Rebuilding Iraq: Integrated Strategic Plan Needed to Help Restore
Iraq's Oil and Electricity Sectors (15-MAY-07, GAO-07-677).
Since 2003, the United States has provided several billion
dollars in reconstruction funds to help rebuild Iraq oil and
electricity sectors, which are crucial to rebuilding Iraq's
economy. For example, oil export revenues account for over half
of Iraq's gross domestic product and over 90 percent of
government revenues. The U.S. rebuilding program was predicated
on three key assumptions: a permissive security environment, the
ability to restore Iraq's essential services to prewar levels,
and funding from Iraq and international donors. This report
addresses (1) the funding made available to rebuild Iraq's oil
and electricity sectors, (2) the U.S. goals for these sectors and
progress in achieving these goals, and (3) the key challenges the
U.S. government faces in these efforts.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-677
ACCNO: A69665
TITLE: Rebuilding Iraq: Integrated Strategic Plan Needed to Help
Restore Iraq's Oil and Electricity Sectors
DATE: 05/15/2007
SUBJECT: Critical infrastructure
Crude oil
Electric energy
Federal aid to foreign countries
Federal funds
Foreign governments
Iraq War and reconstruction
Oil resources
Strategic planning
Electric power generation
Electric power transmission
Crude oil pipeline operations
Budgeting
International organizations
Iraq
Iraq Relief and Reconstruction Fund
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GAO-07-677
* [1]Results in Brief
* [2]Background
* [3]The United States, Iraq, and Donors Have Funded Reconstructi
* [4]United States Has Spent Billions in U.S. and Iraqi Funds to
* [5]United States Has Spent Billions to Support
Reconstruction o
* [6]U.S. Agencies Spent Billions in Iraqi Funds on Oil and
Elect
* [7]Billions of Additional Dollars Needed to Rebuild Oil and Ele
* [8]Billions of Additional Dollars Are Needed to Fund the
Rebuil
* [9]Iraq's Oil and Electricity Ministries Have Not Spent
Existin
* [10]Iraq Has Not Made Full Use of International Financial Assist
* [11]Iraq's Oil and Electricity Production Goals Have Not Been Me
* [12]U.S. Oil and Electricity Goals Have Not Been Met
* [13]Iraq's Crude Oil Production and Exports Have Not Met
Goals
* [14]Iraq's Crude Oil Production May Be Overstated
* [15]Iraq's Electricity Production Has Not Met Goals or
Increasin
* [16]Most Major U.S. Projects Completed, but Iraq Faces Difficult
* [17]Major Challenges Hinder Efforts to Meet Iraq's Oil and Elect
* [18]Poor Security Conditions Have Slowed Reconstruction and Incr
* [19]Corruption, Smuggling, and Other Illicit Activities Impact R
* [20]Inadequate Legal and Regulatory Framework and Financial Mana
* [21]Lack of Integrated Energy Planning Creates Inefficiencies an
* [22]Conclusions
* [23]Recommendations for Executive Action
* [24]Agency Comments and Our Evaluation
* [25]Appendix I: Objectives, Scope, and Methodology
* [26]Appendix II: Comments from the Department of State
* [27]Appendix III: GAO Contact and Staff Acknowledgments
* [28]GAO Contact
* [29]Acknowledgments
* [30]Order by Mail or Phone
May 2007
REBUILDING IRAQ
Integrated Strategic Plan Needed to Help Restore Iraq's Oil and
Electricity Sectors
GAO-07-677
On June 22, 2007, the Web version of this report was reissued to reflect
changes to enemy-initiated attack data provided by the Defense
Intelligence Agency. On June 13, 2007, DIA notified GAO that its April
2007 attack data were incorrect because it had excluded attacks from a new
subordinate command established on April 1, 2007. According to DIA,
Multi-National Division-Center did not properly forward its April attack
data because of inadequate reporting procedures; it has since corrected
the problem. Accordingly, enemy attacks in April totaled approximately
4,900 rather than the 4,500 previously reported (see page 34). We also
revised the corresponding narrative to show the average number of daily
attacks increasing from 157 in March 2007 to 163 in April 2007 (see page
33).
Contents
Letter 1
Results in Brief 2
Background 6
The United States, Iraq, and Donors Have Funded Reconstruction of Iraq's
Oil and Electricity Sectors, but Iraq's Future Needs Are Significant and
Sources of Funding Uncertain 12
Iraq's Oil and Electricity Production Goals Have Not Been Met, Oil
Production Figures May Be Overstated, and Iraq Faces Difficulties
Sustaining Infrastructure 21
Major Challenges Hinder Efforts to Meet Iraq's Oil and Electricity Needs
33
Conclusions 43
Recommendations for Executive Action 43
Agency Comments and Our Evaluation 44
Appendix I Objectives, Scope, and Methodology 51
Appendix II Comments from the Department of State 55
Appendix III GAO Contact and Staff Acknowledgments 58
Tables
Table 1: Status of Appropriation Funds Apportioned to the Oil and
Electricity Sectors, as of September 30, 2006 13
Table 2: Iraqi Funds Used for U.S. Oil and Electricity Sectors, as of
December 31, 2005 15
Table 3: U.S. Goals and 2006 Averages for Iraq Oil Sector 24
Table 4: U.S. Goals and 2006 Averages for Iraq Electricity Sector 28
Figures
Figure 1: Overview of Oil Network 7
Figure 2: Crude Oil Production Levels in Iraq, 1970-2005 9
Figure 3: Overview of Electricity Network 10
Figure 4: 2006 Ministry of Oil and Electricity Spending by Major Category,
as of November 2006 18
Figure 5: Iraqi Reported Crude Oil Production, Exports, and U.S. Goals,
June 2003 through December 2006 23
Figure 6: Comparison of IRMO and EIA Data on Iraq's Crude Oil Production
26
Figure 7: Peak Electricity Generation and Demand in Iraq, May 2005 to
December 2006 29
Figure 8: Enemy-Initiated Attacks against the Coalition and Its Iraqi
Partners 34
Figure 9: Downed Transmission Tower in Iraq 35
Figure 10: Attack on Oil Pipeline 36
Abbreviations
CERP Commander's Emergency Response Program
CPA Coalition Provisional Authority
DAD Donor Assistance Database
DFI Development Fund for Iraq
DOD Department of Defense
EIA Energy Information Administration
EPPS Electrical Power Security Service
GRD Gulf Regional Division
IDA International Development Assistance
IMF International Monetary Fund
IRFFI International Reconstruction Fund Facility for Iraq
IRMO Iraq Reconstruction Management Office
IRRF Iraq Relief and Reconstruction Fund
LPG liquefied petroleum gas
mbpd million barrels per day
mscfd million standard cubic feet per day
mw megawatt
mwh megawatt hours
PCO Project and Contracting Office
SIB Strategic Infrastructure Battalions
SIGIR Special Inspector General for Iraq Reconstruction
tpd tons per day
UN United Nations
UNDP United Nations Development Programme
USAID United States Agency for International Development
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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copyright holder may be necessary if you wish to reproduce this material
separately.
United States Government Accountability Office
Washington, DC 20548
May 15, 2007
Congressional Committees
The Iraqi government inherited an oil and electricity infrastructure that
was greatly deteriorated due to the previous regime's neglect,
international sanctions, and years of conflict, looting, and vandalism.
Since 2003, the U.S. government has provided several billion dollars in
reconstruction funds to help restore Iraq's crude oil production and
exports and improve Iraq's electrical generating capacity, transmission,
distribution, and monitoring systems.1 Both sectors are crucial to
rebuilding the economy. Iraq's crude oil reserves, estimated at 115
billion barrels, are the third largest in the world. Oil export revenues
account for over half of Iraq's gross domestic product and over 90 percent
of its revenues. This revenue is essential to Iraq's ability to provide
for its needs, including reconstruction. In addition, an inadequate and
unreliable supply of electricity affects both public perceptions of the
government's ability to deliver basic services and the productivity of
Iraq's oil sector, which is highly dependent on electricity.
GAO's review of reconstruction efforts in Iraq, done under the Comptroller
General's authority to conduct evaluations on his own initiative, examined
U.S. activities directed at rebuilding the oil and electricity sectors.2
Specifically, we addressed (1) the funding made available to rebuild
Iraq's oil and electricity sectors and the factors that may affect Iraq's
ability to meet its future funding needs, (2) the U.S. goals for the oil
and electricity sectors and progress in achieving these goals, and (3) the
key challenges the U.S. government faces in helping Iraq restore its oil
and electricity sectors.
To accomplish our objectives, we reviewed and analyzed U.S., Iraqi, donor
government, United Nations (UN), International Monetary Fund (IMF), and
World Bank reports and data. During our field work in Washington, D.C.;
Baghdad, Iraq; and Amman, Jordan, we met with officials from the
Department of State, the U.S. Agency for International Development
(USAID), the Department of Defense (DOD), the Department of the Treasury,
and the Department of Energy. During our two trips to Iraq and Jordan, we
met with Iraqi, UN, IMF, World Bank, donor country (Japan and European
Union), private sector, and U.S. officials. We observed several embassy
meetings and a donor meeting led by the Iraqi Ministry of Planning. We
also interviewed U.S., Iraqi, and UN officials at a November 2006
electricity conference sponsored by the UN Development Programme (UNDP) at
the Dead Sea, Jordan. We analyzed data on Iraq's 2006 and 2007 budgets and
2006 budget expenditures. We found these data to be sufficiently reliable
for comparing Iraq's intended ministry expenditures and determining that
Iraq has not been able to fully expend its budget in certain budget
categories. We examined data on Iraqi oil production from the Department
of State's Iraq Reconstruction and Management Office (IRMO) and the
Department of Energy's Energy Information Administration (EIA). Although
we found some limitations in these data, they were sufficiently reliable
to determine whether U.S. goals for oil production were being met. We also
examined data on oil exports and electricity production in Iraq and found
them sufficiently reliable for determining if U.S. goals were being met.
Appendix I contains a more detailed description of our scope and
methodology.
1These figures include the Iraq Relief and Reconstruction Funds provided
in the Emergency Wartime Supplemental Appropriations Act, 2003, P.L.
108-11, and in the Emergency Supplemental Appropriations Act for Defense
and for the Reconstruction of Iraq and Afghanistan, 2004, P.L. 108-106,
which are known as IRRF 1 and IRRF 2, respectively.
2In this report, the oil sector, which is under the direction of Iraq's
Ministry of Oil, refers broadly to crude oil, associated natural gas
production and exports, and petroleum products (such as gasoline) that are
refined in Iraq or imported.
We conducted our review from January 2006 through March 2007 in accordance
with generally accepted government auditing standards. The work performed
for this review has also contributed to several related GAO products on
Iraq.3
Results in Brief
While billions have been provided to rebuild Iraq's oil and electricity
sectors, Iraq's future needs are significant and sources of funding
uncertain. For fiscal years 2003 through 2006, the United States made
available about $7.4 billion and spent about $5.1 billion to rebuild the
oil and electricity sectors. The United States spent an additional $3.8
billion in Iraqi funds on the two sectors, primarily on oil and
electricity sector contracts administered by U.S. agencies. However,
according to various estimates and officials, Iraq will need billions of
additional dollars to rebuild, maintain, and secure Iraq's oil and
electricity sectors. The Ministry of Electricity estimates that about $27
billion will be needed to meet the sector's future rebuilding
requirements; a comparable estimate has not been developed by the Ministry
of Oil. Since the majority (about 70 percent) of U.S. funds has been
spent, the Iraqi government and the international donor community
represent important sources of potential funding. However, prospects of
such funding are uncertain. First, the Oil and Electricity Ministries have
encountered difficulties spending capital improvement budgets because of
weaknesses in budgeting, procurement, and financial management. As of
November 2006, the Ministry of Oil had spent less than 3 percent of its
$3.5 billion 2006 capital budget to improve Iraq's oil facilities. Second,
Iraq has not made full use of potential international contributions and it
is unclear what additional financial commitments, if any, will be provided
to Iraq's oil and electricity sectors as part of a new international
compact (agreement), according to U.S. officials. As of March 2007, donors
had committed $580 million in grants for the electricity sector and had
offered loans for oil and electricity projects; however, Iraq has not
accessed these loans in part due to concerns about its high debt burden.
3GAO, Rebuilding Iraq: Governance, Security, Reconstruction, and Financing
Challenges, [31]GAO-06-697T (Washington, D.C.: Apr. 25, 2006); Rebuilding
Iraq: More Comprehensive National Strategy Needed to Help Achieve U.S.
Goals, [32]GAO-06-788 (Washington, D.C.: July 11, 2006); Rebuilding Iraq:
More Comprehensive National Strategy Needed to Help Achieve U.S. Goals and
Overcome Challenges, [33]GAO-06-953T (Washington, D.C.: July 11, 2006);
and Securing, Stabilizing, and Rebuilding Iraq: Key Issues for
Congressional Oversight, [34]GAO-07-308SP (Washington, D.C.: Jan. 9,
2007).
Despite 4 years of effort and the substantial resources devoted to
restoring Iraq's oil and electricity sectors, production in both sectors
has consistently fallen below U.S. program goals. Key U.S. goals for the
oil sector are to reach a crude oil production capacity of 3 million
barrels per day (mbpd) and crude oil export levels of 2.2 mbpd, and to
increase production capacity and stock levels of refined fuels. However,
State Department data indicate that actual crude oil production and
exports averaged, respectively, about 2.1 mbpd and 1.5 mbpd in 2006, and
refined fuel production and stock levels did not meet the goals set. In
addition, IRMO's estimate of Iraq's oil production levels may be
overstated since inadequate metering does not allow precise measurement of
crude oil production. The U.S. goal for electrical peak generation
capacity is 6,000 megawatts (mw); however, electricity in Iraq averaged
4,280 mw of peak generation per day in 2006, about 3,950 mw short of
demand in 2006. The Iraqi government projects that it will not be able to
fully meet the demand for electricity until 2009. However, these
projections assume that the Ministry of Electricity will be assured of a
stable supply of the fuel needed for electricity generation, which has
been lacking in the past due to poor coordination between the Oil and
Electricity Ministries. Some improvements in current crude oil and
electricity production levels may be achieved once the Army Corps of
Engineers Gulf Region Division (GRD) finalizes its remaining oil and
electricity projects, which are scheduled for completion by April 2008.
However, these projects have experienced continued delays, undermining
prospects for meeting U.S. production goals. Additionally, Iraq has
experienced difficulty in sustaining the infrastructure rehabilitated with
U.S. funds. For example, the U.S. decision to install gas turbine
generators without an assured supply of natural gas required the use of
fuel oils that resulted in increased maintenance costs and decreased power
output.
A variety of security, corruption, legal, and planning challenges have
impeded U.S. and Iraqi efforts to restore Iraq's oil and electricity
sectors. These challenges have made it difficult to achieve the current
crude oil production and export goals that are central to Iraq's
government revenues and economic development. In the electricity sector,
these challenges have made it difficult to achieve a reliable Iraqi
electrical grid that provides power to all other infrastructure sectors
and promotes economic activity. The U.S. reconstruction effort was
predicated on the assumption that a permissive security environment would
exist. However, the deteriorating security environment continues to place
workers and infrastructure at risk while protection efforts have been
insufficient. Corruption, smuggling, and other illicit activities result
in revenue losses and low cost recovery. Widespread corruption and
smuggling reduce revenues that could be collected through the legal sale
of refined oil products such as gasoline. According to State Department
officials and reports, about 10 percent to 30 percent of refined fuels is
diverted to the black market or is smuggled out of Iraq and sold for a
profit. Moreover, the lack of an effective metering system within the
electricity sector hinders efforts to accurately measure consumption and
deter theft. Furthermore, according to U.S. and World Bank officials, the
government also lacks an adequate legal and regulatory framework,
including comprehensive hydrocarbon legislation that would govern
distribution of future oil revenues and granting of exploration rights.
Until this framework is established, it will be difficult to attract the
billions of dollars in additional foreign investment needed to modernize
Iraq's oil sector and ensure that the government has the oil revenues
essential for future reconstruction and reconciliation. Finally, although
the oil and electricity sectors are mutually dependent, the Iraqi
government lacks integrated planning for these sectors, which has led to
inefficient management of the country's resources. According to the U.S.
government, about $4 billion in potential revenues are lost each year
through inefficient energy production practices, such as the flaring of
natural gas, underscoring the need for such a plan.
This report makes several recommendations, including that the Secretary of
State, in conjunction with relevant U.S. agencies and in coordination with
the donor community, work with the Ministries of Oil and Electricity to
(1) develop an integrated energy strategy for the oil and electricity
sectors that identifies, among other items, key goals and priorities,
future funding needs, and steps for enhancing ministerial coordination;
(2) set milestones and assign resources to expedite efforts to establish
an effective metering system for both the oil and electricity sectors; (3)
improve the existing legal and regulatory framework, for example, by
developing fair and equitable hydrocarbon legislation, regulations, and
implementing guidelines; (4) set milestones and assign resources to
expedite efforts to develop adequate budgeting, procurement, and financial
management systems; and (5) implement a viable donor mechanism to secure
funding for Iraq's future oil and electricity rebuilding needs.
In commenting on a draft of this report, State agreed that all the steps
we included in our recommendations are necessary to improve Iraq's energy
sector but stated that these actions are the direct responsibility of the
Government of Iraq, not of the Department of State, any U.S. agency, or
the international donor community. State also commented that U.S. agencies
are already taking several actions consistent with our recommendations. We
recognize that these actions are ultimately the responsibility of the
Iraqi government. However, it is clear that the U.S. government wields
considerable influence in overseeing Iraq stabilization and rebuilding
efforts. We also acknowledge that State has made some efforts to address
the issues that led to our recommendations and have refined our report
accordingly. However, we believe additional actions are warranted given
the lack of progress that has been made over the last 4 years in achieving
Iraq reconstruction goals. Also, some of State's initiatives are
relatively new. For example, State commented that an Energy Fusion Cell
composed of the Embassy, Multinational Force-Iraq, and the ministries of
oil and electricity has been formed to craft an integrated energy strategy
and that the practical effectiveness of this effort will depend on whether
the cell is able to obtain buy-in from the two Iraqi ministries. However,
since the details of the strategy have not been released, it is still
unclear whether this strategy will fully address the key elements of an
effective strategy identified in our report, such as identifying
rebuilding priorities, resource needs, stakeholder roles and
responsibilities, and performance measures and milestones. The uncertainty
over ministry buy-in also underscores the importance of State working
closely with other U.S. agencies, the government of Iraq, and the
international donor community in crafting a new energy sector strategic
plan.
Background
Iraq's oil infrastructure is an integrated network that includes crude oil
fields and wells, pipelines, pump stations, refineries, gas/oil separation
plants, gas processing plants, export terminals, and ports (see fig. 1).
This infrastructure has deteriorated significantly over several decades
due to war damage, inadequate maintenance, and the limited availability of
spare parts, equipment, new technology, and financing. Considerable
looting after Operation Iraqi Freedom and continued attacks on crude and
refined product pipelines have contributed to Iraq's reduced crude oil
production and export capacities.
Figure 1: Overview of Oil Network
Iraq's crude oil reserves, estimated at a total of 115 billion barrels,
are the third largest in the world. However, Iraq's ability to extract
these reserves has varied widely over time and has been significantly
affected by war. Figure 2 shows Iraq's daily average crude oil production
levels annually from 1970 through 2005.4 In the 5 years preceding the 2003
invasion, crude oil production averaged 2.3 mbpd.
Iraq's crude oil production reached it highest annual average, 3.5 mbpd,
in 1979. In September 1980, Iraq invaded Iran and production levels
plummeted. Although the Iran-Iraq War continued until 1988, production
levels grew steadily after 1983, peaking at 2.9 million barrels per day in
1989. The following year, Iraq invaded Kuwait, which began the Gulf War.
In January 1991, the United States and coalition partners began a
counter-offensive (Operation Desert Storm). Crude oil production once
again dropped precipitously and remained relatively low from 1990 to 1996,
while Iraq was under UN sanctions. Under the UN Oil for Food program,
Iraqi crude oil production began to rebound, peaking at an annual average
of 2.6 mbpd in 2000. In March 2003, the United States and coalition
partners invaded Iraq. Crude oil production dropped again to a low of
about 1.3 million barrels per day (annual average) in 2003 but then
rebounded relatively quickly.
4The first year of data that the U.S. Department of Energy's Energy
Information Administration (EIA) reports for Iraq is 1970.
Figure 2: Crude Oil Production Levels in Iraq, 1970-2005
Note: Data on Iraq's crude oil production include lease condensates. Lease
condensates are hydrocarbons that are gaseous underground but become
liquid above ground and are subsequently commingled with the crude oil.
Therefore, the actual values for Iraq's crude oil production would be
slightly lower if lease condensates were excluded from the data.
Iraq's electricity infrastructure consists of a network of (1) generation
facilities that produce power; (2) transmission stations and lines that
transmit power from power stations to distribution networks; (3)
distribution stations and lines that move power to the end users; and (4)
an automated monitoring and control system, under development, which is a
centralized communications and control system designed to monitor system
performance and control equitable distribution of power (see fig. 3).
According to senior U.S. agency officials, Iraq's electricity
infrastructure was in worse condition following the 2003 conflict than
initially anticipated or reported in the 2003 UN/World Bank Needs
Assessment.5 The report noted that the severe degradation of Iraq's
generating capacity--from about 5,100 megawatts in 1990 to about 2,300
megawatts after the 1991 Gulf War--was largely due to war damage to
generation stations. Although the report notes that production was
restored to about 4,500 megawatts before the 2003 conflict, U.S. officials
said that Iraq's electrical infrastructure had experienced significant
deterioration due to the war and years of neglect under Saddam's regime.
5UN/World Bank, Joint Iraq Needs Assessment (Baghdad, Iraq: Oct. 2003).
Figure 3: Overview of Electricity Network
From May 2003 through June 2004, the Coalition Provisional Authority
(CPA), led by the United States and the United Kingdom, was the
UN-recognized authority responsible for the temporary governance of Iraq
and for overseeing, directing, and coordinating reconstruction efforts. In
2003, the CPA committed to improving the oil sector in Iraq and stated
that its activities were to include repairing and restoring the oil
infrastructure to pre-war levels, among other goals. The CPA also
committed to improving the electricity sector in Iraq and stated that CPA
partners would provide reliable, stable, and predictable power to the
people and enterprises of Iraq by rebuilding generation, transmission, and
distribution networks, as well as system control and communications; by
establishing a sound regulatory framework for the electricity sector; and
by ensuring improved security for infrastructure.
In developing its reconstruction plan, the CPA made several assumptions
that never materialized.6 The first and most critical assumption was that
there would be a permissive security environment to conduct reconstruction
activities. Second, the CPA assumed that U.S.-funded reconstruction
activities would help restore Iraq's essential services--including oil
production and electricity generation--to prewar levels. The CPA assumed
that the Iraqi government and the international community would help
finance Iraq's developmental needs and that Iraqi oil revenues could help
pay for reconstruction costs. The CPA estimated that Iraq's oil production
would increase to about 2.8 to 3 mbpd by the end of 2004. Additionally, it
assumed that because of its expertise, the United States would focus its
resources on long-term reconstruction projects.
With the establishment of Iraq's interim government in June 2004, the
CPA's responsibilities were transferred to the Iraqi government or to U.S.
agencies. Since then, the Department of State has been responsible for
overseeing U.S. efforts to rebuild Iraq. The Project and Contracting
Office (PCO), a temporary DOD organization, was tasked with providing
acquisition and project management support. In December 2005, DOD merged
the PCO with the U.S. Army Corps of Engineers Gulf Region Division, which
supervises DOD reconstruction activities in Iraq. Additionally, the State
Department's Iraq Reconstruction and Management Office (IRMO) has been
responsible for strategic planning and for prioritizing requirements,
monitoring spending, and coordinating with the military commander.
According to U.S. officials, IRMO is scheduled to sunset on May 10, 2007,
and is to be replaced by the Office of Transition and Assistance
Coordination. IRMO advisors to the ministries will continue their work
under the new office or other relevant U.S. offices. As of March 2007,
IRMO had assigned the Ministries of Oil and Electricity 10 and 18
advisors, respectively. Additionally, USAID awarded and managed its own
contracts for electricity under its Bechtel contracts which, as of April
2007, were being closed out. USAID continues to award its own contracts,
which are now generally associated with economic assistance, governance,
capacity building, and its community stabilization program.
6GAO, Rebuilding Iraq: More Comprehensive National Strategy Needed to Help
Achieve U.S. Goals, [35]GAO-06-788 (Washington, D.C.: July 2006).
The United States, Iraq, and Donors Have Funded Reconstruction of Iraq's Oil and
Electricity Sectors, but Iraq's Future Needs Are Significant and Sources of
Funding Uncertain
For fiscal years 2003 through 2006, the United States made available about
$7.4 billion, obligated about $7.1 billion, and spent about $5.1 billion
in U.S. funds to rebuild Iraq's oil and electricity sectors. The U.S.
government also has spent about $3.8 billion in Iraqi funds, as of
December 31, 2005, for reconstruction activities, including CPA contracts
administered by U.S. agencies. However, according to various estimates,
each sector will need billions more to achieve its rebuilding goals. Since
the majority of the U.S. funds have been spent, the Iraqi government and
international donor community represent important sources of potential
future funding. However, these sources of funding remain uncertain. The
Ministries of Oil and Electricity have encountered difficulties spending
their existing capital improvements budgets, and their future budgets are
subject to the volatility of oil revenues. The Iraqi government has not
made full use of potential international contributions, and future donor
funding is also uncertain.
United States Has Spent Billions in U.S. and Iraqi Funds to Support
Reconstruction
The United States has spent the majority (about 70 percent) of the $7.4
billion in funds it made available to reconstruct the electricity and oil
sectors. Additionally, the United States spent $3.8 billion in Iraqi funds
on oil and electricity sector reconstruction activities.
United States Has Spent Billions to Support Reconstruction of Iraq's Oil and
Electricity Sectors
U.S. agencies have spent about $5.1 billion of the $7.4 billion made
available for the oil and electricity sectors, as of September 30, 2006
(see table 1). For the oil sector, U.S. agency efforts focused primarily
on production and exportation, and to a lesser extent on the
rehabilitation of refinery and gas facilities. For the electricity sector,
U.S. agency efforts generally focused on restoring or constructing
generation, transmission, distribution, and automated monitoring and
control system projects.
Table 1: Status of Appropriation Funds Apportioned to the Oil and
Electricity Sectors, as of September 30, 2006
Dollars in millions
Funding
Source of
fundsa/authority Agency/program Apportioned Obligated Expended
Oil sector
2003 Iraq Relief and DOD/Restore Iraq $166.0 $166.0 $166.0
Reconstruction Fund Oil
(IRRF 1)/ P.L. 108-11
The Natural Resources DOD/ Restore Iraq 802.0 800.6 797.7
Risk Remediation Fund Oil
(NRRRF)/ P.L. 108-11
2004 Iraq Relief and DOD 1,724.7 1,604.6 1,163.0
Reconstruction Fund
(IRRF 2)/ P.L. 108-106
Total oil $2,692.7 $2,571.2 $2,126.7
Electricity sector
IRRF 1/ P.L. 108-11 DOD / Restore $300.0 $299.9 $299.9
Iraq Electricity
USAID/ Restore Not Not Not
Critical available available available
Infrastructureb
IRRF 2/ P.L. 108-106 DOD 3,403.0 3,260.1 1,966.0
USAID 836.6 836.6 741.9
Commander's Emergency DOD 163.6 163.6 Not
Response Program for available
FY2004-06 (CERP)c /P.L.
108-106, P.L. 108-287,
P.L. 109-13,
P.L.109-148, P.L.
109-234
Total electricity $4,703.2 $4,560.2 $3,007.8
Total $7,395.9 $7,131.4 $5,134.5
Sources: DOD, USAID, and State Department's Iraq Reconstruction and
Management Office data.
aAccording to the DOD comptroller's office, although some military
construction funds also were used for reconstruction efforts, they were
not apportioned by sector. Further, about $1.1 million of Operations and
Maintenance, Army funds were initially apportioned, obligated, and
expended for electricity projects. Also, $285 million in emergency
supplemental funds were made available for cross-sector operations and
maintenance sustainment of key U.S.-funded infrastructure.
bAccording to USAID, IRRF 1 funds under its Restore Critical
Infrastructure program were not apportioned by sector. Under this
cross-sector reconstruction program, about $995 million was apportioned
and obligated and about $939 million was disbursed as of September 30,
2006.
cDOD and its executing agency, the U.S. Army, were unable to provide
complete data for U.S.-appropriated CERP funding for the electricity
sector. Under CERP, DOD commits funds to projects once identified. DOD
does not track sector commitments after the year of the corresponding
appropriation. Thus, any updated data on amounts apportioned, obligated,
or expended by sector are not available and not reflected in this table.
Funding for electricity included about $164 million for the Commander's
Emergency Response Program (CERP) during fiscal years 2004 to 2006.7
Additional funding for CERP has been provided under the Department of
Defense 2007 Appropriations Act,8 which makes available up to $500 million
for CERP in Iraq and Afghanistan. The fiscal year 2007 CERP allocation for
electricity projects in Iraq was not available as of March 2007, according
to Army and DOD officials. CERP provides coalition military commanders
with a tool to rapidly respond to urgent humanitarian relief and
reconstruction needs in their geographic area of responsibility.
U.S. Agencies Spent Billions in Iraqi Funds on Oil and Electricity
Reconstruction Activities
U.S. agencies spent about $3.8 billion in Iraqi funds in the oil and
electricity sectors, as of December 31, 2005 (see table 2). These funds
came from vested and seized assets from the previous Iraqi regime9 and oil
revenues in the Development Fund for Iraq (DFI).10 The CPA spent vested
and seized assets on reconstruction activities, including projects,
ministry operations, and liquefied petroleum gas. DFI funds consist of oil
proceeds, UN Oil for Food program surplus funds, and returned Iraqi
government and regime financial assets; DFI funds continue to be used for
contracts administered by U.S. agencies.11 According to International
Advisory Monitoring Board of the DFI documents, the Iraqi government
granted U.S. agencies limited authority to administer outstanding
contracts entered into by the former CPA that required subsequent payments
after June 28, 2004.12 This authority expired on December 31, 2006. In
March 2007, the U.S. government requested that the Iraqi government extend
the authority to December 31, 2007.
7Funding for CERP was made available in the following legislation:
Emergency Supplemental Appropriations Act for Defense and for the
Reconstruction of Iraq and Afghanistan, 2004, P.L. 108-106; Department of
Defense Appropriations Act, 2005, P.L. 108-287; Emergency Supplemental
Appropriations Act for Defense, the Global War on Terror, and Tsunami
Relief, 2005, P.L. 109-13; Department of Defense, Emergency Supplemental
Appropriations to Address Hurricanes in the Gulf of Mexico, and Pandemic
Influenza Act, 2006, P.L. 109-148; and Emergency Supplemental
Appropriations Act for Defense, the Global War on Terror, and Hurricane
Recovery, 2006, P.L. 109-234.
8P.L. 109-289.
9"Vested assets" refers to former Iraqi regime assets held in U.S.
financial institutions that the President confiscated in March 2003 and
vested in the U.S. Treasury. The United States froze these assets shortly
before the first Gulf War. The U.S.A. PATRIOT Act of 2001 amended the
International Emergency Economic Powers Act to empower the President to
confiscate, or take ownership of, certain property of designated entities,
including these assets, and vest ownership in an agency or individual. The
President has the authority to use the assets in the interests of the
United States. In this case, the President vested the assets in March 2003
and made these funds available for the reconstruction of Iraq in May 2003.
"Seized assets" refers to former regime assets seized within Iraq.
10On May 22, 2003, the UN adopted Security Council Resolution 1483, which
noted the establishment of the DFI to be used for the economic
reconstruction and repair of Iraq's infrastructure, among other purposes.
Under the resolution, 95 percent of oil proceeds are to be deposited into
the DFI.
Table 2: Iraqi Funds Used for U.S. Oil and Electricity Sectors, as of
December 31, 2005
Oil sector Disbursed
Development Fund for Iraq $2,709,267,000
Seized funds 95,000,000
Vested funds 7,000
Total for oil sector $2,804,274,000
Electricity sector
Development Fund for Iraq $1,014,674,000
Seized funds 2,975,000
Vested funds 12,925,000
Total for electricity sector $1,030,574,000
Total $3,834,848,000
Source: GAO analysis based on data from CPA, DOD, and the independently
audited DFI Statement of Cash Receipts and Payments, as reported to the
Iraqi government and the International Advisory Monitoring Board.
Notes: Current independent auditor's data for the DFI are as of December
31, 2005. The results of the independent audit of 2006 funds have not yet
been released. Sector activities include the DFI purchase of about $2,241
million in petroleum products and $50 million in generated electricity
from other countries. Disbursed figures do not include DFI funds provided
through the CERP and other small programs, which also support
reconstruction activities.
11According to an independent audit of the DFI, U.S. agencies did not
maintain a complete and accurate database of outstanding contractual
commitments for contracts signed by the former CPA. See Ernst & Young,
Management Letter for Development fund for Iraq for the Period from July
1, 2005, to December 31, 2005 (July 10, 2006).
12The CPA turned DFI stewardship over to the new Iraqi government in June
2004. According to State Department estimates, about $18 billion in oil
revenue had been deposited into the DFI since the transition from the CPA
to the interim Iraqi government, as of May 31, 2005.
Billions of Additional Dollars Needed to Rebuild Oil and Electricity Sectors,
but Future Iraqi Funding Is Uncertain
According to the Iraqi government, the UN, and the U.S. government, Iraq's
Ministries of Oil and Electricity will need billions of additional dollars
to rebuild, maintain, and secure Iraq's oil and electricity infrastructure
and achieve production goals. However, the Iraqi government has had
difficulty fully expending its funds already allocated to the electricity
and oil sectors. In addition, the amount of Iraq's future budget revenues
is uncertain due to Iraq's dependency on potentially volatile oil
revenues. According to the World Bank, volatility in oil export revenues
could hamper the prospects for Iraq's reconstruction program because
volatility increases uncertainty, leads to wasteful public investment in
times of boom, and depresses investment when oil prices are low.
Billions of Additional Dollars Are Needed to Fund the Rebuilding of the Oil
and Electricity Sectors
The Iraqi government, the UN, and the U.S. government estimate that Iraq
will need billions of additional dollars to continue rebuilding,
maintaining, and securing Iraq's oil and electricity infrastructure. For
example, the Ministry of Electricity's 2006-2015 Electricity Master Plan
estimates that $27 billion will be needed to reach its goal of providing
reliable electricity across Iraq by 2015. The goals of the Master Plan are
to (1) rehabilitate the existing power generation plants and transmission
and distribution networks, (2) increase generation capacity, (3) provide a
secure power supply to all consumers, (4) build the capacity of ministry
staff to implement the plan, and (5) connect Iraq's grid with neighboring
countries. The achievement of these goals is intended to ensure that Iraq
meets its future demands for electricity, which are expected to double by
2015. Under the master plan, the demand for electricity would be first met
in 2009.
For the oil sector, a comparable estimate of future rebuilding needs has
not been developed. According to DOD, the investment in Iraq's oil sector
is "woefully short" of the absolute minimum required to sustain current
production and additional foreign and private investment is needed for the
development of Iraq's energy sector. Moreover, U.S. officials and industry
experts have stated that Iraq would need an estimated $20 billion to $30
billion over the next several years to reach and sustain a crude oil
production capacity of 5 million barrels per day. This production goal is
below the level identified in the Iraqi 2005-2007 National Development
Strategy--at least 6 million barrels per day by 2015.
Iraq's Oil and Electricity Ministries Have Not Spent Existing Funds for
Infrastructure Improvements and Future Iraqi Funds Are Uncertain
The Iraqi government has not fully spent the capital project funds already
allocated to the electricity and oil sectors in Iraq's 2006 budget.
According to U.S. and foreign officials, the Ministries of Oil and
Electricity have encountered difficulties spending these budgets because
of government weaknesses in budgeting, procurement, and financial
management. While Iraq's inability to expend its capital budgets may not
directly affect U.S.-funded projects, U.S. investments alone are not
adequate for the full reconstruction and expansion of the oil sector.
Therefore, Iraq's continued difficulties in spending its capital budgets
could hamper efforts to attain its current reconstruction goals. In 2006,
Iraq planned to spend more than $3.5 billion and $767 million for capital
projects in the oil and electricity sectors, respectively. These amounts
accounted for about 98 percent of the Ministry of Oil's total budget ($3.6
billion) and 91 percent of the Ministry of Electricity's total budget
($840 million) that year (see fig. 4). However, as shown in figure 4, only
3 percent of oil sector capital project funds had been spent and about 35
percent had been spent in the electricity sector, as of November 2006.13
We are examining U.S. efforts to work with the Iraqi ministries regarding
ministry budget execution issues in greater detail in another ongoing
review.
13While the limited spending by various Iraqi ministries in certain areas,
such as capital projects, is a known issue and receiving attention from
U.S. advisors, we cannot verify the precision of these numbers. For the
purpose of this report, we only use these data to identify limited
spending as a potential challenge for Iraq should it rely on its
ministries' own budgets to fund future reconstruction projects. IRMO also
stated that the Ministry of Electricity obligation rate was 78 percent.
However, IRMO did not provide supporting documentation nor did it provide
obligation data for the Ministry of Oil.
Figure 4: 2006 Ministry of Oil and Electricity Spending by Major Category,
as of November 2006
According to U.S. officials, Iraq lacks the clearly defined and
consistently applied budget and procurement rules needed to effectively
implement capital projects. For example, the Iraqi ministries are guided
by complex laws and regulations, including those implemented under Saddam
Hussein, the CPA, and the current government. According to State
officials, the lack of agreed-upon procurement and budgeting rules causes
confusion among ministry officials and creates opportunities for
corruption and mismanagement. Additionally, according to State and DOD,
personnel turnover within ministries, fear of corruption charges, and an
onerous contract approval process14 have caused delays in contract
approval and capital improvement expenditures. Moreover, according to IRMO
officials, the Ministry of Oil faces continued difficulties in obtaining
Ministry of Finance and other official approvals for meeting its
operations and maintenance expenses, procuring needed replacement items,
and funding critical emergency repairs and new projects. According to the
World Bank, Iraq's procurement procedures and practices are weak and lack
effective bid protest mechanisms and transparency on final contract
awards, among other problems.15
14According to the State Department, the Contracting Committee requirement
for about a dozen signatures to approve electricity and oil contracts
exceeding $10 million further slows a bureaucratic process.
In response to the problems that Iraq is experiencing in spending its
budgets, the United States is considering some additional options for
facilitating Iraq's expenditure of these capital project funds. In April
2007, the State Department authorized DOD, under section 607 of the
Foreign Assistance Act of 1961, as amended (Public Law 87-195), to provide
commodities and services to the Iraqi government on an advance-of-funds
basis. DOD has identified areas in which the government of Iraq may seek
its help, including the procurement of fuel, electrical power generation,
water projects, and security upgrades. According to DOD officials, Iraq
must formally request this assistance before such a mechanism could be
utilized. These officials indicated that no additional details could be
provided since the details are still being worked out with the Iraqi
government. We are monitoring the use of this mechanism as part of our
ongoing work on Iraq and will report separately on this issue at a later
date.
In addition to the challenges in spending its current budgets, Iraq's
future budget revenues are subject to some uncertainty due to Iraq's high
dependence on crude oil export revenues. Oil exports are estimated to be
$31 billion in 2007, accounting for more than 90 percent of the government
revenue budgeted for fiscal year 2007. Iraq's oil revenues are determined
by the amount of crude oil Iraq exports and its price. While crude oil
exports have been relatively stable, the price of Iraqi crude oil has been
much more variable. The price of Iraqi crude oil rose from a little over
$30 per barrel in 2004 to above $60 per barrel during the summer of 2006
and then fell again to about $50 per barrel at the end of 2006. In the
first quarter of 2007, prices were once again rising. These fluctuations,
which are dependent on a wide range of geopolitical and economic factors,
make it hard to reliably forecast government revenues. According to the
World Bank, volatility of oil export revenues may hamper the prospects of
Iraq's reconstruction program, since volatility increases uncertainty,
leads to wasteful public investment in times of boom, and depresses
investment when oil prices are low.
15World Bank, Operation Procurement Review (June 2005).
Iraq Has Not Made Full Use of International Financial Assistance and Prospects
for Future Funding Are Uncertain
International donor funds represent an important source of potential
funding. Potential funding for Iraq's oil and electricity sectors is
available in the form of bilateral grants and loans, multilateral grants
through the International Reconstruction Fund Facility for Iraq,16 and
multilateral loans through the World Bank, the International Monetary
Fund, or the Islam Development Bank.
However, as of March 2007, donors had not provided any grants to the oil
sector, and the Iraqi government had not taken advantage of available
loans for either the oil or the electricity sector. Some grants have been
provided to the electricity sector. As of March 2007, of the more than $14
billion in overall non-U.S. assistance pledged for Iraq, about $580
million had been committed and $441 million spent on grants for
electricity projects.17 According to U.S. and donor officials, no donor
funding was provided to the oil sector because of an expectation that
sufficient funds would be provided through Iraq's oil revenues and private
investors.
Although loans have been offered to the Iraqi government, it has not
accessed this source of financing to date due, in part, to its concerns
about adding to its considerable debt burden. For example, Japan has
announced its intention to provide yen loans to the Iraqi government for
several projects totaling about $1.1 billion for the electricity and oil
sectors.18 However, according to the State Department, as of January 2007,
the Iraqi government had not reached agreement with Japan on the terms of
the loans. As we previously reported, Iraq has significant foreign debt
remaining from the Saddam Hussein regime, which presents financial
challenges for Iraq's reconstruction and economic development.19
16The established mechanism for channeling multilateral assistance to Iraq
is the International Reconstruction Fund Facility for Iraq (IRFFI), which
is composed of two trust funds, one run by the UN Development Group and
the other by the World Bank Group.
17The Iraqi government collects self-reported donor funding data through
its Donor Assistance Database (DAD). Iraqi and U.S. government and
international donor country officials agree that DAD is incomplete.
According to the Department of State and SIGIR officials, the Ministry of
Planning's DAD, supported by the UN Development Programme (UNDP),
continues to improve as an assistance management tool to track donor
assistance.
18Department of State, Quarterly Update to Congress; 2207 Report
(Washington, D.C.: Jan. 2007).
Moreover, it is unclear to what extent the International Compact with Iraq
will serve as a viable mechanism to obtain additional donor support for
Iraq. Initiated by Iraq and the UN in July 2006, the compact is intended
to promote wider international engagement in the redevelopment of Iraq and
to secure additional financial assistance to support major investments in
sectors such as oil, electricity, and agriculture. Under the compact, Iraq
would undertake economic, political, and security reforms to receive
additional donor support. According to the State Department, the compact
was signed and formally launched on May 3, 2007. According to the State
Department, the international community will be able to contribute under
the compact in a number of ways including debt reduction or forgiveness,
pledging new financial and technical assistance, and expediting the
disbursement of previously pledged assistance. However, the extent to
which the compact can be expeditiously implemented and stimulate
international assistance remains uncertain.
Iraq's Oil and Electricity Production Goals Have Not Been Met, Oil Production
Figures May Be Overstated, and Iraq Faces Difficulties Sustaining Infrastructure
Oil and electricity production have consistently fallen below U.S. program
goals, undermining U.S. and Iraqi government efforts to improve essential
services. Production levels may be overstated and measuring them precisely
is challenging due to limited metering and poor security. Further, the
demand for electricity significantly outstripped the available supply in
2006. To help improve Iraq's oil and electricity production, the United
States has funded a variety of projects. However, some of these projects,
which could provide additional production capacity, have faced significant
delays undermining efforts to meet U.S. program goals. Additionally, Iraq
has difficulty sustaining U.S.-funded infrastructure projects once they
are completed.
U.S. Oil and Electricity Goals Have Not Been Met
Key reconstruction goals for Iraq's oil and electricity sectors, including
those for crude oil production and exports, refined fuel production
capacity and stock levels, and electricity production, among others, have
not been met. In addition, Iraq's oil production levels may be overstated
given problems with inadequate metering. Department of Energy, for
example, reports Iraq's oil production at 100,000 to 300,000 barrels per
day less than what the State Department reports. Production goals for
electricity are outweighed by increasing demand, which is difficult to
measure and continues to significantly exceed supply.
19GAO, Securing, Stabilizing, and Rebuilding Iraq: Key Issues for
Congressional Oversight, [36]GAO-07-308SP (Washington, D.C.: Jan. 2007).
Iraq's Crude Oil Production and Exports Have Not Met Goals
Key reconstruction goals for Iraq's oil sector have yet to be achieved
(see fig. 5). Key U.S. goals for the oil sectors are to reach an average
crude oil production capacity of 3 million barrels per day (mbpd) and
crude oil export levels of 2.2 mbpd, and increase production capacity and
stock levels of refined fuels.20 However, in 2006, actual crude oil
production and exports averaged, respectively, about 2.1 mbpd and 1.5
mbpd, and refined fuel production and stock levels did not meet their
goals.
In August 2003, the CPA established a U.S. program goal to increase crude
oil production to about 1.3 mbpd. The CPA increased this goal every 2 to 3
months until July 2004, when the goal became to increase crude oil
production capacity to 3.0 mbpd (shown in fig. 5). State also set an
eventual crude oil production goal of 2.8 mbpd in March 2006. Production
capacity differs from actual production. Production capacity is the
maximum amount of production a country can maintain over a period of time.
For example, EIA has defined production capacity as the maximum amount of
production that (1) could be brought online within 30 days and (2)
sustained for at least 90 days. Since Iraq has been trying to increase its
production of crude oil, we use actual production as an indicator of
Iraq's production capacity in this report.
20U.S. goals differ from the government of Iraq and IMF targets. According
to the State Department, as of January 2007, Iraq's production goal is 2.1
mbpd and its export goal is 1.7 mbpd.
Figure 5: Iraqi Reported Crude Oil Production, Exports, and U.S. Goals,
June 2003 through December 2006
Besides production and export of crude oil, the CPA also established goals
for the production of natural gas and liquefied petroleum gas (LPG), as
well as the national stocks of refined petroleum products (such as
gasoline) that are used to generate energy by consumers and businesses.21
These CPA goals were to increase production capacity of natural gas to 800
million standard cubic feet per day (mscfd); increase production capacity
of LPG to 3,000 tons per day (tpd); and meet demand for benzene
(gasoline), diesel, kerosene, and LPG by building and maintaining their
stock levels at a 15-day supply. However, the 2006 averages did not meet
these goals, as shown in table 3. To increase the stocks of petroleum
products and the availability of these products to consumers, Iraq
legalized the importation of petroleum products by private companies to
supplement its own production and state-owned company imports. For 2006,
the IMF estimated that Iraq's state-owned companies imported about $2.6
billion of petroleum products. At the recommendation of the IMF, the Iraqi
government has also been reducing subsidies for refined oil products,
which raises the prices consumers pay. In the past, refined oil products
in Iraq have been highly subsidized, which leads to increased demand.
Reduction in domestic demand for refined oil products would allow
additional crude oil to be exported for revenue rather than refined in
Iraq.
21In Iraq, most natural gas and liquefied petroleum gas production is
associated with production of crude oil. As crude oil is pumped from the
ground and processed, natural gas and liquefied petroleum gas are also
produced. Refined petroleum products are produced in refineries in Iraq
from crude oil sent through pipelines from the oil fields or are imported
from other countries since Iraq's refinery capacity does not currently
meet national needs.
Table 3: U.S. Goals and 2006 Averages for Iraq Oil Sector
2007 Average, as
of February 28,
Metric U.S. Goal 2006 Average 2007
Crude oil production 3.0 mbpd 2.1 mbpd 1.9 mbpd
(million barrels per day) (capacity)
Crude oil exports (million 2.2 mbpd 1.5 mbpd 1.4 mbpd
barrels per day)
Natural gas production 800 mscfd 730 mscfd N/A
(million standard cubic (capacity)
feet per day)
LPG production (tons per 3,000 tpd 1,709 tpd N/A
day) (capacity)
National stock levels of 15 days for Diesel: 5 days Diesel: 3.5 days
refined fuels: diesel, each fuel Kerosene: 10 days Kerosene: 4 days
kerosene, gasoline, LPG Gasoline: 3 days Gasoline: 2 days
LPG: 5 days LPG: 1 days
Source: GAO analysis based on State Department and Defense Department
data.
Iraq's Crude Oil Production May Be Overstated
Iraq's crude oil production statistics may overstate Iraq's oil
production. We compared IRMO's statistics to those published by the EIA,
which are based on alternate sources.22 Part of EIA's mission is to
produce and disseminate statistics on worldwide energy production and use.
While these two data sets follow similar trend lines, EIA's series is
generally 100,000 to 300,000 barrels per day lower than IRMO's statistics.
At an average price of $50 per barrel, this is a discrepancy of $5 to $15
million per day. Figure 6 shows these two data sets over the time period
(June 2003 to December 2006) for which data were available for both.
According to EIA, several factors may account for the discrepancy. One
known factor is the lack of storage facilities for crude oil in Iraq. With
limited storage, the crude oil in Kirkuk that cannot be either processed
by refineries or exported (both of which have been hampered by limited
refinery capacity and sabotage to oil pipelines) is re-injected into the
ground after the natural gas liquids are removed.23 Another factor
affecting the discrepancy may be differences in the frequency and timing
of the data. IRMO's data is reported daily in real time, while EIA
produces monthly data that has been reviewed and corroborated from several
sources. This lag in reporting and longer time period may allow analysts
to address inconsistencies such a double-counting and reinjection. In
addition, IRMO regularly reports on sabotage and interdictions to crude
oil pipelines and other disruptions in the crude oil production process.
Also, under Saddam Hussein, Iraq had a history of diverting crude oil
production to circumvent UN sanctions. Therefore, it is possible that
corruption, theft, and sabotage may also be factors in the discrepancy.
22EIA uses its own analysis and a variety of sources, including Dow Jones,
the Middle East Economic Survey, the Petroleum Intelligence Weekly, the
International Energy Agency (IEA), the Monthly Oil Market Report from
OPEC, the Oil & Gas Journal, Platts, and Reuters.
23Re-injecting crude oil, and more commonly heavy fuel oil (residual oil),
back into wells is one way to maintain pressure in the wells for
extraction. However, this also can damage the wells and reduce the value
of the remaining reserves.
Figure 6: Comparison of IRMO and EIA Data on Iraq's Crude Oil Production
However, identifying, measuring, and resolving these factors without
precise metering is more difficult. Without knowing precisely how much
crude oil is being produced and transported along the extensive network of
pipelines, refineries, and export facilities, the government is limited in
its ability to identify potential weaknesses in the system. According to
an IRMO oil advisor, meters are in place at many locations but are not
usable in many instances due to the difficulties in obtaining needed
replacements and spare parts. Without comprehensive metering, crude oil
production must be estimated using less precise means, such as estimating
flow through pipelines, and relying on reports from on-site personnel
rather than an automated system that could be verified.
An improved metering system has been a U.S. and international donor
priority since early 2004 but has faced delays in its implementation. In
1996, the UN first cited the lack of oil metering when Iraq was under UN
sanctions. In 2004, the International Advisory and Monitoring Board (IAMB)
for the Development Fund for Iraq recommended the expeditious installation
of metering equipment, in accordance with standard oil industry practices.
According to the IAMB, in June 2004, the CPA had approved a budget to
replace, repair, and calibrate the metering system on Iraq's oil pipeline
network and to contract the metering of Iraq's oil resources. However, the
oil metering contract was not completed due to security and technical
issues. In June 2006, the IAMB reported that the Iraqi government had
entered into an agreement with Shell Oil Company to serve as a consultant
for the Ministry of Oil on metering and calibrating that would include the
establishment, within the next 2 years, of a measuring system for the flow
of oil, gas, and related products within Iraq and export and import
operations. The U.S. government is assisting in this effort by rebuilding
one component of the metering system in the Al-Basrah oil port--Iraq's
major export terminal--and expects the project to be complete by June
2007.
The collection of reliable statistics is also complicated by the
challenging security environment and the numerous entities involved in
compiling countrywide production data (from wellheads, through pipelines,
to final uses in refineries or exports). Iraq's current oil operations are
divided among several state-owned oil companies that have responsibility
for operations. Therefore, IRMO, which is responsible for producing
aggregate data on Iraq's production levels, must collect daily reports
from the Ministry of Oil and each of the state-owned enterprises and
combine them into a countrywide total. IRMO tries to identify and correct
any anomalies and monitors the data on a daily basis.
Iraq's Electricity Production Has Not Met Goals or Increasing Demand
Key reconstruction goals for Iraq's electricity sector have yet to be
achieved and demand continues to outpace supply. In 2004, the CPA
established a U.S. program goal to improve peak generation capacity to
6,000 mw per day by the end of June 2004. However, by the end of 2006,
peak generation capacity for the year averaged only 4,280 mw per day and
the goal remained at 6,000 mw per day.24 In March 2006, the State
Department also set a goal to achieve 12 hours of power per day both in
Baghdad and nationwide. In 2006, hours of power per day nationwide
averaged 11 and only 5.9 in Baghdad. This was well below the goal, as
shown in table 4.
24The State Department set a goal to attain 6,000 mw peak generation
capacity by July 2006. The State Department also set a goal of 6,137 mw
average peak daily supply for the summer of 2006, which was also not met.
Table 4: U.S. Goals and 2006 Averages for Iraq Electricity Sector
2007 Average, as
of February 28,
Metric U.S. Goal 2006 Average 2007
Peak generation 6,000 mw 4,280 mw 3,803 mw
(capacity)
Average daily generation 110,000 mwh 94,665 mwh 84,796 mwh
Hours of power nationwide 12 hours (hrs) Nationwide: 11.0 Nationwide: 8.6
and in Baghdad hrs Baghdad: 5.9 hrs Baghdad: 5.1
hrs hrs
Source: GAO analysis based on State Department's Iraq Reconstruction and
Management Office data.
The State Department also aimed to reach 110,000 megawatt hours (mwh)25 of
average daily generation in 2005 and 2006 (see fig. 7).26 However, average
daily peak generation for 2006 reached 94,665 mwh, also below the goal.
25A megawatt hour is a measure of energy production or consumption equal
to megawatts produced or consumed for 1 hour.
26The State Department set an 110,000 mwh average daily generation goal
for the summer of 2005. For the summer of 2006, the State Department set a
goal of 127,000 mwh. However, the State Department continues to use the
110,000 mwh goal to track weekly progress. According to the State
Department, generally goals have been announced and changed without a
formal process.
Figure 7: Peak Electricity Generation and Demand in Iraq, May 2005 to
December 2006
Further, demand has continued to exceed supply throughout 2005 and 2006,
reaching a peak demand of 200,744 mwh for the week of August 20, 2006 (see
fig. 7).27 For 2006, demand averaged 8,180 mw exceeding the average peak
electricity supply of 4,280 mw by about 3,950 mw. According to U.S. agency
officials, demand for electricity has been stimulated by a growing economy
and a surge in consumer purchases of appliances and electronics. In
addition, electricity is subsidized in Iraq, which leads to increased
demand. If the Ministry of Electricity's master plan for 2006 to 2015 to
rehabilitate and expand the national grid is implemented, the ministry
estimates that Iraq will be able to meet its projected demand for
27Reporting average daily load (megawatt hours) is a better measure of how
much power is produced for the national grid because it measures
generation over a period of time, rather than the peak (megawatt) for the
day.
electricity in 2009. However, these projections assume a stable supply of
fuel for electricity generation, which has been lacking in the past due to
poor coordination between the ministries. The projections are also based
on the assumption that the Ministry of Electricity will be able to
mobilize funding for projects listed in the Master Plan and properly
manage, maintain, and operate its electricity infrastructure.
Moreover, the widespread use of off-grid electrical generators to meet
unmet demand from the national grid makes it difficult to measure total
demand and the progress made toward meeting that demand. According to
USAID, it is estimated that neighborhood generators provide an additional
2,000 mw per day. However, electricity usage from neighborhood generators
cannot be accurately measured, according to IRMO officials. Likewise, when
measuring production, it is important to note that the U.S. and Iraqi goal
is to supply homes from the national grid rather than from the inefficient
use of small household and neighborhood generators. Thus, production from
those generators would not be considered in meeting production targets.
Most Major U.S. Projects Completed, but Iraq Faces Difficulties Sustaining U.S.
Rebuilding Efforts
The United States has completed the majority of its planned projects in
the oil and electricity sectors, funded through the fiscal year 2004 Iraq
Relief and Reconstruction Fund (IRRF 2).28 Some of the remaining oil
projects that could help meet U.S. program goals have faced delays due to
a variety of factors such as scope changes during engineering and design
phase, delays in mobilizing subcontractors, the poor condition of
equipment, and the insecure working environment. Moreover, Iraq has
experienced difficulty in sustaining the infrastructure rehabilitated with
U.S. funds.
As of March 2007, the Army Corps of Engineers GRD reported that 88 percent
of its work on planned IRRF oil projects had been completed and that it
expected to complete all projects by May 2007. In the electricity sector,
GRD reported in March 2007 that 73 percent of its work on planned IRRF 2
electricity projects had been completed and that it expected to complete
its other projects by April 2008. According to DOD, this remaining work
will enable Iraq to increase crude oil production capacity by 0.5 million
barrels per day and petroleum gas production by 1,800 tons per day. In the
electricity sector, GRD's IRRF 2 projects, once completed, will provide a
total of 1,879 mw of potential generation capacity, which could serve an
estimated 1.7 million homes. According to GRD reporting, all U.S. agency
projects (GRD and USAID) are expected to add or restore a total of 2,555
mw when completed.
28See Emergency Supplemental Appropriations Act for the Defense and
Reconstruction of Iraq and Afghanistan, 2004, P.L. 108-106.
Some key U.S. projects are likely to face continued schedule slippage or
transfer to state oil companies before they are completed, thereby
undermining efforts to reach U.S. program goals. The following illustrates
the issues facing two U.S. projects.
o Qarmat Ali Pressure Maintenance. GRD has reported that the
United States has committed about $105 million for three projects
($41 million, $27 million, and $37 million) to restore the Qarmat
Ali water reinjection and treatment plant to create and maintain
sufficient oil field pressure in the Rumailah oil field, one of
the largest southern oil fields. According to GRD engineers, the
final completed project could result in an increase in crude oil
production capacity of 200,000 barrels per day. As of April 2007,
56 percent of the work of the last project has been completed. The
Special Inspector General for Iraq Reconstruction (SIGIR) has
reported schedule slippage caused by the poor condition of the
original pumps, motors, and valves. According to IRMO oil
officials, due to lack of funding for the administrative task
orders that cover life support and security, the construction
phase of this project was de-scoped and responsibility was
transferred to Iraq's South Oil Company. Furthermore, IRMO oil
officials question whether the project will increase production;
they contend that the water injection will at best reduce the
decline of the oil field's production.
o South Well Workover. According to IRMO officials, in the
refurbishing of wells throughout Basrah, delays have been caused
by poor contractor performance, bad equipment, lack of spares, and
subcontract disputes. GRD has reported that the United States has
committed $93 million for this project, including the workover of
30 wells in the Rumaila fields and completion and replacement of
tubing in 50 wells in West Qurna.29 This project began in June
2006 and had an expected completion date of December 2006. As of
April 2007, the work was completed and could result in an increase
in crude oil production capacity of 150,000 barrels per day (50
wells at 3,000 bpd).
Further, despite capacity building efforts, Iraq has experienced
difficulty in sustaining the infrastructure rehabilitated with
U.S. funds. For example, the U.S. decision to install gas turbine
generators without an assured supply of natural gas has resulted
in increased maintenance requirements and decreased power output.
Iraq's inability to sustain the new and rehabilitated oil and
electricity infrastructure undermines efforts to reach U.S.
program goals.
In the oil sector, U.S. agency and contractor officials report
that the sector's rebuilding efforts continue to be impeded by the
lack of modern technology; the lack of qualified staff and
expertise at the field, plant, and ministry levels; an ineffective
inventory control system for spare parts within the oil sector's
14 operating companies; and difficulties in spending budgets for
equipment upgrades and replacements. The U.S. government has
provided additional training and management assistance in response
to these needs. According to DOD, IRRF funds were allocated toward
sustainment and capacity development activities including training
to state-owned oil companies on preparation of long-term service
agreements and training on heavy equipment, procurement of
functional and operational spare parts, and the invitation-to-bid
process.
According to U.S. government reporting, the lack of an adequate
operating and maintenance practices is one of many factors
inhibiting a robust electrical grid in Iraq. U.S. officials also
report that rebuilding of the electricity sector has been slowed
by the lack of training for plant workers, inadequate spare parts,
and an ineffective asset management and parts inventory system.
Electricity plants are sometimes operated beyond their recommended
limits and use poor-quality fuels that rapidly deteriorate parts,
involve longer maintenance downtimes, and increase pollution.
According to U.S. government officials, Iraq needs to develop
cleaner and more reliable sources of natural gas for its
generators supporting the national grid. Currently, Iraq's fuel
supply does not meet demand and its quality is inconsistent. For
example, of the 35 natural gas turbines the U.S. government
installed in power generation plants, 16 are using diesel, crude,
or heavy fuel oil due to the lack of natural gas and lighter
fuels. As a result, maintenance cycles are reportedly three times
as frequent and three times as costly. Poor-quality fuels also
decrease the power output of the turbines by up to 50 percent and
can result in equipment failure and damage, according to U.S. and
Iraqi power plant officials. The U.S. government also estimates
that Iraq is flaring enough natural gas to generate at least 4,000
mw of electrical power. Because of natural gas shortages, diesel
has to be imported at a cost of about $1.2 billion a year, thus
straining economic resources.
The U.S. government is providing some assistance to address these
shortfalls. According to DOD, over $120 million of IRRF funds were
allocated toward sustainment and capacity development for the
electricity sector, which included the award of a long-term
operations and maintenance support contract to (1) support
Ministry of Electricity efforts to develop, implement, and sustain
a functional and effective operations and maintenance organization
and plan, and (2) perform operations and maintenance activities at
select thermal and gas turbine power facilities. According to DOD,
GRD also received $250 million in fiscal year 2006 Economic
Support Funds to support sustainment and capacity development
programs in the electricity sector.
Major Challenges Hinder Efforts to Meet Iraq's Oil and Electricity
Needs
The U.S. government and Iraq face several key challenges in
improving Iraq's oil and electricity sectors. First, the U.S.
reconstruction program assumed a permissive security environment
that never materialized; the ensuing lack of security resulted in
project delays and increased costs. Second, corruption, smuggling,
and other illicit activities have diverted government revenues
potentially available for rebuilding efforts. Third, according to
the World Bank, Iraq's lack of an adequate legal and regulatory
framework and financial management systems hinder progress and
make it difficult to attract foreign investors. Finally, although
the oil and electricity sectors are mutually dependent, the Iraqi
government lacks integrated planning for these sectors leading to
inefficiencies that could hinder future rebuilding efforts.
Poor Security Conditions Have Slowed Reconstruction and Increased
Costs
The U.S. reconstruction effort was predicated on the assumption
that a permissive security environment would exist. However, since
June 2003, overall security conditions in Iraq have deteriorated
and grown more complex, as evidenced by the increased numbers of
attacks and the Sunni-Shi'a sectarian strife that followed the
February 2006 bombing of the Golden Mosque in Samarra (see fig.
8). Enemy-initiated attacks against the coalition and its Iraqi
partners continued to increase through October 2006 and remain
high. The average total number of attacks per day has risen from
71 per day in January 2006 to a record high of 176 per day in
October 2006. For the last 3 months, average attacks per day were
164 in February, 157 in March, and 163 in April 2007.
29"Workover" is a term used to describe operations on a completed
production well to clean, repair, and maintain the well for the purposes
of increasing or restoring production.
Figure 8: Enemy-Initiated Attacks against the Coalition and Its Iraqi
Partners
The deteriorating security environment continues to pose a serious
challenge to Iraq's oil and electricity sectors and has, in part, led to
project delays and increased costs. Insurgents have destroyed key oil and
electricity infrastructure (see fig. 9), threatened workers, compromised
the transport of materials, and hindered project completion and repairs by
preventing access to work sites. Moreover, looting and vandalism have
continued since 2003. U.S. officials reported that major oil pipelines in
the north continue to be sabotaged, shutting down oil exports and
resulting in lost revenues (see fig. 10). For example, according to GRD,
although eight gas oil separation plants in northern Iraq have been
refurbished, many are not running due to interdictions on the Iraq-Turkey
pipeline and new stabilization plant. GRD noted that if the lines and
plant were in operation today, an additional 500,000 barrels per day would
be produced in northern Iraq. Major electrical transmission and fuel lines
also have been repeatedly sabotaged, cutting power to other parts of the
country. According to Ministry of Electricity and U.S. officials, workers
are frequently intimidated by anti-coalition forces and have difficulty
repairing downed lines. Oil pipeline repair crews also are overwhelmed by
the amount of work and are unable to make rapid repairs.
Figure 9: Downed Transmission Tower in Iraq
Figure 10: Attack on Oil Pipeline
Although it is difficult to quantify the costs of poor security conditions
in time and money, agency and contractor documents and agency officials
report numerous security-related issues that have resulted in delays in
the design and execution of projects and reduced scopes of work. Poor
security conditions also have increased the cost of providing security
services for contractors and sites. For example, when a project is shut
down or delayed due to security conditions, the fixed costs of contractor
camps and salaries continue to accrue even though contractors in the field
are unable to continue their work. GAO previously reported that our
analyses of five U.S.-funded electricity sector contracts indicate that as
of December 31, 2004, security costs to obtain private security services
and security-related equipment ranged from 10 to 36 percent of project
costs.30 In December 2006, GAO reported that DOD estimated that its
design-build contractors would incur security costs of about 14 percent on
electricity contracts worth about $732 million.31
30GAO, Rebuilding Iraq: Status of Funding and Reconstruction Efforts,
[37]GAO-05-876 (Washington, D.C.: July 28, 2005).
In an effort to stop the sabotage of electricity infrastructure, the
Ministry of Electricity contracted with tribal chiefs to protect the
transmission lines running through their areas, paying them about $60 to
$100 per kilometer, according to State's Iraq Reconstruction Management
Office (IRMO). However, in October 2006, IRMO officials reported that this
scheme was flawed and did not result in improved infrastructure
protection. According to U.S. and UN Development Program officials, some
tribes that were paid to protect transmission lines also sold materials
from the downed lines and extracted tariffs for access to repair the
lines.
The U.S. government has developed a number of other initiatives to better
protect the oil and electricity infrastructure and transfer this
responsibility to the Iraqi government.32 Such efforts include fortifying
the physical integrity of the infrastructure, improving rapid repair
capability, and improving the capabilities of infrastructure protection
security forces such as the Oil Protection Force, the Electrical Power
Security Service (EPSS), and the Strategic Infrastructure Battalions
(SIB). The U.S. government has paired these security forces with coalition
partners and has trained and equipped the EPSS33 and SIBs. However, U.S.
officials stated that the EPSS effort was unsuccessful and that the
capability and loyalty of some of the SIB units are questionable.
According to a U.S. official and a recent Center for Strategic and
International Studies report,34 these security forces have been underpaid,
underequipped, and poorly led, and are of questionable quality. Additional
information on the nature and status of these efforts and the SIBs is
classified.
31GAO, Rebuilding Iraq: Status of DOD's Reconstruction Program,
[38]GAO-07-30R (Washington, D.C.: Dec. 15, 2006).
32The Special Inspector General for Iraq Reconstruction (SIGIR),
Unclassified Summary of SIGIR's Review of Efforts to Increase Iraq's
Capability to Protect Its Energy Infrastructure, SIGIR-06-038 (Washington,
D.C.: Sept. 27, 2006).
33In March 2004, the United States awarded a $19 million contract to train
and equip Iraq's Electrical Power Security Service to protect electrical
infrastructure, including power plants, transmission lines, and Ministry
of Electricity officials. Although the program was designed to train 6,000
guards over a 2-year period, fewer than 340 guards had been trained when
the contact was terminated early.
34Anthony Cordesman, Center for Strategic and International Studies, Iraqi
Force Development and the Challenge of Civil War: the Critical Problems
and Failures the U.S. Must Address If Iraqi Forces Are to Eventually Do
the Job (Washington, D.C.: Nov. 30, 2006).
Corruption, Smuggling, and Other Illicit Activities Impact Revenues and Cost
Recovery
Corruption in Iraq is reportedly widespread and poses a major challenge to
building an effective Iraqi government and effective institutions. A World
Bank report notes that corruption undermines the government's ability to
make effective use of current reconstruction assistance. A 2006 survey by
Transparency International ranked Iraq's government as the second most
corrupt in the world.
U.S. and international officials have noted that corruption in Iraq's oil
sector is pervasive. In 2006, the World Bank and Ministry of Oil's
Inspector General estimated that millions of dollars of government revenue
are lost each year to oil smuggling or diversion of refined products.
According to State Department officials and reports, about 10 percent to
30 percent of refined fuels are diverted to the black market or are
smuggled out of Iraq and sold for a profit. According to State Department
reporting, Iraqi government officials may have profited from these
activities. The insurgency has been partly funded by corrupt activities
within Iraq and from skimming profits from black marketers, according to
U.S. Embassy documents. One factor that had stimulated black market
activities and fuel smuggling to neighboring countries was Iraq's low
domestic fuel prices, which were subsidized by the government. However,
under the IMF's Stand-by Arrangement with Iraq, the government has already
increased domestic fuel prices five times,35 significantly reducing the
subsidy for many fuel products. The Iraqi government intends to continue
the price increases during 2007, as well as encourage private importation
of fuels, which was liberalized in 2006. The purpose is to decrease the
incentive for black market smuggling and to increase the availability of
fuel products.
Illegal connections to existing power lines and nonfunctioning meters
negatively affect the Iraqi Ministry of Electricity's ability to manage
its electricity system and finance the improvements needed. According to
U.S. and international donor officials, electricity meters may be old,
intentionally damaged, inaccurate, nonfunctioning, or nonexistant for some
businesses and households. As a result of illegal connections and lack of
metering, the Ministry of Electricity cannot obtain an accurate measure of
the electricity consumed by households and businesses, which contributes
to inaccurate billing and low cost recovery.
35According to State Department officials, the most recent fuel prices
were increased on January 5 and March 20, 2007.
Inadequate Legal and Regulatory Framework and Financial Management Systems
Hinder Progress
According to the World Bank, Iraq lacks clear institutional, legal, and
regulatory structures and adequate financial management systems. These
would ensure more effective resource management, transparency of oil
revenues, and the financial accountability of Iraqi ministry and plant
managers.
The World Bank reports that additional incentives are needed to stimulate
oil production and investment. According to the Bank, these incentives
would include a clear legal and regulatory framework, clearly assigned
roles for Iraq's ministries, state agencies, and the private sector, and a
predictable negotiating environment for contracts. According to U.S.
officials, until a new hydrocarbon (oil and gas) law is passed and
implemented, uncertainties exist for the oil sector in each of these
areas.
As of February 26, 2007, the Iraqi Cabinet (Council of Ministers) had
approved a draft oil and gas law that as of May 1, 2007 awaits
consideration and enactment by the Parliament (Council of
Representatives). The draft law was expected to clearly assign roles,
decentralize the development of oil and gas fields, centralize control of
revenues, and grant regions36 and regional oil companies the right to draw
up contracts with foreign companies for exploration and development of new
oil fields.37 However, according to State Department officials, although
the draft oil and gas law provides a necessary framework, some vital
provisions, which will be in four annexes and companion legislation,38
have yet to be prepared. Moreover, according to the State Department, the
oil and gas law cannot go forward without the companion legislation.
According to the Kurdistan Regional Government, the Oil and Energy
Committee of the Iraq Council of Ministers will prepare the annexes, which
will allocate the management of particular petroleum fields and
exploration areas in Iraq to the Kurdistan Regional Government, the Iraq
National Oil Company, and the Iraq Ministry of Oil. According to State
Department and Kurdistan Regional Government officials, the Committee also
needs to come to agreement on model petroleum contracts and guidelines for
contractual terms. The Kurdistan Regional Government has stated that,
until this is completed, no investment in Iraq can begin.
36According to an English translation of the draft law, "region" is
defined as the Region of Kurdistan or any other region formed after
issuance of the law in the Republic of Iraq, according to the constitution
of Iraq.
37According to State Department officials, the draft law arranges for the
re-establishment of the Iraqi National Oil Company, which would have
control over currently producing oil fields. The development of currently
non-producing fields would be subject to an open bidding process. Contract
negotiations for these fields would be the responsibility of the regional
authorities and would be based on production and development plans,
bidding rules, and model contracts set by a new Federal Oil and Gas
Council. The Council would also be responsible for final approval of
contracts. The Council would be the final arbitrator and would approve all
Ministry of Oil strategies and policies.
38According to State Department officials, companion legislation will
include laws that address the reconstitution of the National oil company,
reorganization of the Ministry of Oil, and division of oil revenues.
According to U.S. officials, the oil and gas law is necessary but not
sufficient to attract the near-term involvement of international oil
companies. The legislation does not clearly detail how revenue resulting
from foreign participation will be divided. According to State Department
officials, the revenues will be collected in a central account and shared
among provinces on the basis of population levels, but the details will be
addressed in a separate hydrocarbon financial management law. Some U.S.
officials note that the per capita distribution of funds will require a
politically sensitive census to be undertaken.
After the Iraqi government passes legislation to enhance the transparency
of the legal and regulatory environment, it sometimes has difficulty
developing related implementing regulations and guidelines. For example,
according to the Department of State, implementing regulations have yet to
be issued for Iraq's Fuel Import Liberalization Law, which passed on
September 6, 2006.39 According to the State Department, the law allows
private imports of refined fuel products and thereby breaks the monopoly
of government imports and sets the stage for the private importation of
gasoline and diesel at market prices. According to U.S. officials, the
Ministry of Oil and the Iraqi National Oil Company may have had difficulty
recruiting the skilled oil and gas technical experts needed to craft
implementing regulations.
Additionally, according to U.S. and donor officials, the Iraqi government
lacks adequate financial management systems at all levels that would
ensure the financial accountability of Iraqi ministry and plant managers.
The World Bank reported that effective oil generation and management
include transparency in collecting, monitoring, and reporting revenues.
U.S. and international officials report that, given the importance of oil
revenues to the Iraqi economy, management of these revenues is crucial.40
The United States and international donors are working with the Iraqi
government to improve financial management practices at Iraq's key
ministries, including the oil and electricity ministries.
39U.S. Department of State, Section 1227 Report on Iraq (Washington, D.C.:
Jan. 5, 2007).
Lack of Integrated Energy Planning Creates Inefficiencies and Could Hinder
Future Rebuilding Efforts
Although the oil and electricity sectors are mutually dependent, the Iraqi
government lacks integrated planning for these sectors, according to U.S.
and international donor community officials. Specifically, the Iraqi
government lacks an integrated energy plan that clearly identifies future
costs and resource needs; rebuilding goals, objectives, and priorities;
stakeholder roles and responsibilities, including steps to ensure
coordination of ministerial and donor efforts; an assessment of the
environmental risks and threats; and performance measures and milestones
to monitor and gauge progress. For example, the lack of cooperation and
coordination among the Oil and Electricity Ministries, particularly in
supplying appropriate fuels to the electricity sector, has resulted in
inefficiencies such as increased maintenance costs and frequent
interruptions in electricity production, according to IRMO officials.
According to U.S. and international donor officials, the Ministries of Oil
and Electricity will need to more closely coordinate their efforts to
achieve the Iraqi government's ambitious future rebuilding goals.
According to IRMO advisors to the Iraqi government, a reliable supply of
electricity is essential to the oil industry and vice versa. The
electricity sector is heavily dependent on fuels produced by the oil
sector, and oil and gas facilities rely on electricity supplied from the
national grid. For example, in March 2007, IRMO reported that a problem
within the national electricity grid caused a loss of power to the Bayji
oil refinery, Iraq's largest refinery, resulting in a reduced output of
refined fuel products. As we previously reported, Iraq's fuel supply does
not meet demand and is of inconsistent quality, resulting in inefficient
operation of the gas turbine electricity generators that help power the
national grid.
40The World Bank and UN report that the economic performance of oil
exporters is often inferior to that of resource-poor countries. This is
often explained by the influence of oil wealth on governance and by the
harmful real exchange rate effects on the non-oil sector and uncertainty
created by volatile oil prices.
Although the need for an integrated plan has been recognized, an
integrated energy sector plan has yet to be developed and the current
electricity master plan does not state how future coordination will take
place and will require actions that have been difficult to achieve in the
past. The Iraqi Minister of Electricity recognized the need for integrated
planning in his speech at the November 2006 UNDP and Iraqi government
electricity conference at which the 2006-2015 Electricity Master Plan was
presented to donors. According to the Minister, the energy sector is faced
with the challenge of expediting simultaneous implementation of strategic
projects, since one sector complements the other. However, the Ministry of
Oil's contribution to the Electricity Master Plan was limited to a
description of the current fuel situation and the types of fuels the
Ministry of Oil would make available for power generation. According to an
IRMO advisor to the Ministry of Oil, the Ministry of Electricity merely
includes the requirements for supplying electricity to oil facilities
within its annual power budget. Moreover, international donors cautioned
that the 2006-2015 Electricity Master Plan does not address how future
coordination between the two ministries will be ensured or how events
affecting one sector will be mitigated to prevent disruptions in the
other. Officials of one key donor country also noted that the rigor used
to prioritize electricity projects was questionable. According to the
World Bank, Iraq needs sound economic criteria to help evaluate whether to
rehabilitate or renew electricity projects.
Further, international donors stated that, although the Electricity Master
Plan contains milestones, it is ambitious, given the current condition of
the infrastructure, sizable funding need, and limited past coordination
between the Electricity and Oil Ministries. According to the UNDP, the
plan's successful implementation will require actions that have been
difficult to achieve in the past such as the coordination of all
stakeholders, mobilization and timely release of funds, conversion of
heavy fuel oil to natural gas, building of new generating capacity closer
to demand, and a reduction in sabotage and looting.
According to IRMO officials, the Ministry of Oil has not developed a plan
comparable to the Electricity Master Plan and currently has no plan to
detail how it will increase the country's crude oil production capacity to
reach or surpass 6 million barrels per day by 2015. According to GRD,
Iraq's current oil production capabilities remain unknown and no master
plans exist for actions that will enable Iraq to increase its capacity in
the future. According to the U.S. government, Iraq is losing about $4.1
billion per year in potential fuel revenues through its inefficient energy
production practices, such as the flaring of natural gas, underscoring the
need for such a plan.
Conclusions
The United States has spent billions of dollars to rebuild Iraq's oil and
electricity sectors. However, billions more will be needed to surmount the
current security, corruption, management, and legal challenges facing Iraq
and attain the U.S. program goals first established under the CPA. The
absence of reliable crude oil production and refinery data complicate
efforts to measure progress and identify trends in government revenues and
possible illicit diversions. Weak budgeting and procurement practices have
also slowed Iraq ministry efforts to spend funds already approved for
reconstruction projects. Although the United States is exploring some new
options for providing rebuilding services on an advance-of-funds basis, it
is unclear how this arrangement will contribute to the improvement of
ministry procurement and budgeting systems. In addition, the lack of a
clear legal and regulatory environment impedes new foreign investment. The
passage of Iraqi hydrocarbon legislation could serve as an important
impetus for stimulating additional investment if and when security
conditions improve to acceptable levels. However, it is difficult to
identify the most pressing future funding needs, key rebuilding
priorities, and existing vulnerabilities and risks given the absence of an
overarching energy sector strategic plan that comprehensively assesses the
requirements of the energy sector as a whole. Given the highly
interdependent nature of the oil and electricity sectors, such a plan
would help identify the most pressing needs for the entire energy sector
and help overcome the daunting challenges affecting future development
prospects.
Recommendations for Executive Action
We recommend that the Secretary of State, in conjunction with relevant
U.S. agencies and in coordination with the donor community, work with the
Iraqi government and particularly the Ministries of Oil and Electricity
to:
1. Develop an integrated energy strategy for the oil and
electricity sectors that identifies and integrates key short-term
and long-term goals and priorities for rebuilding, maintaining,
and securing the infrastructure; funding needs and sources;
stakeholder roles and responsibilities, including steps to ensure
coordination of ministerial and donor efforts; environmental risks
and threats; and performance measures and milestones to monitor
and gauge progress. The strategic plan should include an
integrated fuel strategy to ensure the delivery of appropriate
refined fuels for more efficient electricity production and a
risk-based method for prioritizing future projects.
2. Set milestones and assign resources to expedite efforts to
establish an effective metering system for the oil sector that
will enable the Ministry of Oil to more effectively manage its
network and finance improvements through improved measures of
production, consumption, revenues, and costs.
3. Improve the existing legal and regulatory framework, for
example, by setting milestones and assigning resources to expedite
development of viable and equitable hydrocarbon legislation,
regulations, and implementing guidelines that will enable
effective management and development of the oil sector and result
in increased revenues to fund future development and essential
services.
4. Set milestones and assign resources to expedite efforts to
develop adequate ministry budgeting, procurement, and financial
management systems.
5. Implement a viable donor mechanism to secure funding for Iraq's
future oil and electricity rebuilding needs and for sustaining
current energy sector infrastructure improvement initiatives once
an integrated energy strategic plan has been developed.
Agency Comments and Our Evaluation
We provided a draft of this report to the Departments of Defense and
State. DOD provided technical comments, which we incorporated where
appropriate.
The Department of State provided written comments, which are reprinted in
appendix II. State also provided us with technical comments and suggested
wording changes that we incorporated as appropriate. In commenting on a
draft of this report, State agreed that all the steps we included in our
recommendations are necessary to improve Iraq's energy sector but stated
that these actions are the direct responsibility of the government of
Iraq, not the Department of State, any U.S. agency, or the international
donor community. We recognize that these actions are ultimately the
responsibility of the Iraqi government and thus recommend that the
Department of State work with the Iraqi government to accomplish these
actions. Further, we believe that our recommendations to the State
Department are valid given the billions of dollars that the United States
has invested in Iraq's energy sector to date, the U.S. government's
responsibility to ensure that funds are well spent, and the influence the
United States holds in overseeing Iraq stabilization and rebuilding
efforts. The U.S. government is uniquely positioned to provide
encouragement and assistance in implementing these recommendations given
the resident expertise of the senior IRMO advisors staffed to Iraq's oil
and electricity ministries. The ministries of oil and electricity have 10
and 18 IRMO advisors, respectively.
In their written comments, State noted that U.S. agencies are already
undertaking work that complements several of our recommendations. We
acknowledge that State has taken some actions to address these steps, and
we have refined our report language accordingly. However, our
recommendations are still warranted given the lack of progress that has
been made over the last 4 years in achieving U.S. program goals and the
considerable influence that the United States wields in overseeing Iraq
stabilization and rebuilding efforts. Also, some of the State Department
initiatives are relatively new. For example, State commented that an
Energy Fusion Cell composed of the Embassy, Multinational Force-Iraq, and
the Ministries of Oil and Electricity has been formed to craft an
integrated energy strategy but that the practical effectiveness of this
effort will depend on whether it is able to obtain buy-in from the two
Iraqi ministries. However, it is unclear whether this new effort addresses
the key elements of an effective strategy identified in our report, such
as identifying rebuilding priorities, resource needs, stakeholder roles
and responsibilities, and performance measures and milestones. Therefore,
our recommendation for an integrated energy strategy for the oil and
electricity sector is still valid.
With respect to our recommendation to establish an effective metering
system, State commented that the installation and reading of retail
electricity meters would be difficult in the present security environment
and that the United States is paying for the installation of meters on
Iraq's oil export terminal. We agree with State's comment and refined our
recommendation to focus on the need to improve Iraq's oil metering system.
However, the oil metering project for Iraq's oil export terminal that
State highlighted in its comments is only one of the elements of an
effective metering system. Iraq still lacks a comprehensive oil metering
system to reliably measure the outputs of its crude oil production and
refinery operations. This vulnerability has existed for several years; in
2004, a UN body recommended that such a metering system be expeditiously
installed. Thus, we retained our recommendation for installing an
effective oil metering system.
Regarding our recommendation to improve the existing legal and regulatory
framework, State commented that U.S. agencies are already working to
improve Iraq's legal and regulatory frameworks. However, Iraq's framework
for managing its oil industry and the use of its energy resources remains
undefined after months of contentious Iraqi government debate. This
framework is crucial to Iraq's efforts to rebuild its oil-dependent
economy. Setting specific benchmarks and assigning resources to expedite
the development of this legislative framework as we recommended is
necessary to encourage progress and focus continued leadership attention
on this issue.
With respect to our recommendation to develop adequate ministry budgeting,
procurement, and financial management systems, State commented that teams
are working with the Ministries of Oil and Electricity to address
budgeting, procurement, and financial management issues but acknowledged
that the bureaucracy of the Iraqi government is a hindrance to these
efforts. The large unexpended 2006 capital budgets in Iraq's oil and
electricity ministries that we highlighted in our report also underscore
the need for additional assistance and benchmarks for developing effective
budgeting, procurement, and financial management systems in Iraq's oil and
electricity ministries.
Finally, regarding our recommendation to secure funding for Iraq's future
oil and electricity rebuilding needs, State noted that the International
Compact with Iraq, formally launched in Sharm El-Sheikh on May 3, 2007,
aims to build upon existing mechanisms to provide bilateral donors with
better ways to coordinate their contributions of financial and technical
assistance. However, no supporting details were released on what
additional financial commitments, if any, are being provided to Iraq's
energy sector as part of this compact. Thus, it is too early to judge the
potential implications of this new coordination arrangement.
We are sending copies of this report to interested congressional
committees. We will also make copies available to others on request. In
addition, this report is available on GAO's Web site at
http://www.gao.gov . If you or your staff have any questions, please
contact me at (202) 512-8979 or [email protected] . Contact points
for our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributors to this report are
listed in appendix III.
Joseph A. Christoff
Director
International Affairs and Trade
List of Congressional Committees
The Honorable Daniel K. Inouye
Chairman
The Honorable Ted Stevens
Ranking Member
Subcommittee on Defense
Committee on Appropriations
United States Senate
The Honorable Patrick J. Leahy
Chairman
The Honorable Judd Gregg
Ranking Member
Subcommittee on State, Foreign Operations, and Related Programs
Committee on Appropriations
United States Senate
The Honorable Carl Levin
Chairman
The Honorable John S. McCain
Ranking Member
Committee on Armed Services
United States Senate
The Honorable Joseph R. Biden, Jr.
Chairman
The Honorable Richard G. Lugar
Ranking Member
Committee on Foreign Relations
United States Senate
The Honorable Joseph I. Lieberman
Chairman
The Honorable Susan M. Collins
Ranking Member
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable John P. Murtha, Jr.
Chairman
The Honorable C.W. Bill Young
Ranking Member
Subcommittee on Defense
Committee on Appropriations
House of Representatives
Nita M. Lowey
Chair
Frank R. Wolf
Ranking Member
Subcommittee on State, Foreign Operations, and Related Programs
Committee on Appropriations
House of Representatives
The Honorable Ike Skelton
Chairman
The Honorable Duncan L. Hunter
Ranking Member
Committee on Armed Services
House of Representatives
The Honorable Tom Lantos
Chairman
The Honorable Ileana Ros-Lehtinen
Ranking Member
Committee on Foreign Affairs
House of Representatives
The Honorable Henry A. Waxman
Chairman
The Honorable Tom Davis
Ranking Member
Committee on Oversight and Government Reform
House of Representatives
The Honorable John F. Tierney
Chairman
The Honorable Christopher Shays
Ranking Member
Subcommittee on National Security and Foreign Affairs
Committee on Oversight and Government Reform
House of Representatives
Appendix I: Objectives, Scope, and Methodology
To examine U.S. activities directed at rebuilding the oil and electricity
sectors, we assessed (1) the funding made available to rebuild Iraq's oil
and electricity sectors and the factors that may affect Iraq's ability to
meet its future funding needs, (2) the U.S. goals for the oil and
electricity sectors and progress in achieving these goals, and (3) the key
challenges the U.S. government faces in helping Iraq restore its oil and
electricity sectors. As part of this work, we made multiple visits to Iraq
and Jordan during 2006. We conducted our review from January 2006 through
March 2007 in accordance with generally accepted government auditing
standards. The information on foreign law in this report does not reflect
our independent legal analysis but is based on interviews and secondary
sources.
To address the amount of U.S. funds that were appropriated, obligated, and
disbursed for the reconstruction of Iraq's oil and electricity sectors, we
collected funding information from the Department of Defense (DOD), U.S.
Army, Department of State, U.S. Agency for International Development
(USAID), and the Coalition Provisional Authority (CPA). Data for
U.S.-appropriated funds are as of September 30, 2006. We also reviewed
U.S. agency inspector generals' reports, Special Inspector General for
Iraq Reconstruction (SIGIR) reports, and other audit agency reports.
Although we have not audited the funding data and are not expressing our
opinion on them, we discussed the sources and limitations of the data with
the appropriate officials and checked them, when possible, with other
information sources. We determined that the data were sufficiently
reliable for broad comparisons in the aggregate, and we noted limitations
at the sector level.
To address the amount of Iraqi funds used by U.S. agencies to support the
rebuilding of Iraq's oil and electricity sectors, we relied on CPA
documents, past GAO interviews with the CPA, and reviews of independent
auditor's reports. To identify sources and uses of Development Fund for
Iraq (DFI) funds for the oil and electricity sectors, as agreed with U.S.
officials, we relied on funding data obtained from Development Fund for
Iraq Statement of Cash and Receipts and Payments (with Independent
Auditor's Report) reports for January 1, 2004, through December 31, 2005,
from the International Monitoring Advisory Board. We determined the data
were sufficiently reliable to describe the major disbursements from the
DFI to the oil and electricity sectors and noted limitations in reporting
as identified in the independent auditor's report. For the sources and
uses of vested and seized assets, we relied on CPA and DOD funding data.
To determine the reliability of these data, we examined CPA schedules and
relied on past GAO interviews with CPA officials responsible for the data.
We verified results with DOD officials. We determined that the data were
sufficiently reliable for broad comparisons in the aggregate, and we noted
limitations at the sector level.
To assess Iraqi budget allotments and expenditures for the oil and
electricity sectors, as well as potential future budget support, we
obtained and assessed Iraqi budget data from the U.S. Department of the
Treasury. We corroborated our analysis and findings with information from
other U.S. agencies, the Iraqi government, and the International Monetary
Fund. While we did not independently verify the precision of the data on
Iraq's budget execution, we found that they were sufficiently reliable to
show the relative differences in budget execution across Iraq's ministries
and budget categories (e.g., capital projects versus salaries). Finally,
we obtained oil revenue and pricing data from the Department of State,
Iraq Reconstruction Management Office (IRMO) officials and discussed with
them the collection and preparation of these statistics. We also
corroborated the data with external sources. Data on revenue are based on
U.S. agency estimates that use internationally recognized financial
sources for pricing calculations, such as Bloomberg and Platts. We found
that these data were sufficiently reliable for the purpose of showing
trends in Iraq's crude oil export revenue and prices.
To address international assistance for the rebuilding of Iraq's oil and
electricity sectors, we reviewed documents and met with U.S., Iraqi, and
international donor officials. As agreed with the Department of State,
United Nations (UN), and World Bank officials, we obtained data and
information on multilateral contributions from the UN Development
Programme Iraq Trust Fund and the World Bank Iraq Trust Fund through the
Iraq Reconstruction Fund for Iraq Web site. 1 As agreed with Department of
State officials, we obtained data and information on bilateral
contributions from their quarterly report to Congress2 and the Iraqi
Ministry of Planning's Development Assistance Database (DAD).3 We also
obtained data and information on bilateral contributions from
international donors, including Japan and the European Union. To assess
the reliability of the data on pledges, commitments, and deposits made by
international donors, we interviewed officials at the Department of State
who are responsible for monitoring the data provided by the IRFFI and
donor nations. We determined that the data on donor commitments and
deposits made to the IRFFI were sufficiently reliable for the purposes of
reporting at the sector level. Based on discussions with the Ministry of
Planning, UN, World Bank, and Department of State officials, we determined
that the DAD was incomplete and would not provide accurate data for
reporting purposes. However, according to Department of State officials,
this is the best available source of data and the department uses this
data in their reports to Congress.
1The UN Development Fund Iraq Trust Fund and World Bank Trust Fund make up
the International Reconstruction Fund Facility for Iraq (IRFFI). Data and
information for UNDP and World Bank funds and programs are provided
separately on the IRFFI Web site (see http://www.irffi.org ).
2The Department of State, Quarterly Update to Congress; 2207 Report
(Washington, D.C.: Oct. 2006).
3The Iraqi Ministry of Planning Donor Assistance Database is available at
http://www.mop-iraq.org/dad .
To assess U.S. goals for the electricity and oil sectors, U.S. measures of
progress in achieving these goals, and the planning and status of
reconstruction projects, we reviewed reports and planning documents
obtained from the Department of State's IRMO and Near East Asia bureau;
DOD's U.S. Army Corps of Engineers Gulf Region Division (GRD) and Project
Contracting Office, including contractors; USAID; CPA; U.S. embassy
officials in Iraq; International Monetary Fund; the World Bank; and the
UN. We also obtained views from international donors such as Japan and the
European Community. To assess U.S. goals, we reviewed planning and
strategy documents from the CPA and U.S. government, including the
National Strategy for Victory in Iraq; Iraq's National Strategy for
Development; the MNF-I/U.S. Embassy Baghdad Joint Action Campaign Plan;
and the Department of State's Quarterly Update to Congress, 2207 Report,
among others. To monitor the status of efforts and reconstruction
projects, we reviewed daily, weekly, and biweekly reporting from the
Department of State, DOD, GRD, and USAID. We compiled daily data from IRMO
to provide summary data on crude oil and electricity production averages.
We discussed and reviewed documents on goal, metric, data limitations, and
project status with GRD, USAID, IRMO, and international donor officials.
IRMO collects its crude oil production and export data from estimates
provided by Iraq's Ministry of Oil and state-owned companies that have
responsibility for various regions and parts of the production process. We
identified the challenges IRMO faces in collecting these data, which we
discuss in the report, including limited metering at oil facilities. We
also compared crude oil production data from IRMO to data reported by the
Department of Energy, Energy Information Administration (EIA). We noted a
discrepancy between these two data sets and discussed with EIA officials
the reasons for this discrepancy, which we note in the report. We also
examined IRMO data on Iraq's national stocks of refined petroleum
products, such as gasoline. For electricity production, IRMO receives data
from Iraq's Ministry of Electricity based on electricity output from
Iraq's electricity national grid. It does not include electricity
production from local generators. We also reviewed prior GAO, U.S. agency
inspector general, SIGIR, and other audit agency reports. Based on this
analysis, we found the data sufficiently reliable for identifying
production goals in both sectors and whether actual production is meeting
these goals. We report oil and electricity production data as of December
31, 2006, and reconstruction project progress data as of March 3, 2007.
To determine the challenges affecting sector progress, we reviewed and
analyzed U.S., Iraqi, donor government, UN, International Monetary Fund
(IMF), and World Bank reports and data. Over the course of our field work
in Washington, D.C.; Baghdad, Iraq; and Amman, Jordan, we met with
officials from the Department of State, USAID, DOD, the Department of the
Treasury, and the Department of Energy. Over the course of our two trips
to Iraq and Jordan, we met with Iraqi, UN, International Monetary Fund,
World Bank, donor country (Japan and European Union), and private-sector
officials. We observed several embassy meetings and a donor meeting led by
the Iraqi Ministry of Planning and Development. We also interviewed U.S.,
Iraqi, and UN officials at a November 2006 electricity conference
sponsored by the UN Development Program at the Dead Sea, Jordan.
Appendix II: Comments from the Department of State
Appendix III: GAO Contact and Staff Acknowledgments
GAO Contact
Joseph Christoff (202) 512-8979 or [email protected]
Acknowledgments
In addition, Stephen Lord, Assistant Director; Lynn Cothern; Howard Cott;
Martin De Alteriis; Etana Finkler; Bruce Kutnick; Kathleen Monahan; Mary
Moutsos; Amy Sheller; Jena Sinkfield; and Timothy Wedding made key
contributions to this report.
(320383)
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Highlights of [50]GAO-07-677 , a report to Congressional Committees
May 2007
REBUILDING IRAQ
Integrated Strategic Plan Needed to Help Restore Iraq's Oil and
Electricity Sectors
Since 2003, the United States has provided several billion dollars in
reconstruction funds to help rebuild Iraq oil and electricity sectors,
which are crucial to rebuilding Iraq's economy. For example, oil export
revenues account for over half of Iraq's gross domestic product and over
90 percent of government revenues. The U.S. rebuilding program was
predicated on three key assumptions: a permissive security environment,
the ability to restore Iraq's essential services to prewar levels, and
funding from Iraq and international donors.
This report addresses (1) the funding made available to rebuild Iraq's oil
and electricity sectors, (2) the U.S. goals for these sectors and progress
in achieving these goals, and (3) the key challenges the U.S. government
faces in these efforts.
[51]What GAO Recommends
This report recommends that the Secretary of State, in conjunction with
relevant U.S. agencies and international donors, work with Iraqi
ministries to develop an integrated energy strategy. State commented that
the Iraqi government, not the U.S. government, is responsible for taking
action on GAO's recommendations. GAO believes that these recommendations
are still valid given the billions made available for Iraq's energy sector
and the U.S. government's influence in overseeing Iraq's rebuilding
efforts.
Billions have been provided to rebuild Iraq's oil and electricity sectors,
but Iraq's future needs are significant and sources of funding uncertain.
From fiscal years 2003 through 2006, the United States spent about $5.1
billion to rebuild the oil and electricity sectors. The United States also
spent an additional $3.8 billion in Iraqi funds on these sectors. However,
Iraq will need billions of additional dollars to rebuild these sectors.
The Iraqi government and donors represent important sources of potential
funding. However, the oil and electricity ministries have encountered
difficulties spending capital improvement budgets because of weaknesses in
budgeting and procurement practices and major security challenges.
Moreover, Iraq has not made full use of potential international
contributions. It is also unclear what additional financial commitments,
if any, will be provided to Iraq's oil and electricity sectors as part of
a new international compact.
Despite 4 years of effort and the substantial resources expended,
production in both sectors has consistently fallen below U.S. program
goals. In addition, State's estimate of Iraq's oil production levels may
be overstated due to inadequate metering that does not allow precise
measurement of crude oil production. The Iraqi government projects that it
will be able to meet the demand for electricity in 2009. However, these
projections assume that the Ministry of Electricity will be assured of the
stable supply of the fuel needed for electricity generation, which has
been lacking due to poor coordination between the oil and electricity
ministries.
A variety of security, corruption, legal, and planning challenges have
impeded U.S. and Iraqi efforts to restore Iraq's oil and electricity
sectors. The challenging security environment and insufficient protection
efforts have continued to place workers and infrastructure at risk.
Corruption, smuggling, and other illicit activities result in revenue
losses and low cost recovery. Furthermore, the Iraqi government has
difficulty attracting foreign investment because, according to the World
Bank, it lacks an adequate legal framework, including comprehensive
hydrocarbon legislation that would govern distribution of future oil
revenues and granting of exploration rights. Finally, although the oil and
electricity sectors are mutually dependent, the Iraqi government lacks
integrated planning for these sectors, which has led to inefficient
management of the country's resources.
Iraqi Reported Crude Oil Production, Exports, and U.S. Goals, June 2003
through December 2006
Report to Congressional Committees
United States Government Accountability Office
GAO
May 2007
REBUILDING IRAQ
Integrated Strategic Plan Needed to Help Restore Iraq's Oil and
Electricity Sectors
GAO-07-677
On June 22, 2007, the Web version of this report was reissued to reflect
changes to enemy-initiated attack data provided by the Defense
Intelligence Agency. On June 13, 2007, DIA notified GAO that its April
2007 attack data were incorrect because it had excluded attacks from a new
subordinate command established on April 1, 2007. According to DIA,
Multi-National Division-Center did not properly forward its April attack
data because of inadequate reporting procedures; it has since corrected
the problem. Accordingly, enemy attacks in April totaled approximately
4,900 rather than the 4,500 previously reported (see page 34). We also
revised the corresponding narrative to show the average number of daily
attacks increasing from 157 in March 2007 to 163 in April 2007 (see page
33).
References
Visible links
31. http://www.gao.gov/cgi-bin/getrpt?GAO-06-697T
32. http://www.gao.gov/cgi-bin/getrpt?GAO-06-788
33. http://www.gao.gov/cgi-bin/getrpt?GAO-06-953T
34. http://www.gao.gov/cgi-bin/getrpt?GAO-07-308SP
35. http://www.gao.gov/cgi-bin/getrpt?GAO-06-788
36. http://www.gao.gov/cgi-bin/getrpt?GAO-07-308SP
37. http://www.gao.gov/cgi-bin/getrpt?GAO-05-876
38. http://www.gao.gov/cgi-bin/getrpt?GAO-07-30R
50. http://www.gao.gov/cgi-bin/getrpt?GAO-07-677
*** End of document. ***