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Iraq's Reconstruction Ailments

Author: Lionel Beehner
November 9, 2005

What is the status of the U.S.-led reconstruction efforts in Iraq?

The reconstruction of Iraq has been hampered by a number of hurdles, including government bureaucracy, corruption, and security concerns, according to an October 30, 2005, report by the Special Inspector General for Iraq Reconstruction (SIGIR), an independent auditor. The effort is the biggest rebuilding project since the post-war rebuilding of Europe in 1945. More than thirty months after the March 2003 invasion, Iraqis still complain of a lack of basic amenities like heating oil, water, and electricity.

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What else did the auditor find?

Among its findings, SIGIR reports of a “reconstruction gap” in Iraq: of roughly 3,200 projects initially proposed, only 1,887 have been completed, with 897 projects ongoing. Only 79 percent of the $18 billion Iraq Relief and Reconstruction Fund (IRRF) has been committed to projects. This gap is due to factors including project delays, cost overruns, and the constant risk of insurgent attacks, which are diverting reconstruction resources to pay for security. The report also found fifty-four instances of corruption, related to no-bid contracts and billing discrepancies resulting in millions of dollars lost.

How is security affecting Iraq’s overall reconstruction?

The security environment on the ground is growing worse, SIGIR finds; 412 contractors have been killed since March 2003. “That’s about one for every five [U.S.] soldiers killed,” says Frederick Barton, senior adviser to the Center for Strategic and International Studies’ International Security Program. “That has a tremendously negative impact on the ability to do reconstruction work,” he says. Security costs, originally factored in at around 9 percent, now make up more than 25 percent of all reconstruction spending. Further, security issues lead to recruiting problems, which in turn forces contractors to raise wages to attract workers. Anbar, a heavily Sunni province northwest of Baghdad, is so poorly secured that only one U.S. State Department employee and one USAID employee are on the ground, according to Time Magazine.

Which sectors are most in need of reconstruction?

According to news reports and polls, the three highest priorities of everyday Iraqis are oil, electricity, and water, experts say. Numerous obstacles remain to supplying these staple items. Among them:

  • Oil. Much of the post-war reconstruction was supposed to be financed by oil revenues. However, daily oil production in Iraq is around 2.14 million barrels, which is less than the average 2.5 million barrels before the 2003 Iraq War. “We’ve spent over $2 billion [on oil-related projects], and the situation is actually worse than we arrived,” said Representative Henry Waxman (D-CA) before an October 18 National Security Hearing. Domestic demand for oil is up. Iraqis are buying more cars but waiting long hours to fill their tanks. The sluggish production is due to pipeline attacks by insurgents, poor infrastructure, and lack of refineries. According to the International Oil Daily, oil shortages in Iraq are costing the country billions of dollars in lost export revenues. Further, government subsidies on fuel provide incentives for sabotage and smuggling oil products out of Iraq; more than $2 billion-worth of gas and diesel-fuel supplies is smuggled out of Iraq every year.
  • Electricity. Roughly $4.4 billion has been spent to boost Iraq’s electricity production, yielding mixed results. According to the U.S. State Department, power generation, currently at 4,600 megawatts, has only recently exceeded the prewar level of 4,400 megawatts. That’s still shy of the 6,000 megawatt objective stated by the Coalition Provisional Authority in September 2003. Nationwide, Iraqis on average have power for just half the day. Security forms a large part of this problem, too: a July 2005 report from the Government Accountability Office found that USAID nixed two electricity-generating projects in March 2004 because of the increased security costs of a separate electricity project. Several other power-generation projects have been cancelled or delayed. Barton says a better solution would have been to hand out 500 generators.
  • Water. In an effort to provide potable water to 90 percent of Iraqis, some $1.2 billion was allocated for water and sanitation-works projects. Yet the IRMO says just 66 percent of Iraqis have access to drinkable water. Further, the GAO report says that between $52 million and $200 million worth of water-sanitation projects were either inoperable or operating below capacity. Thirteen of Iraq ’s wastewater-treatment plants are operating at about a quarter of capacity, according to U.S. News & World Report. Experts point to looting, power shortages, and a poorly trained Iraqi staff as causes of the shortfall.
What other factors are hobbling reconstruction?

Among them:

  • Bureaucracy. Much of the reconstruction funds were held up in red tape, experts say. Further, the decision-making behind these projects was done in Baghdad and Washington, not at the local level. “The authorities didn’t ask local people and governments what their priorities are,” says Jane Arraf, Edward R. Murrow press fellow at the Council on Foreign Relations and former senior Baghdad correspondent for CNN. The system of awarding projects to Iraqi subcontractors is still problematic, she adds. “The criteria with U.S. organizations are still who can present the best proposal in English, as opposed to who can actually execute the project,” she says. As a result, many contracts go to the lowest Iraqi bidder, resulting in shoddy work and missed deadlines.  
  • Mismanagement of funds. An audit by the Iraqi government found that as much as $1.27 billion was lost to accounting irregularities between June 2004 and February 2005. In October, the International Advisory and Monitoring Board of the Development Fund, a UN auditing agency, called on the U.S. government to repay Iraq $208 million over disputed fees set by a U.S. contractor. The company—Kellogg, Brown and Root (KBR), a subsidiary of Halliburton—carried out work paid for by Iraqi oil proceeds, but the work was grossly overpriced and poorly done, according to the auditing agency. KBR claims that the questions raised have to do with documentation, not quality-of-work or accounting issues. The project, carried out in 2003-2004, was a $1.4 billion no-bid contract to repair parts of Iraq’s oil infrastructure.
  • Poor oversight. Once a contract is tendered, there is little government oversight, experts say. For example, in Najaf, a Shiite city south of Baghdad often cited as a reconstruction success story, a $5.5 million sewage-treatment plant built by Bechtel, a U.S. company, was completed in February but was not made operable until August because no one in Najaf was trained to operate the facility, according to the New York Times. Further, a maternity hospital in the city received $8 million but had little to show for it after five months. Stuart Bowen Jr., SIGIR’s inspector general, cited two examples of poor oversight in a November 3 interview on National Public Radio. The first was a $28 million project to build five “state of the art” power plants in Basra, a Shiite city in southern Iraq, but failed to provide the substations connector wires to carry the electricity to Iraqis. In the second case, $1.8 million was paid to rebuild a library in Karbala, but the work was never performed. “In both cases, there were grant moneys and contract dollars that simply disappeared,” Bowen said.
What progress has been made on the reconstruction of Iraq?

The U.S.-led reconstruction efforts, despite setbacks and security woes, have shown some progress in places like Najaf and Sadr City, a Shiite suburb of Baghdad. Contractors have refurbished police and fire stations, replaced decaying water pipes, and renovated schools and hospitals. In Baghdad, the first of 120 rebuilt health centers was opened. Increasingly, more of the contracting work is being done by Iraqis, though Arraf says in parts of Kurdistan subcontractors rely increasingly on low-wage Chinese laborers. Despite the fact that Iraq is producing oil below capacity, the high price of crude has pushed Iraq’s oil revenue to a post-war high of $2.63 billion in August.

What steps have been taken to improve the reconstruction efforts?

The U.S.-led coalition is hoping that once Iraq’s security forces are fully operational, the improved security environment will speed along reconstruction projects. Another strategy introduced by Zalmay Khalilzad, the U.S. ambassador to Iraq, is so-called provincial reconstruction teams, or PRTs. An experiment with a proven track record in Afghanistan, PRTs consist of small units of around fifty soldiers paired with several civilians with expertise in certain areas like stability or reconstruction. PRTs are expected to assist reconstruction efforts in Hilla, Mosul, and Kirkuk. Bowen, in the SIGIR report, recommends that Khalilzad host an anti-corruption summit to tackle the growing problem of graft. On the financing side, the Iraqi government is expecting higher future oil revenues to help offset the escalating costs of reconstruction projects. In addition, Baghdad is seeking more funding from donor nations—which have pledged $8 billion so far—and the World Bank and International Monetary Fund, which have pledged $5.55 billion.

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