-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-953T		

TITLE:     Rebuilding Iraq: More Comprehensive National Strategy 
Needed to Help Achieve U.S. Goals and Overcome Challenges

DATE:   07/11/2006 
				                                                                         
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GAO-06-953T

     

     * Summary
     * Background on the National Strategy for Victory in Iraq
     * National Strategy for Victory in Iraq and Supporting Documen
          * Strategy Generally Addresses Purpose and Scope, Risks and Th
               * Strategy Identifies Purpose and Scope
               * Strategy Identifies Problems, Risks, and Threats
               * Strategy Discusses Goals, Objectives, and Activities but Pro
          * Strategy Partially Addresses Agency Responsibilities, Integr
               * Strategy Partially Addresses U.S. Roles, Responsibilities, a
               * Strategy Partially Addresses Integration with Iraqi Governme
               * Strategy Partially Addresses Future Costs and Resource Requi
          * Dispersion of the U.S. Strategy across Many Documents Limits
     * Agency Comments and Our Evaluation of the National Strategy
     * Other GAO-Related Work Shows that Security, Political, and E
          * Security Forces' Capabilities Improving but Have Not Led to
          * Need for National Reconciliation and Enhanced Ministerial Ca
               * Sectarian Divisions Undermine Efforts to Foster Reconciliati
               * Iraq Faces Challenges in Delivering Government Services
          * Efforts to Restore Oil and Electricity Sectors Are Hindered
               * Despite Efforts, Restoring Iraq's Oil and Electricity Sector
               * Security, Corruption, Fiscal, and Management Challenges Hind
     * Conclusion
     * GAO Contact and Staff Acknowledgments
     * Appendix I: Extent the U.S. Strategy for Iraq Addresses GAO'
          * Order by Mail or Phone

Testimony

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

United States Government Accountability Office

GAO

For Release on Delivery Expected at 2:00 p.m. EDT

Tuesday, July 11, 2006

REBUILDING IRAQ

More Comprehensive National Strategy Needed to Help Achieve U.S. Goals and
Overcome Challenges

Statement of David M. Walker Comptroller General of the United States

GAO-06-953T

Mr. Chairman and Members of the Subcommittee:

I am pleased to appear today to discuss the U.S. government's strategy for
victory in Iraq. In November 2005, the National Security Council (NSC)
issued the National Strategy for Victory in Iraq (NSVI) to clarify the
President's existing strategy for achieving U.S. political, security, and
economic goals in Iraq. The NSVI and supporting documents incorporate the
same desired end-state for U.S. operations in Iraq first established by
the Coalition Provisional Authority in 2003: a peaceful, united, stable,
secure Iraq, well-integrated into the international community and a full
partner in the global war on terrorism. In addition, in June 2006, the
administration issued a fact sheet at Camp David discussing current
progress and goals in Iraq.

My testimony is based on the report we are releasing today evaluating the
NSVI and seven supporting documents, as well as related reports assessing
the challenges to achieving U.S. objectives in Iraq. My testimony assesses
(1) the extent to which the NSVI and supporting documents collectively
address the six key characteristics of an effective national strategy, and
(2) how security, political, and economic factors will affect achieving
the U.S. strategy for Iraq. In this testimony, the NSVI and supporting
documents are collectively referred to as the U.S. strategy for Iraq.
While we assessed unclassified and classified documents, the information
in the statement is unclassified.

We conducted our reviews for these reports under my statutory authority as
Comptroller General in accordance with generally accepted government
auditing standards.

                                    Summary

The NSVI is an improvement over previous U.S. government planning efforts
for stabilizing and rebuilding Iraq. However, the NSVI and its supporting
documents are incomplete because they do not fully address all of the
desirable characteristics of an effective national strategy. On the one
hand, the strategy's purpose and scope is clear because it identifies U.S.
involvement in Iraq as a "vital national interest and the central front in
the war on terror." The strategy also generally addresses the threats and
risks facing the coalition forces, as well as provides a comprehensive
description of the desired U.S. political, security, and economic
objectives in Iraq. However, the discussion of outcome-related performance
measures to assess progress in achieving these goals and objectives is
limited and not transparent. On the other hand, the strategy falls short
in at least three key areas. First, it only partially identifies which
U.S. agencies are responsible for implementing key aspects of the strategy
or resolving conflicts among the many implementing agencies. Second, it
does not fully address how U.S. goals and objectives will be integrated
with those of the Iraqi government and the international community, and it
does not detail the Iraqi government's anticipated contribution to its
future security and reconstruction needs. Third, it only partially
identifies the current and future costs of U.S. involvement in Iraq,
including the costs of maintaining U.S. military operations, building
Iraqi government capacity at the provincial and national level, and
rebuilding critical infrastructure. The June 2006 Camp David fact sheet
provides additional detail but does not address the key shortfalls we
identified in these three areas.

Security, political, and economic factors are hampering U.S. efforts to
stabilize Iraq and achieve key goals in the U.S. strategy. First, the U.S.
and Iraqi governments are trying to stabilize Iraq by training and
equipping Iraqi security forces and securing Baghdad and other strategic
cities. Although the number of the Iraqi security forces is increasing,
these forces still lack the logistical, command and control, and
intelligence capabilities to operate independently. Moreover, increases in
attacks against the coalition and its Iraqi partners and the growing
influence of militias have adversely affected U.S. and Iraqi efforts.
Second, the U.S. and Iraqi governments are trying to improve Iraq's
capacity to govern by reconciling the conflicting sectarian groups and
building the capacity of national and provincial governments to provide
security and deliver services. However, continuing sectarian conflicts and
the lack of core competencies in the ministries, along with widespread
corruption, are hindering these efforts. Third, the U.S. and Iraqi
governments are trying to revitalize Iraq's economy and restore essential
services in the oil, electricity, and other key sectors, but these efforts
have been impeded by security, corruption, fiscal, and other challenges.

The formation of a permanent Iraqi government gives the United States a
new opportunity to re-examine its strategy for Iraq and more closely align
its efforts with Iraq and the international community. The report we are
releasing today recommends that the NSC, in conjunction with the
Departments of Defense (DOD) and State, complete the U.S. strategy for
Iraq by addressing all six characteristics of an effective national
strategy in a single document. In particular, the revised strategy should
clarify agencies' roles and responsibilities, specify future
contributions, and identify current costs and future resources needed to
implement the strategy.

DOD and State did not comment on the recommendations in a draft of the
report released today. However, in its comments State noted that our
report misrepresented the NSVI's purpose--to provide the public with a
broad overview of the U.S. strategy for Iraq. Importantly, our analysis
was not limited to the publicly available, unclassified NSVI but was based
on the classified and unclassified documents that define the U.S. strategy
for Iraq. Collectively, these documents still lack all of the key
characteristics of an effective national strategy.

Based on our other ongoing and completed work, the United States, Iraq and
the international community could take additional actions to achieve
success in Iraq. These actions include (1) sustaining the development of
Iraqi security forces by enhancing their support capabilities (command and
control, logistics, and intelligence); (2) expanding efforts to improve
the capabilities of national and provincial governments, including greater
technical assistance and training; and (3) developing a comprehensive
anti-corruption strategy that improves the regulatory environment,
strengthens accountability organizations, reduces subsidies, and enhances
investment opportunities.

            Background on the National Strategy for Victory in Iraq

Prior to the fall of 2005, the U.S. stabilization and reconstruction
effort in Iraq lacked a clear, comprehensive, and integrated U.S.
strategy. State assessments and other U.S. government reports noted that
this hindered the implementation of U.S. stabilization and reconstruction
plans. A review of the U.S. mission completed in October 2005 found, among
other things, that (1) no unified strategic plan existed that effectively
integrated U.S. government political, military, and economic efforts; (2)
multiple plans in Iraq and Washington had resulted in competing priorities
and funding levels not proportional to the needs of overall mission
objectives; (3) focused leadership and clear roles were lacking among
State, DOD, and other agencies in the field and in Washington, D.C.; and (
4) a more realistic assessment of the capacity limitations of Iraq's
central and local government was needed.

In November 2005, the National Security Council (NSC) issued the National
Strategy for Victory in Iraq (NSVI) to clarify the President's existing
strategy for achieving U.S. political, security, and economic goals in
Iraq. According to this document, prevailing in Iraq is a vital U.S.
national interest because it will help win the war on terror and make
America safer, stronger, and more certain of its future. To achieve
victory, the strategy requires the United States to maintain troops in
Iraq until its objectives are achieved, adjusting troop strength as
conditions warrant. The strategy reorganized U.S. government stabilization
and reconstruction efforts along three broad tracks-political, security,
and economic-and eight strategic objectives (see fig. 1).

Figure 1: U.S. National Strategy for Victory in Iraq

Overall, officials in DOD and State identified seven documents that
describe the U.S. government strategy for Iraq in addition to the NSVI.1
Figure 2 shows the NSVI and key supporting documents. The U.S. government
uses these documents to plan, conduct, and track efforts at the strategic,
operational, and implementation levels.

1Two separate campaign plans were included in our analysis: the August
2004 plan and the April 2006 Joint Campaign Plan issued by the Chief of
Mission and the Commander of the MNF-I.

Figure 2: NSVI and Key Supporting Documents

Our work has identified six characteristics of an effective national
strategy. National strategies with these characteristics offer
policymakers and implementing agencies a management tool that can help
ensure accountability and more effective results. The six characteristics
are (1) a clear purpose, scope, methodology; (2) a detailed discussion of
the problems, risks, and threats the strategy intends to address; (3) the
desired goals and objectives, and outcome-related performance measures;
(4) a description of the U.S. resources needed to implement the strategy;
(5) a clear delineation of the U.S. government's roles, responsibilities,
and mechanisms for coordination; and (6) a description of how the strategy
is integrated internally (that is, among U.S. agencies) and externally (in
this case, with the Iraqi government and international organizations).
These six characteristics can be subdivided into 27 separate elements. For
a more detailed assessment, see appendix I.

  National Strategy for Victory in Iraq and Supporting Documents Do Not Fully
       Address All Key Characteristics of an Effective National Strategy

The NSVI aims to improve U.S. strategic planning for Iraq; however, the
NSVI and supporting documents do not fully address all of the six
desirable characteristics of effective national strategies that GAO has
identified through its prior work.2 We used these six characteristics to
evaluate the strategy-that is, the NSVI and supporting documents that DOD
and State officials said encompassed the U.S. strategy for rebuilding and
stabilizing Iraq. As figure 3 shows, the strategy generally addresses
three of the six characteristics but only partially addresses three
others, limiting its usefulness to guide agency implementation efforts and
achieve desired results. Moreover, since the strategy is dispersed among
several documents instead of one, its effectiveness as a planning tool for
implementing agencies and for informing Congress about the pace, costs,
and intended results of these efforts is limited. Although the June 2006
Camp David fact sheet provides additional detail on recent U.S. and Iraqi
actions, it does not address the key shortfalls we identified in the three
areas.

2See GAO, Combating Terrorism: Evaluation of Selected Characteristics in
National Strategies Related to Terrorism, GAO-04-408T (Washington, D.C.:
Feb. 3, 2004); and Defense Management: Comprehensive Strategy and Periodic
Reporting Are Needed to Gauge Progress and Costs of DOD's Global Posture
Restructuring, GAO-06-486C (Washington, D.C.: May 26, 2006).

Figure 3: Extent U.S. Strategy for Iraq Addresses GAO's Desirable
Characteristics of an Effective National Strategy

Strategy Generally Addresses Purpose and Scope, Risks and Threats, and Goals and
Objectives

The strategy provides (1) a clear statement of its purpose and scope; (2)
a detailed discussion of the problems, risks, and threats; and (3) an
explanation of its goals, subordinate objectives, and activities but a
limited discussion of outcome-oriented performance measures.

  Strategy Identifies Purpose and Scope

This characteristic addresses why the strategy was produced, the scope of
its coverage, and the process by which it was developed. A complete
description of purpose, scope, and methodology makes the document more
useful to organizations responsible for implementing the strategies, as
well as to oversight organizations such as Congress. The NSVI and
supporting documents generally address this characteristic by identifying
U.S. government efforts to rebuild and stabilize Iraq in terms of these
three overarching objectives and address the assumptions that guided the
strategy's development. For example, to help Iraq achieve the strategic
goal of forging a national compact for democratic government, the
strategy's subordinate objectives state that the United States would help
promote transparency in the executive, legislative, and judicial branches
of government, and help build national institutions that transcend
regional and sectarian interests, among other activities.

  Strategy Identifies Problems, Risks, and Threats

This characteristic addresses the particular problems, risks, and threats
the strategy is directed at, as well as risk assessment of the threats to
and vulnerabilities of critical assets and operations. Specific
information on both risks and threats helps responsible parties better
implement the strategy by ensuring that priorities are clear and focused
on the greatest needs. The NSVI and supporting documents generally address
some of the problems, risks, and threats found in Iraq. For example, the
NSVI identifies the risks posed by the insurgency and identifies three
basic types of insurgents-rejectionists, supporters of former Iraqi
President Saddam Hussein, and terrorists affiliated with or inspired by al
Qaeda-and the different actions needed to confront each one. In addition,
various supporting documents provide additional information on the threats
of the Shi'a militias and the corruption that could affect the Iraqi
government's ability to become self-reliant, deliver essential services,
reform its economy, strengthen rule of law, maintain nonsectarian
political institutions, and increase international support.

  Strategy Discusses Goals, Objectives, and Activities but Provides Limited
  Discussion of Outcome-Related Performance Measures

This characteristic addresses the goals of the national strategy and the
steps needed to attain those goals, as well as the priorities, milestones,
and outcome-related performance measures to enable more effective
oversight and accountability. The NSVI generally addresses goals and
subordinate objectives by identifying 8 strategic objectives (pillars), 46
subordinate objectives, or "lines of action," and numerous project
activities, but only partially addresses outcome-related performance
measures. The supporting strategy documents also provide information on
how progress will be monitored and reported. In addition, the NSVI
identifies the process for monitoring and reporting on progress via
interagency working groups. It also identifies some metrics to assess
progress, such as the number of Iraqis willing to participate in the
political process, the quality and quantity of the Iraqi units trained,
and barrels of oil produced and exported.

However, the metrics the strategy uses to report progress make it
difficult to determine the impact of the U.S. reconstruction effort. We
reported previously that in the water resources and sanitation sector,
little was known about how U.S. efforts were improving the amount and
quality of water reaching Iraqi households or their access to the
sanitation services because the U.S. government only tracked the number of
projects completed or under way.3 For instance, as of March 2006, Iraq had
the capacity to produce 1.1 million cubic meters of water per day, but
this level overestimated the amount of potable water reaching Iraqi
households. U.S. officials estimate that 60 percent of water treatment
output is lost due to leakage, contamination, and illegal connections. The
U.S. mission in Iraq reported in December 2005 that it had developed a set
of metrics to better estimate the potential impact that U.S. water and
sanitation reconstruction efforts were having on Iraqi households, but
acknowledges it is difficult to measure how much water Iraqis are actually
receiving or whether the water is potable. The mission report notes that
without such comprehensive data, mission efforts to accurately assess the
impact of U.S. reconstruction efforts on water and sanitation services is
seriously limited.

3See 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, D.C.: Sept. 7, 2005).

Strategy Partially Addresses Agency Responsibilities, Integration, and Costs

The NSVI and supporting documents only partially (1) delineate the roles
and responsibilities of key U.S. government agencies; (2) describe how the
strategy will be integrated among U.S. entities, the Iraqi government,
international organizations and the mechanisms for coordination; and (3)
identify what the strategy will cost and the sources of financing.

  Strategy Partially Addresses U.S. Roles, Responsibilities, and Coordination
  Mechanisms

This characteristic addresses which U.S. organizations will implement the
strategy as well as the roles, responsibilities, and mechanisms for
coordinating their efforts. The NSVI and the supporting documents
partially address the roles and responsibilities of specific U.S.
government agencies and offices and the process for coordination. For
example, National Security Presidential Directive 36 makes the Department
of State responsible for the non-security aspects of reconstruction and
lays out key roles for the U.S. Chief of Mission in Baghdad and CENTCOM.
It directs that the Commander of CENTCOM will, under the guidance of the
Chief of Mission, oversee all U.S. government efforts to train and equip
Iraq security forces.

However, it is not clear which agency is responsible for implementing the
overlapping activities listed under the NSVI's eight strategic objectives.
For instance, one activity is to promote transparency in the executive,
legislative, and judicial branches of the Iraqi government; however, the
NSVI and supporting documents do not indicate which agency is responsible
for implementing this activity, or who is to be held accountable for
results. Moreover, little guidance is provided to assist implementing
agencies in resolving conflicts among themselves, as well as with other
entities. In our prior work, we found that delays in reconstruction
efforts sometimes resulted from lack of agreement among U.S. agencies,
contractors, and Iraqi authorities about the scope and schedule for the
work to be performed.4

4See GAO-05-872 .

  Strategy Partially Addresses Integration with Iraqi Government and
  International Donors

This characteristic addresses both how a national strategy relates to the
goals and activities of other strategies, to other entities, and to
documents from implementing organizations to help these entities
understand their roles and responsibilities. The NSVI and supporting
documents partially address how the strategy relates to other
international donors and Iraqi government goals, objectives, and
activities. For instance, the NSVI and supporting documents identify the
need to integrate the efforts of the coalition, the Iraqi government, and
other nations but do not discuss how the U.S. goals and objectives will be
integrated. In addition, the strategy does not address what it expects the
international community or the Iraqi government to pay to achieve future
objectives.

  Strategy Partially Addresses Future Costs and Resource Requirements

This characteristic addresses what the strategy will cost; where resources
will be targeted to achieve the end-state; and how the strategy balances
benefits, risks, and costs. The November 2005 National Strategy for
Victory in Iraq and related supporting documents do not clearly identify
the costs of U.S. military operations, including the costs to repair and
replace equipment used during operations. The strategy does not identify
other key related costs, including the costs of training, equipping, and
supporting Iraq's security forces; the costs of rebuilding, maintaining,
and protecting critical oil and electricity infrastructure; or the costs
of building management capacity in Iraq's central ministries and 18
provincial governments. In addition to these costs, the new Iraqi
government will need significant help in building the procurement,
financial management, accountability, and other key systems needed to
govern and provide basic services to its citizens.

U.S. government agencies have reported significant costs associated with
the global war on terror (GWOT), which includes military operations in
Iraq. However, we have serious concerns about the reliability of DOD's
reported cost data. GAO's prior work5 found numerous problems with DOD's
processes for recording and reporting GWOT costs, including long-standing
deficiencies in DOD's financial management systems and businesses
processes, the use of estimates instead of actual cost data, and the lack
of supporting documentation. As a result, neither DOD nor Congress knows
how much the war on terror is costing or how appropriated funds are being
used.

5See GAO, Global War on Terrorism: DOD Needs to Improve the Reliability of
Cost Data and Provide Additional Guidance to Control Costs, GAO-05-892
(Washington, D.C.: Sept. 21, 2005).

The current financial picture is complicated by the extensive use of
emergency supplemental funds to pay for the costs of U.S. activities in
Iraq. While this funding mechanism might have been appropriate in the
early months of the war, use of the regular budget process would promote
greater transparency and accountability and better management of the
stabilization and reconstruction effort. I will further address issues
related to GWOT costs at subsequent hearings before this subcommittee.

Dispersion of the U.S. Strategy across Many Documents Limits Its Usefulness as a
Planning Tool

The dispersion of information across several documents limits the
strategy's overall coherence and effectiveness as a planning tool for
implementing agencies and as an oversight tool for informing Congress
about the pace, costs, and results of these efforts. Since the NSVI's
supporting documents were written by different agencies at different
points in time, the information in the documents is not directly
comparable, which diminishes their value. The June 2006 Camp David fact
sheet provides some additional detail on recent U.S. government plans to
help Iraq's new national unity government achieve some of its short-term
security, economic, and political objectives. However, it does not redress
identified shortfalls in the U.S. strategy such as the lack of information
on costs.

          Agency Comments and Our Evaluation of the National Strategy

Although the NSC and the Departments of Defense and State did not comment
on the recommendation made in the report we are issuing today, State noted
that we misrepresented the NSVI's purpose-to provide the public with a
broad overview of the U.S. strategy for Iraq. However, our analysis was
not limited to the NSVI but was based on all of the classified and
unclassified documents that collectively define the U.S. strategy for
Iraq: (1) the National Security Presidential Directive 36 (May 2004), (2)
Multinational Forces-Iraq (MNF-I) Campaign Plan (August 2004), (3) the
MNF-I/ U.S. Embassy Baghdad Joint Mission Statement on Iraq (December
2005), (4) the Multinational Corps-Iraq Operation Order 05-03 (December
2005), (5) the National Strategy for Supporting Iraq (updated January
2006), (6) the quarterly State Section 2207 reports to Congress (through
April 2006), and (7) the April 2006 Joint Campaign Plan issued by the
Chief of Mission and the Commander of the MNF-I. We also reviewed
appropriations and budget documents. Collectively, these documents still
lack all of the key characteristics of an effective national strategy.
However, we refined our recommendation to focus on the need to improve the
U.S. strategy for Iraq, not just the NSVI.

  Other GAO-Related Work Shows that Security, Political, and Economic Factors
                 Hamper U.S. Efforts to Achieve Strategic Goals

Other GAO work shows that security, political, and economic factors have
and will continue to hamper U.S. efforts to stabilize Iraq and achieve key
U.S. goals. First, increases in attacks against the coalition and its
Iraqi partners, growing sectarian violence, and the influence of militias
have adversely affected U.S. and Iraqi efforts to secure Baghdad and other
strategic cities. Second, sectarian control over ministries and the lack
of skilled employees hinder efforts to improve Iraq's governance by
building the capacity of ministries and reconciling differences among
sectarian interests. Third, security, corruption, and fiscal problems
limit U.S. and Iraqi plans to revitalize Iraq's economy and restore
essential services in the oil and electricity sectors.

Security Forces' Capabilities Improving but Have Not Led to Improvements in
Security

A linchpin of the current U.S. strategy is that, as Iraqi forces "stand
up," U.S. forces will "stand down." According to the NSVI, putting capable
Iraqis forward in the fight against the enemy would increase the overall
effectiveness of U.S.-Iraqi operations, as Iraqis are better able to
collect intelligence and identify the threats in neighborhoods. The
Secretaries of Defense and State have reported progress in developing
Iraqi army and police units. According to State Department reports, the
number of trained army and police forces has increased from about 174,000
in July 2005 to about 268,000 as of June 2006. This represents about 82
percent of the planned security force strength of 326,000. DOD has also
reported that Iraqi army units are becoming increasingly capable of
leading counterinsurgency operations with coalition support.6 Although the
number of Iraqi security forces is increasing, these forces still lack the
logistical, command and control, and intelligence capabilities to operate
independently.

Even as the number and capabilities of Iraqi security forces have
increased, overall security conditions have deteriorated, as evidenced by
attack trends, sectarian violence, and the growth and influence of
militias. Enemy-initiated attacks against the coalition, its Iraqi
partners, and infrastructure have continued to increase over time (see
fig. 4). Overall, attacks increased by 23 percent from 2004 to 2005. After
declining in the fall of 2005, the number of attacks rose to the highest
ever in April 2006. The monthly attacks data for May and June remain
classified. However, DOD publicly reported in May 2006 that the average
number of weekly attacks was higher for the February to May 2006 time
period than for any previous period. Further, in late June 2006 the MNF-I
Commanding General publicly stated that attack levels in Iraq had
increased. Moreover, a senior U.S. military officer said that the recent
security operation in Baghdad had led to an increase in the number of
attacks in the area.

6For a description of how DOD measures the capabilities of Iraqi security
forces, see GAO, Rebuilding Iraq: Enhancing Security, Measuring Program
Results, and Maintaining Infrastructure Are Necessary to Make Significant
and Sustainable Progress, GAO-06-179T (Washington, D.C: Oct. 18, 2005).

Figure 4: Enemy-Initiated Attacks against the Coalition and Its Partners,
by Category, June 2003 through April 2006

aThe data for 2006 does not separate attacks against Iraqi government
officials from attacks against Iraqi civilians.

I recently asked the Secretary of Defense to routinely declassify monthly
attacks data in a timely manner. The enemy-initiated attacks data help
inform Congress and the American public on progress in improving Iraq's
security situation, an important consideration in any decision to reduce
the U.S. military presence in Iraq. While attacks data alone may not
provide a complete picture of Iraq's security situation, we believe they
provide a sound depiction of general security trends in the country.7

According to a June 2006 United Nations (UN) report, an increasingly
complex armed opposition continues to be capable of maintaining a
consistently high level of violent activity across Iraq. Baghdad, Ninewa,
Salahuddin, Anbar, and Diyala have been experiencing the worst of the
violence. Other areas, particularly Basra and Kirkuk, have recently
witnessed increased tension and a growing number of violent incidents.
Sectarian tensions and violence increased after the bombing of a holy
Shi'a shrine in Samarra in February 2006. A June 2006 UN report states
that, in recent months, much of the violence was committed by both sides
of the Sunni-Shi'a sectarian divide. Groups that are specifically targeted
included prominent Sunni and Shi'a Iraqis, government workers and their
families, members of the middle class (such as merchants and academics),
people working for or associated with MNF-I, and Christians.

The presence of militia groups in Iraq has become more prominent in recent
months and threatens Iraq's stability. Although the total number of
militias is unknown, a DOD report said that more than a dozen militias
have been documented in Iraq, varying in size, extent of organizational
structure, and area of influence. The largest of the known militias
include (1) the Badr Organization, a militia group of the Supreme Council
for the Islamic Revolution in Iran, (2) the Mahdi Army, a militia group of
radical Shi'a cleric Muqtada al-Sadr, and (3) the Kurdish Peshmerga, the
primary security force for the Kurdish regional government, in the
northern region of Iraq. The Coalition Provisional Authority developed a
strategy for disbanding or controlling militias in May 2004, and the Iraqi
Constitution prohibits the formation of militias outside the framework of
the armed forces. Many militias, however, remain present in Iraq and
threaten the country's stability. Since the February 2006 Samarra bombing,
the number of attacks by militia groups increased. According to the MNF-I
Commanding General, Iran has increased its support of a variety of Shi'a
extremist groups in southern Iraq since the beginning of this year.

7GAO, DOD Reports Should Link Economic, Governance, and Security
Indicators to Conditions for Stabilizing Iraq, GAO-06-152C (Washington,
D.C.: Oct. 18, 2005).

Need for National Reconciliation and Enhanced Ministerial Capacity Hinders
Efforts to Govern

Iraq's new government is addressing two critical issues-how to foster
national reconciliation and how to strengthen government so it can deliver
essential services and provide security to all Iraqis. However, Iraqi
efforts to foster reconciliation are primarily confronted by sectarian
divisions between Shi'a and Sunni groups. Moreover, U.S. and Iraqi efforts
to strengthen government ministries face the daunting task of developing
the ability of Iraq's ministries to govern after 30 years of autocratic
rule.

  Sectarian Divisions Undermine Efforts to Foster Reconciliation

On June 25, 2006, a few weeks after the formation of Iraq's first
permanent government, Iraq's Prime Minister proposed a 24-point
reconciliation plan for the nation. The plan's provisions include
initiating a national dialogue with all parties, including those opposed
to the government; providing amnesty for detainees and others not involved
in terrorist acts; and ensuring that Iraqi security forces do not
intervene in politics.

The Iraqi government has taken several steps to foster national
reconciliation and implement the provisions of this plan. For example,
Iraq's Foreign Minister met with the UN Security Council in mid-June. At
that meeting, the UN agreed to support the League of Arab States in
planning to convene a conference on Iraqi national accord. The Iraqi
government also announced that it would release 2,500 detainees. As of
mid-May, the Ministry of Human Rights reported that there are about 28,700
detainees throughout Iraq. As of late June, the Iraqi government had
released more than 1,000 detainees. Finally, the Iraqi Prime Minister
confirmed that he had contacted groups through a third party which had
been responsive to the reconciliation plan. He planned to hold direct
talks with seven resistance groups. He also clarified that amnesty would
not be granted to insurgents who killed Iraqis or coalition troops. In
addition, following the February 22 bombing of the Golden Mosque in
Samara, the U.S. Embassy reported that it called upon Iraqi leaders to
join together in unity and turn away from sectarian violence.

Although the Iraqi government has taken positive steps, national
reconciliation faces a long and difficult course because of sectarian
divisions within Iraq. According to a June 2006 UN report, much of the
violence in recent months stemmed from acts perpetrated by both sides of
the Sunni-Shi'a sectarian divide. The report states that Iraqis are
threatened by revenge attacks, the use of force by military and security
forces, and militia activities, among other threats. In a prior report,
the UN stated that militia power in Southern Iraq has resulted in
systematic acts of violence against the Sunni community. The UN report
concluded that unless there is progress towards national reconciliation
soon, increased polarization and even civil war could occur. In addition,
on June 7, 2006, the coalition killed al-Zarqawi, the operational
commander of the al-Qaeda movement in Iraq, who tried to incite civil war.
According to the President of the United States, his death is an
opportunity for the new government to succeed. However, the President also
cautioned that sectarian violence will continue.

  Iraq Faces Challenges in Delivering Government Services

The U.S. government faces significant challenges in improving the
capability of national and provincial governments to provide security and
deliver services to the Iraqi people. According to State, the Iraqi
capacity for self-governance was decimated after nearly 30 years of
autocratic rule.8 In addition, Iraq lacked competent existing Iraqi
governmental organizations. According to an Inter-Agency Strategy for
Iraqi Stability (ISIS) Working Group draft paper,9 the Baathist regime had
let governmental infrastructure organizations deteriorate since the first
Gulf War, and employment in these organizations had been based on cronyism
and political correctness rather than managerial competence.

Since 2003, the United States has provided Iraqis with various training
and technical assistance to improve their capacity to govern. U.S.
agencies provided senior advisers to Iraqi ministries to help in the
reconstruction of Iraq. For example, the Multinational Security Transition
Command-Iraq continues to develop the ministerial abilities of the
Ministries of Interior and Defense.

In January 2006, State reported a new initiative-the National Capacity
Development Program-to improve the capabilities of key Iraqi ministries.
In partnership with coalition allies and others, the program provides
technical assistance and training for 3 years to help the government of
Iraq improve managerial capacity. The program focuses on improving core
ministry functions, such as leadership and communication, financial and
human resource management, and information technology, among others. It
also includes extensive anti-corruption activities, such as standardized
auditing and procurement reform and policies and practices that aim to
eliminate patronage.

8Quarterly Update to Congress, Section 2207 Report (January 2006).

9Methods of Post-Conflict Reconstruction in Iraq: A Preliminary Assessment
(draft), Inter-Agency Strategy for Iraqi Stability (ISIS) Working Group,
Baghdad, Iraq (December 2005).

Reforming Iraqi ministries will face challenges. According to a recent
State Department report, corruption remains a critical impediment to the
successful governance of Iraq. The report also stated that Iraq needs
training in modern civil service policies. Another State assessment found
that non-security ministries face challenges and have limited capabilities
to carry out core functions, such as budgeting, procurement, and human
resource management.

U.S. officials recognize that increased technical assistance and training
is important and the United States is working with the UN, the World Bank,
and allies such as Italy, Denmark, and the United Kingdom in efforts to
partner with staff from Iraqi ministries and provincial governments.
Another important complement to these efforts is increased U.S. agency and
international partnering with Iraqi officials in areas such as planning,
financial management, budgeting and procurement, and human resource
management. These efforts are aimed at providing the Iraqis with the
essential management skills to govern effectively. GAO is also involved in
these efforts and is taking steps to partner with Iraq's Commission on
Public Integrity and the Board of Supreme Audit.

Efforts to Restore Oil and Electricity Sectors Are Hindered by Security,
Corruption, Fiscal, and Management Challenges

The U.S. and Iraqi governments are trying to revitalize Iraq's economy and
restore essential services in the oil and electricity sectors. However,
these efforts have been hindered by security, corruption, fiscal, and
management challenges.

  Despite Efforts, Restoring Iraq's Oil and Electricity Sectors Has Been
  Difficult

According to the U.S. Army Corps of Engineers Gulf Regional Division, DOD
has added or restored more than 1,400 megawatts of potential generating
capacity to the Iraq national electricity grid, as of June 2006. According
to agency reporting, average daily hours of electricity across most of
Iraq remained at 12 hours per day during the last two weeks of June 2006.
Available power for Baghdad averaged 8 hours per day for the same period.
In the oil sector, DOD has completed or is working on a number of projects
to boost Iraq's oil production, refining, and export capacity.

However, key reconstruction goals have yet to be achieved (see table 1).
As of June 25, 2006, oil and electricity sectors were below the planned
U.S. end-state. In June 2006, State reported that oil production was about
2.29 million barrels per day (mbpd), which was below the desired goal of 3
mbpd. In June 2006, electricity generation capacity was about 4,832
megawatts-above its prewar level but below the post-war peak of about
5,400 megawatts and the planned U.S goal of 6,000 megawatts. In addition,
it is unclear whether the current capacity can be sustained.

Table 1: Reconstruction Goals Not Met for Oil and Electricity Sectors

                               Pre-War                           Planned U.S. 
Sector      Metric          (2003)   Current (June 2006a)     end state    
Oil         Crude Oil       2.6 MBPD 2.29 MBPD                3.0 MBPD     
               Production                                        
               Capacity                                          
Electricity Peak Generation 4,300 MW 4,832 MW (5,387 MW peak  6,000 MW     
               Capacity                 in 7/14/05)              

MBPD = million barrels per day

MW = megawatts

Source: GAO analysis of Department of State data.

aJune 2006 includes June 1 to June 25, 2006, data. Data for the last week
of June is not yet available.

  Security, Corruption, Fiscal, and Management Challenges Hinder Reconstruction
  and Stabilization efforts

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.

Both the oil and electricity sectors face a number of challenges to
meeting Iraq's needs.

Improving infrastructure security. The insurgency has destroyed key
infrastructure, severely undermining progress. U.S. officials reported
that major oil pipelines continue to be sabotaged, shutting down oil
exports and resulting in lost revenues. Major electrical transmission
lines have been repeatedly sabotaged, cutting power to other parts of the
country. Current U.S. assistance is focused on strengthening the Strategic
Infrastructure Battalions, which are Ministry of Defense forces that
protect oil fields and pipelines.

Security conditions in Iraq 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.

Deterring corruption. U.S. and international officials reported increased
concerns about pervasive corruption in Iraq. Transparency International
ranked Iraq 137th of 159 countries in 2005 in terms of corruption. To
combat corruption, U.S. and international officials reported that the
Iraqi government established the Commission on Public Integrity, which is
charged with the criminal investigation of corruption cases, and the
independent Inspectors General within individual Iraqi ministries, and
revived the existing Board of Supreme Audit (BSA). The U.S. government,
including GAO, is working directly with these institutions.

The oil and electricity sectors remain particularly vulnerable to
corruption. Corruption in the oil sector presents a special problem,
particularly because of the sector's importance to the economy. According
to State officials and reporting, about 10 percent of refined fuels are
diverted to the black market, and about 30 percent of imported fuels are
smuggled out of Iraq and sold for a profit. According to U.S. Embassy
documents, the insurgency has been partly funded by corrupt activities
within Iraq and from skimming profits from black marketers. Moreover,
according to one analysis, corruption diverted much of Iraq's oil revenue
from reconstruction to government officials and their accomplices in
organized crime.10

Corruption in the electricity sector is also a problem. According to
State's Iraq Reconstruction Management Office (IRMO) officials, the
Ministry of Electricity contracts with tribal chiefs, paying them about
$60 to $100 per kilometer, to protect transmission lines running through
their areas. However, IRMO officials reported that the protection system
is flawed and encourages corruption. According to U.S. and UN Development
Program officials, some of these tribes are also selling materials from
downed lines and extracting tariffs for access to repair the lines.

The lack of metering facilitates opportunities for corruption in the oil
and electricity sectors. Despite a 2004 audit recommendation made by the
International Advisory and Monitoring Board for the Development Fund for
Iraq, and initial steps to install meters in accordance with standard oil
industry practices, the Iraqi government still lacks an effective system
of metering to measure production and export levels. According to U.S.
officials in the electricity section, about 30 percent of the meters in
Iraq are damaged. Most meters are old mechanical meters that need to be
replaced with electronic ones so that the system may be better monitored.

10Kenneth M. Pollack and the Iraqi Policy Working Group, "A Switch in
Time: A New Strategy for America in Iraq," Saban Center for Middle East
Policy at the Brookings Institution (February 2006).

Addressing fiscal challenges. Iraq's ability to contribute to its own
rebuilding is dependent on addressing key fiscal challenges, particularly
in the oil and electricity sectors. Current government subsidies constrain
opportunities for growth and investment and have kept prices for oil and
electricity low.

Domestic fuel prices in Iraq are among the lowest in the world. U.S. and
international officials report that these low prices have led to a rampant
black market and fuel smuggling out of the country; inadequate maintenance
and improvements; and over-consumption. According to U.S. and
international officials, the Iraqi budget is directly affected, since
state-owned refineries cover less than half the domestic demand, and the
Iraqi government has to import the rest at world market prices.

As part of its Stand-By Arrangement with the International Monetary Fund
(IMF), Iraq must reduce government subsidies of petroleum products. 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.
According to State reporting, a new round of price increases for diesel,
kerosene, and propane began to take effect in Baghdad and other areas the
week of June 19, 2006, and is being extended countrywide. The Iraqi
government committed itself to bring fuel prices closer to regional prices
as part of its IMF reform program. Iraqis currently pay about $.44 per
gallon for regular gasoline compared with about $.90 per gallon in
neighboring countries.

According to U.S. and international officials, the negative effects of the
electricity subsidy are similar to those for fuels. The national grid is
currently unable to satisfy the demand, and Iraqis must buy electricity
from privately-operated small diesel generators which are inefficient
sources of electricity. Moreover, according to World Bank reporting,
increasing tariffs is complicated by the desire to preserve wide access to
the grid and subsidize low-income groups.

Iraq faces other fiscal challenges, such as generous wage and pension
benefits, increased defense spending, and high external debt. Our April
2006 testimony before this committee provides additional details on these
other challenges.11

Managing and sustaining new and rehabilitated infrastructure. The U.S.
reconstruction program has encountered difficulties with Iraq's ability to
sustain the new and rehabilitated infrastructure and address maintenance
needs. A June 2006 Congressional Research Service report noted that as
more large-scale construction projects have been completed with U.S.
assistance, there has been increasing concern regarding the financial,
organizational, and technical capacity of Iraqis to maintain the projects
in the long run.12

More specifically, our prior reports and testimony note that 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. 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.

                                   Conclusion

The November 2005 NSVI and supporting documents represent the results of
efforts to improve the strategic planning process for the challenging and
costly U.S. mission in Iraq. Although the strategy is an improvement over
earlier efforts, it is incomplete even when considered in the context of
all supporting documents, both classified and unclassified. Without
additional information on roles and responsibilities, future contributions
and costs, and outcome-based metrics, the strategy does not provide the
Congress with a clear road map for achieving victory in Iraq. The
formation of the new Iraqi government provides an opportunity for the
United States government to re-examine its strategy and more closely align
its efforts and objectives with those of the Iraqi people and other
donors.

11See GAO, Rebuilding Iraq: Governance, Security, Reconstruction, and
Financing Challenge, GAO-06-697T (Washington, D.C.: Apr. 25, 2006).

12See Congressional Research Service RL31833, Iraq: Recent Developments in
Reconstruction Assistance (Washington, D.C., June 2006).

Based on our other ongoing and completed work, additional actions could be
taken to achieve U.S. objectives in Iraq. The United States, Iraq, and the
international community should consider the following:

           o  Focusing more attention on the capabilities of the Iraqi
           security forces rather than the number of forces. Although the
           number of the Iraqi security forces is increasing, these forces
           lack the logistical, command and control, and intelligence
           capabilities to operate independently.

           o  Improving national and provincial governance. The Iraqis will
           need technical assistance, training, and more partnering
           opportunities with the United States, other countries, and
           international organizations to strengthen their national and
           provincial governments and provide results that matter to the
           Iraqi people, for example, safe streets, good jobs, reliable
           electricity, clean water, education, and health care.

           o  Addressing the root causes of corruption. Strong and immediate
           measures must be taken to address Iraq's pervasive corruption
           problems. An anti-corruption strategy should establish a sound
           economic policy framework, reduce subsidies, strengthen
           accountability organizations, and enhance investment opportunities
           and job creation.

           Ultimately, the stability of Iraq hinges on reducing violence and
           establishing a capable, credible, and transparent system of
           government that is accountable to the Iraqi people.

           Mr. Chairman and Members of the Subcommittee, this concludes my
           prepared statement. At this time, I would be happy to answer any
           questions that you may have.

           For questions regarding this testimony, please call Joseph
           Christoff at (202) 512-8979. Other key contributors to this
           statement were Stephen Lord, Judith McCloskey, Tetsuo Miyabara,
           Lynn Cothern, Tracey Cross, B. Patrick Hickey, Rhonda Horried,
           Kathleen Monahan, Amy Sheller, and Nanette Barton.

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                     GAO Contact and Staff Acknowledgments

Appendix I: Extent the U.S. Strategy for Iraq Addresses GAO's Desirable
Characteristics of an Effective Strategy

(320434)

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Highlights of GAO-06-953T , a testimony before the Subcommittee on
National Security, Emerging Threats, and International Relations,
Committee on Government Reform, House of Representatives

July 11, 2006

REBUILDING IRAQ

More Comprehensive National Strategy Needed to Help Achieve U.S. Goals and
Overcome Challenges

In November 2005, the National Security Council (NSC) issued the National
Strategy for Victory in Iraq (NSVI) to clarify the President's strategy
for achieving U.S. political, security, and economic goals in Iraq. The
U.S. goal is to establish a peaceful, stable, and secure Iraq. In
addition, in June 2006, the administration issued a fact sheet at Camp
David discussing current progress and goals in Iraq.

This testimony (1) discusses the extent to which the NSVI and its
supporting documents address the six characteristics of an effective
national strategy, and (2) assesses how security, political, and economic
factors will affect achieving the U.S. strategy for Iraq. In this
testimony, the NSVI and supporting documents are collectively referred to
as the U.S. strategy for Iraq.

What GAO Recommends

A GAO report issued today recommends that NSC, along with the Departments
of Defense and State, complete the strategy by addressing all six
characteristics of an effective national strategy in a single document.
State commented that the NSVI's purpose is to provide a broad overview of
the U.S. strategy in Iraq, not all details. GAO's analysis was not based
exclusively on the NSVI but included all key supporting documents.
Consequently, GAO retained the recommendation for a more complete and
integrated strategy.

The NSVI is an improvement over previous U.S. planning efforts for
stabilizing and rebuilding Iraq. However, the NSVI and supporting
documents are incomplete as they do not fully address all the
characteristics of an effective national strategy. Among its positive
attributes, the strategy's purpose and scope is clear; it identifies U.S.
involvement in Iraq as a "vital national interest and the central front in
the war on terror." Also, the strategy generally addresses the threats and
risks facing the coalition forces and provides a comprehensive description
of U.S. political, security, and economic objectives in Iraq. However, the
discussion of outcome-related performance measures to assess progress in
achieving these goals and objectives is limited. Moreover, the strategy
falls short in at least three areas. First, it only partially identifies
the agencies responsible for implementing key aspects of the strategy.
Second, it does not fully address how the U.S. will integrate its goals
with those of the Iraqis and the international community, and it does not
detail Iraq's anticipated contribution to its future needs. Third, it only
partially identifies the current and future costs of U.S. involvement in
Iraq, including maintaining U.S. military operations, building Iraqi
government capacity, and rebuilding critical infrastructure. Furthermore,
the June 2006 Camp David fact sheet provides additional detail but does
not address these key shortfalls.

Security, political, and economic factors will hamper U.S. efforts to
stabilize Iraq and achieve key U.S. goals. First, the U.S. and Iraq are
trying to stabilize Iraq by training and equipping additional Iraqi
security forces and securing Baghdad and other strategic cities. However,
increases in attacks against the coalition and its Iraqi partners and the
growing influence of militias will adversely affect U.S. and Iraqi
efforts. Second, the U.S. and Iraq are trying to improve Iraq's capacity
to govern by reconciling sectarian groups and building the capacity of
national and provincial governments to provide security and services.
However, sectarian conflicts, the lack of capacity in the ministries, and
corruption serve to hinder these efforts. Third, the U.S. and Iraqi
governments are trying to revitalize Iraq's economy and restore the oil,
electricity, and other key sectors. However, these efforts have been
impeded by security, corruption, fiscal, and other challenges.

The formation of a permanent Iraqi government gives the U.S. an
opportunity to re-examine its strategy for Iraq and align its efforts with
Iraq and the international community. As a first step, NSC should complete
the strategy by defining and disseminating performance metrics,
articulating clear roles and responsibilities, specifying future
contributions, and identifying current costs and future resources. In
addition, the United States, Iraq, and the international community should
(1) enhance support capabilities of the Iraqi security forces, (2) improve
the capabilities of the national and provincial governments, and (3)
develop a comprehensive anti-corruption strategy.
*** End of document. ***