we 
haven't seen very much of that yet. And there are a couple of 
other big donors in that category in the Middle East that we're 
looking at, sir.
    Senator Hagel. So, where would that roughly put us, of the 
$13 billion?
    Ambassador Jeffrey. If----
    Senator Hagel. Total that up.
    Ambassador Jeffrey. If all of these things over the next 18 
months came on-stream----
    Senator Hagel. All--excuse me--all of what you've just 
said----
    Ambassador Jeffrey. Right.
    Senator Hagel. So, they're not on-stream, they're another 
commitment, an additional commitment.
    Ambassador Jeffrey. No, if--this is all within the $13.5 
billion that was initially pledged, these things that I 
mentioned. If we could get progress on the Japanese on the--
which we think we are seeing--on the World Bank, on the IMF, 
and on just two or three of the Arab countries that have 
pledged the most, we would see an additional $3 or $4 billion 
flow into the country, sir.
    Senator Hagel. But you just said ``if we could do it.''
    Ambassador Jeffrey. Right.
    Senator Hagel. But I thought you said earlier, a moment 
ago, that that was already done, that they had already 
committed that, and they were moving.
    Ambassador Jeffrey. They have committed to it. And, thus, 
they have pledged this money, and they have begun to take the 
steps. What we want to see is concrete and----
    Senator Hagel. Well, that's what I'm talking about. I'm 
talking about meeting those commitments with actual cash or----
    Ambassador Jeffrey. Right.
    Senator Hagel [continuing]. In kind, or however way they 
made those commitments.
    Ambassador Jeffrey. I'm very confident on the----
    Senator Hagel. But where are we today--of the $13 billion, 
what's been--not over the next 16 months, but of all these 
international commitments, around $13 billion, where are we 
today?
    Ambassador Jeffrey. $3.2 billion has been disbursed; and, 
thus, the $3.2 billion is actually moving its way through 
contracts and work.
    Senator Hagel. Well, we haven't come very far, because, 
when Secretary Rice was here, a year ago, she used the figure 
$3 billion. So, that's not good news, I wouldn't think. Again, 
it goes back to Senator Biden's comments about the American 
taxpayer continues to carry the heavy burden here.
    In that regard, do you anticipate additional supplemental 
requests as the administration will be sending up a 
supplemental package for fiscal year 2007? And how much of that 
will be yours?
    Ambassador Jeffrey. Senator, the administration is, of 
course, looking at that. Within a few days, they'll take their 
decision. We've laid out all of the issues, the problems, the 
need for more capacity-building and where we are with the IRRF, 
with all but $2.9 billion obligated to the Secretary and to the 
President, and they'll have to make that decision, sir.
    Senator Hagel. So, you don't know, or you can't say, or 
what?
    Ambassador Jeffrey. It's a combination of both, Senator.
    Senator Hagel. You can't say, and you don't know.
    There are reports--I suspect you've heard about reports 
that our Ambassador, Ambassador Khalilzad, who we all have the 
highest regard for, is holding a billion dollars in U.S. 
reconstruction funds aside. What I have understood to be the 
case, that he is waiting to use that as some leverage as the 
new government is formed. Any truth to that? Is he doing that?
    Ambassador Jeffrey. That's part of the $2.9 billion that we 
haven't obligated yet, and it involves, sir, primarily projects 
in the electrical and water field that he is now engaged in the 
elected leadership with. We're not going to wait for a 
government to come on-stream, because we don't know when the 
government will be there, and we think we need to spend that 
money now.
    Senator Hagel. So, what are you saying, in answer to my 
questions?
    Ambassador Jeffrey. What I'm saying is, there is no reserve 
that's being held back until the new government comes on-
stream.
    Senator Hagel. He is not holding a billion back, or any 
other number back.
    Ambassador Jeffrey. He is, of course, responsible for 
carrying out the program, as he sees fit, within the guidelines 
set by the President and by you folks, but he recognizes that 
he can't be holding back a reserve for a government that we 
don't know whether it will be formed in 2 weeks or 2 months; 
and, therefore, he has agreed that we should be obligating this 
money. But I have to emphasize, we need to run this by--many of 
these projects, because they are important projects--the 
elected leadership. We know who the elected leadership is going 
to be. We just don't know how they will sort out into a 
government. But with the kind of coalition government that we 
are striving for, and Senator Biden emphasized is so important, 
we think that you do have to talk to the Kurds, you have to 
talk to the Shia, you have to talk to the Sunnis, on some of 
these projects. And we are.
    Senator Hagel. On the point of the government being formed 
in Iraq, what's your sense of when that government will be 
formed?
    Ambassador Jeffrey. Senator, when I was out there, you 
remember, last year, it took us--it took the Iraqis 3 months to 
go through the political process to finally get a government 
that reflected Sunni buy-in, back in the spring. I can't put a 
date on it. I will say that it is important that it be stood up 
as soon as possible, for many reasons that we've discussed 
today. It's also important that this process be used as a way 
to bring in the various groups and to promote national 
reconciliation. So, we have two conflicting goals, and we're 
trying to sort those out as best we can. But, believe me, we're 
well aware, we need to have a government that we can deal with 
on these pressing problems as soon as possible.
    Senator Hagel. Thank you.
    How bad is corruption in the oil sector in Iraq? And I'm 
going to ask each of you that. You've all touched on it a 
little bit. The reports we get, firsthand reports--I was over 
there in December, I know Senator Biden's been there recently, 
some of my other colleagues--it's pretty deep, my 
understanding, and pretty high in the current government. How 
bad is it? And connect with that what your conversation was 
with Senator Biden, in the way of how you can reach these 
estimated production numbers, which are far below what we 
heard--this committee heard 3 years ago, and 2 years ago, as to 
what was going to happen by the Government, our Government. So, 
where are we? How bad? How much trouble are we in over there 
with corruption?
    Ambassador Jeffrey. Very briefly. I'll leave it to the 
others, sir. We've looked at--with these increasing 
infrastructure attacks and the problems we've had, we've looked 
at this, and it is pervasive in many of the areas around 
Baghdad, in the refineries, in the collection areas, and 
particularly export of oil, because it is so--and fuel--because 
it is so cheap in Iraq, to neighboring countries. Thus, we 
think, while there are many ways to approach this, the best way 
to attack it is to raise the price of fuel.
    Senator Hagel. Well, in addition to the question, I would 
add this. As you know, the press reports have stated--and other 
reports--that a certain amount of this corruption is taking 
funds out of the Iraqi Government and--legal flow--and those 
funds are ending up in the coffers of insurgents. And you've 
read those reports. Is that accurate?
    Ambassador Jeffrey. At the retail production level, we 
think it is, Senator. Where we're pretty sure that--because we 
have international monitors and such--is, once the oil is 
sold--that is, we don't think we have the same problem we had 
with Saddam, with the Oil-for-Food--once the oil is sold on the 
international markets, we think there's good tracking of that, 
and that's very important. But on the ground, before the oil 
gets to the ships, gets to the refineries and such, and some of 
it after the refineries, that's where the problem lies.
    Senator Hagel. So, the insurgents are getting some of these 
oil revenues.
    Ambassador Jeffrey. That's what we understand. We can't put 
a number on it, but--and this is all reports and some rumors 
and some indications, but there's a lot of that out there, I 
have to say.
    Senator Hagel. Thank you, Mr. Ambassador.
    Mr. Christoff.
    Mr. Christoff. Definitely, there is--smuggling is 
occurring. I think there's no doubt about that. The 
International Advisory and Monitoring Board, who's supposed to 
check oil reserves, has consistently reported that there is a 
difference between what's being produced and what's being 
exported, even when you take out domestic production. They 
can't figure out where the gap is. That gap, partly, is due to 
smuggling.
    The other problem is, we still don't have any meters. 
Metering was a problem in the Oil-for-Food Programme. CPA 
recognized it. There still aren't meters to try to accurately 
gauge what's coming out of the ground and what's being 
exported.
    Senator Hagel. What about corruption, that question?
    Mr. Christoff. Corruption. I mean, I think the----
    Senator Hagel. How deep? How pervasive, top to bottom? Big 
problem, or not?
    Mr. Christoff. I think corruption--well, let's look at the 
Oil-for-Food Programme. There is a legacy of corruption that's 
been inherited, and I'm sure you have inheritors of that legacy 
throughout the entire government, so it is an important 
problem.
    Senator Hagel. Big problem.
    Mr. Bowen, you're the inspector general. How are we fixing 
it?
    Mr. Bowen. Yes, sir, Senator. Well, we're fixing it by 
empowering Iraqi anticorruption institutions. Specifically, the 
Commission on Public Integrity, 29 inspectors general's offices 
in each of the Ministries, and the----
    Senator Hagel. How long is that going to take? Reports I 
get, it's getting worse. So, how long is this going to take to 
structure the process, the people? A year before we'll see a 
change, a reversal of this corruption?
    Mr. Bowen. Well, I--well, first of all, I think you're 
right in your perception that corruption is endemic within----
    Senator Hagel. It isn't just a----
    Mr. Bowen [continuing]. Within----
    Senator Hagel [continuing]. Perception----
    Mr. Bowen. Well, the reality. The reality is that----
    Senator Hagel. Reality.
    Mr. Bowen. I don't have data, other than the data I get 
when I meet with the Commission on Public Integrity. And, 
you're right, it's not just perception, he has 400 open cases, 
and his focus on corruption is in the Ministry of Defense and 
the Ministry of Interior. Very significant corrupt practices 
have been uncovered, particularly in the Ministry of Defense. 
He's got investigative cases of up to $1.5 billion in missing 
dollars in the Ministry of Defense.
    Smuggling is an ongoing problem in the oil sector. It's 
known that those funds have been going to the insurgents. But 
it's difficult to track the data, because it's so covert.
    Mr. Christoff hit on an important issue, an issue that we 
have been identifying for a while, and that's the lack of 
metering. They have absolutely the most rudimentary way to 
measure outputs, just marklines on their storage tanks. And 
there's really no way to know how much has been lost, to be 
honest with you, without meters.
    Senator Hagel. Well, my time's up, and I appreciate the 
indulgence of the chairman, but I would say it's just like what 
we're dealing with up here, on lobbying reform. I mean, you can 
take process and procedure, and put meters in place, but if 
people are going to break the law, if they're going to cheat 
the system, if they're going to smuggle and do the things that 
they're doing, that are going on, that isn't going to fix the 
problem--meters.
    Mr. Bowen. Right.
    Senator Hagel. It's a process. But it--that isn't the core 
of the problem, just like lobbying reform up here, more laws 
doesn't fix the problem. Thank you for what you're doing. 
Please give your colleagues our thanks, as well.
    Mr. Chairman, thank you.
    The Chairman. Well, thank you very much, Senator Hagel.
    Senator Feingold.
    Senator Feingold. Thank you, Mr. Chairman. And thank you 
for calling this extremely important hearing.
    The testimony and the answers that we're hearing today will 
help shed light on what has become an increasingly burdensome 
and complex endeavor. That, of course, is rebuilding Iraq in 
the shadows of a violent and determined insurgency.
    When I originally introduced legislation to create the 
Office of the Special Inspector General for Iraq, in 2003, my 
intent, along with other Members of this Congress, was to help 
ensure that United States taxpayer dollars would be spent 
effectively, and that we would monitor and analyze the 
reconstruction spending in a calculated and strategic manner. 
Let me say that this office has done that, with great success, 
and I want to applaud Mr. Bowen and his team.
    Mr. Bowen. Thank you.
    Senator Feingold. Transparency and accountability in 
reconstruction efforts in Iraq are not about finding new things 
to criticize, or about finding new ways to analyze charts or 
graphs, it's about responsible stewardship of taxpayers' 
resources, and it's about getting our reconstruction efforts 
right.
    I appreciate the work of those testifying today, and their 
hard work on some of the toughest challenges that face our 
Government today. And I want to start with Mr. Bowen. He has 
been more than willing to continue--continually consult with me 
and keep me up to date on his activities, in addition to the 
public reports that we've had the benefit of.
    Mr. Bowen, as you noted, your recent reports have 
highlighted the dramatic increase in security costs and the 
drain it has had on funds that were originally allocated for 
reconstruction. The reports have also highlighted the fact that 
sustainability of this may be the biggest challenge that the 
U.S. Government and donor communities face in handing off 
programs to Iraqis. We've talked about this, that security 
costs have increased from 18 percent to 40 percent of original 
allocations. Can you give us a sense for how our security 
costs, now borne by the United States, will be absorbed and 
managed by Iraqis when IRRF funds are completely obligated at 
the end of fiscal year 2006 and what the consequences might be 
if Iraqi security forces are not fully capable of protecting 
infrastructure and other projects?
    Mr. Bowen. We've seen those consequences over the last 9 
months. As I mentioned earlier, we were above prewar levels in 
oil output, we were above prewar levels in electricity last 
July. We are now substantially below them, because of attacks 
upon infrastructure. And that's why we are going to audit, over 
this next quarter, capacity-building within the Iraqi forces 
for infrastructure protection. It's not working, right now. And 
unless we fix it, and unless the Iraqis develop the capacity to 
protect their own infrastructure, then their infrastructure is 
going to continue to limp along at these subprewar levels. And 
that's unacceptable, because that is the lifeblood of the 
economy. Without an oil sector that's working well, their 
national income is not going to be sustainable at levels 
sufficient enough to pay off this debt that we've been talking 
about, sufficient to fund the rest of the reconstruction, most 
of which has yet to start, and ultimately to bring prosperity 
to the Iraqi people.
    Senator Feingold. Well, related to that, and assuming that 
you're worried about the fact that the Iraqis may not be able 
to afford these kind of high security costs, among other things 
associated with ongoing reconstruction operations, are you 
satisfied with the actions being taken by DOD, State, and USAID 
to ensure that programs that are currently underway or in the 
planning phases take into account budgetary, security, and 
management limitations that the Iraqis will almost undoubtedly 
face?
    Mr. Bowen. Well, first, I think the reallocation, the 
reprogrammings of funds out of bricks and mortar and into guns 
and bullets, was appropriate 2 years ago. We've seen the 
necessity of that, over time. However, we have not seen its 
full effect, at least yet. And the security situation is not 
substantially better. And, indeed, with respect to 
infrastructure security, it's worse. So, this audit that's 
going to look at this particular issue, infrastructure 
security, will provide more direct and substantiated answers to 
your question in our next report.
    Senator Feingold. In light of all this, in your opinion, 
and given your work of the past 2 years, would you say that 
United States taxpayer dollars have been used effectively in 
Iraq?
    Mr. Bowen. Well, I think that we're still waiting to answer 
that question. There has been much progress, but it's a mixed 
story. Obviously, we've had to change course during our 
experience, because of the security issue. We're only going to 
build about 36 percent of the water projects that--vice the 
amount that was initially intended in the supplemental. We're 
going to build about 70 percent of the electrical projects. 
We've had to make those course corrections because of security 
issues.
    So it's a mixed story, to answer your question. I think 
there are successes, and there are continuing challenges.
    Senator Feingold. In the hearing yesterday in front of the 
Senate Armed Services Committee, you made the very salient 
point that the United States started executing reconstruction 
programs prior to attaining stabilization. I found this to be a 
succinct and important point, and it leads me to a question 
about sequencing.
    In your investigations of when, how, and where U.S. 
taxpayer dollars were spent, what were the most important 
lessons you learned about synchronizing or coordinating 
stabilization and reconstruction activities?
    Mr. Bowen. Well, I think the World Bank has looked at this 
issue, and they have, through several studies, identified the 
self-evident fact that investment in reconstruction is more 
effective in a stable environment than one that's ridden with 
security problems. When the reconstruction program began, the 
level of insurgency was much less than what we saw 
subsequently. So, it became unstable over time.
    I think the new directive, NSPD-44, which seeks to create a 
capacity-building for contingency responses to stabilization 
and reconstruction situations, anticipates that sort of 
dynamic; that is, you pursue stabilization, and then you 
advance with reconstruction.
    And, as I said yesterday, I think it is relevant and 
accurate to say that our invested reconstruction dollar today 
is returning more than it did 2 years ago, because we have 
invested heavily in security and are hopefully going to begin 
to see the effects of that soon.
    Senator Feingold. Did you have input into the National 
Security Presidential Directive 44, or Secretary Rumsfeld's 
related Directive 3000?
    Mr. Bowen. No, I didn't.
    Senator Feingold. Mr. Chairman, thank you very much.
    The Chairman. Thank you very much, Senator Feingold.
    Senator Chafee.
    Senator Chafee. Thank you, Mr. Chairman, for calling this 
hearing on stabilization and reconstruction in Iraq.
    I think everybody is agreeing that security comes first, my 
colleagues and members of the panel. And, Mr. Bowen, you 
testified that the lethal environment in Iraq continue to pose 
extraordinary challenges to reconstruction contractors, and 
that since reconstruction began, in March 2003, 467 deaths--
claims for contractors of all nationalities have been 
submitted, and the daily situation to the U.S. Army Corps of 
Engineers present the full range of dangers facing those who 
work on reconstruction projects in Iraq. The reports routinely 
list kidnappings, murders, attacks, bombings, armed vandalism, 
and threats.
    The January 13, 2006, report, for example, listed a car 
bombing, a gunshot through a car window, armed vandalism, a 
threat delivered by five armed and masked men on a jobsite, and 
six attacks on contractors. So, that's just one day of what's 
occurring there. So, what's important, of course, is to 
stabilize the security, and then we can go ahead with 
reconstruction.
    And, Mr. Christoff, you're the one member of the panel 
that's not a member of the administration, so, as you look 
ahead, can you predict how long we're going to be there to 
stabilize the security, and how much it's going to cost?
    Mr. Christoff. What we're doing right now in GAO is 
reviewing some of those issues; and that is, reviewing the 
revised campaign plan of DOD. And in that are the classified 
assessments and terms of what it's going to take, in stages, to 
try to meet the goals that we need in the campaign plan. And 
it's just not security goals. I think what can be said about 
the campaign plan is that it's a combination of training and 
equipping the Iraqi security forces, improving security, but 
also building up institutions, building up the abilities of the 
central government, its Ministers, and the provincial 
governments to try to serve and best meet the needs of the 
people. And so, those conditions that are in the campaign plan 
all have to come together at different phases in order to 
relate to a drawdown. And we're looking at those conditions 
right now. That was one of the recommendations that we have 
made that I can talk about in our classified report, that you 
have to have good benchmarks and indicators associated with 
those conditions to know how you are progressing in your 
campaign plan.
    Senator Chafee. So, you're not talking about drawdowns?
    Mr. Christoff. Yes.
    Senator Chafee. It seems to be in contrast with the 
existing situation, where it's--the testimony is that it's 
getting worse, the security's getting worse, but we're going to 
draw down.
    Mr. Christoff. Well, I would reiterate what DOD and State 
have said, it's a condition-based approach, and we have to 
ensure that we're meeting the conditions that are part of that 
plan before you can begin drawing down U.S. forces.
    Senator Chafee. And, once again, based on your experience 
of looking back on what we've spent so far, can you predict, 
looking ahead, what it's going to cost?
    Mr. Christoff. I don't know if--in the supplemental, if the 
amount--additional amounts for training and equipping Iraqi 
security forces are in them. When I was in Baghdad a couple of 
weeks ago talking with MNSTC-I, they were talking about at 
least an additional $3.9 billion in a supplemental just to 
complete the training and equipping of Iraqi security forces.
    Senator Chafee. Well, thank you very much.
    Secretary Jeffrey and Ambassador Kunder, on--in your 
biographies, you both served in Vietnam, I believe, so you have 
a little bit of experience in chaotic situations. Looking 
ahead, is there any sense of optimism?
    Ambassador Kunder.
    Mr. Kunder. I'm a Vietnam-era veteran, sir. I believe 
Ambassador Jeffrey actually served in Vietnam.
    I've worked in Somalia, Bosnia, Afghanistan. I believe that 
it's more than rhetoric to say that you just have to ``stay the 
course.'' All of these situations are violent, complex, 
chaotic, and require extreme persistence. Nothing I've seen so 
far in Iraq shocks me with the difficulties. I mean, they're 
extraordinary difficulties, because of the communal relations 
within Iraq, because of the extreme autocratic regime that 
crushed political and economic forces in the country for 
decades, and because of the violent insurgency.
    So, do I see hope? Absolutely. I see things happening on 
the economic side. There have been dramatic things happening on 
the political side, in terms of the constitutional process and 
the elections. Am I here to slap a smiley face on things and 
say that it's going to be rosy in a year? Absolutely not. I 
mean, this is going to take some time. There are no silver 
bullets to address the corruption issues that Mr. Hagel rightly 
raised. These are tough issues. We've got a very detailed plan 
to get into the Ministries, to do training on anticorruption, 
to build the computer systems, the budgetary systems, the 
financial accountability systems that will slowly turn these 
systems around. But they don't come quick, they don't come 
cheap, and we'd be misleading you to say they would.
    But I'm an optimist that these things will come together on 
the security side, in terms of training Iraqi forces, getting 
private investment, and this new government getting some 
traction. You asked a very general question, that's a very 
general answer, but that's how I would see it.
    Ambassador Jeffrey. Senator, I'm optimistic. Once again, as 
we've seen in the past few weeks--not in Iraq, but in the 
area----
    Senator Chafee. I'd just ask what was your experience in 
Vietnam?
    Ambassador Jeffrey. I was an Army officer in 1972-73 in 
Vietnam, sir.
    Senator Chafee. And so, a platoon leader?
    Ambassador Jeffrey. Briefly, a platoon leader, also a staff 
officer.
    Senator Chafee. Thank you.
    Ambassador Jeffrey. Senator, I'm optimistic, because I 
believe that, as I told Senator Biden, there are all of these 
steps that have to happen, and we're all holding our hands and 
hoping that they do happen, but they--we're sure will happen. 
And that's been our experience on the political side.
    On the security side, I think--I agree with Stuart Bowen 
that attacks on infrastructure have gone up in numbers, and 
particularly in lethality, but overall security is improved. 
Overall attacks are down significantly, in the past roughly 2 
months, to levels that we haven't seen for quite some time, and 
that's an indication that we are making some progress. The 
Iraqi forces are out there in large numbers now, 130 police and 
army battalions in the fight. And this is something we 
certainly didn't see in the fall of 2004, when we were scraping 
to find a few battalions to go into Fallujah and Najaf. So, 
it's a--an improved picture. It's not yet a picture that we can 
say, ``Our job is done.'' Thus, we're turning to Congress, 
we're turning to the American people to say, ``We need''--as 
the President has said, ``We need to stay the course. We need 
to continue to commit resources.'' We think it's worthwhile.
    Senator Chafee. And what's the status of the so-called 
``squabble'' between State and Defense on the PRTs? Defense is 
saying, ``We don't want many Green Zones around Iraq.'' State 
is saying, ``This is the direction we want to go.'' What's the 
status of that dispute?
    Ambassador Jeffrey. We have three set up already, Senator. 
We are working with DOD and with the interagency process to 
see--and with our international partners, because some of them 
are interested in doing these things--and basically to see how 
we can best tie together very significant elements, be it 
USAID's local programs or military/civil affairs troops or our 
own political offices and our reconstruction operations and our 
law enforcement and police programs in the field in a more 
coherent way, and to add resources into them. We've done a 
great deal already. We are looking now to ensure that what we 
are doing will not be a burden on either the U.S. military or 
on our own resources, but we're making progress, and I think 
we'll take some more decisions and announce them soon, sir.
    Senator Chafee. Thank you, gentlemen.
    The Chairman. Thank you very much, Senator Chafee.
    Senator Voinovich.
    Senator Voinovich. Thank you for being here, and thank you 
for your service to your country.
    I'm glad that you have provided the committee with a 
publication documenting our successes in Iraq, but I will tell 
you that I don't believe that the administration has leveled 
with the American people about the task that we have before us, 
and the work that will be required for the reconstruction and 
the rebuilding of Iraq. I think it's incumbent on the 
administration to be forthright about how difficult the task 
will be, how long it will take, and the approximate amount of 
money that will be required to complete it.
    I mention this because the United States is facing a 
serious budget situation, and we are going to be allocating a 
lot of resources to this effort. At the same time that we are 
doing that, we are reducing our own domestic non-Defense budget 
and saying, ``We're going to have to squeeze more and more out 
of it so that we can take care of the war,'' and then, of 
course, we are continuing to borrow money. There has to be a 
sensible, commonsense explanation for where we are in Iraq, how 
long it's going to take, and how much money we estimate it's 
going to cost us to get there.
    I would like you to comment on what Mr. Christoff said 
about needing metrics for Iraq's reconstruction. How do we 
judge whether we are making progress or not? The problem around 
this place is that we do a lot of talking, ``Well, we're doing 
this and we're doing that,'' but I want to know if we are 
making any progress? How do we determine if we're making 
progress in Iraq? What do you think about his suggestion, or 
his criticism, that we're not using the proper metrics to 
determine whether reconstruction efforts are successful or not? 
Would you like to comment on that?
    Ambassador Jeffrey. Thank you, sir.
    The President has spoken to the American people, I think, 
seven or eight times in the past 3 months on the way ahead in 
Iraq, and he's made several critical points. First of all, we 
do have an integrated strategy; second, this is going to be a 
long, tough battle. He made the point repeatedly, this is not 
going to result, in the end, in a victory on the decks of a 
battleship, but rather a process of transitioning to Iraqis who 
are democratic, at peace, prosperous, and are allies in the 
fight against terrorism, and it's going to require more 
resources.
    On the other hand, we don't see this as an endless road. As 
you know, we have announced the drawdown of two brigades of the 
17 we have in Iraq. The IRRF program will be coming to an end. 
That was a huge operation of $20-plus billion. We do not 
anticipate the U.S. Government and the American taxpayer 
providing funds of that magnitude. As I said, we'll be looking 
to the Iraqis themselves, and the international community, the 
international financial institutions to take on that burden.
    We do see that we have Iraqi forces in large numbers, now, 
who are more and more capable of taking over battlespace, as we 
call it.
    So, we do have a variety of positive indicators that are 
suggesting to us, along with the progress in the political 
process, that this isn't an endeavor that we're going to be 
stuck in for a long time.
    The last thing the President stressed that is absolutely 
important is that this is a vital struggle, Senator. This is 
something that we cannot afford to lose, given the situation in 
the Middle East, given the global war on terror.
    Senator Voinovich. I think that the President has done a 
much better job of explaining to the American people why we are 
in Iraq. As the chairman knows, when we had Condoleezza Rice 
testifying, we encouraged her to get out more often and explain 
to the American people that this is a long-term battle. I call 
it the fourth world war against terrorism, in which Islamic 
extremists and religious fanatics have hijacked the Quran, in 
an effort to convince people that the war against the United 
States, and any who share our values, is the way to get to 
heaven. I'm glad the President is speaking more. But we need to 
show how this particular situation in Iraq impacts the long-
term battle that we have in the Middle East, and we need to be 
as careful as we can in explaining to the American people how 
difficult it is going to be.
    We are talking about drawing down troops. We still have 
troops in Kosovo. God only knows how long we'll have to have 
troops in Iraq. We want to leave, because it's an issue of us 
being depicted or thought of as occupiers. But we need to be 
more candid with the American people about the difficulties we 
are facing in Iraq, and we need to be more transparent, in 
terms of the metrics that will determine and measure success.
    All of the members of this committee were told, ``Don't 
worry about reconstruction. Iraq, has all this oil. They'll 
sell the oil, and the oil will pay for reconstruction.'' Am I 
right that the Iraqis are actually importing 5 billion dollars' 
worth of oil?
    Ambassador Jeffrey. You're right.
    Senator Voinovich. And then you read, in the Times or the 
Post, about some guy in the Iraqi Government who's supposed to 
protect the oil supply and pay Iraqi people, and he pockets the 
money, and then some general that's in cahoots with him is 
putting the money, oil that should be used for Iraq, into the 
black market. We talk about dealing with corruption. Corruption 
is still an issue in Iraq. I asked the chairman to have a 
hearing on corruption in Southeast Europe. Corruption is 
undermining some of those governments as well and it continues 
to. I think that we have a tendency here to say, ``You know, 
it's going to all work itself out.'' But we have to make sure 
that the American people know that we're not trying to cover up 
and to gloss over things. We need to tell them how much of a 
commitment they are going to have to make and how important it 
is.
    Have you given consideration to reevaluating the metrics 
that we use in Iraq? I'd like to have you come before this 
committee and say, ``Here is how we are going to measure 
whether or not we're making progress.'' We should agree with 
them, and you should agree with them. Only with clear metrics 
can we make some progress. As long as it's fuzzy, I don't think 
we're going to be able to show any progress to the American 
people.
    Ambassador Jeffrey. Senator, we do agree with the GAO on 
the metrics. And the metrics we measure, and I've got before 
me, are millions of people who have access to sewage systems, 
millions of people who have access to water and hours of 
electricity. And we can go even further down--as we say, bore 
down--in households that have electricity. So, we do try to 
measure not just outputs, but outcomes. How does it impact on 
the people?
    Senator Voinovich. Mr. Christoff, I saw you shaking your 
head.
    Mr. Christoff. Yeah, I----
    Senator Voinovich. Respond, please.
    Mr. Christoff. Those are----
    Senator Voinovich. What do you think?
    Mr. Christoff. Those are the same statistics that I think 
have been reported repeatedly.
    Let me just give--let me use the water sector as an example 
of how you need better metrics. Water is consistently reported 
as how many households we can serve with the additional 
capacity that we generate at the water treatment plants. The 
problem in Iraq is that 65 percent of the water leaks as it's 
going through the distribution system, and the water pipes are 
right next to the sanitation pipes. So, in addition to that, 
they're contaminated. So, we really don't know how many 
households get potable, drinkable water. We know how much water 
we generate, but, as a result of leakage and contamination, we 
really don't know how many people are drinking clean water. 
That's an outcome measurement, unlike the output measurement 
that talks about generation.
    Senator Voinovich. The same way with electricity.
    Mr. Christoff. Exactly.
    Senator Voinovich. Yeah.
    Well, I would make a suggestion, Mr. Chairman. I've done 
this in a couple of other committees that I am on. It seems to 
me that State Department ought to get together with the General 
Accounting Office and talk about some clear metrics, so there 
is consensus on what they should be. So that when we reconvene 
to review progress there's agreement as to whether or not 
progress has been made.
    The Chairman. Thank you very much, Senator Voinovich.
    Mr. Kunder. Could I make one point on that, sir? I just 
want to point out the distinction, sir. And it's a very fair 
set of questions you're asking. But we certainly understand the 
concept of measuring output rather than measuring input. This 
is essential to the way the U.S. foreign assistance program is 
running.
    As Mr. Christoff's reports point out, the difficulty is 
that, in this system, which was completely broke and completely 
deteriorated under Saddam's system, it is the water--for 
example, taking clean drinking water, it is the water treatment 
plant that is not functioning. It is the underground 
distribution system that is broke, and that there was no 
metering in the individual households, because there was no one 
enforcing the metering or the billing system. People are 
accustomed to free water and will resist installing a meter, 
because then they'll start having to pay for water. So that 
what you're about is a very substantial reengineering of the 
whole system.
    We understand that that's where we should go, but, in the 
short term, given the limited taxpayer dollars available and 
how we can have the maximum input, naturally the thing you 
would do first is to focus on the water treatment plant. You 
don't start fixing the lines if there's no clean water to put 
in them.
    Now, we understand that, ultimately--and this is why we're 
trying to build capacity within the Iraqi Ministries--that the 
Iraqis have to harness their oil revenues to fixing the whole 
system. But I don't want you to be left with the impression 
that we don't understand what we should be measuring at the 
other end. We certainly do. But it's a systems reengineering 
problem that is quite profound that we've inherited.
    Thank you, sir.
    The Chairman. Thank you very much, Senator Voinovich.
    Let the Chair respond that, in our hearings, I think, each 
time have brought reports of more progress of establishing 
metrics, of measurements. This is very important. You've made 
headway today in our understanding. And the Senator is correct 
that we would like to see more. And I think Mr. Christoff has 
asked for more in your report.
    Let me just also say that, without being self-serving on 
the part of the committee, we noted, in the fourth quarter of 
last year, much of the congressional debate seemed to be 
surrounding whether we should stay in Iraq, get out of Iraq; if 
the latter, how many weeks, how many months, and so forth. 
Those are important issues. But we thought it was very 
important, simply, that the debate be at least informed with 
more facts. And so, we have used some of the reports that you 
have written. We've replicated hundreds of pages to send to all 
of our colleagues, with a cover letter from the chairman of 
this committee. Six of these letters have proceeded out from 
the Foreign Relations Committee, I think, quietly and without 
demonstration, but just to provide Members and their staffs 
with some of the metrics that we now have, some of the 
measurements that you have recited today with regard to water 
and oil and numbers of schools and children who are imbibing in 
more education, all of this.
    Now, this is not meant to be persuasive one way or another, 
but it's to give some idea to Members of the Congress who need 
to be visiting with their constituents and with the press and 
others about some facts. So, to the extent that you know that 
that is our intent, and that we do read the reports, and our 
staffs read even more of them and find the best to distribute 
and, again, emphasize them, why, we'd ask you to consider that 
as you write and as you bring to our attention, even without 
public hearings, certain bodies of information, certain metrics 
that would be very helpful to us. I thank you publicly for the 
contribution you've made, but, likewise, for the ones that I 
hope that you will be making.
    Mr. Bowen. Mr. Chairman, if I may, in our latest quarterly 
report we really shifted our emphasis to address that exact 
issue----
    The Chairman. Great.
    Mr. Bowen [continuing]. Moving from issue based to 
information based. And section 2 really defined a series of 
metrics that we will continue to use as we measure progress in 
Iraq, move forward.
    The Chairman. For example, the oil question is always with 
us. How many barrels are being pumped? How many are being 
exported? What is the capacity? And then, of course, there is a 
problem of infrastructure, of leaks, repair, outmoded 
facilities, the same as in many countries that have oil 
facilities. But right now we are focused on Iraq, for a good 
reason, because we have heavy human investment, as well as the 
capital of the American public.
    Mr. Bowen. And with respect to the oil question, this 
report points out that only 9 percent of the IRRF has been 
invested into oil. And so, if oil is going to be the engine 
driving Iraq, we need to invest more into the oil sector. And 
also, the pace of completion of projects in the oil sector is 
behind.
    The Chairman. Senator Martinez.
    Senator Martinez. Thank you, Mr. Chairman. Thank you very 
much for holding this hearing.
    If it ever is going to be a successful society, I would 
suppose that having something we call the rule of law would be 
an important consideration for Iraq. And I wondered if either 
you, Ambassador Jeffrey, or Mr. Kunder, could enlighten me as 
to what progress is being made in creating stable rules of the 
game that might, at some point, when conditions are otherwise 
appropriate on the ground, entice foreign investment, create 
entrepreneurship, even within the country? I hear a lot of 
reports about a stock market even being operational, and a lot 
of things that are going on, on the commercial front, that seem 
rather encouraging, and I just wonder what progress we're 
making in establishing the rule of law, and how that is being 
accomplished.
    Ambassador Jeffrey. Sir, we're doing this on a number of 
fronts. And Mr. Bowen, in his other capacity, as the mentor of 
the Iraqi inspectors general, can talk about this, as can my 
USAID colleague.
    First of all, in the narrow, but important, area of 
fighting corruption and managing the government, there are 
three institutions in Iraq. There is the Board of Supreme 
Audit, which is an inherited institution, but one with a high--
a very good reputation. There are the inspectors general that 
CPA put into each Ministry. And there is the Public Integrity 
Board, which also looks at these issues, as well. So, we have 
put together a number of these.
    In addition, we've put a great deal of funding into, as you 
said, the stock exchange, to automate it and to get more Iraqi 
companies into the stock exchange. And we're making good 
progress there. But, more generally, the rule of law 
encompasses the court system. It encompasses issues such as 
detainees. It encompasses police training for human rights, 
judges, and including even--we've--putting money into the FY07 
budget to help protect judges and to provide them secure 
courthouses and such. We're putting about a third of our FY07 
budget submission into rule-of-law programs, sir. And, in 
addition, we have USAID programs, as well, that are focusing on 
that, as well.
    And I'll turn it over to Mr. Kunder.
    Mr. Kunder. Thank you for the question, sir. I'll be very 
brief. But your perception is correct. One of the things we've 
been working on behind the scenes, and I think it's one of the 
areas where we've made some real progress, is to do exactly 
what you're suggesting, establish the framework for rule of law 
within the country. We have provided to the Iraqi Government 
drafts based on the best advice of international experts on 
privatization of the state-owned enterprises, on an 
international investment code, on creating an Iraqi securities 
and exchange commission and all these other critical building 
blocks to having an open, transparent process that will 
encourage private sector investment. I recognize, as I think 
Senator Hagel said earlier, there are still security issues 
involved, but these are the critical building blocks that will 
allow the Iraqi Government to go forward, and the Iraqi people 
to benefit.
    What we've been waiting for, of course, is to have a 
permanent Iraqi Government, as Ambassador Jeffrey said earlier. 
Now we're on the eve of getting that government formed, and our 
hope is that they will take this work that's been done, pass it 
through the national assembly, and begin to implement these 
critical rule-of-law interventions. We've been doing that 
legwork.
    Senator Martinez. That's excellent, and I appreciate that. 
Is there a court system established, in place today?
    Ambassador Jeffrey. Yes, sir; there is. First of all, there 
is the inherited court system, which our Assistant Secretary 
for International Narcotics and Legal Affairs, Ann Patterson, 
newly named, who has much experience in Colombia and elsewhere, 
was just out there, and she was quite impressed with the 
sophistication and the competence of the judges, based upon her 
experiences elsewhere in the world, including South America. 
There is also a court that CPA set up, the Central Criminal 
Court of Iraq, which is focused on trials of terrorists. We 
were unhappy with that. The U.S. military was unhappy with 
that, about a year ago, because it's a primary venue for people 
that we catch that we do have charges against, and the Iraqis 
have put a great deal of effort into that, also setting up 
satellite courts in Hillah, Kut, and elsewhere, and to begin 
prosecuting the backlog of people that we have--or the Iraqi 
security forces have caught who are--can be charged with 
terrorist crimes. So, we think that this is a major area of 
improvement.
    Senator Martinez. Would that same court be the court of 
jurisdiction to prosecute and bring to justice anyone who might 
be involved in corrupt practices?
    Ambassador Jeffrey. It could be used for that, sir, but the 
primary--it's primarily focused on----
    Senator Martinez. Where would someone--I mean, if--you 
know, if there's ever going to be an end to corruption, there's 
going to have to be some backstop there with legal 
consequences. Where would that be?
    Ambassador Jeffrey. It could be that court. And that court 
is the one that we have the most visibility into. It's the one 
we have the most faith in. But, also, the regular Iraqi court 
system, in some cases, has performed well. But the court that 
has done the best is the CCCI, sir.
    Senator Martinez. I wanted to ask you about a related 
issue, which is the Ministries. I know that, until a government 
is formed, that there won't be permanent Ministries to carry 
out the functions of government, but how are we doing, in terms 
of developing the infrastructure of knowledge, of technical 
knowhow, to provide the kind of services that Ministries of 
government have to provide, whether it be tax collection, 
whether it be running the oil industry, whether it be providing 
housing, you know, dealing with issues relating to housing or 
the treasury or whatever else it may be?
    Ambassador Jeffrey. It's a big job, sir, and I'll turn it 
over to Mr. Kunder in a second, because USAID has a big part of 
this.
    But, first of all, we have several hundred advisors in all 
of the Ministries. And the Ministries are up and functioning. 
The leadership changes with the government, but it's just like 
here in the United States, there's a permanent civil service 
corps. These are----
    Senator Martinez. Is there not a tremendous amount of 
turnover every time there has been a transition?
    Ambassador Jeffrey. There's much too much, but, still, at 
the technical level, you do keep most----
    Senator Martinez. OK.
    Ambassador Jeffrey [continuing]. Of the people. And the 
advisory teams are drawn from agencies of the U.S. Government 
and State Department, temporary employees from the private 
sector with expertise in each of the Ministries. Two of the 
Ministries, Interior and Defense, are under the operational 
command of General Casey's training command, because they're 
working specifically on security forces. The rest of it, 
Ambassador Khalilzad leads the effort. And we're also tied very 
closely to the reconstruction funds that go to each Ministry. 
And USAID has developed a program that Mr. Kunder will brief, 
that we've put money in the FY07 budget for, to further expand 
this by complementing the Ministry advisors.
    Mr. Kunder. And this is the system I referred to earlier, 
sir. We are right at the transition point where we need to make 
these functioning Ministries, both so that they can provide 
services to the Iraqi people and so that they will be credible 
partners for international donors, so we can get other donors--
--
    Senator Martinez. Right.
    Mr. Kunder [continuing]. Linked into this process, as well. 
And what we have done--and I'll make it very brief; we could 
certainly provide more background information--but, working 
with our State Department colleagues, working with the Iraqi 
leaders themselves, we've devised a list of the critical tasks 
that must be done, in terms of training the civil servants, in 
terms of their responsibilities as public employees, 
anticorruption activities, rebuilding the financial integrity 
systems, the checks and balances, the inspectors general's 
offices, the computer systems. We've developed the first 
financial management-information system so that Iraq's Ministry 
of Finance, the Treasury Department, if you will, can actually 
track expenditures in the other agencies. They simply weren't 
able to track it, and, therefore, could not do sound budgeting.
    So, there are Iraqi training institutions that historically 
existed, predating Saddam Hussein, both at the regional level 
and in Baghdad. We're going to refurbish those training 
institutions, launch a training-of-trainers program with what 
we hope will be the resources available in the coming year. We 
take this as a major, major responsibility, as well, to a very 
difficult task ahead, because of the deterioration of the civil 
service function under Saddam's regime. But we're going to take 
this on, and I think we have a very targeted plan on how we can 
have some impact in the next couple of years.
    Senator Martinez. If I might, just one quick additional 
question, Mr. Chairman.
    The CERP program, U.S. CERP program, which is the 
Commander's Emergency Response Program--I know this has been 
very useful. I've talked to commanders on the ground who have 
used it and find it to be a very useful way to get things done. 
And I know that there's some concerns and have been reports of 
this as a wide opportunity for fraud, waste, and abuse. And I 
wonder how we will strike a good balance between 
accountability, but, at the same time, also allowing for this 
very useful and flexible program to be continued in the future.
    Mr. Bowen. Senator, we have done two audits of the CERP 
program, both the CERP 2004 and the CERP 2005. And while we've 
found some problems with how some of the programs were 
executed, overall we gave it a thumbs up. I think that it has 
been an effective program, and, indeed, it's one of the things 
we're going to emphasize in our lessons-learned initiative, 
that this sort of localized, quick reaction, locally responsive 
reconstruction initiative is the kind of thing that brings the 
most benefit to the average Iraqi.
    Senator Martinez. Very good, thank you, Mr. Bowen.
    The Chairman. Thank you very much, Senator----
    Senator Martinez. Thank you----
    The Chairman [continuing]. Martinez.
    Senator Martinez [continuing]. Mr. Chairman.
    The Chairman. Let me start the second round of questioning 
by pointing out that we've talked about publications that the 
offices that you gentlemen represent have made available. One 
of these that I have in my hand here would be familiar, 
certainly to the SIGIR people, because it is, in fact, the 
Special Inspector General for Iraq Reconstruction Quarterly, 
the semiannual report, dated January 30, 2006. Many Members of 
Congress would not be aware that it exists. It's important to 
take advantage of this hearing to emphasize the reporting that 
is occurring in our Government. For example, in this report 
there is much information about the status of the electricity 
sector, plus charts and graphs. The same with regard to 
petroleum, and the same with regard to water. It also goes into 
the SIGIR audits and precisely what is known. The report 
summarizes the SIGIR hotline, how many calls have come, how 
many have been referred to other agencies, how many have been 
followed up on. There is a very good outline of appropriations 
by the U.S. Government and the disposition of those with regard 
to how much is expended, how much is left, and all the rest of 
it, plus appendixes filled with all the contractual language 
that is involved with those who have those burdens.
    I mention this for the benefit of members of the committee 
and the press and others. There is an extraordinary number--
hundreds--of pages of material available now that hit many of 
the points that you have summarized, and that have been made in 
response to some of our questions. Having said that, why, 
obviously, we've talked today about how we would refine the 
system even further with regard to specific metrics that, after 
you have published all of this, you have found might be useful, 
in terms of better understanding, within governmental circles, 
as you deal interagency, as well as in the relationships with 
the Congress and the public. I commend that.
    But I simply want to say that I've been impressed with the 
volume of information that is there, plus some general 
understanding of Iraq. For example, one statistic in this 
report just says, blandly, ``95 percent of the national income 
of Iraq comes from oil.'' That is a profound statement; 95 
percent. In any discussion of the future economy of the 
country, that is a big figure. So, if, in fact, oil production 
and export are not doing very well, then it's apparent that the 
national income is not going to do very well either. And as 
we've already gotten into the weeds with regard to the internal 
mechanisms of the Iraqi economy, if, in fact, oil is not priced 
correctly, if it's given away or so badly subsidized that 
you're importing, as the Iraqis are, oil to satisfy the 
motorists who are buying it at 8 cents a gallon, or 15, or 20, 
or whatever it is, to say the least, as the American public 
understands this, then there is consternation as to what's 
going on here.
    And you would say, ``Well, what's going on?'' You ought to 
understand the history of Iraq. Subsidization of food, 60 
percent; subsidization of automobile fuel, to the extent of 
almost 95 percent, I suppose. And so, then you ask, ``Well, how 
is that going to change?'' Well, there will be tough changes. 
If you're an elected person in Iraq now, and you come along and 
say, ``It's a new day, and, my people, I want you to understand 
we're going to market principles,'' and suddenly Iraqi 
motorists begin to pay $2.50 a gallon for gasoline, or even 50 
percent of the cost of food, many Iraqis who are suffering 
already would say, ``Well, this is impossible. We're going to 
starve. We are totally immobilized.''
    And this is the predicament that we're looking at. It's not 
just simply security or the fact that the stuff wasn't fixed up 
very well, and the water lines leak. It's a whole system of 
governance that we've been working on arduously, through our 
Ambassador and through others, who now have to shoulder some 
monumental historical realities.
    Now, how all that is to work out, I don't know, but let me 
just ask this question. The headlines in the newspapers, that 
may not reflect precisely what you have said today, indicate 
that reconstruction appropriations are over, or about over. You 
can say, ``Well, there's money in the pipeline,'' or, 
``Americans don't understand fiscal years. It just goes out for 
a little ways,'' and so forth. But an impression has come that 
somehow or other we've said, ``That's about it, folks. We're 
sort of winding down.''
    Now, as I heard you, you said, ``Well, not exactly. We're 
going into more conventional foreign assistance, as opposed to 
the more emergency situation of reconstruction, as we have 
known it.'' But clarify, if you can, What is the mode in our 
Government now? Is the thought that we have hit the top of what 
we want to, reconstructionwise? Granted, some things are still 
in the pipeline and still working their way through. And, if 
so, what is the reaction of the Iraqis to this? What kind of 
reports are occurring in Iraq as to American governance or the 
attitude of our political class toward their situation? Can you 
help us on that, Ambassador Jeffrey?
    Ambassador Jeffrey. Sir, some of these reports in the media 
confuse reconstruction, in the narrow sense of bricks and 
mortar, with reconstruction in the broader sense. The original 
IRRF legislation, of course, had hundreds of millions of 
dollars for capacity-building, democracy, rule of law, justice, 
that kind of thing. And we think that those programs should 
continue, which is why the President submitted a budget of 
almost a billion dollars for Iraq for these purposes for fiscal 
year 2007, and we're looking at other possible requests; but we 
haven't taken a decision yet, as I mentioned to Senator Hagel.
    The way we've approached this with the Iraqis--and we were 
doing this 2 years ago, right after sovereignty and the standup 
of the Embassy--was to tell them that, ``Look, we have a 
program that has significant targets that will give you a boost 
and get the economy very grossly''--and we can debate this with 
the metrics and such--``basically, back to where you were in 
2003, but moving you forward in a few areas, such as 
electricity,'' where we did achieve about 1,200 or 1,300 more 
megawatts, about 30 percent more than before the war by last 
summer. So, in a few key areas, we wanted to make significant 
progress, because that was so key. Get the oil production back 
up, get oil exports kicking in, because that's so important for 
the Iraqis themselves. And while we've had setbacks, we've been 
putting one set of projects in, for example, in the water area. 
It's been dams, irrigation, and sewage systems that have taken 
most of the hit as we reprogrammed about 50 percent of what was 
originally going to be a $4 billion program into security and 
other things, but we've tried to keep the potable water, 
because we thought that was the most important.
    So, we've had to make these decisions. We make them with 
the Iraqi Government. And we don't try to go directly to the 
Iraqi people on much of this, because, first of all, we want 
the Iraqi Government to get the credit. They're our partners in 
it. And, second, we don't want our projects to become the 
target of insurgents.
    We do think that there is a tremendous need still to be 
met. If the Iraqis--our job right now, through our programs, 
and, frankly, our security and other actions we're taking, is 
to ensure that the Iraqis can spend that $6 billion that 
they've reserved just for this fiscal year, which is, on an 
annual rate, roughly what--or more than what we would have--be 
putting into the IRRF, or the oil sector, $3.5 billion, and for 
other key infrastructure improvements. The threats to this will 
be attacks on the infrastructure, failure to export oil, or 
inability to ratchet down the huge amount--$10 billion, 
roughly--in subsidies for oil and food and such. That requires 
political commitment, which gets back to Senator Biden's point 
that we need a comprehensive consensus government. So, we're 
trying to work all of that together, and the international 
angle, as well, that we've discussed today, sir.
    The Chairman. Let me slip in an entirely different sort of 
question. I've just noted, through the research of staff, that 
child mortality rates in Iraq are higher than in India, for 
example. They're high, in essence. And one of the problems is 
that the hospitals, the clinics, the public health 
infrastructure, has suffered grievously, as have many other 
institutions. Is there some emphasis there, in a humane way, on 
trying to turn around these trends?
    Ambassador Jeffrey. Yes, sir. Very briefly, on the health 
situation. First of all, you're right. And a major reason for 
that is not what we're doing in the health sector, where we've 
apportioned $739 million and focused it on refurbishing 20 
hospitals, building a new children's hospital in Basra, and a 
whole series of clinics that we'll--I think that we'll build 
about 50 now. We've had to descope that project. I think one of 
the major reasons for the climb in infant mortality, in 
particular, is, frankly, bad water.
    The Chairman. Senator Biden.
    Senator Biden. Thank you very much. I appreciate you 
allowing me a second round, Mr. Chairman.
    A couple of things. You know, you talked about your 
emphasis--and I think it's been genuine, and you've attempted 
it, but the truth to the Iraqi people is, it doesn't matter how 
much you put in if the end result is they still have less 
electricity, less water, less of the amenities, higher infant 
mortality rate, et cetera, less potable water. Doesn't matter. 
It doesn't matter. You don't get--we don't get rewarded for 
effort. We kind of think we should. The American people think 
they should. I think we should. But we don't get rewarded for 
effort. And so, when you walk out your front door, and there's 
still 18 inches of sewage in the front of your house, it 
doesn't matter--in the street. And so, it's about results. And 
I'd like to ask three or four quick questions here, if I may, 
and then cease.
    There are accounts, back in December--or, I mean, excuse 
me, mid-January, where--that the PRTs and the rebuilding 
programs hit kind of a snag here. And it was reported in the 
Post that the question of who will pay for these PRTs is 
unresolved, that the--with State looking at Defense, and 
Defense looking to State, and clear to me that Rumsfeld and 
company doesn't want to extend now, looking to pull in. So, who 
pays for the PRTs? And when do we get the bill?
    Ambassador Jeffrey. Senator, most of the personnel costs 
and the other logistics costs come out of the normal operating 
budgets of the State Department, USAID, and, to the extent that 
military personnel, civil affairs teams, out of the Defense 
budget, because this is a grouping and a clustering----
    Senator Biden. Say that last part?
    Ambassador Jeffrey [continuing]. Will come out of the 
existing budgets, because this is a grouping----
    Senator Biden. Existing State Department budget?
    Ambassador Jeffrey [continuing]. Right, sir. We have--we 
have funds budgeted--this is to the tune of 70 or 80 officers. 
We have about 40 in the field now. So, we'll cover this out of 
our operating budget. The key issue----
    Senator Biden. How about the security piece?
    Ambassador Jeffrey. That's the key issue.
    Senator Biden. Yeah.
    Ambassador Jeffrey. The key question is, Who will provide 
the security for these teams? Will they be--right now, we have 
a mix, on the three PRTs we have, of U.S. military teams and 
State Department PSDs. They're still working this out, sir, but 
we've had--again, it's a process----
    Senator Biden. The answer is, you don't know.
    Ambassador Jeffrey. The answer is----
    Senator Biden. The honest answer----
    Ambassador Jeffrey [continuing]. We will----
    Senator Biden [continuing]. You don't know.
    Ambassador Jeffrey [continuing]. We will soon know.
    Senator Biden. It's still a fight.
    Ambassador Jeffrey. We will soon know. It's still a fight.
    Senator Biden. Well, it's a big deal who provides the 
security. And it's clear to me that Rumsfeld and company have 
no desire to provide that security.
    And, number two, we talked about, with my colleague from 
Florida, as a former Secretary in the Cabinet, asked the key 
question, What about the Ministries? I look at the assessment 
of the key Ministries, based upon the document prepared by--the 
AID document that you all prepared, and that it is--it is not a 
very pretty picture. I will not--I'd like to submit for the 
record this one page, Assessment of Key Ministries, from 
Finance, Oil, Electricity, Municipalities, Public Works, Water 
Resources, Justice, et cetera.
    The Chairman. It will be placed in the record.
    [The information previously referred to follows:]

                                                              ASSESSMENT OF KEY MINISTRIES
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Strategy,               Resources  Program  Information  Technical
                                  Leadership  Plans and  Partnership      &        and      Systems      Skills   Effectiveness    Public      Overall
                                                Policy                Personnel   Budget   Management   Training                 Perception  Performance
--------------------------------------------------------------------------------------------------------------------------------------------------------
Finance.........................         3         3+           3          2+        2+          2          2+           2+             2          2+
Oil.............................         3          2          2+           2        1+          0           1            2             2           2
Electricity.....................         2         1+           2          1+        1+          1          1+           1+             1          1+
Municipalities and Public Works.        2+         2+          3-          1+        1+         1+           2           2+            1+          2+
Water Resources.................         3         2+           2           2         2         2+           2           2+             2          2+
Justice.........................        2+         2+          3-           2         2         2-          2+           2+             2          2+
Education.......................        2+          2           3           1         1         2-          2-            2            2+           2
Health..........................         0          2           1           1         2          1           2            1             2           1
Planning and Development........        2+          2           2           2         2          2           2           2+             2          2+
Agriculture.....................        1+         1+          2+          1+        1+         1+          2+            2            1+          1+
Central Government..............         1          1           0           1         1          2           2            1            1-           1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Legend:

Plus sign indicates positive progress or direction; Minus sign indicates otherwise.
(0)--Essentially no capability to perform the function.
(1)--Very little capability, some effort underway to develop it.
(2)--Developing capability to perform the function, with substantive effort underway.
(3)--Developed capability exists to perform the function.

    Senator Biden. And it's really--they're all in rough shape. 
And we've known that for over 2\1/2\ years, they've been in 
rough shape. Even went so far as, before, to have--a year and a 
half ago; it's above all of our pay grades here, so I'm not 
laying responsibility on anybody, but we had Tony Blair talking 
about adopting agencies, the European Union coming in. We 
dissed that proposal and said no.
    So, the question is, How many--how many American civilians 
from our various counterpart departments are actually in-
country working in these Ministries? And if you don't have it 
at the top of your head, maybe you could----
    Ambassador Jeffrey. I've got it.
    Senator Biden [continuing]. Submit it for the record.
    Ambassador Jeffrey. I've got it, Senator. The total that we 
have working in the Ministries, which is primarily--not 
counting U.S. military, but counting----
    Senator Biden. Right.
    Ambassador Jeffrey [continuing]. The U.S. State Department 
personnel, we hire people from the private sector as temporary 
U.S. Government officials, and from other departments of the 
Government--for example, the Treasury Department has a Treasury 
attache who's also the Ministry's senior advisor--we have an 
advisor from the Ministry of--from the Bureau--from the 
Department of Agriculture. We have someone from the Department 
of Transportation. And, all in all, sir, the IRMO staff is 
about 150. Now, some of those people----
    Senator Biden. IRMO. What's--again, remember, we're----
    Ambassador Jeffrey. That's the overall--that's the overall 
Reconstruction Management Office. Over a hundred of those 
people are advisors out with the Ministries.
    Senator Biden. Well, the assessment I got, some--about 8 
months ago, is, you need probably close to 800 or 900 people to 
be able to do the job. Now, I may be wrong about that, and the 
information I have may--but the number of people in the 
Ministries every day, day to day, training people within these 
Ministries is essentially nonexistent. You have advisors. The 
advisors are inside the Green Zone. But I don't know that--and 
some--most--many of the Ministries are--but, I mean, do we have 
people actually out sitting, every day, in the Department of 
Agriculture at the various levels of the Department of 
Agriculture for the Department of Water Resources, the 
Department of Education, actually doing hands-on advising and 
training?
    Ambassador Jeffrey. Senator, the answer is, absolutely. 
These advisors----
    Senator Biden. The total number of people that--how many 
people are permanently assigned, when they get over there, to a 
Ministry? They work every day. The 12 hours a day they work, 
they work for that Ministry.
    Ambassador Jeffrey. Uh-huh. It's 100-plus, Senator. For 
example, in the Ministry of Interior, we have 45 civilian 
employees for that Ministry, alone.
    Senator Biden. Yeah, but that--but that's all--that's all 
security related, and that's military overseen. We have our 
military overseeing the Department of Interior, right?
    Ambassador Jeffrey. Right, sir, for the----
    Senator Biden. Yeah.
    Ambassador Jeffrey [continuing]. Last month and a half. But 
we, the State Department, hired those people; they're our 
employees.
    Senator Biden. OK. Look, I would like, for the record, if I 
could ask----
    Ambassador Jeffrey. Sure.
    Senator Biden [continuing]. For you to supply the specific 
responsibilities of each of the people you have in each of the 
Ministries.
    Ambassador Jeffrey. That's fair enough.
    Senator Biden. Good.
    [The requested information was submitted by Ambassador 
Jeffrey as follows:]

IRMO PERSONNEL/POSITIONS WORKING DIRECTLY/LIAISON WITH IRAQI MINISTRIES/
                          GOVERNMENT OFFICIALS
------------------------------------------------------------------------
           Count and position title             Primary responsibilities
------------------------------------------------------------------------
                  Ministry of Finance and Central Bank
------------------------------------------------------------------------
1. Senior Consultant--Monetary Policy........  Serves as the primary
                                                banking advisor to Iraqi
                                                Central Bank, Ministry
                                                of Finance, and state
                                                and privately owned
                                                banks on banking and
                                                finance issues; Advises
                                                on the assessment,
                                                planning and execution
                                                of banking policies and
                                                projects including the
                                                rehabilitation and
                                                restructuring of the
                                                state-owned banks and
                                                the national banking
                                                infrastructure.
2. Deputy Senior Consultant Debt Management..  Aligns strategies
                                                consistent with the IRMO
                                                initiatives on analyzing
                                                Iraq's debt situation;
                                                Develops overall
                                                performance objectives
                                                and procedures for the
                                                region; Monitors
                                                adherence to credit
                                                quality standards/proper
                                                practices and is
                                                responsible for meeting
                                                all financial and
                                                compliance standards;
                                                Coaches and develops
                                                staff members on all
                                                aspects of successful
                                                business development,
                                                relationship management
                                                and customer retention
                                                strategies to include
                                                service, expense and
                                                credit controls, human
                                                resource management and
                                                meeting financial/
                                                compliance standards.
3. Deputy Senior Consultant for Banking......  Serves as banking advisor
                                                to the Iraqi Central
                                                Bank, Ministry of
                                                Finance, and state and
                                                privately owned banks on
                                                banking and finance
                                                issues; Advises on the
                                                assessment, planning,
                                                and execution of banking
                                                policies and projects
                                                including the
                                                restructuring of the
                                                state and national
                                                banking infrastucture.
4. Budget Execution Director.................  Possesses knowledge of
                                                financial management
                                                theory, principles and
                                                practices, corporate
                                                organizations and
                                                operations, and business
                                                management practices as
                                                related to the analysis
                                                and proper utilization
                                                of financial resources.
5. Finance Consultant........................  Serves as consultant
                                                providing analytical
                                                work for IRMO;
                                                Participates in a
                                                variety of analytical
                                                and technical functions
                                                related to providing
                                                assistance to the
                                                Ministry of Finance
                                                budget execution and
                                                formulation activities;
                                                Serves as a general
                                                liason between the Iraq
                                                Reconstruction
                                                Management Office (IRMO)/
                                                Office of Finance and
                                                the Ministry of Finance
                                                on issues of budget
                                                execution and
                                                formulation activies.
------------------------------------------------------------------------
                         Ministry of Agriculture
------------------------------------------------------------------------
6. Senior Consultant.........................  Serves as the liaison
                                                officer between and
                                                among donor
                                                organizations, NGOs and
                                                appropriate agriculture
                                                related academic
                                                institutions with
                                                various directorates of
                                                the Iraqi Ministry of
                                                Agriculture; Advises the
                                                Ministry on broad
                                                ranging strategic
                                                rehabilitation issues
                                                involving Iraqi MoA
                                                infrastructure, sectoral
                                                framework, market
                                                liberalization policy,
                                                pricing policy, and a
                                                credit system reform
                                                policy.
------------------------------------------------------------------------
                          Ministry of Eduction
------------------------------------------------------------------------
7. Senior Consultant.........................  Provides senior level
                                                advice to the Iraqi
                                                Ministry of Education
                                                concentrating in the
                                                areas of primary and
                                                secondary education,
                                                policies and processes
                                                for assessing and
                                                auditing schools, and
                                                study abroad programs.
------------------------------------------------------------------------
                           Ministry of Health
------------------------------------------------------------------------
8. Senior Consultant.........................  Advises on all health
                                                related programs and
                                                projects providing
                                                technical and
                                                professional expertise;
                                                Assesses, plans and
                                                executes health-related
                                                policies and projects to
                                                improve the Ministry of
                                                Health's mission to
                                                effectively meet the
                                                basic and future health
                                                needs of the Iraqi
                                                people.
9. Deputy Senior Consultant..................  Supports the Senior
                                                Consultant on the
                                                assessment, planning,
                                                and execution of health-
                                                related policies and
                                                projects to achieve the
                                                Ministry's goal to
                                                effectively meet the
                                                basic and future health
                                                needs of the Iraqi
                                                people.
10. Program and Project Manager..............  Oversees and provides
                                                advice on the
                                                formulation and
                                                execution of large-scale
                                                reconstruction projects
                                                for the Ministry of
                                                Health; Maintains
                                                cognizance of all
                                                assigned construction
                                                projects generates and
                                                reviews reports,
                                                correspondence and
                                                recommendations in order
                                                to make decisions and
                                                initiate action on
                                                related issues.
------------------------------------------------------------------------
    Iraqi Property Claims Commission and Ministry of Displacement and
                                Migration
------------------------------------------------------------------------
11. Senior Consultant........................  Provides advisory support
                                                to the Iraq Property
                                                Claims Commission
                                                [IPCC], ensuring an
                                                accurate information
                                                campaign is conducted,
                                                to communicate to the
                                                Iraqi people what the
                                                Commission will and will
                                                not do.
12. Principal Consultant for Displacement and  Responsible for working
 Migration.                                     with the Ministry of
                                                Displacement and
                                                Migration in developing
                                                the organizational
                                                capacity to monitor,
                                                protect and assist
                                                Internally Deplaced
                                                Persons and refugees in
                                                Iraq.
------------------------------------------------------------------------
                  Ministry of Planning and Development
------------------------------------------------------------------------
13. Senior Consultant........................  Provides guidance on
                                                donor coordination and
                                                development of
                                                information systems,
                                                specifically the
                                                Ministry's Donor
                                                Assistance Database
                                                system and Central
                                                Organization of
                                                Statistics and
                                                Information Technology
                                                (COSIT); Coordinates all
                                                U.S. national capacity
                                                building efforts through
                                                the Ministry's national
                                                training center and with
                                                other donor-sponsored
                                                training programs as
                                                appropriate and directed
                                                by the IRMO Deputy
                                                Director for
                                                Development.
14. NGO Reg. and Coordination................  Reports to the senior
                                                U.S. liaison officer in
                                                the Ministry; Works
                                                closely with the
                                                Minister and his senior
                                                officials; Coordinates
                                                U.S. policy advice on
                                                NGO issues and providing
                                                it to the Ministry.
15. Donor Coordination Consultant............  Facilitates the process
                                                and procedure for the
                                                $1.5 billion in grants
                                                and $3.5 billion in soft
                                                loans; Works closely
                                                with the respective
                                                Ministerial and IRMO
                                                counterparts to plan and
                                                implement projects, as
                                                well as coordinate
                                                activities. (Japan)
16. Donor Coordination Consultant............  Serves as co-chair of the
                                                International
                                                Reconstruction Fund
                                                Facility for Iraq;
                                                Provides dedicated
                                                representation to liaise
                                                with the Ministry of
                                                Planning and Development
                                                Cooperation; Works
                                                closely with Embassy on
                                                policy initiatives
                                                related to international
                                                donor coordination.
                                                (Canada)
17. Donor Coordination Consultant............  Works closely with IRMO
                                                on Council of
                                                Representatives and
                                                capacity development
                                                initiatives. (Canada)
------------------------------------------------------------------------
                Ministries of Trade/Industry and Minerals
------------------------------------------------------------------------
18. Senior Consultant........................  Provides advice on
                                                improvement of the
                                                Ministry's operation and
                                                management of the Public
                                                Distribution System
                                                (PDS); Develop creative
                                                ways to reform the PDS
                                                into a more affordable,
                                                efficient and
                                                transparent system for
                                                Iraq's benefit.
19. Trade and Privatization..................  Provides advice on
                                                improvement of the
                                                Ministry's operation and
                                                management of its State
                                                Owned Enterprises (SOE);
                                                Develops creative ways
                                                to reform the SOES into
                                                a more affordable,
                                                efficient, flexible, and
                                                transparent system for
                                                Iraq's benefit;
                                                Maintains good
                                                communications among
                                                members of MOT, MNFI,
                                                the Embassy's Economic
                                                Office and other
                                                relevant parties.
20. Trade and Operations Consultant..........  Supports the Ministry of
                                                Trade (MoT), under the
                                                overall supervision of
                                                IRMO Trade Senior
                                                Consultant, in improving
                                                the Ministry's operation
                                                and management of the
                                                Public Distribution
                                                System (PDS); Maintains
                                                good communications
                                                between members of MoT,
                                                MNFI, the Embassy's
                                                Economic Office and
                                                other relevant parties.
------------------------------------------------------------------------
                      Ministry of Youth and Sports
------------------------------------------------------------------------
21. Senior Consultant........................  Provides oversight of the
                                                rebuilding of the MoYS
                                                and give support to
                                                restart the 167 Youth
                                                Centers and the 450
                                                Sports Clubs across
                                                Iraq; Facilitates the
                                                communication between
                                                the MoYS and the NOCI to
                                                solve the issues of land
                                                ownerships; Facilitates
                                                the elimination of a
                                                military presence in the
                                                Olympic stadium so that
                                                it may be returned to
                                                the Iraqi people;
                                                Support the
                                                reintroduction of the
                                                soccer team back to
                                                international
                                                competition after a 12-
                                                year hiatus; Supports
                                                the formation of the new
                                                Olympic committee.
------------------------------------------------------------------------
                       Ministry of Communications
------------------------------------------------------------------------
22. Senior Consultant........................  Serves as advisor on
                                                public
                                                telecommunications
                                                policy and regulations,
                                                develops and advises on
                                                all policies related to
                                                the management and
                                                future development of
                                                telecommunications
                                                systems in Iraq, and
                                                advises on all policies
                                                related to the
                                                management and future
                                                development of the
                                                Information and
                                                Communications
                                                Technology (ICT)
                                                strategy of the Iraqi
                                                government.
23. Program Manager..........................  Provides professional
                                                level support and advice
                                                to the Senior Consultant
                                                for Telecommunications
                                                regarding the network
                                                deployment of the Iraqi
                                                Telephone and Postal
                                                Company (ITPC) and other
                                                Telecommunications
                                                projects, as needed.
24. Project Manager--Telecommunications......  Manages network
                                                deployment projects
                                                designed to reconstruct
                                                and enhance the capacity
                                                of major portions of the
                                                IRRF and ITPC
                                                telecommunications
                                                network infrastructure;
                                                Applies technical and
                                                project management
                                                expertise to ensure that
                                                networks are deployed
                                                according to optimal
                                                network designs.
25. Telecom Regulatory Attorney..............  Serves as a legal advisor
                                                on telecommunications
                                                regulations and
                                                compliance; Advises on
                                                regulatory strategies
                                                and proceeding before
                                                Federal, state and
                                                municipal regulatory
                                                commissions as well as
                                                foreign governments,
                                                antitrust issues
                                                relating to
                                                telecommunications, and
                                                technology aspects of
                                                Internet, software and
                                                computer services
                                                transactions.
------------------------------------------------------------------------
                         Ministry of Electricity
------------------------------------------------------------------------
26. Senior Consultant........................  Provides management
                                                recommendations on the
                                                reconstruction of Iraq's
                                                electrical system and
                                                all policies related to
                                                the management and
                                                future development of
                                                that system, including
                                                the institutional
                                                framework of the
                                                Ministry.
27. Sr. Engineer/Generation & Fuels            Coordinates the planning
 Consultant.                                    of new generation
                                                projects and supervises
                                                current generation
                                                projects with the ME
                                                staff; Coordinates
                                                generation development
                                                activities across all of
                                                the responsible U.S.
                                                government agencies and
                                                their contractor and
                                                subcontractors to ensure
                                                adherence to a coherent
                                                generation repair and
                                                expansion program.
28. Sr. Policy and Planning Consultant.......  Provides technical legal
                                                assistance to the Iraqi
                                                government regarding
                                                legal and regulatory
                                                reform and training,
                                                development and
                                                establishment of a
                                                regulatory commission,
                                                legal, procurement and
                                                contracting expertise,
                                                development of
                                                implementation of new
                                                tariffs, capacity
                                                development, assistance
                                                with constitutional
                                                issues affecting the
                                                Ministry and integration
                                                of national energy
                                                policy, and private
                                                sector development.
29. Deputy Senior Consultant/Finance and       Provides advice on the
 Rates.                                         reconstitution of Iraq's
                                                electrical system and
                                                all policies related to
                                                the management and
                                                future development of
                                                that system; serves as
                                                the second in command to
                                                the Senior Consultant
                                                for all matters relating
                                                to Iraqi electricity
                                                sector; conducts
                                                numerous, complex and
                                                high priority special
                                                assignments relating to
                                                post-conflict
                                                reconstruction.
30. Senior Engineer/Transportation &           Coordinates the planning
 Distribution.                                  of new transmission and
                                                distribution (T&D)
                                                projects and supervises
                                                existing T&D projects
                                                with senior management
                                                and technical staff of
                                                the Ministry of
                                                Electricity (ME); Also
                                                consults with ME
                                                officials concerning
                                                planning for
                                                transmission and
                                                distribution systems.
31. Security Operations Advisor..............  Advises the ME and the
                                                Senior Consultant on any
                                                and all issues
                                                concerning the
                                                effectiveness of the
                                                electrical
                                                infrastructure and
                                                provides real-time
                                                security analysis to
                                                accurately and
                                                effectively implement
                                                ministry resources to
                                                deal with non-violent or
                                                insurgent actions in the
                                                field.
32. Log and Supply Chain Management..........  Manages the supply chain
                                                for all IRMO Electricity
                                                ordered equipment in
                                                support of all 31 Iraqi
                                                power plants.
33. Energy Analyst (Distribution)............  Coordinates the planning
                                                of new distribution
                                                projects and supervises
                                                existing projects with
                                                senior management and
                                                technical staff of the
                                                Ministry of Electricity
                                                and U.S. project
                                                managers.
34. Sector Program Manager--Electricity......  Provides professional
                                                level support and advice
                                                on reconstruction
                                                issues, especially
                                                regarding the
                                                development of
                                                requirements and
                                                priorities in the
                                                Electricity sector;
                                                coordinates and provides
                                                technical assistance and
                                                advice to determine
                                                project requirements;
                                                provides oversight and
                                                compliance for all other
                                                agencies associated with
                                                the IRRF program as it
                                                relates to all
                                                Electricity programs.
------------------------------------------------------------------------
                           Ministry of Justice
------------------------------------------------------------------------
35. Senior Consultant........................  Works with the Ministry
                                                of Justice to determine
                                                the degree of compliance
                                                with the applicable
                                                laws, regulations,
                                                treaties and guidelines
                                                of relevant authorities
                                                through periodic
                                                research, consultation
                                                and recommends necessary
                                                corrective action.
------------------------------------------------------------------------
                             Ministry of Oil
------------------------------------------------------------------------
36. Senior Consultant........................  Establishes overall goals
                                                and objectives of the
                                                IRMO/Oil Technical
                                                Program, and manages
                                                monetary resources under
                                                IRRF appropriations and
                                                leads the staff to meet
                                                those objectives.
37. Economics and Planning...................  Compiles and analyzes oil
                                                and gas reserve
                                                estimates and production
                                                forecasts to predict
                                                future cash flow,
                                                estimate returns on
                                                investments/revenues,
                                                and evaluate the
                                                technical and economic
                                                feasibility of new
                                                development projects
                                                using investment
                                                decision modeling
                                                methods.
38. Oil Analyst..............................  Provides technical
                                                analysis of Iraq's oil
                                                and gas industry
                                                processes and financial
                                                analysis of IRMO
                                                supported and related
                                                projects; Advises on the
                                                decision-making process
                                                for U.S. government
                                                investment in Iraq's oil
                                                and gas sectors.
39. Deputy Senior Consultant.................  Provides advice and
                                                oversight of energy-
                                                related aspects of post-
                                                conflict Iraq, i.e.,
                                                ensuring safety of the
                                                facilities; restoration
                                                and maintenance of the
                                                oil fields; oil
                                                production; and the
                                                importation and
                                                distribution of any
                                                necessary fuels and
                                                materials for the
                                                operation of the
                                                infrastructure and for
                                                domestic consumption.
40. Petroleum Law............................  Provides technical
                                                assistance and utilizes
                                                expertise in law and
                                                ethics to assist the
                                                Iraqi government by
                                                coordinating closely
                                                with, and reporting
                                                through, Embassy Legal
                                                Advisor.
41. Sector Program Manager--Oil..............  Provides professional
                                                level support and advice
                                                on reconstruction issues
                                                for the IRMO Director
                                                and the Chief of Mission
                                                (COM), especially
                                                regarding the
                                                development of
                                                requirements and
                                                priorities in the Oil
                                                sector.
42. Finance Consultant.......................  Advises on the
                                                reconstitution of Iraq's
                                                oil and gas sector and
                                                policies related to the
                                                management and future
                                                development; Serves as
                                                the IRMO point of
                                                contact in the absence
                                                of the Senior Consultant
                                                for all financial
                                                matters relating to
                                                Iraqi Oil sector.
43. Exploration and Production Consultant....  Serves as geological
                                                consultant in
                                                exploration and
                                                production to the
                                                officials of the
                                                Ministry of Oil and the
                                                various United States
                                                government (USG)
                                                agencies participating
                                                in the Iraqi
                                                reconstruction effort.
------------------------------------------------------------------------
                       Ministry of Transportation
------------------------------------------------------------------------
44. Senior Consultant........................  Advises on the
                                                reconstitution of Iraq's
                                                national transportation
                                                system including
                                                airports and the civil
                                                aviation system,
                                                seaports and associated
                                                waterways, railways, and
                                                State Owned Enterprises
                                                comprising surface
                                                transportation (trucks,
                                                transit buses, taxis,
                                                and rental cars).
45. Deputy Senior Consultant.................  Serves as the IRMO air
                                                carrier/aviation
                                                advisor, advising the
                                                Iraqi Ministry of
                                                Transportation and the
                                                Director General of
                                                Iraqi Airways (IA), a
                                                State Owned Enterprise
                                                (SOE) within MoT on air
                                                carrier rebuilding and
                                                economic reconstruction
                                                efforts. Consultant to
                                                the Minister of
                                                Transport and the
                                                Director General on
                                                organizational
                                                rebuilding efforts.
46. Business Manager.........................  Serves as the Business
                                                Manager of the IRMO
                                                Ministry of
                                                Transportation (MOT)
                                                Office, Embassy Annex,
                                                Baghdad, Iraq; Serves as
                                                chief business/
                                                management advisor for a
                                                ministry of
                                                approximately 40,000
                                                persons.
47. Contracts Manager........................  Serves as the lead expert
                                                on all contracting
                                                matters; Facilitates
                                                contracts for a variety
                                                of complex installation
                                                support services;
                                                mediates contract costs,
                                                special contract
                                                requirements, and
                                                technical issues;
                                                assists in the
                                                development of contract
                                                specifications,
                                                including Statements of
                                                Work.
48. Deputy Senior Consultant--Maritime         Serves as the primary
 Affairs.                                       maritime advisor,
                                                advising the Iraqi
                                                Ministry of
                                                Transportation on issues
                                                affecting Iraqi
                                                reconstruction efforts
                                                related to port and
                                                waterway infrastructure
                                                projects, port
                                                operations, port
                                                security, waterways
                                                management, protection
                                                of life and property at
                                                sea, enforcement of
                                                maritime laws and
                                                treaties, and
                                                facilitation of the
                                                movement of cargo
                                                through the port complex
                                                and by intermodal means.
49. Deputy Senior Consultant--Railway Affairs  Serves as the railroad
                                                advisor, advising the
                                                Iraqi Ministry of
                                                Transportation on
                                                railroad issues; Advises
                                                on assessment, planning,
                                                and execution of
                                                railroad projects
                                                including the repair/
                                                rehabilitation of
                                                critical track bed
                                                sections, rail bridges,
                                                stations, locomotives,
                                                rolling stock, and other
                                                critical infrastructure.
50. Regional Consultant--North...............  Provides oversight and
                                                technical assistance to
                                                the Iraqi Civil Aviation
                                                Authority (ICAA) in the
                                                rebuilding of the
                                                aviation system in Iraq;
                                                Facilitates successful
                                                transition of local and
                                                regional airports and
                                                associated navigational
                                                aids to meet ICAO
                                                standards for domestic
                                                and international
                                                operations.
51. Railway Sustainment Advisor..............  Serves as an advisor to
                                                the Iraqi Ministry of
                                                Transportation and Iraqi
                                                Republic Railways on
                                                railway issues; Advises
                                                on capacity building,
                                                commercialization of
                                                transportation services
                                                and modernization and
                                                sustainment of the IRR's
                                                operating, maintenance,
                                                engineering, cost
                                                accounting and financial
                                                functions.
52. Transportation Development Liaison.......  Determines requirements,
                                                oversees and coordinates
                                                the IRMO road and bridge
                                                construction and non-
                                                construction project
                                                portfolio with the
                                                Project and Contracting
                                                Office (PCO), the Gulf
                                                Region Division--U.S.
                                                Army Corps of Engineers
                                                (GRD), the Joint
                                                Contracting Command--
                                                Iraq/Afghanistan (JCC-I/
                                                A), the Iraq Ministry of
                                                Construction and Housing
                                                (MOCH), and the Iraq
                                                State Commission of
                                                Roads and Bridges
                                                (SCRB).
53. Regional Consultant--South...............  Provides oversight and
                                                technical assistance to
                                                the Iraqi Civil Aviation
                                                Authority (ICAA) in the
                                                rebuilding of the
                                                aviation system in Iraq;
                                                Facilitates successful
                                                transition of local and
                                                regional airports and
                                                associated navigational
                                                aids to meet ICAO
                                                standards for domestic
                                                and international
                                                operations.
54. Ports Operations Manager.................  Advises on maritime and
                                                port issues affecting
                                                the Iraqi Ministry of
                                                Transportation and Iraqi
                                                reconstruction efforts;
                                                Works directly with the
                                                Iraqi Ministry of
                                                Transportation and Iraqi
                                                Port Authority (IPA) to
                                                develop and execute the
                                                maritime strategic plan
                                                to increase port
                                                capacity and assist the
                                                IPA make the transition
                                                to modern inter-modal
                                                facilities.
55. Aviation Security Advisor--North.........  Provides technical
                                                support, advice and
                                                assistance to the Iraqi
                                                Civil Aviation Authority
                                                in accomplishing civil
                                                aviation security
                                                responsibilities;
                                                Facilitates the
                                                transition of local and
                                                regional airports and
                                                associated navigational
                                                aids to meet ICAO
                                                standards for domestic
                                                and international
                                                operations.
56. Aviation Security Advisor--South.........  Provides technical
                                                support, advice and
                                                assistance to the Iraqi
                                                Civil Aviation Authority
                                                in accomplishing civil
                                                aviation security
                                                responsibilities;
                                                Facilitates the
                                                transition of local and
                                                regional airports and
                                                associated navigational
                                                aids to meet ICAO
                                                standards for domestic
                                                and international
                                                operations.
57. Sector Program Manager...................  Conducts complex special
                                                assignments at the
                                                direction of the
                                                supervisor, involving
                                                research and fact-
                                                finding to develop
                                                position and
                                                recommendations on a
                                                variety of high-level
                                                subjects of critical
                                                importance to IRMO.
------------------------------------------------------------------------
                           Ministry of Housing
------------------------------------------------------------------------
58. Housing and Construction--Senior           Addresses problems raised
 Consultant.                                    by the Ministry
                                                concerning the previous
                                                occupation and
                                                interaction with the
                                                military and the USG;
                                                Develops and maintains a
                                                good and productive
                                                working relationship
                                                with the Minister and
                                                all Ministry officials.
59. Project Manager--Civil Engineer..........  Serves as an engineering
                                                liaison between various
                                                entities throughout
                                                Iraq, Iraqi officials,
                                                Embassy (IRMO) elements,
                                                and officials of
                                                coalition governments;
                                                Prepares special reports
                                                and studies, maintains
                                                records, and prepares
                                                reports and
                                                correspondence relating
                                                to the area of Civil
                                                Engineering.
------------------------------------------------------------------------
      Ministry of Water/Ministry of Municipalities and Public Works
------------------------------------------------------------------------
60. Senior Consultant........................  Coordinates with the PCO
                                                and USAID on all
                                                Ministry water
                                                resources, water
                                                treatment, and
                                                sanitation projects;
                                                Coordination of
                                                proposals and funding of
                                                Ministry projects with
                                                the World Bank and
                                                United Nations
                                                Development Group Trust
                                                Fund.
61. Deputy Technical Consultant--River         Possesses knowledge of
 Management.                                    water resources, water
                                                control operations, H&H,
                                                GIS, hydraulic modeling,
                                                databases, and program/
                                                project management;
                                                Coordinates and
                                                facilitates numerous
                                                initiatives between the
                                                Iraqi Ministry of Water
                                                Resources, the State
                                                Department, and various
                                                organizations.
62. Deputy Senior Consultant.................  Assists fully in the
                                                overall management and
                                                direction of the staff
                                                of the IRMO Office of
                                                Water Resources, Office
                                                of Municipalities and
                                                Public Works, and Office
                                                of Environment, and
                                                Amanat Baghdad.
63. Public Works Advisor.....................  Advises on and coordinate
                                                the implementation of
                                                potable water and
                                                sanitation
                                                infrastructure projects
                                                for the Ministry of
                                                Municipalities and
                                                Public Works and
                                                counterpart ministries
                                                of the Kurdistan
                                                Regional Government,
                                                taking into
                                                consideration
                                                timeliness, logistics,
                                                operations, financial
                                                feasibility and capacity
                                                of Iraqi component.
64. Water Resources Advisor..................  Advises on and
                                                coordinating the
                                                implementation of the
                                                water resource, potable
                                                water, and sanitation
                                                projects for the IRMO
                                                Ministry of Water
                                                Resources/Ministry of
                                                Municipalities and
                                                Public Works, taking
                                                into consideration
                                                timeliness, logistics,
                                                operations, financial
                                                feasibility and capacity
                                                of Iraqi component.
------------------------------------------------------------------------
                           Ministry of Defense
------------------------------------------------------------------------
65. Senior Consultant (Secretary General/      Advises the Iraqi
 Minister).                                     Ministry of Defense
                                                (MoD), works with
                                                coalition forces to
                                                recruit, train, and
                                                equip the Iraq Armed
                                                Forces (IAF) to ensure
                                                they are prepared and
                                                available for
                                                operations; Advises the
                                                Iraqi Minister of
                                                Defense on formulating
                                                Iraqi defense policy,
                                                determining
                                                capabilities, budgeting,
                                                providing
                                                communications,
                                                analyzing intelligence,
                                                building military
                                                infrastructure, and
                                                sustaining the forces.
66. Minister's Private Secretariat...........  Serves as an advisor and
                                                administrative
                                                specialist for the
                                                Minister of Defense's
                                                personal office staff
                                                including initiating and
                                                coordinating briefings,
                                                movements, and
                                                appointments for the
                                                Minister.
67. Advisor to DG Veterans Affairs & Militia.  Serves as a key senior
                                                advisor to the Director
                                                of the Veterans Agency,
                                                providing organizational
                                                and administrative
                                                advice as required;
                                                manages the nascent
                                                relationship between the
                                                Iraqi Veterans Agency
                                                and the U.S. Department
                                                of Veterans' Affairs,
                                                and will assist the IVA
                                                in determining needs and
                                                requirements of that
                                                relationship.
68. Advisor to Director of Logistics.........  Assumes responsibility
                                                for both the
                                                professional development
                                                of the Director and for
                                                completing, in
                                                partnership with the
                                                director, the design and
                                                installation of the
                                                specified functional
                                                systems, procedures and
                                                operating modalities.
69. Advisor to Director of Infrastructure....  Implements policy for
                                                military construction,
                                                public works on MoD
                                                facilities, and for
                                                environmental
                                                protection; Acquires and
                                                sustains the real
                                                property, buildings,
                                                facilities, ranges, and
                                                training areas to
                                                support the capability
                                                requirements of the
                                                Ministry.
70. Training Coordinator.....................  Designs, develops and
                                                provides training for
                                                ministry staff (as
                                                appropriate) in the
                                                areas of need in the
                                                Ministry of Defense
                                                headquarters and Joint
                                                headquarters.
------------------------------------------------------------------------
                       Ministry of Interior--IRMO
------------------------------------------------------------------------
71. Senior Consultant........................  Advises on the continued
                                                development of Iraq's
                                                police, civil defense
                                                (fire), special police,
                                                and border and
                                                immigration control;
                                                Advises on all policies
                                                related to the
                                                management and success
                                                of those entities, and
                                                serves as a point of
                                                contact for all matters
                                                relating to these
                                                systems for coordination
                                                with Department of State
                                                components, other
                                                agencies, coalition
                                                governments, the United
                                                Nations, non-
                                                governmental
                                                organizations, and the
                                                Iraqi Government.
72. National Security Consultant.............  Initiates and manages
                                                coordinated, integrated
                                                and appropriate
                                                institutional
                                                development for the
                                                internal security forces
                                                of Iraq; Liaises with
                                                MNF-I to ensure
                                                systematic integration,
                                                understanding, and
                                                execution of IMOI
                                                functions.
73. CT/SO Policy Advisor.....................  Serves as part of the
                                                International Policy
                                                Advisory Team (IPAT)
                                                advising the Iraqi
                                                Police Service (IPS)
                                                Counterterrorism and
                                                Special Operations Teams
                                                on current
                                                investigations and
                                                operations; Provides
                                                program management,
                                                administrative and
                                                logistical support for
                                                current investigations
                                                and operations.
74. Director of National Security Affairs/     Manages a team of
 Inst. Building.                                National Security
                                                Affairs consultants;
                                                Liaises directly with
                                                senior officials of the
                                                Ministry of Interior and
                                                others within the Iraqi
                                                National Security
                                                Apparatus, providing
                                                consulting services on
                                                issues of security.
75. Finance Advisor..........................  Provides financial
                                                assistance and analysis
                                                of accounting policies,
                                                procedures and systems
                                                operations; Prepares
                                                detailed accounting
                                                reports of the
                                                Ministry's finances,
                                                which include charts,
                                                schedules and
                                                narratives; Prepares
                                                detail analysis of cost
                                                areas.
76. National Security Advisor................  Initiates, develops, and
                                                manages coordinated,
                                                integrated and
                                                appropriate policy for
                                                IMOI, including police
                                                policy, border security
                                                policy, facility
                                                protection policy, and
                                                other internal security
                                                policy.
77. Training Coordinator.....................  Designs, develops and
                                                provides training for
                                                ministry staff (as
                                                appropriate) in the
                                                areas of census,
                                                sanitation, internal
                                                security, law
                                                enforcement, prisons,
                                                and border and
                                                immigration control.
78. Director, CT/SO Finance and Contracting..  Develops and manages the
                                                Counterterrorism and
                                                Special Operation (CT--
                                                SO) Division financial
                                                and contracting plan;
                                                responsible for
                                                recommending,
                                                developing, and
                                                implementing financial
                                                and contracting
                                                procedures and policies
                                                for this division and
                                                oversees the reporting
                                                of funding, assets and
                                                expenditures.
79. Contracts................................  Negotiates contract
                                                costs, special contract
                                                requirements, and
                                                technical issues;
                                                Assists in the
                                                development of contract
                                                specifications,
                                                including Statements of
                                                Work.
80. Director of Finance and Contracting......  Responsible for
                                                recommending,
                                                developing, and
                                                implementing financial
                                                and contracting
                                                procedures and policies
                                                for MOI and oversees the
                                                reporting of funding,
                                                assets and expenditures.
81. Election Security Advisor................  Conducts training for
                                                Election Commissioners
                                                and supports both the
                                                Iraqi Government and Non-
                                                Governmental
                                                Organizations to conduct
                                                voter education
                                                activities throughout
                                                Iraq.
82. Senior Advisor National Uniforms Ops       Advises the IMOI Deputy
 Advisor.                                       Minister on national
                                                issues relating to
                                                operational oversight,
                                                policy determination and
                                                institutional building
                                                of the Iraqi Police
                                                force, Highway Patrol,
                                                River Patrol, Traffic,
                                                and Shrine Police.
83. National Security Advisor................  Initiates, develops, and
                                                manages coordinated,
                                                integrated and
                                                appropriate policy for
                                                IMOI, including police
                                                policy, border security
                                                policy, facility
                                                protection policy, and
                                                other internal security
                                                policy.
84. CT/SO Procedure Advisor..................  Advises on matters
                                                related to property
                                                acquisition, receipt and
                                                distribution, as well as
                                                property accountability
                                                and inventory control.
85. Intelligence Operations Consultant.......  Builds a sophisticated
                                                civilian Criminal
                                                Intelligence Operations
                                                (CI) Unit focused on
                                                high-risk tactical
                                                response to counter the
                                                growing threat posed by
                                                heavily armed and well-
                                                trained insurgents and a
                                                growing element of
                                                organized crime.
86. FPS Director.............................  Oversees and supports the
                                                establishment of a
                                                police force that is
                                                charged with physical
                                                security and protection
                                                of Iraq's major
                                                infrastructure; Develops
                                                plans and schedules for
                                                training a multi-
                                                thousand member
                                                indigenous force with a
                                                dedicated purpose of
                                                preventing property loss
                                                and/or personal injury
                                                to the Iraqi
                                                government's facilities
                                                and employees.
87. Fire/Rescue Manager......................  Supervises Fire
                                                operations personnel
                                                within IRMO-MOI and
                                                works with the Civil
                                                Defense Directorate to
                                                bring its capabilities
                                                to modern technical
                                                levels and to introduce
                                                modern operational
                                                concepts.
88. Senior Consultant for DBE................  Responsible for planning,
                                                developing and
                                                implementing policy,
                                                institution building and
                                                mentoring of the Iraqi
                                                Department of Border
                                                Enforcement; Serves as
                                                chief point of contact
                                                with the Iraqi Director
                                                General and subordinate
                                                agencies in Customs,
                                                Immigration and Border
                                                Police.
89. Border Police/Customs Advisor............  Responsible for planning,
                                                developing and
                                                implementing policy,
                                                institution building and
                                                mentoring of the Iraqi
                                                Department of Border
                                                Enforcement to
                                                strengthen and develop
                                                the role of Iraqi Border
                                                Police Forces.
90. Communications Advisor...................  Provides professional
                                                level support and advice
                                                to the Senior Consultant
                                                for Interior regarding
                                                the network deployment
                                                of the Advanced First
                                                Responder Network and
                                                other projects, as
                                                needed.
------------------------------------------------------------------------


    Ambassador Jeffrey. The point we want to make, though, is 
that we will augment this with the USAID program that we're 
standing up, because we do know that we need to do more 
training of these Ministries, and we think that that will 
complement what these folks are doing out--and they're all out 
in the Red Zone, sir, other than the Ministry of Interior and 
Defense.
    Mr. Kunder. Sir, beyond the actual advisors who are sitting 
there, of course, what we've been doing since day one is 
bringing in technical trainers to, for example, reform the 
Central Bank. I mean, we brought highly skilled international 
trainers in. So, if you added up the man-days of on-the-spot 
training, it would be quite a substantial number, beyond the 
actual U.S. Government folks who are sitting there. We could 
provide that, if you're interested.
    Senator Biden. I'm not suggesting that. We've got a long, 
long way to go.
    Mr. Kunder. A lot of work; yes, sir. We're not quibbling 
with that.
    Senator Biden. A long way to go. And I--and I'd ask GAO 
and/or--well, either of the two of you--how much money is 
unaccounted for--just actually, you know, cash put in bags and 
missing, and--how many billions?
    Mr. Christoff. I think Stuart has the answer to that.
    Mr. Bowen. Well, there's no way to fix a number on that. 
First of all, there are two phases. The DFI phase, which our 
most significant corruption investigations have looked into 
that and found some very serious issues and prosecutions, and 
now convictions. The reason for the corruption in the DFI phase 
is that it was a cash-only environment back then. And, you're 
right, there were shrinkwrapped dollar bills--packages of money 
all over the place that were difficult to track, and our audits 
have identified the seriousness of that issue.
    With respect to the second phase using IRRF dollars, it's a 
different story. Corruption lessened as reconstruction efforts 
were funded through the IRRF. IRRF funds were more carefully 
tracked through the use of electronic funds transers.
    Senator Biden. Can you give me a ballpark number? Your 
report, which I read, and I'm trying to find, indicated that 
there were pretty--I mean, there were, you know, hundreds of 
millions of dollars.
    Mr. Bowen. Yes. We've identified hundreds of millions of 
dollars lacking documenting is simply missing. Our audits have 
identified that. And our investigations have recovered millions 
of dollars. But those investigations deal with DFI dollars. 
With respect to IRRF, it's a different story----
    Senator Biden. OK.
    Mr. Bowen [continuing]. And a better story.
    Senator Biden. Good. Well, thank you very much.
    I'm sorry, did you want to say something, Mr. Christoff?
    Mr. Christoff. Just--I wanted to comment on--this is not 
this committee's jurisdiction, but one area that we're looking 
into is the accounting for the moneys that have been used to 
train and equip the Iraqi security forces. It's a lot of money 
that MNSTC-I has been in charge of. And I'm not quite certain 
if the accountability measures that they just put in, in 
October, took an account of all the billions that they spent 
prior to that. So, we're continuing and beginning a review in 
that particular area.
    Senator Biden. I think you're going to find it's several 
billion dollars. But I could be wrong. I hope I'm wrong about 
that.
    But, with that, I don't have any more questions. And I 
thank the panel very much for your being here.
    The Chairman. Thank you, Senator Biden.
    Let me just make a comment, parenthetically. Our committee 
doesn't have jurisdiction, necessarily, over that, but we are 
deeply interested in it. [Laughter.]
    Mr. Bowen. Good.
    The Chairman. And the committee, in a broad sense, with 
regard to the foreign policy of our country, needs to have all 
of this information. We appreciate your furnishing it to us.
    Senator Voinovich.
    Senator Voinovich. I noticed, from the statistics here, 
that the coalition of the willing, or whatever you call that 
group that's helping, has allocated $13 billion, and $3 billion 
has been forthcoming. I get the impression that some of our 
friends are kind of waltzing away from where we are, and say, 
``That's your baby to take care of.'' And it seems to me that 
$13 billion from all the folks around the world for 
reconstruction, relative to the amount of money that we're 
spending, is a--is not what it should be. And the question I 
have is, What efforts are we being--are being made today to get 
some of our partners around the world to belly up and help us, 
in terms of this reconstruction? And how high is it on their 
priority list?
    Ambassador Jeffrey. We agree with you, Senator. We might 
not put it quite that frankly, but we've got concerns both for 
what we call ``the old business,'' the $13.5 billion in 
commitments, and the commitments to forgive Iraqi debt, 
particularly from countries in the Middle East, and additional 
requirements. Because, as we've discussed today, and as we've 
seen, Iraq alone--and we certainly can't--do all of the work, 
not in the private sector, to reconstruct Iraq. On the other 
hand, it's, in the long run, a potentially extremely rich, 
extremely valuable country, and there should be more of a 
contribution from countries, particularly in the region, given 
the way that oil prices have gone up.
    The Secretary raised that when she was here, Senator Lugar, 
several months ago. We have had several trips to the region to 
talk to countries about the possibility of making additional 
investments. We're going to continue that. It's a very 
important initiative. By the same token, the Secretary 
personally, when she was in Manama, back in November, pressed 
the Gulf Coordination Council Foreign Ministers to, in the 
presence of the Iraqi Planning and Foreign Minister, to do more 
on their pledges, because they, alone, had pledged about $1\1/
2\ billion. The Japanese, as I mentioned earlier, have done 
well with their grants, and they're beginning to move, and we 
think they'll do very well with the concession, alone, part of 
their $5 billion, which is a great deal. The IMF and the World 
Bank have done well, and they'll continue, we are very 
confident, as with the British. The European Union has been 
slow, but they've pledged now about $700 million, and we think 
they'll deliver, as well.
    Frankly, as one who's been out there operating, as Mr. 
Kunder can say, as well, it's not easy to obligate funds in 
Iraq. We have not only the U.S. military, but we have literally 
thousands of security personnel to allow our folks to move 
around the country. Other people don't have that kind of base 
to operate out of, so that's slowing things down, sir.
    Senator Voinovich. Well, it seems to me that some effort 
should be made to get the United Nations more involved in that 
effort there and put some pressure on some people to understand 
how important it is that we are successful, in terms of the 
reconstruction.
    I'd like to build on the questions that Senator Biden 
raised. I have another committee that I am involved with. It's 
the Subcommittee on the Governmental Affairs Homeland Security 
Oversight of Government Management in the Federal Workforce. 
And I have concluded that most of the problems that we have 
been confronted here in our Government is because we don't have 
the right people with the right knowledge of--and skills in the 
right place at the right time. And I just wonder, How much 
pressure are we putting on the new leaders in Iraq about the 
importance of getting competent people into these various--I 
don't know what they call them--departments? And what role is 
patronage being played? So many times you have a coalition, so 
that in order to get the guys to the table, you say, ``Well, 
you take care of that, you take care of that.'' I'd like your 
comment on just what role patronage seems to be playing there, 
or do they understand that human infrastructure is more 
important than anything?
    And, second--and I think Senator Biden got into it--the 
number of people that we have involved as advisors, do we have 
any private sector people involved in helping them with those 
particular areas, where we really know they need help?
    And last, but not least, has anybody given any thought to 
talking to the United Nations and saying that this ought to be 
kind of a project for all of us, in terms of bringing the best 
and brightest people that we can to help these folks, make sure 
that these agencies have good people, train those people so 
that they can be successful? Because if that's not done, and 
they can't deliver the basic services, you know, and I know, 
that people are going to say, ``Goodbye.'' You know? And what--
how much effort's being placed there?
    Ambassador Jeffrey. Sir, ever since the CPA period, a great 
deal of effort was placed on exactly this issue, the 
Ministries, because we do know that they are the--they're the 
transportation medium for almost everything. Iraq does not have 
a federal system, like we have. Even with the new Constitution, 
the fire departments in the local towns are run by the Ministry 
of Interior. Every Ministry has a director general who's 
responsible for paying and managing all of the people--police, 
teachers, medical personnel--in each province. So, it is a very 
centralized system. It is a system, frankly, that runs deeply 
on patronage, traditionally. And this goes back hundreds, if 
not thousands, of years, not just in Iraq, but, frankly, in 
much of the world. And we're doing our very best to try to 
break that.
    In particular, having seen some of the problems we had in 
the last year with the government, we have pressed all of the 
political parties that it is absolutely essential as they do 
this, as you said, inevitable jockeying for positions and 
factions within the parties and among parties, that it is 
absolutely essential that, particularly for key Ministries such 
as Oil, Electricity, Interior, Defense, Finance, and a few 
others, that they are competent people who can manage their 
staffs. Because the Iraqis have good professional staffs in 
most of these Ministries, and these people need to be promoted, 
and they need to be protected, which is very important. We've 
seen a lot of problems on that.
    But I think they are making progress. We do have advisory 
teams. Most of the State Department personnel that we put in 
the Ministries were actually hired from the private sector--oil 
industry, and such. And, in addition, we have NGOs who are 
working with the various Ministries, both on our contracts and 
on U.N. and other contracts. And we do work very closely with 
the United Nations, not only on the political process, but also 
on development assistance. And the United Nations is cochaired 
with the World Bank on a fund of $1.3 billion, which is part of 
the $13.5, that is aimed at capacity-building and on doing 
specific projects. So, the United Nations is our partner in 
this.
    Senator Voinovich. Well, I think it's really important that 
we really continue to put pressure on our allies to step up to 
the table and to do their fair share. I am familiar with the 
Stability Pact that came into being after the war with Serbia, 
and talking to some of the people, Mr. Chairman, that--on the 
Stability Pact countries. And they said, ``We never really 
meant to give them that money.'' In other words, they made 
these pledges to these various countries, and they're sitting 
there waiting for the money to come in, and they said, ``Well, 
we weren't really sincere about it.'' And I don't think we can 
afford to do that in Iraq, and I think that we need to really 
put the pressure on, including maybe the President picking up 
the phone and calling some of these people and saying, you 
know, ``You guys have got to do your fair share.''
    Ambassador Jeffrey. The President has done that, sir.
    Mr. Kunder. Sir, I just want to mention, some of our--some 
of our colleague agencies, like the British Government, have 
been heavily, heavily involved and made real sacrifices in this 
area.
    Senator Voinovich. Thank you.
    The Chairman. Thank you very much, Senator Voinovich.
    I would just comment, parenthetically, that at some point, 
hopefully, Iraq becomes a ``normal country.'' As it does, it 
will have a situation such as I saw in Tripoli, Libya, this 
summer, in which the hotel was virtually filled with people 
from India, from China, from the United States. They were all 
interested in oil and other natural resources in the country, 
and making bids that were very generous to the Libyan 
Government.
    The resources that Iraq has are enormous, and we've touched 
upon this today. But, as you've pointed out, without security 
forces following all the investors around, quite apart from 
their contractors and those that deal with them, these are 
really beyond the normalcy of business practices in the world, 
international or domestic. And that's the great tragedy that 
we're describing, which you have described, I think, very well.
    Let me just say that all statements and handouts submitted 
today will be included in the record, and the record will 
remain open until the close of business if members wish to 
submit questions. And, on occasion, some of you have indicated 
that you would be prepared to furnish additional information 
for the record. The record will remain open for those 
additions, so that we will have as complete a record of this 
hearing as possible.
    I thank all of you for the generosity of your time and, 
likewise, preparation. You can tell that the intensity of 
interest on our part simply represents the feeling of the 
entire body.
    So saying, the hearing is adjourned.
    [Whereupon, at 12 p.m., the hearing was adjourned.]
                              ----------                              


       Additional Questions and Answers Submitted for the Record


Responses of Special Inspector General Stuart Bowen, Jr., to Questions 
                 Submitted by Senator Richard G. Lugar

    Question. What actions are being taken by State to ensure the 
financial and technical sustainability of U.S.-funded construction 
projects?

    Answer. The U.S. Department of State has reprogrammed portions of 
the Iraq Relief and Reconstruction Funds (IRRF) to focus on capacity-
building and sustainment issues. Among other projects, these funds will 
be used to help train Iraqis to better manage new facilities and better 
plan and budget their own resources at the national and provincial 
level.
    Specifically, the Iraq Reconstruction Management Office (IRMO) has 
established a number of working groups that are working toward 
resolving the issues surrounding the transition and support of U.S.-
funded infrastructure projects. Individual working groups have been 
formed to cover Asset Recognition and Transfer, Sustainment, and 
Capacity Development. These groups have drafted plans that are being 
reviewed by management. In the meantime, individual infrastructure 
sector managers have a number of activities underway to ensure the 
long-term viability of their projects. These include direct operations 
and maintenance assistance, and capacity-development activities 
oriented toward improving the Iraqis' ability to manage their 
infrastructure on their own. Until State releases its plans, it is not 
possible to determine how well these activities will line up with 
State's goals and objectives. The major challenge facing each of these 
groups is the Iraqi calendar year 2007 budget. The U.S. plans will need 
to be finalized before the Iraqi budget is put together so that they 
can appropriately plan and budget for the projects being turned over. 
The Iraqi budget process begins in May.

    Question. Have Iraqi Ministries budgeted and demonstrated capacity 
for this task?

    Answer. Despite significant hurdles, Iraqis demonstrate interest 
and a willingness to implement new budgeting techniques to help 
compensate for ongoing problems. Low oil production and insurgency 
attacks have resulted in budget shortfalls, posing significant budget 
problems for the Iraqi Ministries. Increasing salaries for government 
employees also pose a budgeting challenge. According to interviews with 
the U.S. senior advisor to the Ministry of Finance, the capabilities of 
the Iraqi Ministries vary widely. The Ministries of Electricity, 
Health, Defense, and Communications are considered good, while Interior 
(the police), Transportation, and Water are perceived to have less 
capability. The Government of Iraq as a whole will continue to have 
difficulty fully budgeting for sustainment, and for needed 
reconstruction programs.

    Question. What is your assessment of the Iraqis' ability to move 
forward on their own in reconstruction?

    Answer. The Iraqi Government is facing significant budget problems, 
as a result of shortfalls in oil output and the increasingly rising 
cost of responding to insurgency attacks, among other reasons. Based on 
the current situation in Iraq, it is improbable that the Iraqi 
Government will be able to move forward in reconstruction efforts 
without outside assistance.
    Dependence on U.S. assistance is likely to lessen over time, but 
for the immediate future, it will be necessary to closely monitor Iraqi 
management of its infrastructure and to be prepared to step in and 
assist in resolving problems. An upcoming SIGIR audit report will 
address this issue and offer recommendations.

    Question. Recent reports reflect that sabotage, corruption, and 
smuggling of oil resources have had drastic effects and even funded 
insurgents. Iraq's economy depends on these exports. Are U.S. and Iraqi 
efforts unified in developing law enforcement, ending corruption, and 
increasing oil exports?

    Answer. Iraq, the United States, and other contributing nations 
recognize the importance of a strong law enforcement community in 
controlling corruption and increasing oil exports, and are cooperating 
in efforts to do all three. SIGIR is planning to conduct an audit of 
the coordinated anticorruption efforts to address this question.

    Question. How many people have been convicted and how much money 
has the government recouped based on your efforts?

    Answer. There have been four arrests, and one conviction based on 
SIGIR's efforts to prevent, detect, and deter waste, fraud, and abuse 
in Iraq. More arrests are pending. SIGIR's audits, investigations, and 
inspections have resulted in direct and indirect benefits including the 
savings of $2.6 billion through audit recommendations; our 
investigations have recovered over $6.6 million in cash and seized 
assets. SIGIR is finalizing financial impact numbers and will be 
providing a formal update in its April 2006 Quarterly Report.

    Question. Have you seen instances of mismanagement of funds since 
the State Department took over as the lead executive branch agency in 
Iraq?

    Answer. Inspection reports have disclosed deficiencies in the 
management of more than half of the projects evaluated. Management 
deficiencies have included poor designs, inadequate statements of work, 
poor quality work, and lack of, or ineffective, quality control and 
assurance. Because of such deficiencies, some projects are not 
achieving stated objectives.
    However, less than a quarter of ongoing criminal investigations 
date from the transition of authority from the Coalition Provisional 
Authority to the U.S. Department of State.

    Question. How would you characterize the Department's 
accountability and the management systems that are now in place?

    Answer. SIGIR has not conducted any reviews or audits specific to 
the Department of State's accountability and management systems. 
However, when deficiencies are disclosed by SIGIR, management has 
taken, or promised to take, satisfactory corrective action on SIGIR's 
recommendations to correct deficiencies.
                                 ______
                                 

Responses of Joseph Christoff to Questions Submitted by Senator Richard 
                                G. Lugar

    Question. Have funding shifts to security been offset by 
adjustments to reconstruction goals? To what extent do reports 
compensate for this significant change? Are the Iraqi Government and/or 
international partners prepared to fund these critical needs?

    Answer. Additional security costs have been offset by cutting lower 
priority projects, such as the electrification of some villages. The 
U.S. contracting office has provided some estimates of the impact, such 
as the smaller number of Iraqis receiving water and electricity. 
Infrastructure needs will compete with Iraqi fixed budgetary 
expenditures (i.e., subsidies, fuel imports, salaries, and pensions) 
and growing costs for an expanding Iraqi security force. International 
donors have pledged to provide support largely in the form of loans 
(about 70 percent of total amount pledged).

    Question. Could you further evaluate the 2006 Iraqi budget? Is it 
realistic? How do the Iraqis view budgeting in general?

    Answer. The 2006 Iraqi budget assumes a 17-percent growth rate in 
annual oil revenues over the next 5 years. This assumption is based on 
oil production levels reaching 3.6 million barrels per day (bpd) by 
2010, a level that was never reached in the past decade. Further, the 
budget assumes that fuel subsides will be completely phased out this 
year, thereby eliminating the $2.8 billion cost to import fuels in 
2007. However, it is unclear whether the Iraqi Government will have the 
political commitment to continue to raise fuel prices to meet these 
budget needs. The Iraqi Government is working with the International 
Monetary Fund and the United States to improve current budgeting 
practices.

    Question. What is your assessment of State-DOD-USAID coordination 
on planning and, more importantly, execution?

    Answer. We are currently assessing the extent to which State has 
had input into DOD's campaign plan and how DOD and State are 
collectively implementing the President's November 2005 National 
Strategy for Victory in Iraq. During the fall of 2005, the Embassy and 
Multinational Force-Iraq initiated a number of task forces and working 
groups to better coordinate the planning and execution of the U.S. 
efforts.

    Question. What is your assessment of the first few Provincial 
Reconstruction Teams (PRTs) that have been established? What 
adjustments are being made to the original plan? What security problems 
and costs do you see associated with the establishment of multiple PRTs 
throughout Iraq, especially as troops draw down?

    Answer. GAO has not conducted an assessment of the first three 
PRTs. However, the Department of State and Multinational Force-Iraq 
(MNF-I) have identified three key issues that constrain PRT operations: 
Security, personnel, and funding. For example, the PRTs may not have 
enough personnel and security to support the proposed PRTs. In some 
locations, the PRTs need to be assured of direct support from MNF-I or 
find other ways to provide security for the teams as they move around 
the area. The PRTs also will rely on the USAID-funded local governance 
project to fund its activities. It is unclear whether this project has 
sufficient funds for this purpose.

    Question. Have you seen instances of mismanagement of funds since 
the State Department took over as the lead executive branch agency in 
Iraq? How would you characterize the Department's accountability and 
the management systems that are now in place?

    Answer. In its 2005 review of the water and sanitation sector, GAO 
found that it was difficult to determine the overall progress and 
impact of U.S.-funded infrastructure improvements due to limited 
performance data and measurements. State Department reporting focused 
on numbers of projects completed or underway, but this information 
provided little information on how U.S. efforts were improving the 
amount and quality of water reaching Iraqi households or their access 
to sanitation services. The lack of water metering and water quality 
measurements limited the availability of data. As a result of GAO's 
recommendations, the Department is reviewing its metrics for all 
sectors to better measure the results of U.S. reconstruction efforts.
    Managing Iraq's capacity to sustain U.S.-funded facilities 
continues to be a challenge. GAO found that, as of June 2005, water and 
sanitation projects costing about $52 million and turned over to Iraqi 
management were not operating as intended due to looting, unreliable 
electricity, or inadequate Iraqi staff or resources. In addition, Iraqi 
powerplant officials stated that they have not been adequately trained 
to operate and maintain the new gas turbine engines provided by the 
United States. Iraqis are using oil-based fuel to run the gas turbine 
engines due to the lack of natural gas, but using oil instead of gas 
requires three times more maintenance and significantly reduces the 
life of the equipment.
                                 ______
                                 

Responses of Ambassador James Jeffrey to Questions Submitted by Senator 
                            Richard G. Lugar

    Question. Over time, several billion has been shifted away from 
reconstruction priorities to pay for security. The electricity and 
water sectors are being reduced again this month by more than $150 
million. These sectors are absolutely critical to the economy. Are 
these continued shifts being recommended by the State Department 
because: We are giving up on these priorities; someone else is doing 
the work; or the work is no longer needed?

    Answer. We are not giving up on major infrastructure programs. 
Rather, we have made some changes and continue to do so to fund what we 
consider even higher priority projects and activities, while continuing 
with the bulk of our major infrastructure program. Those activities and 
goals we have deferred are, in our view, either less time sensitive, or 
better candidates of eventual Iraqi, private investment, or third 
country funding than the goals for which we have reprogrammed funds.
    Specifically, the State Department's latest quarterly report to 
Congress on the Iraq Relief and Reconstruction Fund (IRRF) of January 
2006, the Department notified Congress of $249.3 million in 
reallocations between sectors of the IRRF. These changes must be viewed 
in the context of the aims of the IRRF. In designing the IRRF, the 
United States was aware that it could not ``rebuild'' all of Iraq's 
infrastructure, which had been run down by decades of mismanagement, 
war, and tyranny. The World Bank estimated in October 2003 that the 
total reconstruction bill for Iraq was at least $56 billion. The U.S. 
intent, therefore, was to focus on jump starting key sectors that 
deliver essential services, and focus resources on government capacity, 
democracy programs, and other core components of reconstruction at a 
time when other international donors, private investors, and the Iraqis 
themselves could not mobilize.
    Of the $249.3 million in changes in allocations between programs 
cited in the January quarterly report, $89.8 million in electricity 
programs will be moved to fund more urgent priorities in humanitarian 
demining, refugees and rule of law programs. While several water 
programs were canceled, no money was taken out of the water sector, 
since the projects which were canceled will fund other, higher priority 
water projects.
    The electricity sector is critical to the economy. We have already 
largely completed our generation program, and most of our larger 
transmission programs. The projects which we are canceling would have 
added additional capacity to the national grid. While they would have 
improved the reliability of the overall system, in our judgment, it was 
more important to fund the humanitarian demining and refugee programs, 
which had no other source of funds to continue critical operations. We 
will use the majority of the money from noncritical electricity 
programs to fund rule of law programs, including a corrections advisor 
program intended to reduce instances of abuse by Iraqi corrections 
officers. This funding will also set up a number of these rule of law 
programs which will improve the ability of the Iraqi Government to 
counteract the insurgency, including expanding the reach of prosecutors 
and improving overall operations of the Iraqi criminal justice system. 
We have asked for additional funds in FY 2007 to continue these 
programs.

    Question. Have funding shifts to security been offset by 
adjustments to reconstruction goals? To what extent do your reports 
compensate for this significant change? Are the Iraqi Government and/or 
international partners prepared to fund these critical needs?

    Answer. The Iraq Relief and Reconstruction Fund (IRRF) has changed 
over time, responding to the needs identified by successive Iraqi 
Governments, lessons learned, and events on the ground. The most 
prominent of these changes took place in 2004, when we shifted $1.8 
billion from water and electricity to build up the Iraqi Security 
Forces. To meet the urgent need to improve security in Iraq, we 
identified a number of lower priority projects, coordinated with the 
Iraqi Government, and consequently adjusted some elements of our 
programs. The primary vehicles for compensation at this point are 
foreign donors and the Iraqi Government. The Iraqi Government has asked 
other donors to increase funding in sectors from which we have 
reallocated, and some donors responded with additional projects. For 
example, Japan is undertaking additional work in electricity and water 
projects following our reallocations. The Iraqi Government has set 
aside $6 billion in its FY06 budget for capital projects.
    As we near the end of the IRRF program, we are focusing more 
resources on completing small projects, which are quicker to implement, 
easier to maintain and have greater participation by Iraqi contractors. 
We also intend to focus more on building Iraqi Government capacity, at 
the national and local level, to sustain existing projects and 
implement their own projects in the future.

    Question. Please provide a summary of how the President's FY 2007 
budget request ($771 million) reflects strategic priorities laid out in 
the Plan for Victory in Iraq.

    Answer. Our National Strategy for Victory in Iraq involves three 
integrated tracks--political, security, and economic--with separate 
objectives, but that together help Iraqis achieve the goal of a stable, 
prosperous, and self-reliant democratic state. Without progress on the 
political and economic tracks, progress on the security track will not 
be sustained. The FY 2007 Iraq budget request of $771.19 million will 
build on the work of the Iraq Relief and Reconstruction Fund (IRRF) and 
support Iraq's transition to economic and political self-reliance, 
focusing on more traditional capacity-building tools and objectives as 
Iraq transitions to more Iraqi-led responsibilities in the political, 
economic, and security fields. Our FY 2006 Iraq supplemental request 
addresses more immediate emergency needs, especially in the security 
track of our counterinsurgency policy. The division thus is security 
and certain immediate emergency political and economic track 
initiatives in the FY06 supplemental, and more ``conventional'' foreign 
assistance to sustain the economic and political tracks in the FY07 
budget. While the FY07 submission also supports the counterinsurgency 
strategy, it takes a longer term approach with more traditional foreign 
assistance tools.
    The fiscal year 2007 budget includes:

   $276.5 million in Economic Support Funds (ESF) for the 
        Economic Track--Improving Government of Iraq capacity and 
        maintaining key infrastructure.

     $154 million for infrastructure sustainment: $20 million of 
            that will support capacity development, training, and 
            technical-level management to increase the Iraqis' 
            abilities to operate and maintain essential service 
            infrastructure; and management tools and skills for Iraqis 
            responsible for USG-funded projects in six sectors (oil, 
            electricity, health, water, communications, and 
            transportation). $134 million will support operations and 
            maintenance of key USG-funded infrastructure in the oil, 
            electricity, water, and other key sectors.
     $18.5 million will provide technical training to banks, 
            complete automation of the stock exchange, assist the 
            securities commission and association of securities 
            dealers; increase the network of microfinance institutions 
            and public education campaigns on business creation; and 
            increase education of, and access to, capital for small and 
            medium enterprises.
     $104 million for agriculture and private sector development. 
            $84 million will promote agriculture sector development. 
            This program will use an enterprise-driven approach to 
            create value chains from the farm (both crops and 
            livestock) to the market, particularly for higher value 
            cash crops. The intent is to develop small- and medium-
            scale private agro-food enterprises to produce, process, 
            package, market, and distribute agro-food goods and 
            services. This program will establish rural financial 
            services, improving the ability of these enterprises to 
            survive. $20 million will provide technical advisory 
            support for Ministries and Iraqi Government institutions 
            that regulate commerce, promote privatization, and provide 
            lending. Funding will also support Iraq's business civil 
            society organizations, and nonbank financial institutions 
            to offer a broad range of financial services to meet the 
            needs of the private sector. Iraq's universities will be 
            equipped with the information technology resources to 
            educate the business community.

   $494.69 million for the Political Track--Improving national 
        capacity, supporting civic society and human rights programs, 
        and improving rule of law.

     $25 million in Economic Support Funds will continue programs 
            to develop the capacity of the Ministry of Finance and the 
            Central Bank of Iraq, particularly in areas related to 
            banking supervision and budgeting.
     $90 million in Economic Support Funds for policy, subsidy, 
            legal, regulatory, and transparency reforms vital to 
            reshaping the economy from a centralized authoritarian 
            model to a market-based transparent system integrated into 
            the global economy.
     $63.27 million in Economic Support Funds to promote democracy 
            through training and support for the development of 
            political parties and civil society groups that support the 
            development of democracy, free trade unions, free 
            enterprise, anticorruption, and open media; to establish a 
            National Institutions Fund to assist with priority projects 
            that include parliamentary capacity-building, and seed 
            money for associations, minority groups, and think tanks 
            that promote democracy; and continue programs for women, 
            human rights issues, polling, and peace-building and 
            reconciliation activities.
     $254.6 million in International Narcotics Control and Law 
            Enforcement (INCLE) will fund rule of law programs, 
            including providing human rights training within the 
            judicial system, supporting the integration of the Iraqi 
            criminal justice system, fostering rule of law outreach, 
            supporting anticorruption programs, providing corrections 
            advisors, and expanding the training and reach of Iraqi 
            prosecutors. These programs will also upgrade some 
            courthouses and jails, and conclude a program to improve 
            protection of judges.
     $24 million in Economic Support Funds will continue DOJ 
            programs through the Regime Crimes Liaison Office to work 
            with the Iraq Special Tribunal and support further 
            evidentiary digs.
     $16.63 million in Nonproliferation, Antiterrorism, Demining 
            and Related Projects (NADR) will support programs to help 
            Iraq interdict terrorists and fight terrorism financing, 
            prevent the proliferation of WMD expertise, secure its 
            borders and nonproliferation efforts, and continue 
            humanitarian demining programs.
     $20 million in Migration and Refugee Assistance (MRA) will 
            support the ongoing return of refugees and assistance to 
            vulnerable Iraqis living under protective status in 
            neighboring countries.
     $1.19 million in International Military Education and 
            Training (IMET) funding will improve training for Iraqi 
            military officers.

    Question. Food and fuel subsidy reform must be extremely unpopular 
politically. Do Iraqi leaders understand the essential nature of these 
changes, and have they conveyed them to the people? In your view, will 
the new government have the fortitude to keep on schedule with these 
reforms that the IMF agreements have mandated? Are they instituting a 
welfare safety net?

    Answer. The current Government (The Iraqi Transitional Government 
or ITG) committed to undertake subsidy reform in its IMF Stand-By 
Arrangement as a critical step toward rationalizing the national 
budget. The 2006 budget projects reduced expenditures for both fuel and 
food subsidies over 2005. The government implemented the first stage of 
fuel subsidy reform by increasing fuel prices December 18, raising some 
key fuel prices (premium gasoline $.13/gallon to $.63/gallon, kerosene 
$.012/gallon to $.06/gallon) by a factor of 500 percent. However, to 
have a significant impact on reducing the subsidy burden on the budget 
and to reduce the incentives for smuggling, the government will need to 
increase fuel prices further to make them comparable with prices in the 
region.
    After the first price increases were announced, the government 
started to reach out to the general public to explain the need for 
subsidy reform through press briefings, a poster campaign, and some 
spot ads. It is now developing a more comprehensive public education 
campaign with a clear set of messages to explain to the general public 
the need for economic reform and the impact of subsidies on the budget 
and on the national economy. Reform of the food distribution system is 
still in the planning stage, but the allocation for food subsidy 
expenditures in the 2006 budget is 25 percent less than the 2005 budget 
allocation. The government has also started restructuring the existing 
welfare system to make it more efficient and expand it to provide 
targeted support for the vulnerable population as the generalized 
subsidy programs for food and fuel are reduced. Restructuring the 
welfare system will take some time and is not a quick fix. The 
government will have to work assiduously to build public confidence in 
its actions and support for subsidy reform.
    While we cannot predict the specific policies of the new government 
not yet in place on this and other issues, the Embassy's top priorities 
include discussing with all of the major parties the need to adhere to 
IMF commitments and to further pursue subsidy reduction, including 
safeguards for those most dependent on subsidies.

    Question. An ``Assessment of Key Ministries'' chart that USAID 
produced as part of a National Capacity Development briefing shows 11 
Ministries scoring rather poorly, and some getting worse in various 
capacity categories. What prospect for change do you anticipate with 
the installation of the ``permanent'' government? Are they receptive to 
the help we and the International community have to offer? I note that 
two key Ministries--Interior and Defense--are not on the list, 
presumably because they are under DOD purview. How would you rate their 
capacity?

    Answer. Increasing the capacity of Iraq's national-level Ministries 
and local government bodies is a critical part of our strategy to 
support Iraq's transition. Iraqis ultimately must take responsibility 
for government performance. In fact, tens of thousands of Iraqi 
officials, at great personal risk and sacrifice, are at present doing a 
remarkable job of keeping the Iraqi Government functioning and 
delivering core services despite the devastation of decades of Saddam, 
and an insurgency targeting the Iraqi administration.
    We have worked closely with the current Iraqi Government to develop 
an initiative to improve the capacity of national-level Ministries and 
the Prime Minister's office. Embassy officials are working closely with 
their Iraqi counterparts in Ministerial Assistance Teams to develop 
specific plans to identify specific needs for 11 key Ministries, and 
outline steps to address these needs. The aforementioned chart is part 
of our and the Iraqis' effort to identify those areas requiring 
priority attention.
    The World Bank has also been working to expand Iraqi Ministry 
capacity over the last 2 years through two targeted programs worth 
$10.6 million. In addition, the World Bank-administered International 
Trust Fund runs its project procurement through Iraqi Ministries, 
thereby increasing ministerial capacity. We expect our efforts, along 
with those of our partners, will lead to further progress toward 
building core functions within these key Ministries.
    We also expect the new government's installation will lead to 
building core functions within these key Ministries by providing a 
longer term, more stable political environment which will be more 
conducive to implementing these technical assistance programs. We hope 
that other donors will also be encouraged by the prospect of working 
with the same leadership for a sustained period, which should improve 
our ability to coordinate our assistance with international donors and 
NGOs. The Iraqis at both senior government level and in the ministerial 
bureaucracies have been helpful and supportive of our and others' 
efforts.
    Primary responsibility for advising the Ministries of Defense and 
Interior now lies with the subordinate element of the Multi-National 
Force-Iraq, the Multinational Security Transition Command Iraq (MNSTC-
I), in consultation with the Embassy. MNSTC-I has placed many military 
and civilian advisors in key positions to improve identified capacity 
development needs in the areas of personnel management, contracting, 
logistics, and budgeting.
                                 ______
                                 

 Responses of USAID Assistant Administrator James Kunder to Questions 
                 Submitted by Senator Richard G. Lugar

    Question. You spoke in your testimony about a focused, long-term 
capacity-building initiative that would extend at least the next 3 
years. In your view, is this being given adequate funding 
consideration?

    Answer. The estimated costs of the Capacity Development Program are 
based on the experience of USAID in similar programs in other countries 
adjusted to the conditions found in Iraq. The Administrator's current 
funding request for FY 2006 is $150 million ($25 million in 
Reprogrammed Iraq Relief and Reconstruction Funds and $125 million in 
the FY 2006 supplemental request pending in Congress) and the request 
for FY 2007 is $25 million. These funds will support capacity 
development in the Iraqi Government by transforming and upgrading Iraqi 
institutes for public administration and improving the capacities of 10 
key Ministries to efficiently carry out their respective designated 
responsibilities. This program will also continue the work already 
underway to improve the functioning of the Central Bank of Iraq and the 
Ministry of Finance. As we engage the Iraqi Ministries in the coming 
year, we will have a better sense of the overall needs. We also expect 
that other donors will participate in this effort.

    Question. USAID has discussed a ``Strategic Cities'' initiative. 
Can you describe what makes these cities strategic and how they fit 
into the Victory Plan, Provincial Reconstruction Team concept, and 
other strategies that have been discussed?

    Answer. Both the Iraq and U.S. Governments have agreed that the 10 
cities identified for the initiative are strategic because they are 
critical to the future peace and stability of the country. They have 
been targeted due to the high levels of insurgency activities and 
significant populations of unemployed and disenfranchised people that 
help fuel the insurgency. The likely targeted cities (and their 
populations) for this program include: Baghdad (6,670,000), Basrah 
(1,337,000), Mosul (1,160,000), Fallujah (133,000), Ramadi (255,400), 
Samarra (220,000), Baqubah (300,000), North Babil (845,000), Kirkuk 
(750,000), and Najaf (679,000).
    The Strategic Cities initiative will help advance the political 
track set forth in the President's National Strategy for Victory in 
Iraq. Strategic Cities activities will revitalize community 
infrastructure, provide essential services, and help mitigate conflict. 
These activities contribute to the political track objectives by 
providing the Iraqis with a stake in a viable democratic Iraq, 
encouraging peaceful participation of citizens, and building strong 
institutions that will protect the interests of the Iraqis. Strategic 
Cities activities will also create jobs and develop marketable skills 
(especially among youth) as well as provide assistance, including 
credit, to new and expanding businesses.
    The Provincial Reconstruction Teams (PRTs) will provide assistance 
to the 10 strategic cities in an effort to strengthen the provincial 
governments' abilities to deliver essential services. Additional 
activities through the PRTs will support the advocacy skills of civil 
society organizations and community groups so they can effectively 
represent the needs and rights of local citizens.

    Question. USAID has been challenged to fulfill staffing 
requirements in the Baghdad mission. Can you describe how this is 
going?

    Answer. As of March 31, 2006, 34 percent of USAID-Iraq positions 
are currently unfilled (97 of 288 positions). This is a temporary gap 
as USAID-Iraq reorganizes to meet the goals in the President's National 
Strategy for Victory in Iraq.
    As part of this transition, USAID is demobilizing select personnel, 
and will be hiring personnel with different skill sets, including staff 
for Provincial Reconstruction Teams (PRTs)--a high priority. During the 
transition, USAID-Iraq has requested 13 short-term or medium-term USAID 
employees to help fill immediate needs.
    USAID-Iraq is undergoing a strategy shift--closing out of a number 
of programs and projects such as the Office of Transition Initiatives 
(OTI), infrastructure, health, and education--creating staff vacancies, 
while other programs are just beginning to start up--for example PRTs 
and National Capacity Development, which eventually will then take 
those onboard positions.
    The new staffing plan calls for 265 total positions, down from 288. 
USAID is planning to bring 36 people on board in the 3rd quarter of 
2006, and an additional 36 in the 4th quarter. Eleven positions are 
being expedited through personal services contracts, and 20 additional 
positions are being publicly advertised. On this timetable, we will be 
at 86 percent of our goal by June 30 and 99 percent by September 30.
    USAID is accelerating the hiring process, particularly for 
technical offices, and plans to have at least one person in each of the 
PRTs by the end of June 2006.

    Question. Will USAID reassume the roles that the Army Corps of 
Engineers (PCO) and the Department of State (IRMO) have been executing 
since the Coalition Provisional Authority? When?

    Answer. USAID does not plan to assume the roles played by the Army 
Corps of Engineers or the Project Contracting Office (PCO). USAID will 
continue to implement programs in which it has unique expertise and for 
which funding is provided. These will include focused stabilization, 
good governance, and economic growth. These are areas in which the Army 
Corps of Engineers and the PCO have not been engaged in the past. IRMO 
is a U.S. Department of State interagency coordinating mechanism, and 
USAID has no plans to assume this role in Iraq.

    Question. The ICAP program has, by your own accounts, achieved 
excellent successes in areas that have not seen a great deal of 
attention. At what level do you intend to fund this beyond the current 
cycle?

    Answer. In this fiscal year, USAID has approximately $17 million to 
continue the Iraq Community Action Program (CAP). The program is 
expected to close this July, but USAID will conduct an extensive review 
and look at the lessons learned and best practices of the program to 
help shape future CAP or related initiatives, should funding come 
available.

    Question. An ``Assessment of Key Ministries'' chart that USAID-
Baghdad produced as part of a National Capacity Development briefing, 
shows 11 Ministries scoring rather poorly, and some getting worse in 
various capacity categories. What prospect for change do you anticipate 
with the installation of the ``permanent'' government? Are they 
receptive to the help we and the international community have to offer? 
I note that two key Ministries--Interior & Defense--are not on the 
list, presumably because they are under DOD purview. How would you rate 
their capacity?

    Answer. Indications received from individuals in the current 
government and those expected to play a role in the recently elected 
government have expressed support for the planned efforts by the USG 
and other donors in improving the operational effectiveness of the new 
government. Existing Ministers have shown support by providing staff 
for the Ministerial Assessment Teams which will be established for each 
of the 11 ministries.
    The Department of Defense has the responsibility for the Interior 
and Defense Ministries. I am not in a position to comment on the 
current state of these Ministries.
                                 ______
                                 

Responses of Special Inspector General Stuart Bowen, Jr., to Questions 
               Submitted by Senator Joseph R. Biden, Jr.

    Earlier this month, Robert Stein, a former CPA employee, pleaded 
guilty to conspiracy, bribery, money laundering, and illegal weapons 
charges. Incomprehensibly, Mr. Stein had been appointed to head up 
regional contracting efforts despite a prior federal fraud conviction. 
Your audits have conclusively shown, though, that the problems in the 
South Central Regional Office went far beyond the corruption of Mr. 
Stein.

    Question. In your view, how representative are these examples of 
our overall managing of the Iraqi reconstruction efforts?

    Answer. The problems in the South Central Regional Office were 
predominantly due to the large quantities of funds entrusted to a few 
individuals operating out of that office (almost $120 million) and the 
concomitant breakdown in virtually all cash controls. Moreover, much of 
this criminal activity took place prior to the appointment of an 
inspector general for the CPA.
    However, better oversight and safeguards were implemented with the 
Iraq Relief and Reconstruction Fund. SIGIR audits, investigations, and 
inspections indicate at this time fewer instances of waste, fraud, and 
abuse with IRRF moneys as a result of these oversight changes and 
safeguards. Of SIGIR's ongoing criminal investigations, 77 percent of 
them are historic in nature and relate to the Development Fund for 
Iraq.

    Question. Was this the norm or an aberration?

    Answer. Due to a lack of safeguards and early oversight, 
significant opportunities existed for the improper handling of DFI 
moneys. Of SIGIR's ongoing criminal investigations, 77 percent of them 
are historic in nature and relate to the Development Fund for Iraq. 
Therefore, while SIGIR is still in the process of providing oversight 
to prevent, detect, and deter waste, fraud, and abuse, it appears at 
this time that there were more instances of criminal activities in the 
use of DFI moneys than with the IRRF.

    Question. Do you have any indications that such criminal corruption 
and negligence was repeated in the American management of Iraqi 
reconstruction funds elsewhere?

    Answer. SIGIR has continued concerns regarding the management of 
funds used for Iraq reconstruction efforts. The records of the 
Comptroller's office indicated that some Division Level Agents (DLAs) 
and Field Paying Agents (FPAs) in all four regions were unable to 
reconcile all funds entrusted to them. Also, the Comptroller's office 
did not know the total amount of funds entrusted to others or the 
specific individuals to whom funds had been entrusted.
    Complicating matters, even those individuals who have reconciled 
the funds entrusted to them may be suspect. For example, in spite of 
the extensive frauds committed by Mr. Stein, he cleared his accounts 
with the Comptroller's office.

    Question. Have you encountered abuse on the scale that you found in 
your Hillah audits of American reconstruction resources elsewhere?

    Answer. At this time, the levels of waste, fraud, and abuse in 
Hillah have not been seen elsewhere. However, SIGIR has 57 
investigations, 30 audits, and 25 inspections in process. As a result 
of the recommendations in SIGIR's audit report on Hillah, the 
Comptroller's office is identifying, reviewing, and reconciling all 
funds that were entrusted to Division Level Agents and Field Paying 
Agents.
    SIGIR auditors will review and verify the work performed by the 
Comptroller's office to ensure proper accounting for all funds.

    Question. As you begin to focus on American taxpayer-funded 
efforts, do you expect to find abuses of this scale?

    Answer. SIGIR audits, investigations, and inspections indicate at 
this time fewer instances of waste, fraud, and abuse as a result of 
better oversight and safeguards implemented with the Iraqi Relief and 
Reconstruction Fund. Of SIGIR's ongoing criminal investigations, 77 
percent of them are historic in nature and relate to the Development 
Fund for Iraq.

    Question. How many ongoing criminal investigations do you have?

    Answer. SIGIR has 57 ongoing criminal investigations.

    Question. How many of these investigations date from after June 28, 
2004, when the State Department took over for the Coalition Provisional 
Authority?

    Answer. Less than a quarter of ongoing criminal investigations date 
from the transition of authority from the Coalition Provisional 
Authority to the U.S. Department of State. In fact, of 91 total 
investigations to date, 72 involve the Development Fund for Iraq and 
not IRRF funds.
                                 ______
                                 

Responses of Ambassador James Jeffrey to Questions Submitted by Senator 
                          Joseph R. Biden, Jr.

    Question. In his written testimony, Inspector General Bowen raises 
a number of important questions:

   Do all of the U.S. reconstruction implementing agencies in 
        Iraq have strategic plans in place for transitioning their 
        respective parts of the reconstruction program?
   Are there sufficient resources to support capacity 
        development for national and local government officials, 
        operations and maintenance, infrastructure security?
   Have Iraqi officials sufficiently budgeted and planned for 
        the essential maintenance of the new, U.S.-provided 
        infrastructure?
   Is the United States prepared to sustain the reconstruction 
        presence required to complete planned projects that may take 
        another 3 or 4 years to complete?

    Could you please address Mr. Bowen's questions?

    Answer. In response to the first question, the Iraq Reconstruction 
Management Office (IRMO) in the Embassy coordinates all aspects of our 
reconstruction effort, including overseeing all projects funded by the 
Iraq Relief and Reconstruction Fund (IRRF). IRMO has worked closely 
with other Embassy-Baghdad offices, MNF-I and Washington agencies in 
developing the U.S. strategy for transition in Iraq in support of the 
President's Strategy for Victory in Iraq. As part of its oversight 
function, IRMO is carefully managing the transition of each of the IRRF 
implementing agencies.
    In response to the second question, we have requested $125 million 
in the FY 2006 supplemental and $25 million in FY 2007 to improve the 
ability of national Ministries to carry out core functions like 
budgeting and personnel management. Included in these funds are 
programs to upgrade the ability of Iraqi training institutions, and 
programs to improve the capacity of the Central Bank of Iraq and the 
Ministry of Finance to manage the national accounts. This effort at the 
national level complements our efforts to improve the capacity of local 
governments through the $165 million requested in the FY 2006 
supplemental. We have made a similar request to address operations and 
maintenance issues, requesting $355 million in the FY 2006 supplemental 
and $154 million in FY 2007 to maintain U.S.-funded essential service 
projects we are completing. We have also requested $287 million in the 
FY 2006 supplemental to improve the security of critical oil and 
electricity infrastructure to reduce the ability of insurgents to 
damage them.
    In response to the third question, we agree with SIGIR that it is 
important to maintain the projects funded by U.S. assistance to ensure 
that they benefit the Iraqi people and support Iraq's transition to 
self-reliance. Under the existing IRRF, we have already designed a 
program to procure critical spare parts and train plant management 
officials in the skills needed to carry out a routine maintenance 
program. We recognize that, to succeed over the long run, we need to 
improve the management of Iraq's delivery of essential services. That 
is why we requested the above-mentioned $355 million in the FY 2006 
supplemental and $154 million in the FY 2007 foreign assistance budget 
for Iraq to continue working with Iraqi plant managers and local 
Ministry officials to ensure that U.S.-funded essential service 
projects in sectors like oil, electricity, and water will be 
maintained. As the capacity of Iraqi officials increases, we expect 
Iraq to assume greater responsibility for maintaining these projects, 
culminating in complete responsibility by the end of FY 2007. We are 
helping Iraqi Ministries craft effective, well thought-out transition 
plans.
    In response to the fourth question, we have already completed many 
of the large infrastructure projects under Iraq Relief and 
Reconstruction Fund, and expect that most will be completed by the end 
of 2006. All projects will be complete, and the entire $18.4 billion 
under IRRF II will be disbursed, by September 30, 2007. As IRRF sector 
programs wind down, we will reduce our project management staffing in 
Baghdad, though we expect to retain a sizable aid mission to support 
Iraq in the years ahead.

    Question. In your oral testimony, Ambassador Jeffrey, you concurred 
with both Joseph Christoff and Stuart Bowen that the total cost for 
reconstructing Iraq's infrastructure would be higher than the $56 
billion that the World Bank estimated in 2003.
    What is your best estimate for what this cost would be today? How 
much of this shortfall do you expect the Iraqi Government to be able to 
supply, given its budgetary problems, its sovereign debts, and its 
ongoing reparations?

    Answer. The total reconstruction cost is higher than the World 
Bank's 2003 estimate largely because Iraq's infrastructure was far more 
damaged and decrepit from years of neglect than we, the World Bank, and 
others first thought. As reconstruction has progressed, the security 
environment and, to a lesser extent, inflation in the cost of raw 
materials have also resulted in higher costs.
    The U.S. Government has not developed an independent estimate of 
total infrastructure reconstruction costs. We are working with the 
Iraqi Government, international financial institutions, and other 
donors to refine and further develop an international estimate with 
full Iraqi input.
    The Government of Iraq is making progress in its ability to take 
the lead on rebuilding. Already, by 2006, Iraq's government budget is a 
major source of funds for Iraq's reconstruction. Anticipated increases 
in oil production and exports will help provide Iraq the wherewithal to 
pay for its own future economic development.
    On debt, Iraq has accomplished much since it negotiated a historic 
80-percent reduction of Iraq's debt to Paris Club creditors in November 
2004. It has formalized agreements with 15 of 18 Paris Club creditors, 
with the remaining to be concluded shortly, and reached a stand-by 
arrangement with the IMF in December 2005. Iraq has also secured debt 
relief of a large percent of its commercially held debt.
    On the budget, Iraq has committed to undertake subsidy reform in 
its IMF Stand-By Arrangement as a critical step toward rationalizing 
the national budget. While we cannot predict the specific policies of 
the new government not yet in place, we are emphasizing to Iraqi 
officials the need to adhere to IMF commitments and to further pursue 
subsidy reduction. Meanwhile, Iraq has set aside $6 billion in its FY 
2006 budget for infrastructure projects, which we believe will pick up 
where IRRF will leave off.
    In any case, Iraq's needs continue to be enormous. The new Iraqi 
Government will define its national reconstruction goals and will have 
full responsibility for utilizing Iraq's natural resources, 
coordinating international assistance, servicing national debts, and 
managing its budget. The USG will do its part to assist the Iraqis in 
this process and is actively engaged with other donors to do so as 
well.

    Question. Inspector Bowen spoke at Wednesday's hearing of a 
``reconstruction gap,'' whereby hundreds of projects in critical 
sectors will go unfinished both because of the rising security costs 
for contractors doing the work and because of the reprogramming that 
has shifted resources to the training of Iraqi security forces, but 
away from other sectors.
    How will the U.S. Government make up this ``reconstruction gap?'' 
When will Iraq need a new infusion of assistance?

    Answer. We welcome the oversight provided by the Special Inspector 
General for Iraq Reconstruction (SIGIR). Our overarching goals remain 
as initially planned in 2003: Giving strategic elements there a ``jump 
start'' until third country donors, private investors, and the Iraqis 
themselves could take the lead.
    There are a variety of reasons for the change in the program 
specifics which we did make. Iraq's infrastructure turned out to be 
much more dilapidated than we first thought. Successive Iraqi 
Governments have suggested changes in programs, which led us to switch 
to smaller, faster projects in water and health, for example. Over 
time, we have shifted funds from some IRRF sectors to security and 
democracy programs to match changing circumstances on the ground, 
specifically an upsurge in insurgent attacks in 2004. We have made very 
good use of the additional money in security, which has helped stand up 
an increasingly effective Iraqi Security Force structure. Some 
projects, as SIGIR points out, require higher security costs than 
initially estimated at a time of very low insurgent attacks. This also 
impacted our specific projects.
    In designing the IRRF II program, initially of approximately $15 
billion for civilian reconstruction (not counting the initial security 
forces component of $3 billion placed in the IRRF legislation), the 
United States was aware that it could not ``rebuild'' Iraq's 
infrastructure, which had been run down by decades of mismanagement, 
war, and tyranny. In fact, the World Bank estimated in 2003 that the 
total infrastructure requirement for Iraq was at least $56 billion. 
Rather, the U.S. intent was to focus on getting the oil sector--the 
source of almost all of GDP--back on its feet, as well as jump starting 
government capacity, democracy programs, essential services, and other 
core components of the economy at a time when other international 
donors, private investors, and the Iraqis themselves, could not 
mobilize. We believe that despite the shift in allocations, the IRRF II 
program will accomplish this objective, paving the way for, and serving 
as an example to, the international community and Iraqis themselves to 
take over the infrastructure mission.
    Meanwhile Iraq's needs in the political, governmental, and economic 
capacity-building areas continue to be enormous. We have sketched out 
our priorities in these areas to complete transition to a secure and 
prosperous Iraq in our FY 2006 supplemental and FY 2007 budget 
proposals which better equip Iraqis to meet their own needs.

    Question. In your testimony you said, ``by and large, despite many 
reverses and problems, we have achieved many of our goals.'' The 
Coalition Provisional Authority set goals of 3.0 million barrels of 
crude oil production per day by December 2004, 6,000 megawatts of peak 
electricity by the summer of 2004, and 90 percent potable water access.
    By what date do you expect the entire $18.4 billion to be expended? 
When the $18.4 billion has been expended, what goals do you expect to 
be met and which won't? Are the initial goals of the Coalition 
Provisional Authority still operative?

    Answer. We expect the entire $18.4 billion in the second Iraq 
Relief and Reconstruction Fund (IRRF II) to be fully obligated by 
September 30, 2006, as required by Public Law 108-106. We anticipate 
that almost all of the funds will be disbursed by the end of 2007. As 
of February 8, 2006, approximately $15.6 billion of IRRF II has been 
obligated and $10.7 billion disbursed.
    As I stated in my testimony, the USG has provided critical 
assistance to help Iraq achieve many important goals. Two elections 
were successfully held in 2005, a new Constitution has been ratified, 
and a permanent Iraqi Government is being formed. In addition, the 
Iraqi dinar is stable, Iraq's debt burden has been substantially 
reduced, and the private sector is thriving in many areas, such as 
consumer goods and telecommunications. Finally, USG reconstruction 
projects have provided critical funding to reopen airports and ports, 
provide communications capabilities for the Iraqi Government, 
rehabilitate or build water and sewage treatment plants, repair 
powerplants and oil infrastructure, and build government and civil 
society capacity at both the national and local level.
    However, the early CPA reconstruction goals required change with 
time and different circumstances on the ground. Iraq's infrastructure 
turned out to be much more decrepit than we, the World Bank, and others 
first thought. The security situation was much worse, and imposed much 
greater costs on our reconstruction efforts, than anticipated. More 
broadly, static goals set in early in the reconstruction effort, when 
information was significantly incomplete, miss one main point of the 
reconstruction program, which is to help Iraq develop its own goals.
    Successive Iraqi Governments have suggested changes in programs, 
which led us to switch to smaller, faster projects in water and health, 
for example. Over time, we have shifted funds from some IRRF sectors to 
security and democracy programs to match changing circumstances on the 
ground. We have made very good use of the additional money in security, 
which has helped stand up an increasingly effective Iraqi Security 
Force structure. We will continue to adapt our assistance to meet Iraqi 
needs, and have adjusted the goals originally set by CPA in 2003, given 
the vastly different security and economic environment that we face. 
For example, we now hope to have the IRRF program, along with Iraqi 
efforts, achieve peak electrical generation of 5,500 MW or more by the 
end of 2006 or early 2007, and have oil production climb to 2.8 million 
barrels/day by that same time. These tentative targets depend upon 
executing the current IRRF program as planned, obtaining certain 
additional funding for infrastructure generation and maintenance, as 
well as infrastructure hardening, in the FY 2006 supplemental and FY 
2007 budgets, and upon the state of the insurgency.

    Question. The most recent reporting from the Department of Defense 
lists 227,300 forces in the Iraqi security forces. The most recent 
quarterly update to Congress on the reconstruction notes that these 
forces ``are increasingly taking the lead in performing independent 
combat operations.''

   How do these units break down in terms of level I, level II, 
        level III, and level IV preparedness?
   How many of these forces can be considered fully trained and 
        fully equipped?
   How would you evaluate the command and control capacity of 
        the Iraqi army and police?
   Please describe the plan for embedding officers with Iraqi 
        police officers?
   In your view, does Iraq require gendarme capability to 
        defeat the insurgency? Does the United States have an expertise 
        in developing such capabilities? Which countries have expertise 
        in this area and what have we done to involve them in training 
        gendarme forces?

    Answer. The Iraqi Government and its coalition partners continue to 
develop the Iraqi Security Forces (ISF) and mark progress toward the 
goal of Iraqi self-reliance. As of January 23 there are 53 Ministry of 
Defense and 10 Ministry of Interior units ``in the lead,'' which means 
that they meet the level I or level II measures of preparedness, which 
you mention. Specific details of unit level readiness are updated 
weekly in the Defense Department's classified Iraqi Security Forces 
Update, but we cannot provide the specifics in unclassified 
communications.
    The training and equipping of these forces is an ongoing process 
requiring graduated levels of instruction and outfitting. The basic 
training and equipping of army combat battalions will be substantially 
complete this year. Police will require more time, as will Iraqi army 
combat support and combat service support units (i.e., the ``tail'' of 
the force). Eventual equipping of Iraqi army, as well as naval and air 
force elements with heavy weapons for the conventional (as opposed to 
counterinsurgency) role, will also take time. In terms of combat 
battalions in the counterinsurgency fight, those units ``in the lead'' 
category are essentially fully equipped and have completed training. 
What keeps those at level II from advancing to level I 
(``independent'') is usually a combination of combat enablers 
logistical insufficiencies and subjective weaknesses in leadership, 
command/control, and the like.
    The focus of the Multi-National Security Transition Command-Iraq 
(MNSTC-I) in the ``Year of the Police'' is to advance the Iraqi police 
training through the use of field advisors and Police Transition Teams 
(PTTs). The desired end state includes Iraqi police forces loyal to the 
people of Iraq and its Constitution and committed to human rights and 
the rule of law. More than 500 International Police Liaison Officers 
(IPLOs) are deployed in Iraq. IPLOs advise, train, assess, and mentor 
the Iraq Police Service (IPS) from the provisional headquarters to the 
local police districts. The IPLOs also mentor police district and 
station commander management practices and through hands-on 
interventions advance police effectiveness at the operational level. 
DOD recently augmented this with direct deployment of PTTs. The Iraqi 
Reconstruction and Management Office (IRMO) recently placed MOI and MOD 
ministerial teams under the operational control of MNSTC-I to improve 
command and control and management of the ISF, and to develop the 
institutional capacity of both the MOI and MOD, including for 
administration and logistics. This will enable an integrated and 
synchronized effort on all aspects of military and police development 
from the individual soldier or policeman to the Minister.
    The MOI employs a gendarme-like capability to meet the more 
challenging security requirements of Iraq. The Iraqi National Police, 
(formerly the Special Police--Public Order Battalions, Mechanized 
Battalions, Special Police Commandos, and the Emergency Response Unit) 
are trained and equipped to operate as cohesive units and have the 
capability to deploy throughout the country similar to that of a 
gendarme force. The Italian Carabinieci are training Iraqi Police in-
theater, however, they do not conduct specific gendarme instruction. 
MNSTC-I is currently reviewing the possibilities of the Italians 
conducting gendarme training in the future. To avoid having patchwork 
units of personnel trained in different tactical concepts, our focus 
has been on in-country training based on common operating procedures 
and protocols.

    Question. At the October 2003 Madrid Conference, international 
donors pledged more than $13 billion of reconstruction assistance to 
Iraq. But as of last December, less than a quarter of these funds had 
been disbursed.

   Why have international donors been so slow to make good on 
        their promises? What is the administration doing to encourage 
        the donors to hasten their support of Iraq reconstruction?
   Are there any countries that stand out for their willingness 
        to contribute to the international donors' funds?
   How are international and American reconstruction efforts 
        being coordinated?

    Answer. As of end January 2006, over $3.3 billion of the $13.5 
billion pledged by non-U.S. donors at Madrid over 2004-2007 had been 
disbursed. This comprises the bulk of the grant assistance pledged at 
Madrid. Most of the outstanding pledges are for loans, which take 
longer to negotiate and implement. Japan, for instance, has disbursed 
$1.5 billion in grants, but is still finalizing $3.5 billion in 
concessional loans. Additionally, several donors have been waiting for 
a permanent Iraqi Government with which to negotiate the loans.
    The United States is in regular contact with international donors 
through official travel to capitals, regular meetings in Washington and 
international conference calls, encouraging donors to quicken the pace 
of aid for Iraq reconstruction. There have been four conferences since 
the October 2003 Madrid conference of the International Reconstruction 
Fund Facility for Iraq (IRFFI), plus a large conference cosponsored by 
the European Union and the United States in Brussels in June 2005 to 
demonstrate support for Iraqi political and economic development.
    Japan has pledged more assistance to Iraq than any other country 
save the United States. By mid-2005, Japan had entirely disbursed the 
$1.5 billion of grant aid pledged at Madrid. Japan is currently 
finalizing with Iraq the first projects to be implemented under its 
$3.5 billion concessional loan program, and plans to being implementing 
them in March 2006.
    At Madrid, the United Kingdom pledged $452 million for Iraq 
reconstruction through 2006, in addition to its previously announced 
humanitarian assistance and its contribution to European Commission 
assistance. As of December 2005, the United Kingdom had disbursed about 
$300 million of its pledge.
    The European Commission also deserves special notice, having 
pledged 200 million euros (about $235 million) at Madrid for 2004, and 
another 200 million euros each for 2005 and 2006, for a total of about 
$700 million. The 2004 and 2005 amounts have been fully disbursed. 
Other large contributors include Canada which pledged $187 million at 
Madrid.
    As of January 2006, total disbursements from the U.N. and World 
Bank-administered IRFFI trust funds totaled $471.6 million. In 
addition, the World Bank Board, on November 29, approved the first loan 
under a $500 million concessional loan facility to Iraq. This loan, the 
World Bank's first to Iraq in 30 years, is a $90 million education 
project, to help alleviate school overcrowding and lay the groundwork 
for educational reform. In December, the IMF agreed to a stand-by 
arrangement (SBA) with Iraq that makes $685 million available for 
balance of payments support.

    Question. The most recent 2007 quarterly congressional report on 
the Iraq reconstruction introduces a new program, the Ministerial 
Assistance Teams, which ``will work with key Ministries and provide a 
baseline assessment of each of the Ministries' abilities to perform 
basic core functions.'' While I applaud this program, I am also puzzled 
that we are only undertaking such a study now, almost 3 years after the 
fall of the Saddam Hussein regime.

   Why has it taken 3 years to begin a baseline assessment of 
        the Ministries' abilities to perform basic core functions?
   How long do you expect the baseline assessment to take? How 
        long do you then expect it to take to complete the Ministry-
        specific development plans?
   At this point, with a constitutionally elected Parliament in 
        place and a government forming and most of our reconstruction 
        funding already obligated, how much leverage do we have in 
        building up the Iraqi Ministries?
   According to your preliminary assessments, which Ministries 
        do you assess to be relatively more functional? Which are 
        lagging behind? What do you base these assessments on?

    Answer. As background, we note that increasing the capacity of 
Iraq's national-level Ministries and local government bodies is a 
critical part of our strategy to support Iraq's transition. First the 
Coalition Provisional Authority and then the U.S. Embassy, in a move 
not undertaken in many decades, deployed hundreds of U.S. Government 
officials as ministerial advisors, complemented by government officials 
from other coalition countries. Nevertheless, Iraqis ultimately must 
take responsibility for government performance. In fact, tens of 
thousands of Iraqi officials, at great personal risk and sacrifice, are 
at present doing a remarkable job of keeping the Iraqi Government 
functioning and delivering core services despite the devastation of 
decades of Saddam, and an insurgency targeting the Iraqi 
administration.
    In response to your first question, the U.S. Government performed 
baseline assessments of key Ministries in late 2004 (during the Iraqi 
Interim Government) using input from the Iraq Reconstruction Management 
Office senior advisor for each Ministry. Embassy Baghdad has conducted 
periodic assessments since then to chart each Ministry's progress.
    We have worked closely with the Iraqi Transitional Government (the 
third government in 3 years) to develop a formal initiative to improve 
the capacity of national-level Ministries and the Prime Minister's 
office. Embassy officials are working closely with their Iraqi 
counterparts in newly created joint Ministerial Assistance Teams to 
identify specific needs in six core function areas to include 
leadership, strategic planning and policy development, fiscal 
management, personnel management, information technology, and technical 
skills. This phase should be completed soon. Each Ministerial 
Assistance Team will then support the development of ministerial action 
plans in coming months that are tailored to specifics needs and 
priorities in each Ministry.
    Overall Ministry assessments range from ``very little capability'' 
to perform functions to ``developing capability'' and making 
substantive efforts. The majority of the key Ministries are making 
progress toward developing capability in core functions. The Ministry 
of Finance is noted for good capability in the functional areas of 
leadership, strategic planning/policy, and partnerships with other 
Ministries and international organizations. Assessments for both the 
Ministry of Planning and Development and the Ministry of Water 
Resources show well-developed leadership and effectiveness of policies 
and service delivery. For those Ministries judged to have essentially 
no capability in certain functional areas, training is being targeted 
to remedy these deficiencies.
    The World Bank has also been working to expand Iraqi Ministry 
capacity over the last 2 years through two targeted programs worth 
$10.6 million. In addition, the World Bank-administered International 
Trust Fund runs its project procurement through Iraqi Ministries, 
thereby increasing ministerial capacity. Other donors have also 
expressed interest in working with the Iraqi Government to address 
specific needs. We expect our efforts, along with those of our 
partners, will lead to further progress toward building core functions 
within these key Ministries.
    We also expect the new government's installation will lead to 
building core functions within these key Ministries by providing a 
longer term, more stable political environment which will be more 
conducive to implementing these technical assistance programs. We hope 
that other donors will also be encouraged by the prospect of working 
with the same leadership for a sustained period, which should improve 
our ability to coordinate our assistance with international donors and 
NGOs.

    Question. In March 2003, Iraq's prewar oil capacity was 2.5 million 
barrels per day. Ambassador Bremer, in his testimony before this 
committee on September 24, 2003, told us he hoped oil production would 
be at 3 million barrels per day by October 2004. Unfortunately, though, 
in 2005 Iraqi oil production averaged only 2.1 million barrels per day. 
Last week, Iraq averaged less than 1.5 million barrels per day. 
According to GAO reporting, more than $5 billion in U.S. and Iraqi 
funds has been made available to developing Iraq's crude oil 
production, refining, and transportation industries.

   What is the strategy for increasing Iraqi oil production?
   What explains the continuing problems in upgrading Iraq's 
        oil infrastructure--the security situation, the decrepit nature 
        of the infrastructure, poor planning and execution?
   What options does the Iraqi Government have to obtain 
        private sector financing for oil production? When do we expect 
        it to reach 3 million barrels per day?

    Answer. Iraq's oil sector has been in decline since 1979 when Iraq 
reached its peak production of 3.5 million barrels per day. Both Iraq's 
war with Iran in the 1980s and the 1990 gulf war damaged Iraq's oil 
infrastructure and diverted funds from oil sector investment to Iraq's 
war-making apparatus. The United Nations sanctions following Iraq's 
invasion of Kuwait largely prevented, for good reason, major new 
investments in the oil sector throughout the 1990s. In the absence of 
necessary capital investment and proper maintenance, Iraq's oil 
infrastructure deteriorated badly. By 2002, the annual crude oil 
production had fallen to an annual average of 2 million barrels per 
day. While Iraqi production reached 2.58 million barrels for a few days 
in February 2003, just before Operation Iraqi Freedom, this did not 
represent a sustained production level.
    Oil production and exports resumed in the second half of 2003. 
Based largely on U.S. efforts using Iraqi funds (the Development Fund 
for Iraq) and $1.7 billion in U.S. funds (the Iraq Relief and 
Reconstruction Fund, IRRF), average production was raised to 2.1 
million barrels per day and average exports to approximately 1.5 
million barrels per day for 2004 and most of 2005. Production and 
exports dipped in the last 2 months of 2005 and the first 2 months of 
2006.
    There are two main reasons for our inability to quickly increase 
oil production and exports well above immediate prewar levels, and for 
the recent declines. First, the lack of investment under the previous 
regime left the oil sector in a dilapidated state, from which it will 
take significant new investment to increase production significantly. 
Second, the system's dilapidated state makes it vulnerable to a range 
of factors, most notably insurgent attacks. Such attacks on the long, 
vulnerable northern export pipeline have shut down capacity of moving 
400,000 barrels per day. Equipment failures and rough winter weather at 
Iraq's southern loading terminal also have reduced production and 
exports. While Iraq has benefited from higher oil prices, the 
deterioration of its refining sector has made Iraq dependent on 
increasingly costly fuel imports, especially to meet demand since 
liberation as Iraqis have bought cars and generators in record numbers.
    The USG has developed a program to increase Iraq's capacity to 
produce and export crude oil. Current IRRF projects should be completed 
by the end of 2006, and will increase oil production capacity to an 
estimated 2.8 million barrels per day by a combination of drilling new 
wells in small fields and restoring pressure in large fields. 
International Energy Agency projections are similar. We are also 
improving Iraq's export infrastructure.
    Concerning Iraq's options for obtaining private sector financing, 
this will require some legal changes. Under CPA Order No. 39 on Foreign 
Investment and CPA Order 64, which amended the Companies Law No. 21 of 
1997, which are still in effect, foreigners can now own 100 percent of 
an Iraqi company and manage it exclusively--with the exception of the 
natural resource sector, including oil extraction and processing. Iraq 
needs to pass legislation that will enable and attract foreign 
investment to this sector.
                                 ______
                                 

Responses of USAID Assistant Administrator James R. Kunder to Questions 
               Submitted by Senator Joseph R. Biden, Jr.

    Question. In his written testimony, Inspector General Bowen raises 
a number of important questions:

          (1) Do all of the U.S. reconstruction implementing agencies 
        in Iraq have strategic plans in place for transitioning their 
        respective parts of the reconstruction program?
          (2) Are there sufficient resources to support capacity 
        development for national and local government officials, 
        operations and maintenance, infrastructure security?
          (3) Have Iraqi officials sufficiently budgeted and planned 
        for the essential maintenance of the new, U.S.-provided 
        infrastructure?
          (4) Is the United States prepared to sustain the 
        reconstruction presence required to complete planned projects 
        that may take another 3 or 4 years to complete?

    Could you please address Mr. Bowen's questions?

    Answer. I will answer your questions in order:
    (1) Speaking only for USAID, a part of all our infrastructure 
reconstruction activities has been training of Iraqi staff in the 
operations and maintenance of equipment that has either been 
rehabilitated or constructed by our implementing partners.
    (2) The estimated costs of the Capacity Development program are 
based on USAID experience with similar programs in other countries and 
adjusted to the conditions found in Iraq. The current funding request 
for FY 2006 is $150 million ($25 million in reprogrammed Iraq Relief 
and Reconstruction Funds and $125 million in the FY 2006 supplemental 
request pending in Congress) and the request for FY 2007 is $25 
million. These funds will support capacity development in the Iraqi 
Government by transforming and upgrading Iraqi institutes for public 
administration and improving the capacities of approximately 10 key 
Ministries to efficiently carry out their respective designated 
responsibilities. This program will also continue the work already 
underway to improve the functioning of the Central Bank of Iraq and the 
Ministry of Finance. As we engage the Ministries in the coming year, we 
will gain a better sense of the overall needs. We expect other donors 
will participate in this effort as well. The Departments of Defense and 
State are working closely with the Iraqi Government to address 
infrastructure security.
    (3) The Iraqi Government prepares operating and maintenance budgets 
for all infrastructure, including that provided by the U.S. Government 
(USG). It is difficult to determine the sufficiency of these budgets 
and the degree to which they will be funded. I am aware that the 
Project and Contracting Office (PCO), which has primary responsibility 
for infrastructure projects, is working closely with the Iraqi 
Government on this issue.
    (4) Speaking only for USAID, it is expected that all our 
infrastructure reconstruction projects will be completed and turned 
over to the respective Iraqi Ministries by the end of calendar year 
2006.

    Question. Joseph Christoff and Stuart Bowen agreed in their 
testimony that the total cost for reconstructing Iraq's infrastructure 
will be higher than the $56 billion that the World Bank estimated in 
2003.
    Do you agree with their assessment? What is your best estimate for 
what this cost would be today? How much of this shortfall do you expect 
the Iraqi Government to be able to supply given its budgetary problems, 
its sovereign debts, and its reparations?

    Answer. Neither the USG nor the World Bank has attempted to revisit 
this estimate prepared in the summer of 2003. Earlier estimates made by 
USAID had assumed that the donor (including USG) activities would be 
limited to reconstruction of damaged facilities and not the 
construction of new facilities. The referenced World Bank estimate was 
based on an abbreviated assessment of infrastructure conditions, with 
few or any field visits outside Baghdad. A significant portion of 
USAID's work in Iraq seeks to enhance Iraqi government budgetary 
performance and address indebtedness issues.

    Question. Inspector Bowen spoke at Wednesday's hearing of a 
``reconstruction gap,'' whereby hundreds of projects in critical 
sectors will go unfinished both because of the rising security costs 
for contractors doing the work and because of the reprogramming that 
has shifted resources to the training of Iraqi security forces, but 
away from other sectors.
    How will the U.S. Government make up this ``reconstruction gap''? 
When will Iraq need a new infusion of assistance?

    Answer. Speaking only for USAID, none of our projects will go 
unfinished. During the 3 years that USAID has been engaged in Iraq, 
there have been a number of instances in which projects planned, or 
underway, were cancelled at the direction of the Iraq Reconstruction 
Management Office in light of changing priorities. However, none of the 
projects for which USAID, has maintained responsibility will be left 
unfinished when the USAID infrastructure contractor demobilizes at the 
end of calendar year 2006. In addition, much of USAID's work is 
targeted at increasing the Iraqi Government's capacity to meet 
reconstruction needs, which are likely to exceed funds provided by the 
international donor community.
                                 ______
                                 

Response of Ambassador James Jeffrey to a Question Submitted by Senator 
                              Bill Nelson

    Question. Iraq has the world's second largest oil reserves and 
significant natural gas reserves. Due to the lack of exploration in 
decades, Iraq may have much more than currently estimated. According to 
the most recent SIGIR report, Iraq's peak production prior to the 
Kuwait invasion in 1990 was 3.7 million barrels per day (MBPD) and 
prior to the 2003 invasion it was 2.58 MBPD. The Gulf Region Division-
Project and Contracting Office reported that Iraq is only producing 2.0 
MBPD despite a capacity of 2.5 MBPD.
    According to CRS, if Iraqi oil production returned to 1990 levels 
at $50 per barrel it would yield $64 billion per year in revenues from 
oil production alone. Given that the Iraqi Government budget is $28 
billion, these excess revenues could prove critical to supporting 
stabilization and growth of their entire economy. The American taxpayer 
has spent over $300 billion to liberate the Iraqi people and rebuild 
their country. No doubt we will contribute more in the coming years. 
What is the administration's plan to offset the cost of the war to the 
American taxpayer with Iraqi oil revenues?

    Answer. Iraq's oil sector has been in decline since 1979 when Iraq 
reached its peak production of 3.5 million barrels per day (MBPD). Both 
Iraq's war with Iran and the 1991 gulf war caused damage to Iraq's oil 
infrastructure and diversion of funds from oil sector investment to 
Iraq's war-making apparatus. The United Nations sanctions following 
Iraq's invasion of Kuwait had the effect of preventing major 
investments in the oil sector through the 1990s. In the absence of 
necessary capital investment and proper maintenance, Iraq's oil 
infrastructure deteriorated badly. By 2002, the annual crude oil 
production had fallen to an annual average of 2 MBPD. While Iraqi 
production reached 2.58 MBPD for a few days in February 2003, just 
before Operation Iraqi Freedom, this did not represent a sustained 
production level.
    Oil production and exports resumed in the second half of 2003, and, 
based largely on U.S. efforts and IRRF funding of $1.7 billion, average 
production was raised to 2.1 MBPD and average exports to approximately 
1.5 MBPD for 2004 and most of 2005. Production and exports dipped in 
the last 2 months of 2005 and the first 2 months of 2006.
    There are two main reasons for our inability to quickly increase 
oil production and exports well above immediate prewar levels, and for 
the recent declines. First, the lack of investment under the previous 
regime left the oil sector in a dilapidated state, from which it will 
take major new investment to increase production significantly. Second, 
the system's dilapidated state makes it vulnerable to a range of 
factors, most notably insurgent attacks. Such attacks on the long, 
vulnerable northern export pipeline have essentially shut down that 
capacity capable of moving 400,000 b/d. Equipment failures and even 
rough weather at Iraq's southern loading terminal have reduced 
production and exports. While Iraq has benefited from higher oil 
prices, the deterioration of its refining sector has made Iraq 
dependent on increasingly costly fuel imports, especially to meet 
demand since liberation as Iraqis have bought cars and generators in 
record numbers.
    The USG has developed a program to increase Iraq's capacity to 
produce and export crude oil. Current IRRF projects scheduled for 
completion by the end of 2006 will increase oil production capacity to 
an estimated 2.8 million b/d by a combination of drilling new wells in 
small fields and restoring pressure in large fields. International 
Energy Agency (IEA) projections are similar, estimating average annual 
Iraqi production at 3.15 MBPD by 2010. We are also improving Iraq's 
export infrastructure.
    It is true that now, 2 years after Saddam's ouster, Iraq is still 
struggling to redress decades of neglect in essential services like 
health, education, electricity, water, and oil, and that the country 
currently is dependent on assistance from the United States and other 
donors. However, already in 2006 Iraq's own government budget is a 
major source of funds for Iraq's reconstruction. Anticipated increases 
in oil production and exports mentioned above will help provide Iraq 
the wherewithal to pay for its own future economic development.
    Our assistance programs contribute to the development of a 
democratic, prosperous, free-market-oriented Iraq at peace with itself 
and its neighbors. Such a country will be able to attract foreign 
commercial credit and investment to assist it in meeting its 
development goals. In the long term we expect American taxpayers, like 
the rest of the world, will benefit from our investment in the form of 
a more stable and democratic Middle East, increased world oil supply, 
and greater American export and investment opportunities (creating more 
American jobs).

                                  
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