Rebuilding Iraq: Enhancing Security, Measuring Program Results,  
and Maintaining Infrastructure Are Necessary to Make Significant 
and Sustainable Progress (18-OCT-05, GAO-06-179T).		 
                                                                 
The United States, along with 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 complete a constitutional	 
framework for establishing a permanent government. The United	 
States' 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. In 
this testimony, GAO discusses (1) the funding used to rebuild and
stabilize Iraq and (2) the challenges that the United States	 
faces in its rebuilding and stabilization efforts. This statement
is based on several reports GAO has issued to the Congress over  
the past three months. In July, we issued two reports on (1) the 
status of funding and reconstruction efforts in Iraq and (2) the 
use of private security providers in Iraq. We issued two	 
additional reports in September on (1) U.S. reconstruction	 
efforts in the water and sanitation sector and (2) U.S. 	 
assistance for the January 2005 Iraqi elections. Finally, we	 
expect to issue shortly a report on U.S. efforts to stabilize the
security situation in Iraq (a classified report). This statement 
includes unclassified information only. 			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-179T					        
    ACCNO:   A39719						        
  TITLE:     Rebuilding Iraq: Enhancing Security, Measuring Program   
Results, and Maintaining Infrastructure Are Necessary to Make	 
Significant and Sustainable Progress				 
     DATE:   10/18/2005 
  SUBJECT:   Critical infrastructure				 
	     Economic analysis					 
	     Federal aid to foreign countries			 
	     Federal funds					 
	     Financial analysis 				 
	     Foreign economic assistance			 
	     Foreign governments				 
	     Foreign policies					 
	     Funds management					 
	     International cooperation				 
	     International organizations			 
	     International relations				 
	     Performance measures				 
	     Security threats					 
	     Democracy-building programs			 
	     Iraq						 

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GAO-06-179T

     

     * Summary
     * Background
     * U.S. Appropriations Primarily Support Iraqi Reconstruction While Iraqi
       Funds Support Iraqi Government Operations
          * U.S. Funding Supports Rebuilding and Stabilization Efforts in
            Iraq
          * Some International Funds Have Been Provided for Reconstruction,
            but Pledges are Mostly Loans
          * Iraqi Funds Support Iraq's Government Operations
          * Iraqi Needs Greater than Originally Anticipated
     * Security, Measurement, and Sustainability Challenges in Rebuilding and
       Stabilizing Iraq
          * Strength of the Insurgency Has Made It Difficult to Transfer
            Security Responsibilities to Iraqi Forces and Engage in
            Rebuilding Efforts
               * Insurgency Intensified through Early 2005 and Remains Strong
          * Poor Security Conditions Have Delayed Transfer of Security
            Responsibilities to Iraqi Forces and Draw Down of U.S. Forces
               * Security Situation Has Affected Rebuilding Efforts
          * Limited Performance Data and Measures and Inadequate Reporting
            Present Difficulties in Determining Progress and Impact of
            Rebuilding Effort
          * Iraq's Capacity to Operate and Maintain U.S.-Funded Projects
            Presents Sustainability Problems
     * Conclusion
     * Contact and Staff Acknowledgements

                 United States Government Accountability Office

Testimony

GAO

Before the Committee on Government Reform, Subcommittee on National Security,
Emerging Threats, and International Relations; House of Representatives

For Release on Delivery Expected at 10:00 a.m. EDT Tuesday, October 18,
2005

REBUILDING IRAQ

 Enhancing Security, Measuring Program Results, and Maintaining Infrastructure
           Are Necessary to Make Significant and Sustainable Progress

Statement of Joseph A. Christoff, Director International Affairs and Trade

REBUILDING IRAQ

Enhancing Security, Measuring Program Results, and Maintaining
Infrastructure Are Necessary to Make Significant and Sustainable Progress

  What GAO Found

The United States is the primary contributor to efforts to stabilize and
rebuild Iraq. Since 2003, the United States has made available about $30
billion for activities that include the construction and repair of
infrastructure, procurement of equipment, and training and equipping of
Iraqi security forces. International donors have pledged $13.6 billion in
reconstruction funds (from 2004 through 2007), of which about $2.7 billion
was provided in multilateral and bilateral grants through August 2005.
However, most of the pledged amount-about $10 billion-is in the form of
loans on which the Iraqi government largely has not yet drawn. Iraqi funds
have primarily supported the country's operating budget, with some focus
on capital improvement projects. For 2005, Iraq planned for about $28
billion in expenditures-largely supported by oil proceeds-to fund
salaries, pensions, ministry operations, and subsidies. It is likely that
Iraq may need more funds than currently available due to the severely
degraded infrastructure, post conflict looting and sabotage, and
additional security costs.

The United States faces three key challenges in stabilizing and rebuilding
Iraq. First, the 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. The security situation in Iraq has deteriorated since June 2003,
with significant increases in attacks against the coalition and the
coalition's partners. Second, inadequate performance data and measures
make it difficult to determine the overall progress and impact of U.S.
reconstruction efforts. The United States has set broad goals for
providing essential services in Iraq, but limited performance measures
present challenges in determining the overall progress and impact of U.S.
projects. Third, the U.S. reconstruction program has encountered
difficulties with Iraq's ability to maintain new and rehabilitated
infrastructure projects and to address maintenance needs in the water,
sanitation, and electricity sectors. For example, as of June 2005,
U.S.-funded water and sanitation projects representing about $52 million
of approximately $200 million spent on completed projects were inoperable
or were operating at lower than normal capacity.

The United States has made a significant investment in the rebuilding and
stabilization of Iraq. To preserve that investment, the United States must
address these critical challenges.

                                    Summary

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the 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 complete a constitutional framework for establishing a 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 several reports that we have issued to the
Congress over the past 3 months. In July 2005, we issued two reports 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 and (2) the use of private security providers in
Iraq. We issued two additional reports in September on (1) U.S.
reconstruction efforts in the water and sanitation sector and (2) U.S.
assistance for the January 2005 Iraqi elections. Finally, we expect to
issue a report shortly on

U.S. efforts to stabilize the security situation in Iraq (a classified
report).

Based on these five reports, I will discuss (1) the funding used to
rebuild and stabilize Iraq and (2) the challenges the United States faces
in its rebuilding and stabilization efforts.

This statement includes unclassified information only and is based on
recent GAO reports. We conducted our review for these reports between
September 2004 and August 2005 in accordance with generally accepted
government auditing standards.

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 include the construction
and repair of infrastructure, procurement of equipment, and training and
equipping of Iraqi security forces. International donors have pledged
$13.6 billion in reconstruction funds (from 2004 through 2007), of which
about $2.7 billion was provided in multilateral and bilateral grants,
through August 2005. However, most of the pledged amount is in the form of
loans on which the

                                   Background

Iraqi government largely has not yet drawn. Iraqi funds, first under the
control of the Coalition Provisional Authority and then the Iraqi
government, have primarily supported the country's operating budget with
some focus on capital improvement projects. For 2005, Iraq planned for
about $28 billion in expenditures-largely supported by oil proceeds-to
fund salaries, pensions, ministry operations, and subsidies. While about
21 percent of planned expenditures are for capital investment in the oil
and gas sector, food and fuel subsidies account for nearly 40 percent of
Iraq's planned expenditures. It is likely that Iraq will need more funds
than currently available due to the severely degraded infrastructure,
post-2003 conflict looting and sabotage, and additional security costs.

The United States faces three key challenges in rebuilding and stabilizing
Iraq. First, the 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 engage in rebuilding
efforts. The security situation in Iraq 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. The United States has set broad goals for
providing essential services in Iraq, but 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. For example, as of June 2005, U.S.-funded water and sanitation
projects representing about $52 million of the approximately $200 million
in completed projects were either not operating or were operating at lower
than normal capacity.

From May 2003 through June 2004, the Coalition Provisional Authority
(CPA), led by the United States and the United Kingdom, was the
UN-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 also established
two temporary offices: (1) the Iraq Reconstruction and Management Office
to facilitate transition of reconstruction efforts to Iraq and (2) the
Project and Contracting Office (PCO) to provide acquisition and project
management support for some U.S.-funded reconstruction projects. Other
U.S. government agencies also play significant roles in the reconstruction
effort. 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 the PCO, USAID, and military forces in Iraq.

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
covers the interim government phase (from June 28, 2004, to January 30,
2005) and the transitional government phase, which is currently scheduled
to end by December 31, 2005.3 Under UN Resolution 1546, the Multi-National
Force Iraq (MNF-I) has the authority to take all necessary measures to
contribute to security and stability in Iraq during this process, working
in partnership with the Iraqi government to reach agreement on security
and policy issues. 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 MNF-I, now leads coalition
efforts to train, equip, and organize Iraqi security forces.

1The 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.

2Law of Administration for the State of Iraq for the Transitional Period,
March 2004.

3See GAO, Iraq's Transitional Law, GAO-04-746R (Washington, D.C.: May 25,
2004), for more information on key events during Iraq's transitional
period.

Page 3 GAO-06-179T

  U.S. Appropriations Primarily Support Iraqi Reconstruction While Iraqi Funds
  Support Iraqi Government Operations

The United States is the primary contributor to rebuilding and
stabilization efforts in Iraq. U.S. appropriations have been used largely
for activities that include the repair of infrastructure, procurement of
equipment, and training of Iraqi security forces. 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 largely have not been accessed by the Iraqi government.
Iraqi funding, under CPA or Iraqi control, has generally supported
operating expenses of the Iraqi government. Finally, Iraqi needs may be
greater than the funding currently made available.

    U.S. Funding Supports Rebuilding and Stabilization Efforts in Iraq

U.S. appropriated funding has largely focused on infrastructure repair and
training of Iraqi security forces and this funding has been reallocated as
priorities changed. As of August 2005, approximately $30 billion in U.S.
appropriations had been made available for rebuilding and stabilization
needs in Iraq, about $21 billion had been obligated, and about $13 billion
had been disbursed. These funds were used for activities that included
infrastructure repair of the electricity, oil, and water and sanitation
sectors; infrastructure repair, training, and equipping of the security
and law enforcement sector; and CPA and U.S. administrative expenses.

Many current U.S. reconstruction efforts reflect initial plans that the
CPA developed before June 2004. As priorities changed, particularly since
the transition of power to the Iraqi interim government, the U.S.
administration reallocated about $5 billion of the $18.4 billion fiscal
year 2004 emergency supplemental among the various sectors4 (see fig. 1).

4See Emergency Supplemental Appropriations Act for Defense and for the
Reconstruction of Iraq and Afghanistan, 2004, P.L. 108-106.

Page 4 GAO-06-179T

Figure 1: Funding Distribution of $18.4 Billion for Iraq Relief and
Reconstruction, by Sector

As of July 2004 As of July 2005

Other Security and justice

Essential services

Source: GAO analysis Department of State data.

Note: "Other" category includes democracy, education, governance,
agriculture, transportation, telecommunications, health, employment,
privatization, and administrative costs.

According to State department documents, these reallocations were made to
meet immediate needs: in October 2004, for projects in security and law
enforcement, economic and private sector development, and governance; in
January 2005, for quick-impact projects in key cities; in April 2005, for
job creation and essential services activities; and in July 2005, for
security force training and election support.5 As Figure 1 shows, security
and justice funds increased while resources for the water and electricity
sectors decreased.

5See GAO, Rebuilding Iraq: Status of Funding and Reconstruction,
GAO-05-876 (Washington, D.C.: July 28, 2005), for more information on the
October 2004, January 2005, and April 2005 reallocations of the $18.4
billion of fiscal year 2004 appropriations for Iraq relief and
reconstruction. In July 2005, the administration reported that it had
reallocated $255 million to create Provincial Reconstruction Development
Committees, to fund training of security forces, and to support the
upcoming elections, among other things.

Page 5 GAO-06-179T

    Some International Funds Have Been Provided for Reconstruction, but Pledges
    are Mostly Loans

International donors have provided about $2.7 billion in multilateral and
bilateral grants, of the pledged $13.6 billion, for reconstruction
activities; however, most of the pledged amount is in the form of loans
that largely have not been accessed by the Iraqis.6 International
reconstruction assistance provided in the form of multilateral grants has
been used largely for activities such as electoral process support,
education and health projects, and capacity building of the ministries. As
of August 2005, donors have deposited about $1.2 billion into the two
trust funds of the International Reconstruction Fund Facility for Iraq
(IRFFI).7 Of that amount, about $800 million had been obligated and nearly
$300 million disbursed to individual projects. Donors have also provided
bilateral assistance for Iraq reconstruction activities; however, complete
information on this assistance is not readily available. As of August
2005, State has identified $1.5 billion-of the $13.6 billion pledged-in
funding that donors have provided as bilateral grants for reconstruction
projects outside the IRFFI. 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 International Monetary Fund (IMF), and
Japan. According to a State Department official, Iraq is in discussions
with the government of Japan and the World Bank for initial projects of
lending programs that total about $6.5 billion. As of October 12, 2005,
Iraq had accessed a loan of $436 million from the IMF and an initial loan
of $500 million from the World Bank, according to a State Department
official.

Iraqi Funds Support Iraq's Iraqi funds-under the CPA or Iraqi
control-primarily have supported the Iraqi operating budget with some
focus on relief and reconstruction

    Government Operations

6According to a State Department official, in addition to the $13.6,
donors pledged an additional $203 million for Iraq reconstruction at the
International Reconstruction Fund Facility for Iraq (IRFFI) Donors'
Committee meeting at the Dead Sea in Jordan, in July 2005. See GAO-05-876
and Rebuilding Iraq: Resources, Security, Governance, Essential Services,
and Oversight Issues GAO-04-902R, (Washington, D.C.: June 28, 2004), for
more information on international donor support for Iraq reconstruction.

7The IRFFI was established in response to the June 24, 2003, UN 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.

projects.8 Of the Iraqi funds under CPA control from May 2003 to June
2004, about $21 billion came from the Development Fund for Iraq (DFI)9 and
$2.65 billion from vested and seized assets from the previous Iraqi
regime.10 The CPA disbursed these Iraqi funds primarily to support the
2003 and 2004 Iraqi budgets for government operating expenses, such as
salary payments and ministry operations, the public food distribution
system, and regional government outlays. In addition, CPA used Iraqi funds
to support efforts such as the import of refined fuels and electricity
restoration projects. On June 28, 2004, stewardship of the DFI was turned
over to the Iraqi interim government. Proceeds from Iraqi crude oil
exports continue to be deposited into the DFI11 and represent more than 90
percent of the $23 billion in domestic revenue support for the Iraqi 2005
budget.12

According to Iraq's National Development Strategy, the 2005 Iraqi budget
planned for nearly $28 billion in expenditure. These expenditures exceed
estimated domestic revenues by $4.8 billion. However, higher than
anticipated domestic revenues may offset this deficit. Planned
expenditures of this budget include about 37 percent for direct subsidies;
about 21 percent for capital investment, especially in the oil and gas
sector; about 20 percent for employee wages and pensions; nearly 18
percent for goods and services; and about 4 percent for war reparations.13
Direct subsidies included the import of gasoline and other refined fuel
products

8See GAO-05-876 and GAO-04-902R, for more information on the DFI and
vested and seized Iraqi funds.

9The DFI was initially comprised of Iraqi oil proceeds, UN Oil for Food
program surplus funds, and returned Iraqi government and regime financial
assets.

10The vested assets were former Iraqi regime funds frozen and held in U.S.
financial institutions after the first Persian Gulf War and subsequently
vested by the President in the

U.S. Treasury in March 2003. In addition, assets of the former regime were
seized by coalition forces within Iraq.

11As directed under UN Security Council Resolution 1483, 95 percent of oil
proceeds are to be deposited into the DFI. UN Security Council Resolution
1546 directed that oil proceeds would continue to be deposited in the DFI
after the CPA transfer of power to Iraq. UN Security Council Resolution
1483 directed that 5 percent of oil proceeds are to be deposited into a UN
Compensation Fund account to process and pay claims for losses resulting
from Iraq's invasion and occupation of Kuwait.

12The 2005 Iraqi budget includes an additional $9 billion in aid expected
from external sources that is to be spent in accordance with grant and
loan conditions.

13The $28 billion does not include expenditures associated with the $9
billion in expected aid from external sources.

    Iraqi Needs Greater than Originally Anticipated

(projected to cost $2.4 billion) and Iraqs' public distribution system's
basic food basket (projected to cost $4 billion). The Iraqi government
continues to develop plans to reform fuel price subsidies, partly due to
an agreement with the IMF to reduce subsidies by $1 billion per year,
according to IMF and agency documents. In addition to subsidy
expenditures, Iraq has planned for capital investment levels of 21 percent
from 2005 to 2007. In 2005, the majority of these funds were planned for
the oil and gas sector-about $3 billion of about $5 billion in total for
various ministries.

Initial assessments of Iraq's needs through 2007 by the UN/World Bank and
the CPA estimated that the reconstruction of Iraq would require about $56
billion. However, Iraq may need more funding than currently available to
meet the needs and 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 the oil sector, a June 2003 U.S. government assessment found
that over $900 million would be needed to replace looted equipment at
Iraqi oil facilities. In addition, initial assessments assumed
reconstruction would take place in a peace-time 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. However, private sector financing and
government revenues may not yet meet these needs. 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.14

14According to State Department monthly estimates from January 2005 to
September 2005, crude oil production averages ranged from 2.08 to 2.17
million barrels per day (bpd) and monthly crude oil export averages ranged
from 1.37 to 1.61 million bpd.

Page 8 GAO-06-179T

  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 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.

    Strength of the Insurgency Has Made It Difficult to Transfer Security
    Responsibilities to Iraqi Forces and Engage in Rebuilding Efforts

Insurgency Intensified through Early 2005 and Remains Strong

Over the past 2 years, significant increases in attacks against the
coalition and coalition partners have made it difficult to transfer
security responsibilities to Iraqi forces and engage in rebuilding efforts
in Iraq. The insurgency in Iraq intensified in early 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.

The insurgency intensified through early 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 2005.15 Enemy-initiated attacks
against the coalition, its Iraqi partners, and infrastructure had
increased in number over time, with the highest peaks occurring in August
and November 2004 and in January 2005. The November 2004 and January 2005
attacks primarily occurred in Sunni-majority areas, whereas the August
2004 attacks took place countrywide. MNF-I is the primary target of the
attacks, but the number of attacks against Iraqi civilians and security
forces increased significantly during January 2005, prior to Iraq's
national election for a transitional government that was held January 30,
2005. According to the Director of the Defense Intelligence Agency (DIA),
attacks on Iraq's

15For 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, D.C.: Mar. 14, 2005).

Page 9 GAO-06-179T

Election Day reached about 300, double the previous 1-day high of about
150 attacks on a day during Ramadan in 2004.

Although the number of attacks decreased immediately after the January
elections, the strength of the insurgency in Iraq has remained strong and
generally unchanged since early 2005, according to senior U.S. military
officers. As shown in figure 2, although enemy-initiated attacks had
decreased in February and March 2005, they generally increased through the
end of August 2005.

Figure 2: Enemy-Initiated Attacks against the Coalition and Its Partners,
by Category, June 2003 through August 2005 Number of attacks 3,500

June    Nov.  Jan. Feb. Mar. Apr. May June Nov.  Jan. Feb. Mar. Apr. May   
July    Dec.                      July     Dec.                      June  
Aug.                              Aug.                               July  
Oct.                              Oct.                               Aug.  
Sept. a                           Sept.                              
2003          2004                               2005                
                            Attacks on Iraqi                            
                               government                               
                               officials                                
                           Attacks on                                   
                           Infrastructure                               
                           Attacks on Iraqi                             
                           security forces                              
                           Attacks on                                   
                           civilians                                    
                           Attacks on                                   
                           coalition                                    

Source: Multi National Corps - Iraq.

aAccording to DIA officials, June 2003 data are incomplete.

According to a senior U.S. military officer, attack levels ebb and flow as
the various insurgent groups-which are an intrinsic part of Iraq's

    Poor Security Conditions Have Delayed Transfer of Security Responsibilities
    to Iraqi Forces and Draw Down of U.S. Forces

population-rearm and attack again. As DOD reported in July 2005,16
insurgents share a goal of expelling the Coalition from Iraq and
destabilizing the Iraqi government to pursue their individual and, at
times, conflicting goals. Iraqi Sunnis make up the largest proportion of
the insurgency and present the most significant threat to stability in
Iraq. Radical Shia groups, violent extremists, criminals, and, to a lesser
degree, foreign fighters, make up the rest. Senior U.S. military officers
believe that the insurgents remain adaptive and capable of choosing the
time and place of their attacks. These officers have also predicted spikes
in violence around Iraq's upcoming constitutional referendum scheduled for
October 15, 2005, and the national elections scheduled for December 15,
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. In February 2004, the multinational force attempted
to quickly shift responsibilities to Iraqi security forces but did not
succeed in this effort. Police and military units performed poorly during
an escalation of insurgent attacks in April 2004, with many Iraqi security
forces around the country collapsing or assisting the insurgency during
the uprising. About that time, the Deputy Secretary of Defense said that
the multinational force was engaged in combat in Iraq, rather than in
peacekeeping as had been expected. 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. The United States has maintained roughly the same force
level of 138,000 troops in Iraq since April 2004,17 as it has sought to
neutralize the insurgency and develop Iraqi security forces.

16Department of Defense, Report to Congress, Measuring Stability and
Security in Iraq, July 20, 2005.

17The United States temporarily increased the number of troops in Iraq to
about 160,000 during the January 2005 election period by overlapping units
during their planned rotations into or out of Iraq and bringing in an
additional 12,000 military personnel. On September 2, 2005, a senior U.S.
military officer said that the United States would bring in an additional
2,000 military personnel for the upcoming referendum and national election
in Iraq. On October 6, 2005, DOD reported that it had employed overlapping
troop rotations to temporarily increase the number of U.S. military forces
in Iraq to about 152,000. These forces will provide additional security
for the referendum.

In late September and early October 2005, the Secretary of Defense and
senior U.S. military officers reported on their strategy to draw down and
eventually withdraw U.S. forces as Iraq meets certain conditions. These
conditions would consider the level of insurgent activity, readiness and
capability of Iraqi security forces and government institutions, and the
ability of the coalition forces to reinforce the Iraq security forces if
necessary. The ability to meet these conditions will be affected by
progress in political, economic, and other areas. According to the
commanding general of the multinational force, as conditions are met,
multinational forces will progressively draw down in phases around the
country. By the time the multinational force's end state is achieved, U.S.
forces will be withdrawn or drawn down to levels associated with a normal
bilateral security relationship. The defined end state is an Iraq at peace
with its neighbors, with a representative government that respects the
human rights of all Iraqis, and with a security force that can maintain
domestic order and deny Iraq as a safe haven for terrorists.18

DOD and the multinational force face a number of challenges in
transferring security responsibilities to the Iraqi government and
security forces. As we reported in March 2005, the multinational force
faced four key challenges in increasing the capability of Iraqi forces:
(1) training, equipping, and sustaining a changing force structure; (2)
developing a system for measuring the readiness and capability of Iraq
forces; (3) building loyalty and leadership throughout the Iraqi chain of
command; and

(4) developing a police force that upholds the rule of law in a hostile
environment. Further, in a July 2005 report to Congress, DOD noted
continuing problems with absenteeism in the Iraqi Army, Police Service,
and Border Police; among those units conducting operations; and units
relocating elsewhere in Iraq. The report also noted that there was
insufficient information on the extent to which insurgents have
infiltrated Iraqi security forces.19 However, in an October 2005 report to
Congress, DOD noted insurgent infiltration is a more significant problem
in Ministry of Interior forces than in Ministry of Defence forces.20
Moreover, in early

18Press conference with Major General Rick Lynch, Deputy Chief of Staff,
Multinational Force Iraq, Aug. 25, 2005.

19The DOD report noted that insurgent infiltration was low for Special
Police Commando battalions but high among the Border Police.

20Department of Defense, Report to Congress, Measuring Stability and
Security in Iraq, October 2005.

Page 12 GAO-06-179T

October 2005, senior U.S. military officers noted challenges in developing
effective security ministries, as well as logistics capabilities of Iraqi
forces.

Since March 2005, the multinational force has taken some steps to begin
addressing these challenges. For example, the multinational force has
embedded transition teams at the battalion, brigade, and division levels
of Ministry of Defense forces, as well as in the Ministry of Interior's
Special Police Commando battalions, the Civil Intervention Force, and the
Emergency Response Unit. Multinational force transition teams conduct new
transition readiness assessments that identify the progress and
shortcomings of Iraqi forces. According to DOD's report, these assessments
take into account a variety of criteria that are similar but not identical
to those the U.S. Army uses to evaluate its units' operational readiness,
including personnel, command and control, training, sustainment/logistics,
equipment, and leadership. The assessments place Iraqi units into one of
the following four categories:

     o Level 1 units are fully capable of planning, executing, and sustaining
       independent counterinsurgency operations.
     o Level 2 units are capable of planning, executing, and sustaining
       counterinsurgency operations with coalition support.
     o Level 3 units are partially capable of conducting counterinsurgency
       operations in conjunction with coalition units.
     o Level 4 units are forming or otherwise incapable of conducting
       counterinsurgency operations.

The multinational force is also preparing similar readiness assessments on
the Iraqi police through partnerships at the provincial levels. These
assessments look at factors that are tailored to the tasks of a police
force, including patrol/traffic operations, detainee operations, and case
management.

According to DOD's October 2005 report and DOD officials, Iraqi combat
forces have made progress in developing the skills necessary to assume
control of counterinsurgency operations. However, they also recognize 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. According to DOD's October 2005
report, Iraq has 116 police and army combat battalions actively conducting

Security Situation Has Affected Rebuilding Efforts

counter insurgency operations. This number corresponds to the number of
battalions in levels 1, 2, and 3 described above. Of these battalions, 1
battalion was assessed as level 1, that is, fully capable of planning,
executing, and sustaining independent counterinsurgency operations.
Thirty-seven were level 2, or capable of planning, executing, and
sustaining counterinsurgency operations with coalition support; and 78
were level 3-partially capable of conducting counterinsurgency operations
in conjunction with coalition units. The assessment of Iraqi units'
capabilities also considers the threat level they face. According to a
senior U.S. military officer, Iraqi forces have more quickly progressed
from level 3 to level 2 in areas that have experienced fewer insurgent
attacks, such as southern Iraq.

GAO's forthcoming classified report on Iraq's security situation will
provide further information and analysis on the challenges to developing
Iraqi security forces and the conditions for the phased draw down of U.S.
and other coalition forces.

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 in time and money 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, the USAID cancelled
two electrical power generation-related task orders21 totaling nearly $15
million to help pay for 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 a September 2005 testimony, the Special
Inspector General for Iraq Reconstruction and a USAID official also
observed that the cost of security had taken money away from
reconstruction and slowed down reconstruction efforts.22

21Task orders are placed against established contracts for the performance
of tasks during the period of the contracts.

22U.S. House of Representatives, Committee on Appropriations, Subcommittee
on Foreign Operations, Export Financing, and Related Programs, "Oversight
Hearing on Iraq Reconstruction," September 7, 2005, Washington, D.C.

Page 14 GAO-06-179T

However, the actual cost that security has added to reconstruction
projects is uncertain. We reported in July 2005, that, for 8 of 15
reconstruction contracts we reviewed, the cost to obtain private security
providers and security-related equipment accounted for more than 15
percent of contract costs, as of December 31, 2004.23 Our analysis and
discussions with agency and contractor officials identified several
factors that influenced security costs, including (1) the nature and
location of the work, (2) the type of security required and the security
approach taken, and (3) the degree to which the military provided the
contractor security services. For example, projects that took place in
fixed locations were generally less expensive to secure than a project,
such as electrical transmission lines, which extended over a large
geographic location. In addition, some contractors made more extensive use
of local Iraqi labor and employed less costly Iraqi security guards, while
others were able to make use of security provided by the U.S. military or
coalition forces.

Our analysis did not include increased transportation or administrative
expenses caused by security-related work stoppages or delays, or the cost
associated with repairing the damage caused by the insurgency on work
previously completed. We also excluded the cost associated with the
training and equipping of Iraqi security forces and the costs borne by DOD
in maintaining, equipping, and supporting U.S. troops in Iraq.

In July 2005, to improve agencies' ability to assess the impact of and
manage security costs in future reconstruction efforts, we recommended
that the Secretary of State, the Secretary of Defense, and the
Administrator, USAID, establish a means to track and account for security
costs to develop more accurate budget estimates. State did not indicate
whether it agreed with our recommendation, Defense agreed, and USAID did
not comment on the recommendation.

In addition, the security environment in Iraq also has led to severe
restrictions on the movement of civilian staff around the country and

23Several contractor officials noted that the cost of security relative to
total contract costs can vary over time. For example, they noted that
initial security costs, such as for mobilizing and equipping security
personnel and purchasing armored vehicles, can be considerable in relation
to the amount of reconstruction work authorized. As additional work is
authorized, the relative percentage accounted for by security costs may
decrease considerably. See GAO, Rebuilding Iraq: Actions Needed to Improve
Use of Private Security Providers, GAO-05-737 (Washington, D.C.: July 28,
2005) for more information on the use and costs of private security
providers.

    Limited Performance Data and Measures and Inadequate Reporting Present
    Difficulties in Determining Progress and Impact of Rebuilding Effort

reductions of a U.S. presence at reconstruction sites, according to U.S.
agency officials and contractors. For example, work at a wastewater plant
in central Iraq was halted for approximately 2 months in early 2005
because insurgent threats drove subcontractors away 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, IFES24 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.

While poor security conditions have slowed reconstruction and increased
costs, a variety of management challenges have also 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 also 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 projects sites.

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 reestablishing Iraqi health services. However,
limited performance data and measures make it difficult to determine and
report

24IFES was formally known as the International Foundation for Elections
Systems. 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.

Page 16 GAO-06-179T

on the progress and impact of U.S. reconstruction. For example, in the
water and sanitation, health, and electricity sectors, limited performance
data and reporting measures are output focused and make it difficult to
accurately measure program results and assess the effectiveness of U.S.
reconstruction efforts. Although information is difficult to obtain in an
unstable security environment, opinion surveys and additional outcome
measures have the potential to help determine progress and gauge the
impact of the U.S. reconstruction efforts on the lives of the Iraqi
people.

     o 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.
       For example, although State reported that 143 projects were complete
       as of early July 2005, it could not document the location, scope, and
       cost 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. However, opinion
       surveys assessing Iraqis' access and satisfaction with water
       sanitation services have found dissatisfaction with these services.
       The most recent USAID quality of life survey, in February 2005, found
       that just over half of respondents rated their water supply as poor to
       fair and over 80 percent rated their sewerage and wastewater disposal
       as poor to fair. These surveys demonstrate the potential for gathering
       data to help gauge the impact of U.S. reconstruction efforts.
     o 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. For example, State reported that the construction of
       145 out of 300 health clinics had been completed, as of August 31,
       2005. 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

    Iraq's Capacity to Operate and Maintain U.S.-Funded Projects Presents
    Sustainability Problems

and its impact on the Iraqi people. In addition, opinion surveys assessing
Iraqis' access and satisfaction with health services also have the
potential for gathering data to help gauge the impact of U.S.
reconstruction efforts. For example, the most recent USAID quality of life
survey, in February 2005, found that the majority of Iraqis approved of
the primary healthcare services they received; although fewer than half of
the respondents approved of the level of health care at Ta'mim, Al Basrah,
and Maysan governorates.

o  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. For example, as of May 2005,
U.S.-funded projects reportedly had added or restored about 1,900
megawatts of generation capacity to Iraq's power grid. However, these data
do not show whether (1) the power generated is uninterrupted for the
period specified (eg., 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. However, opinion
surveys assessing Iraqis' access and satisfaction with electricity
services have found dissatisfaction with these services. The February 2005
USAID survey found that 74 percent of the respondents rated the overall
quality of electricity supply as poor or very poor. The surveys also found
that the delivery of electricity directly influenced the perceived
legitimacy of local government for many respondents. These surveys
demonstrate the potential for gathering data to help gauge the impact of
U.S. reconstruction efforts.

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 that it is taking steps to
address the problem.

The U.S. reconstruction program has encountered difficulties with the
Iraqis' 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 the Iraqis' problems
maintaining or properly operating them.

Page 18 GAO-06-179T

In the water and sanitation sector, U.S. agencies have identified
limitations in the Iraqis' 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. As of June 2005, approximately $52 million of the
$200 million in completed large-scale water and sanitation projects either
were not operating or were operating at lower capacity due to looting of
key equipment and shortages of reliable power, trained Iraqi staff, and
required chemicals and supplies. For example, one repaired wastewater
plant was partially shut down due to the looting of key electrical
equipment and repaired water plants in one southern governorate lacked
adequate electricity and necessary water treatment chemicals. In addition,
two projects lacked a reliable power supply, one lacked sufficient staff
to operate properly, and one lacked both adequate staff and power
supplies. In response, U.S. agencies have taken initial steps to improve
Iraqi capacity to operate and maintain water and sanitation facilities.
For example, in August 2005, USAID awarded a contract to provide
additional maintenance and training support for 6 completed water and
sanitation facilities.

The U.S. embassy in Iraq 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 the U.S. assistance does not address
the long-term ability of the Iraqi government to support, staff, and equip
these facilities. 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. Without assurance that the Iraqis have adequate
resources to maintain and operate completed projects, the U.S. water and
sanitation reconstruction program risks expending funds on projects with
limited long-term impact. 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 taking steps to address the problem.

In the electricity sector, the Iraqis' capacity to operate and maintain
the power plant 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 power plant 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
power plants 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 power plant
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. To address this issue, USAID implemented a project, in
February 2005, to train selected electricity plant officials (plant
managers, supervisors, and equipment operators) in plant operations and
maintenance. According to DOD, PCO also has awarded one contract and is
developing another to address operations and maintenance concerns.

Although agencies had incorporated some training programs and the
development of operations and maintenance capacity into individual
projects, recent 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. In May
2005, an interagency working group including State, USAID, PCO, and the
Corps of Engineers, was formed to identify ways of addressing 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 sub-optimized conditions following handover
to the Iraqis. They found that a number of USAID and PCO projects
encountered significant problems in facility management and operations and
maintenance when turned over to the Iraqis or shortly thereafter. To
mitigate the potential for project failures, the working group recommended
increasing the period of operational support for constructed facilities
from a 90-day period to a period of up to one year. According to a State
department official, as of September 22, 2005, the recommendations are
currently under active consideration and discussion by the Embassy Baghdad
and Washington.

For the past two and half years, the United States has served as the chief

  Conclusion

protector and builder in Iraq. The long-term goal is to achieve a peaceful
Iraq that has a representative government respectful of human rights and

Page 20 GAO-06-179T

the means to maintain domestic order and quell terrorism. To achieve this
goal, the United States has provided $30 billion to develop capable Iraqi
security forces, rebuild a looted and worn infrastructure, and support
democratic elections.

However, the United States has confronted a capable and 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
capable of operating independently, thereby enabling the United States to
reduce its military presence.

Similarly, it is unclear how U.S. efforts are helping the Iraqi people
obtain clean water, reliable electricity, or competent health care.
Measuring the outcomes of U.S. efforts is needed to determine how they are
having a positive impact on the daily lives of the Iraqi people.

Finally, 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 power
plants, water and sewage treatment facilities, and health care centers the
United States has rebuilt or restored. This would help ensure that the
rebuilding efforts improve Iraq's economy and social conditions and
establish a secure, peaceful, and democratic Iraq.

We will continue to examine the challenges the United States faces in
rebuilding and stabilizing Iraq. Specifically, we will examine the 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; examine the management of the U.S. rebuilding effort,
including program execution; and assess the progress made in developing
Iraq's energy sectors, including the sectors' needs, existing resources
and contributions, achievements, and future challenges.

Mr. Chairman, this concludes my prepared statement. I will be happy to
answer any questions you or the other Subcommittee members may have.

Appendix I

                       Contact and Staff Acknowledgements

For further information, please contact Joseph A. Christoff on (202)
5128979. Individuals who made key contributions to this testimony were
Monica Brym, Lynn Cothern, Tim DiNapoli, Muriel Forster, Charles D.
Groves, B. Patrick Hickey, Sarah Lynch, Judy McCloskey, Kendall Schaefer,
Michael Simon, and Audrey Solis.

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