United States Government Accountability Office

GAO Testimony 

Before the Committee on Foreign 

Relations, United States Senate 

REBUILDING IRAQ 

Stabilization, 

Reconstruction, and 

Financing Challenges 

Statement of Joseph A. Christoff, Director 

International Affairs and Trade 

For Release on Delivery

Expected at 9:30 a.m. EST 

Wednesday, February 8, 2006 

 

GAO-06-428T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

February 8, 2006

REBUILDING IRAQ

Stabilization, Reconstruction, and 

Highlights of GAO-06-428T, a testimony Financing Challenges 

before the Committee on Foreign 

Relations, United States Senate 

The United States, along with

coalition partners and various 

international organizations, has

undertaken a challenging and

costly effort to stabilize and rebuild 

Iraq following multiple wars and 

decades of neglect by the former

regime. This enormous effort is 

taking place in an unstable security 

environment, concurrent with Iraqi

efforts to transition to its first 

permanent government. The 

United States’ goal is to help the

Iraqi government develop a 

democratic, stable, and prosperous 

country, at peace with itself and its

neighbors, a partner in the war

against terrorism, enjoying the 

benefits of a free society and a 

market economy. 

In this testimony, GAO discusses 

the challenges (1) that the United

States faces in its rebuilding and 

stabilization efforts and (2) that the

Iraqi government faces in financing 

future requirements.

This statement is based on four 

reports GAO has issued to the 

Congress since July 2005 and 

recent trips to Iraq. Since July 

2005, we have issued reports on (1)

the status of funding and

reconstruction efforts in Iraq, 

focusing on the progress achieved

and challenges faced in rebuilding

Iraq’s infrastructure; (2) U.S. 

reconstruction efforts in the water

and sanitation sector; (3) U.S.

assistance for the January 2005

Iraqi elections; and (4) U.S. efforts 

to stabilize the security situation in 

Iraq (a classified report).

The United States faces three key challenges in rebuilding and stabilizing 

Iraq. First, the security environment and the continuing strength of the 

insurgency have made it difficult for the United States to transfer security 

responsibilities to Iraqi forces and progressively draw down U.S. forces. The 

security situation in Iraq has deteriorated since June 2003, with significant 

increases in attacks against Iraqi and coalition forces. In addition, the 

security situation has affected the cost and schedule of rebuilding efforts. 

The State Department has reported that security costs represent 16 to 22

percent of the overall costs of major infrastructure projects. Second, 

inadequate performance data and measures make it difficult to determine 

the overall progress and impact of U.S. reconstruction efforts. The United 

States has set broad goals for providing essential services in Iraq, but limited 

performance measures present challenges in determining the overall impact 

of U.S. projects. Third, the U.S. reconstruction program has encountered 

difficulties with Iraq's inability to sustain new and rehabilitated 

infrastructure projects and to address basic maintenance needs in the water,

sanitation, and electricity sectors. U.S. agencies are working to develop 

better performance data and plans for sustaining rehabilitated infrastructure.

As the new Iraqi government forms, it must plan to secure the financial 

resources it will need to continue the reconstruction and stabilization efforts 

begun by the United States and international community. Iraq will likely 

need more than the $56 billion that the World Bank, United Nations, and 

CPA estimated it would require for reconstruction and stabilization efforts 

from 2004 to 2007. More severely degraded infrastructure, post-2003 conflict 

looting and sabotage, and additional security costs have added to the 

country's basic reconstruction needs. However, it is unclear how Iraq will 

finance these additional requirements. While the United States has borne 

the primary financial responsibility for rebuilding and stabilizing Iraq, its 

commitments are largely obligated and future commitments are not 

finalized. Further, U.S. appropriations were never intended to meet all Iraqi

needs. In addition, international donors have mostly committed loans that 

the government of Iraq is just beginning to tap. Iraq's ability to financially 

contribute to its own rebuilding and stabilization efforts will depend on the 

new government's efforts to increase revenues obtained from crude oil 

exports, reduce energy and food subsidies, control government operating 

expenses, provide for a growing security force, and repay $84 billion in 

external debt and war reparations. 

www.gao.gov/cgi-bin/getrpt?GAO-06-428T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Joseph 

Christoff at (202) 512-8979 or 

christoffj@gao.gov. 
Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss U.S. efforts to rebuild and 

stabilize Iraq. The United States, along with its coalition partners and 

various international organizations, has undertaken a challenging and

costly effort to stabilize and rebuild Iraq following multiple wars and 

decades of neglect by the former regime. This enormous effort is taking 

place in an unstable security environment, concurrent with Iraqi efforts to

transition to its first permanent government. The United States’ 

reconstruction assistance goal is to help the Iraqi government develop a 

democratic, stable, and prosperous country, at peace with itself and its 

neighbors, a partner in the war against terrorism, enjoying the benefits of a 

free society and a market economy. 

My testimony today is based on the four reports that we have issued to the 

Congress since July 2005 and our recent trips to Iraq. Since July 2005, we

have reported on (1) the status of funding and reconstruction efforts in 

Iraq, focusing on the progress we have achieved and the challenges we 

face in rebuilding Iraq’s infrastructure; (2) U.S. reconstruction efforts in 

the water and sanitation sector; (3) U.S. assistance for the January 2005 

Iraqi elections; and (4) U.S. efforts to stabilize the security situation in Iraq 

(a classified report). We continue to review U.S. efforts to train and equip

Iraqi security forces, develop the oil and electricity sectors, reduce 

corruption, and enhance the capacity of Iraqi ministries. 

Based on these four reports and recent audit work conducted in Iraq, I will 

discuss the challenges (1) that the United States faces in its rebuilding and 

stabilization efforts and (2) that the Iraqi government faces in financing 

future requirements. 

This statement includes unclassified information only and is based on 

recent GAO reports. We conducted our reviews for these reports between 

September 2004 and October 2005 in accordance with generally accepted 

government auditing standards. In addition, we recently conducted audit 

work in Iraq in November 2005 and January 2006.

The United States faces three key challenges in rebuilding and stabilizing 

Iraq. First, the continuing strength of the insurgency has made it difficult 

for the multinational force to develop effective and loyal Iraqi security 

forces, transfer security responsibilities to them, and progressively draw 

down U.S. forces in Iraq. The security situation in Iraq has also affected 

rebuilding efforts. The security situation has deteriorated since June 2003, 

Summary 

Page 1 GAO-06-428T 
with significant increases in attacks against the coalition and coalition 

partners. Second, inadequate performance data and measures make it 

difficult to determine the overall progress and impact of U.S. 

reconstruction efforts. Although the United States has set broad goals for 

providing essential services in Iraq, limited performance measures present 

challenges in determining the overall impact of U.S. projects. Third, the 

U.S. reconstruction program has encountered difficulties with Iraq’s 

inability to sustain new and rehabilitated infrastructure projects and to 

address maintenance needs in the water, sanitation, and electricity 

sectors. U.S. agencies are working to develop better performance data and

plans for sustaining the rehabilitated infrastructure. 

As the new Iraqi government forms, it must plan to secure the financial 

resources it will need to continue the reconstruction and stabilization 

efforts begun by the United States and international community. Iraq will

likely need more than the $56 billion that the World Bank, United Nations 

(UN), and the Coalition Provisional Authority (CPA) estimated it would 

require for reconstruction and stabilization efforts from 2004 through 2007.

More severely degraded infrastructure, post-2003 conflict looting and 

sabotage, and additional security costs have added to the country’s basic 

reconstruction needs. It is unclear how Iraq will finance these additional 

requirements. While the United States has carried the primary financial

responsibility for rebuilding and stabilizing Iraq, its commitments are 

largely obligated and remaining commitments and future contributions are 

not finalized. Further, U.S. appropriations were never intended to meet all

Iraqi needs. In addition, international donors have mostly committed loans 

for the reconstruction of Iraq that the government is just beginning to 

access. Iraq’s ability to contribute financially to its own rebuilding and 

stabilization efforts will depend on the new government’s efforts to 

increase revenues obtained from crude oil exports, reduce energy and

food subsidies, control government operating expenses, provide for a 

growing security force, and repay $84 billion in external debt and war 

reparations. 

From May 2003 through June 2004, the CPA, led by the United States and

the United Kingdom, was the UN-recognized coalition authority 

responsible for the temporary governance of Iraq and for overseeing, 

directing, and coordinating the reconstruction effort. In May 2003, the CPA 

dissolved the military organizations of the former regime and began the 

process of creating or reestablishing new Iraqi security forces, including

the police and a new Iraqi army. Over time, multinational force 

commanders assumed responsibility for recruiting and training some Iraqi 

Background 

Page 2 GAO-06-428T 
defense and police forces in their areas of responsibility.1

 In May 2004, the 

President issued a National Security Presidential Directive, which stated 

that, after the transition of power to the Iraqi government, the Department 

of State (State), through its ambassador to Iraq, would be responsible for 

all U.S. activities in Iraq except for security and military operations. U.S. 

activities relating to security and military operations would be the 

responsibility of the Department of Defense (DOD). The Presidential 

Directive required the U.S. Central Command (CENTCOM) to direct all 

U.S. government efforts to organize, equip, and train Iraqi security forces. 

The Multi-National Security Transition Command-Iraq, which operates 

under Multi-National Force-Iraq (MNF-I), now leads coalition efforts to 

train, equip, and organize Iraqi security forces. 

Other U.S. government agencies also play significant roles in the 

reconstruction effort. The U.S. Agency for International Development 

(USAID) is responsible for projects to restore Iraq’s infrastructure, support 

healthcare and education initiatives, expand economic opportunities for 

Iraqis, and foster improved governance. The U.S. Army Corps of Engineers 

provides engineering and technical services to USAID, State, and military 

forces in Iraq. In December 2005, the responsibilities of the Project 

Contracting Office (PCO), a temporary organization responsible for 

program, project, asset, and financial management of construction and 

nonconstruction activities, were merged with those of the U.S. Army 

Corps of Engineers Gulf Region Division. 

On June 28, 2004, the CPA transferred power to an interim sovereign Iraqi

government, the CPA was officially dissolved, and Iraq’s transitional 

period began. Under Iraq’s transitional law,2

 the transitional period 

included the completion of a draft constitution in October 2005 and two 

subsequent elections—a referendum on the constitution and an election 

for a permanent government.3

 The Iraqi people approved the constitution 

on October 15, 2005, and voted for representatives to the Iraq Council of 

Representatives on December 15, 2005. As of February 3, 2006, the 

Independent Electoral Commission of Iraq had not certified the election 

results for representatives. 

 1

The CPA was responsible for police training at the Baghdad and Jordan academies. The 

Iraqi army units were trained by the Multi-National Security Transition Command-Iraq. 

2

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

3

See GAO, Iraq’s Transitional Law, GAO-04-746R (Washington, D.C.: May 25, 2004), for

more information on key events during Iraq’s transitional period. 

Page 3 GAO-06-428T 
Once certified, the representatives are to form a permanent government. 

According to U.S. officials and Iraqi constitutional experts, the new Iraqi

government is likely to confront the same issues it confronted prior to the 

referendum—the power of the central government, control of Iraq’s 

natural resources, and the application of Islamic law. According to U.S. 

officials, once the Iraqi legislature commences work, it will form a 

committee that has 4 months to recommend amendments to the 

constitution. To take effect, these proposed amendments must be 

approved by the Iraqi legislature and then Iraqi citizens must vote on them 

in a referendum within 2 months.4

The United States faces three key challenges in stabilizing and rebuilding 

Iraq. First, the unstable security environment and the continuing strength

of the insurgency have made it difficult for the United States to transfer 

security responsibilities to Iraqi forces and to engage in rebuilding efforts. 

Second, inadequate performance data and measures make it difficult to 

determine the overall progress and impact of U.S. reconstruction efforts. 

Third, the U.S. reconstruction program has encountered difficulties with 

Iraq’s inability to sustain new and rehabilitated infrastructure projects and 

to address maintenance needs in the water, sanitation, and electricity 

sectors. U.S. agencies are working to develop better performance data and

plans for sustaining rehabilitated infrastructure. 

Security, 

Measurement, and 

Sustainability 

Challenges in 

Rebuilding and 

Stabilizing Iraq 

Strength of the Insurgency 

Has Made It Difficult to 

Transfer Security 

Responsibilities to Iraqi 

Forces and Engage in 

Rebuilding Efforts 

Over the past 21⁄2 years, significant increases in attacks against the 

coalition and coalition partners have made it difficult to transfer security 

responsibilities to Iraqi forces and to engage in rebuilding efforts in Iraq. 

The insurgency in Iraq intensified through October 2005 and has remained 

strong since then. Poor security conditions have delayed the transfer of 

security responsibilities to Iraqi forces and the drawdown of U.S. forces in 

Iraq. The unstable security environment has also affected the cost and 

schedule of rebuilding efforts and has led, in part, to project delays and 

increased costs for security services. Recently, the administration has 

taken actions to integrate military and civilian rebuilding and stabilization 

efforts. 

 4

The referendum is successful if it is approved by the majority of the voters and is not

rejected by two-thirds of the voters in three or more governorates. 

Page 4 GAO-06-428T 
The insurgency intensified through October 2005 and has remained strong 

since then. As we reported in March 2005, the insurgency in Iraq—

particularly the Sunni insurgency—grew in complexity, intensity, and 

lethality from June 2003 through early 2005.5

 According to a February 2006 

testimony by the Director of National Intelligence, insurgents are using 

increasingly lethal improvised explosive devices and continue to adapt to 

coalition countermeasures.6

Insurgency Has Intensified and 

Delayed the Transfer of 

Security Responsibilities 

As shown in figure 1, enemy-initiated attacks against the coalition, its Iraqi 

partners, and infrastructure increased in number over time. The highest 

peak occurred during October 2005, around the time of Ramadan and the 

October referendum on Iraq’s constitution. This followed earlier peaks in 

August and November 2004 and January 2005. According to a senior U.S.

military officer, attack levels ebb and flow as the various insurgent 

groups—almost all of which are an intrinsic part of Iraq’s population—

rearm and attack again. 

 5

For more information on security trends and the makeup of the insurgency, see GAO,

Rebuilding Iraq: Preliminary Observations on Challenges in Transferring Security

Responsibilities to Iraqi Military and Police, GAO-05-431T (Washington, D.C.: Mar. 14, 

2005). 

6

U.S. Senate, Senate Select Committee on National Intelligence, Current and Projected

National Security Threats to the United States, Washington, D.C.: Feb, 2, 2006. 

Page 5 GAO-06-428T 
Figure 1: Enemy-Initiated Attacks against the Coalition and Its Partners, by Category, June 2003 through December 2005 

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Au

Sept.

Oct.

Nov.

Dec.

g.

Jun

July

e

Au

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May

g.

Au

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May

June

July

g.

July

Junea

2003 2004 2005

Attack(s) on Infrastructure

Attack(s) on Iraqi government officials

Attack(s) on Iraqi security forces

Attack(s) on civilians

Attack(s) on coalition

Number of attacks

Source: Multi-national Corps-Iraq, Multi-national Force-Iraq, February 2006.

a

According to DIA officials, June 2003 data are incomplete. 

As the administration has reported, insurgents share the goal of expelling 

the coalition from Iraq and destabilizing the Iraqi government to pursue 

their individual and, at times, conflicting goals.7

 Iraqi Sunnis make up the 

largest portion of the insurgency and present the most significant threat to

stability in Iraq. In February 2006, the Director of National Intelligence 

reported that the Iraqi Sunnis’ disaffection is likely to remain high in 2006,

even if a broad, inclusive national government emerges. These insurgents 

continue to demonstrate the ability to recruit, supply, and attack coalition 

 7

Department of Defense, Report to Congress, Measuring Stability and Security in Iraq, 

July 20, 2005. National Security Council, National Strategy for Victory in Iraq, November 

2005. 

Page 6 GAO-06-428T 
and Iraqi security forces. Their leaders continue to exploit Islamic themes, 

nationalism, and personal grievances to fuel opposition to the government 

and recruit more fighters. According to the Director, the most extreme 

Sunni jihadists, such as al-Qaeda in Iraq, will remain unreconciled and 

continue to attack Iraqi and coalition forces. The remainder of the 

insurgency consists of radical Shia groups, some of whom are supported 

by Iran, violent extremists, criminals, and, to a lesser degree, foreign 

fighters. According to the Director of National Intelligence, Iran provides 

guidance and training to select Iraqi Shia political groups and weapons and 

training to Shia militant groups to enable anticoalition attacks. Iran also 

has contributed to the increasing lethality of anticoalition attacks by 

enabling Shia militants to build improvised explosive devices with 

explosively formed projectiles, similar to those developed by Iran and 

Lebanese Hizballah. 

The continuing strength of the insurgency has made it difficult for the 

multinational force to develop effective and loyal Iraqi security forces, 

transfer security responsibilities to them, and progressively draw down 

U.S. forces in Iraq.8

 The Secretary of Defense and MNF-I recently reported 

progress in developing Iraqi security forces, saying that these forces 

continue to grow in number, take on more responsibilities, and increase 

their lead in counterinsurgency operations in some parts of Iraq. For 

example, in December 2005 and January 2006, MNF-I reported that Iraqi 

army battalions and brigades had assumed control of battle space9

 in parts 

of Ninewa, Qadisiyah, Babil, and Wasit provinces. According to the 

Director for National Intelligence, Iraqi security forces are taking on moredemanding missions, making incremental progress toward operational 

independence, and becoming more capable of providing security. In the 

meantime, coalition forces continue to support and assist the majority of 

Iraqi security forces as they develop the capability to operate 

independently. 

 8

As we previously reported, the multinational force attempted to shift responsibilities to 

Iraqi security forces during spring 2004 but did not succeed. In response, resources 

available for developing Iraqi security forces were increased during fiscal years 2004 and 

2005. In November 2003, the United States decided to maintain a force level of about 

138,000 troops until at least the end of 2005, rather than drawing down to 105,000 troops by

May 2004 as DOD had announced in November 2003. In December 2005, DOD announced a 

drawdown from 17 to 15 U.S. combat brigades, a decrease to about 131,000 U.S. military 

personnel, by spring 2006. 

9

Battle space can be defined as the physical space in which Iraqi security forces are 

conducting operations. 

Page 7 GAO-06-428T 
However, recent reports have recognized limitations in the effectiveness of 

Iraqi security forces. For example, DOD’s October 2005 report notes that 

Iraqi forces will not be able to operate independently for some time 

because they need logistical capabilities, ministry capacity, and command 

and control and intelligence structures.10 In the November 2005 National 

Strategy for Victory in Iraq, the administration cited a number of 

challenges to developing effective Iraqi security forces, including the need

to guard against infiltration by elements whose first loyalties are to 

institutions other than the Iraqi government and to address the militias and 

armed groups that are outside the formal security sector and government

control. Moreover, according to the Director of National Intelligence’s 

February 2006 report, Iraqi security forces are experiencing difficulty in 

managing ethnic and sectarian divisions among their units and personnel.

GAO’s classified report on Iraq’s security situation provided further 

information and analysis on the challenges to developing Iraqi security 

forces and the conditions for the phased drawdown of U.S. and other 

coalition forces.11

The security situation in Iraq has affected the cost and schedule of 

reconstruction efforts. Security conditions have, in part, led to project 

delays and increased costs for security services. Although it is difficult to 

quantify the costs and delays resulting from poor security conditions, both 

agency and contractor officials acknowledged that security costs have 

diverted a considerable amount of reconstruction resources and have led

to canceling or reducing the scope of some reconstruction projects. For 

example, in March 2005, USAID cancelled two task orders12 related to 

power generation that totaled nearly $15 million to help pay for the 

increased security costs incurred at another power generation project in 

southern Baghdad. In another example, work was suspended at a sewer 

repair project in central Iraq for 4 months in 2004 due to security 

concerns. In January 2006, State reported that direct and indirect security 

Security Situation and 

Management Issues Have 

Affected Rebuilding Efforts 

 10Department of Defense, Report to Congress, Measuring Stability and Security in Iraq, 

October 2005. 

11GAO, DOD Reports Should Link Economic, Governance, and Security Indicators to 

Conditions for Stabilizing Iraq, GAO-06-152C (Washington, D.C.: Oct. 2005). 

12Task orders are placed against established contracts for the performance of tasks during 

the period of the contracts.

Page 8 GAO-06-428T 
costs represent 16 to 22 percent of the overall cost of major infrastructure 

reconstruction projects.13

In addition, the security environment in Iraq has led to severe restrictions 

on the movement of civilian staff around the country and reductions of a 

U.S. presence at reconstruction sites, according to U.S. agency officials 

and contractors. For example, the Project Contracting Office reported in 

February 2006, the number of attacks on convoys and casualties had 

increased from 20 convoys attacked and 11 casualties in October 2005 to

33 convoys attacked and 34 casualties in January 2006. In another 

example, work at a wastewater plant in central Iraq was halted for 

approximately 2 months in early 2005 because insurgent threats drove 

away subcontractors and made the work too hazardous to perform. In the 

assistance provided to support the electoral process, U.S.-funded grantees 

and contractors also faced security restrictions that hampered their 

movements and limited the scope of their work. For example, IFES14 was 

not able to send its advisors to most of the governorate-level elections 

administration offices, which hampered training and operations at those 

facilities leading up to Iraq’s Election Day on January 30, 2005. 

While poor security conditions have slowed reconstruction and increased 

costs, a variety of management challenges also have adversely affected the 

implementation of the U.S. reconstruction program. In September 2005, 

we reported that management challenges such as low initial cost estimates 

and delays in funding and awarding task orders have led to the reduced

scope of the water and sanitation program and delays in starting projects.

In addition, U.S. agency and contractor officials have cited difficulties in 

initially defining project scope, schedule, and cost, as well as concerns 

with project execution, as further impeding progress and increasing 

program costs. These difficulties include lack of agreement among U.S. 

agencies, contractors, and Iraqi authorities; high staff turnover; an 

inflationary environment that makes it difficult to submit accurate pricing; 

unanticipated project site conditions; and uncertain ownership of project

sites. 

 13Department of State, Report to Congress, Section 2207 Report on Iraq Relief and 

Reconstruction, January 2006.

14IFES is a nonpartisan, nonprofit organization founded in 1987 that provides technical 

assistance concerning democracy and governance to transitional democracies. In 2004, 

USAID gave IFES a $40 million grant to provide technical assistance to the Independent

Electoral Commission of Iraq through the end of 2005 to help it administer elections. 

Page 9 GAO-06-428T 
Our ongoing work on Iraq’s energy sectors and the management of designbuild contracts will provide additional information on the issues that have 

affected the pace and costs of reconstruction. 

The Administration has taken steps to develop a more comprehensive, 

integrated approach to combating the insurgency and stabilizing Iraq. The 

National Strategy for Victory in Iraq lays out an integrated political, 

military, and economic strategy that goes beyond offensive military 

operations and the development of Iraqi security forces in combating the 

insurgency. Specifically, it calls for cooperation with and support for local 

governmental institutions, the prompt dispersal of aid for quick and visible 

reconstruction, and central government authorities who pay attention to 

local needs.

Recent Actions to Integrate 

Military and Civilian Rebuilding 

and Stabilization Efforts 

Toward that end, U.S. agencies are developing tools for integrating 

political, economic, and security activities in the field. For example, 

USAID is developing the Focused Stabilization Strategic City Initiative that 

will fund social and economic stabilization activities in communities 

within 10 strategic cities. The program is intended to jump-start the 

development of effective local government service delivery by directing

local energies from insurgency activities toward productive economic and 

social opportunities. The U.S. embassy in Baghdad and MNF-I are also 

developing provincial assistance teams15 as a component of an integrated 

counterinsurgency strategy. These teams would consist of coalition 

military and civilian personnel who would assist Iraq’s provincial 

governments with (1) developing a transparent and sustained capability to

govern; (2) promoting increased security, rule of law, and political and

economic development; and (3) providing the provincial administration 

necessary to meet the basic needs of the population. It is unclear whether 

these two efforts will become fully operational, as program documents 

have noted problems in providing funding and security for them. 

 15As of late January 2006, these teams were called Provincial Reconstruction Teams, or 

PRTs. A U.S. embassy document, however, called for changing the name to Provincial 

Assistance Teams, or PATs, to reflect the main effort of the teams—capacity development 

and sustainability of the provincial government. Three provincial teams were operational

as of mid-January 2006. 

Page 10 GAO-06-428T 
State has set broad goals for providing essential services, and the U.S. 

program has undertaken many rebuilding activities in Iraq. The U.S. 

program has made some progress in accomplishing rebuilding activities, 

such as rehabilitating some oil facilities to restart Iraq’s oil production, 

increasing electrical generation capacity, restoring some water treatment 

plants, and building Iraqi health clinics. However, limited performance 

data and measures make it difficult to determine and report on the 

progress and impact of U.S. reconstruction. Although information is 

difficult to obtain in an unstable security environment, State reported that

it is currently finalizing a set of metrics to track the impact of

reconstruction efforts. 

Limited Performance Data 

and Measures and 

Inadequate Reporting 

Present Difficulties in 

Determining Progress and 

Impact of Rebuilding 

Effort 

• In the water and sanitation sector, the Department of State has primarily 

reported on the numbers of projects completed and the expected capacity

of reconstructed treatment plants. However, we found that the data are 

incomplete and do not provide information on the scope and cost of 

individual projects nor do they indicate how much clean water is reaching 

intended users as a result of these projects. Moreover, reporting only the 

number of projects completed or under way provides little information on 

how U.S. efforts are improving the amount and quality of water reaching 

Iraqi households or their access to sanitation services. Information on 

access to water and its quality is difficult to obtain without adequate 

security or water-metering facilities. 

• Limitations in health sector measurements also make it difficult to relate 

the progress of U.S. activities to its overall effort to improve the quality 

and access of health care in Iraq. Department of State measurements of 

progress in the health sector primarily track the number of completed 

facilities, an indicator of increased access to health care. However, the 

data available do not indicate the adequacy of equipment levels, staffing 

levels, or quality of care provided to the Iraqi population. Monitoring the 

staffing, training, and equipment levels at health facilities may help gauge 

the effectiveness of the U.S. reconstruction program and its impact on the 

Iraqi people.

• In the electricity sector, U.S. agencies have primarily reported on 

generation measures such as levels of added or restored generation 

capacity and daily power generation of electricity; numbers of projects 

completed; and average daily hours of power. However, these data do not 

show whether (1) the power generated is uninterrupted for the period 

specified (e.g., average number of hours per day); (2) there are regional or 

geographic differences in the quantity of power generated; and (3) how 

much power is reaching intended users. Information on the distribution 

Page 11 GAO-06-428T 
and access of electricity is difficult to obtain without adequate security or 

accurate metering capabilities. 

Opinion surveys and additional outcome measures have the potential to 

gauge the impact of the U.S. reconstruction efforts on the lives of Iraqi 

people and their satisfaction with these sectors. A USAID survey in 2005

found that the Iraqi people were generally unhappy with the quality of 

their water supply, waste disposal, and electricity services but approved of 

the primary health care services they received. In September 2005, we 

recommended that the Secretary of State address this issue of measuring 

progress and impact in the water and sanitation sector. State agreed with

our recommendation and stated in January 2006 that it is currently 

finalizing a set of standard methodologies and metrics for water and other 

sectors that could be used to track the impact of U.S. reconstruction 

efforts. 

The U.S. reconstruction program has encountered difficulties with Iraq’s 

ability to sustain the new and rehabilitated infrastructure and address 

maintenance needs. In the water, sanitation, and electricity sectors, in 

particular, some projects have been completed but have sustained damage

or become inoperable due to Iraq’s problems in maintaining or properly 

operating them. State reported in January 2006 that several efforts were 

under way to improve Iraq’s ability to sustain the infrastructure rebuilt by 

the United States. 

Iraq’s Capacity to Operate 

and Maintain U.S.-Funded 

Projects Presents 

Sustainability Problems 

• In the water and sanitation sector, U.S. agencies have identified limitations 

in Iraq’s capacity to maintain and operate reconstructed facilities, 

including problems with staffing, unreliable power to run treatment plants, 

insufficient spare parts, and poor operations and maintenance 

procedures.16 The U.S. embassy in Baghdad stated that it was moving from 

the previous model of building and turning over projects to Iraqi 

management toward a “build-train-turnover” system to protect the U.S. 

investment. However, these efforts are just beginning, and it is unclear 

whether the Iraqis will be able to maintain and operate completed projects 

and the more than $1 billion in additional large-scale water and sanitation 

projects expected to be completed through 2008. In September 2005, we 

 16See GAO-06-179T and GAO, Rebuilding Iraq: U.S. Water and Sanitation Efforts Need 

Improved Measures for Assessing Impact and Sustained Resources for Maintaining 

Facilities, GAO-05-872 (Washington, D.C.: Sept. 2005), on limitations in the Iraqis’ capacity 

to maintain and operate reconstructed facilities.

Page 12 GAO-06-428T 
recommended that the Secretary of State address the issue of 

sustainability in the water and sanitation sector. State agreed with our 

recommendation and stated that it is currently working with the Iraqi 

government to assess the additional resources needed to operate and 

maintain water and sanitation facilities that have been constructed or 

repaired by the United States. 

• In the electricity sector, the Iraqis’ capacity to operate and maintain the

power plant infrastructure and equipment provided by the United States 

remains a challenge at both the plant and ministry levels. As a result, the 

infrastructure and equipment remain at risk of damage following their 

transfer to the Iraqis. In our interviews with Iraqi power plant officials 

from 13 locations throughout Iraq, the officials stated that their training 

did not adequately prepare them to operate and maintain the new U.S.-

provided gas turbine engines. Due to limited access to natural gas, some 

Iraqi power plants are using low-grade oil to fuel their natural gas 

combustion engines. The use of oil-based fuels, without adequate 

equipment modification and fuel treatment, decreases the power output of 

the turbines by up to 50 percent, requires three times more maintenance, 

and could result in equipment failure and damage that significantly 

reduces the life of the equipment, according to U.S. and Iraqi power plant 

officials. U.S. officials have acknowledged that more needs to be done to

train plant operators and ensure that advisory services are provided after 

the turnover date. In January 2006, State reported that it has developed a 

strategy with the Ministry of Electricity to focus on rehabilitation and 

sustainment of electricity assets. 

Although agencies have incorporated some training programs and the 

development of operations and maintenance capacity into individual 

projects, problems with the turnover of completed projects, such as those

in the water and sanitation and electricity sectors, have led to a greater 

interagency focus on improving project sustainability and building 

ministry capacity. In May 2005, an interagency working group including 

State, USAID, PCO, and the Army Corps of Engineers was formed to 

identify ways to address Iraq’s capacity-development needs. The working 

group reported that a number of critical infrastructure facilities 

constructed or rehabilitated under U.S. funding have failed, will fail, or will 

operate in suboptimized conditions following handover to the Iraqis. To 

mitigate the potential for project failures, the working group 

recommended increasing the period of operational support for 

constructed facilities from 90 days to up to 1 year. In January 2006, State 

reported that it has several efforts under way focused on improving Iraq’s

ability to operate and maintain facilities over time. As part of our ongoing 

review of Iraq’s energy sector, we will be assessing the extent to which the 

Page 13 GAO-06-428T 
administration is providing funds to sustain the infrastructure facilities 

constructed or rehabilitated by the United States. 

As the new Iraqi government forms, it must plan to secure the financial 

resources it will need to continue the reconstruction and stabilization 

efforts begun by the United States and international community. Initial 

assessments in 2003 identified $56 billion in reconstruction needs across a 

variety of sectors in Iraq. However, Iraq’s needs are greater than originally

anticipated due to severely degraded infrastructure, post-conflict looting 

and sabotage, and additional security costs. The United States has borne 

the primary financial responsibility for rebuilding and stabilizing Iraq; 

however, its commitments are largely obligated and remaining 

commitments and future contributions are not finalized. Further, U.S. 

appropriations were never intended to meet all Iraqi needs. International 

donors have provided a lesser amount of funding for reconstruction and 

development activities; however, most of the pledged amount is in the 

form of loans that Iraq has just begun to access. Finally, Iraq’s ability to 

contribute financially to its additional rebuilding and stabilization needs is

dependent upon the new government’s efforts to increase revenues 

obtained from crude oil exports, reduce energy and food subsidies, control 

government operating expenses, provide for a growing security force, and 

repay external debt and war reparations. 

Initial assessments of Iraq’s needs through 2007 by the U.N., World Bank, 

and the CPA estimated that the reconstruction of Iraq would require about 

$56 billion. The October 2003 joint UN/World Bank assessment identified 

$36 billion, from 2004 through 2007, in immediate and medium-term needs 

in 14 priority sectors, including education, health, electricity, 

transportation, agriculture, and cross-cutting areas such as human rights 

and the environment. For example, the assessment estimated that Iraq 

would need about $12 billion for rehabilitation and reconstruction, new 

investment, technical assistance, and security in the electricity sector. In 

addition, the assessment noted that the CPA estimated an additional $20 

billion would be needed from 2004 through 2007 to rebuild other critical 

sectors such as security and oil. 

Iraq may need more funding than currently available to meet the demands 

of the country. The state of some Iraqi infrastructure was more severely 

degraded than U.S. officials originally anticipated or initial assessments 

indicated. The condition of the infrastructure was further exacerbated by

post-2003 conflict looting and sabotage. For example, some electrical

Iraq Faces Challenges 

in Financing Future 

Needs 

Iraqi Needs May be 

Greater Than Originally 

Anticipated 

Page 14 GAO-06-428T 
facilities and transmission lines were damaged, and equipment and 

materials needed to operate treatment and sewerage facilities were 

destroyed by the looting that followed the 2003 conflict. In addition, 

insurgents continue to target electrical transmission lines and towers as 

well as oil pipelines that provide needed fuel for electrical generation. In 

the oil sector, a June 2003 U.S. government assessment found that more 

than $900 million would be needed to replace looted equipment at Iraqi oil 

facilities. These initial assessments assumed reconstruction would take 

place in a peace-time environment and did not include additional security 

costs. 

Further, these initial assessments assumed that Iraqi government revenues 

and private sector financing would increasingly cover long-term 

reconstruction requirements. This was based on the assumption that the 

rate of growth in oil production and total Iraqi revenues would increase 

over the next several years. However, private sector financing and 

government revenues may not yet meet these needs. According to a 

January 2006 International Monetary Fund (IMF) report, private sector 

investment will account for 8 percent of total projected investment for 

2006, down from 12 percent in 2005.17 In the oil sector alone, Iraq will likely 

need an estimated $30 billion over the next several years to reach and 

sustain an oil production capacity of 5 million barrels per day, according 

to industry experts and U.S. officials. For the electricity sector, Iraq 

projects that it will need $20 billion through 2010 to boost electrical 

capacity, according to the Department of Energy’s Energy Information 

Administration. 

The United States is the primary contributor to rebuilding and stabilization 

efforts in Iraq. Since 2003, the United States has made available about $30 

billion for activities that have largely focused on infrastructure repair and 

training of Iraqi security forces. As priorities changed, the United States 

reallocated about $5 billion of the $18.4 billion fiscal year 2004 emergency 

supplemental among the various sectors, over time increasing security and 

justice funds while decreasing resources for the water and electricity 

sectors.18 As of January 2006, of the $30 billion appropriated, about $23 

Future Contributions for 

Iraq Reconstruction May 

Be Limited 

 17International Monetary Fund, Iraq: Request for Stand-By-Arrangement (Washington,

D.C., January 2006). 

18See Emergency Supplemental Appropriations Act for Defense and for the Reconstruction

of Iraq and Afghanistan, 2004, P.L. 108-106. 

Page 15 GAO-06-428T 
billion had been obligated and about $16 billion had been disbursed for 

activities that included infrastructure repair, training, and equipping of the 

security and law enforcement sector; infrastructure repair of the 

electricity, oil, and water and sanitation sectors; and CPA and U.S. 

administrative expenses. These appropriations were not intended to meet 

all of Iraq’s needs. 

The United States has obligated nearly 80 percent of its available funds. 

Although remaining commitments and future contributions have not been 

finalized, they are likely to target activities for building ministerial 

capacity, sustaining existing infrastructure investments, and training and 

equipping the Iraqi security forces, based on agency reporting. For 

example, in January 2006, State reported a new initiative to address Iraqi 

ministerial capacity development at 12 national ministries. According to 

State, Embassy Baghdad plans to undertake a comprehensive approach to

provide training in modern techniques of civil service policies, 

requirements-based budget processes, information technology standards, 

and logistics management systems to Iraqi officials in key ministries. 

International donors have provided a lesser amount of funding for 

reconstruction and development activities. According to State, donors 

have provided about $2.7 billion in multilateral and bilateral grants—of the 

pledged $13.6 billion—as of December 2005.19 About $1.3 billion has been 

deposited by donors into the two trust funds of the International 

Reconstruction Fund Facility for Iraq (IRFFI),20 of which about $900

million had been obligated and about $400 million disbursed to individual

projects, as of December 2005.21 Donors also have provided bilateral 

assistance for Iraq reconstruction activities; however, complete 

information on this assistance is not readily available. Most of the pledged 

amount is in the form of loans that the Iraqis have recently begun to 

access. About $10 billion, or 70 percent, of the $13.6 billion pledged in

support of Iraq reconstruction is in the form of loans, primarily from the 

 19According to State information provided in October 2005, in addition to the $13.6 billion, 

donors pledged an additional $203 million for Iraq reconstruction at the IRFFI Donors’ 

Committee meeting in Jordan in July 2005. 

20The IRFFI was established in response to the June 24, 2003, UN technical meeting and the

2003 Madrid conference’s calls for a mechanism to channel and coordinate donor 

resources for Iraq reconstruction and development activities. The IRFFI is composed of 

two trust funds, one run by the United Nations Development Group and the other by the 

World Bank Group. 

21Data for the UN Iraq Trust Fund portion of the IRFFI are as of November 31, 2005. 

Page 16 GAO-06-428T 
World Bank, the IMF, and Japan. In September 2004, the IMF provided a 

$436 million emergency post-conflict assistance loan to facilitate Iraqi debt

relief, and in December 2005, Iraq secured a $685 million Stand-By 

Arrangement (SBA) with the IMF.22 On November 29, 2005, the World Bank 

approved a $100 million loan within a $500 million program for 

concessional international development assistance. 

Iraq’s fiscal ability to contribute to its own rebuilding is constrained by the 

amount of revenues obtained from crude oil exports, continuing subsidies 

for food and energy, growing costs for government salaries and pensions, 

increased demands for an expanding security force, and war reparations 

and external debt. 

Crude oil exports account for nearly 90 percent of the Iraqi government 

revenues in 2006, according to the IMF. Largely supporting Iraq’s 

government operations and subsidies, crude oil export revenues are 

dependent upon export levels and market price. The Iraqi 2006 budget has 

projected that Iraq’s crude oil export revenues will grow at an annual 

growth rate of 17 percent per year (based on an average production level 

of 2 million bpd in 2005 to 3.6 million bpd in 2010), estimating an average 

market price of about $46 per barrel. Oil exports are projected to increase 

from 1.4 million bpd in 2005 to 1.7 million bpd in 2006, according to the 

IMF. Iraq’s current crude oil export capacity is theoretically as high as 2.5 

million bpd, according to the Energy Information Administration at the 

Department of Energy. However, Iraq’s crude oil export levels have 

averaged 1.4 million bpd as of December 2005, in part due to attacks on 

the energy infrastructure and pipelines. In January 2006, crude oil export 

levels fell to an average of about 1.1 million bpd.23

Further, a combination of insurgent attacks on crude oil and product 

pipelines, dilapidated infrastructure, and poor operations and maintenance 

have hindered domestic refining and have required Iraq to import 

significant portions of liquefied petroleum gas, gasoline, kerosene, and 

Iraq Must Address Budget 

Constraints to Contribute 

to Future Rebuilding and 

Stabilization Efforts 

 22If Iraq needs balance-of-payment support, the IMF has agreed to provide $685 million as 

part of the SBA.

23According to State Department monthly estimates from January 2005 to January 2006, 

crude oil production averages ranged from 1.71 to 2.17 million bpd and monthly crude oil 

export averages ranged from 1.05 to 1.61 million bpd. 

Page 17 GAO-06-428T 
diesel. According to State, the Iraqi Oil Ministry estimates that the current 

average import cost of fuels is roughly $500 million each month. 

Current government subsidies constrain opportunities for growth and 

investment and have kept prices for food, oil, and electricity low. Before 

the war, at least 60 percent of Iraqis depended on monthly rations—known 

as the public distribution system (PDS)—provided by the UN Oil for Food 

program to meet household needs. The PDS continues to provide food 

subsidies to Iraqis. In addition, Iraqis pay below-market prices for refined 

fuels and, in the absence of effective meters, for electricity and water. Low 

prices have encouraged over-consumption and have fueled smuggling to 

neighboring countries. Food and energy subsidies account for about 18 

percent of Iraq’s projected gross domestic product (GDP) for 2006. 

As part of its Stand-By Arrangement with the IMF, Iraq plans to reduce the 

government subsidy of petroleum products, which would free up oil 

revenues to fund additional needs and reduce smuggling. According to the 

IMF, by the end of 2006, the Iraqi government plans to complete a series of 

adjustments to bring fuel prices closer to those of other Gulf countries. 

However, it is unclear whether the Iraqi government will have the political

commitment to continue to raise fuel prices. 

Generous wage and pension benefits have added to budgetary pressures. 

Partly due to increases in these benefits, the Iraqi government’s operating 

expenditures are projected to increase by over 24 percent from 2005 to 

2006, according to the IMF. As a result, wages and pensions constitute 

about 21 percent of projected GDP for 2006. The IMF noted that it is 

important for the government to keep non-defense wages and pensions 

under firm control to contain the growth of civil service wages. As a first 

step, the Iraqi government plans to complete a census of all public service

employees by June 2006.

Iraq plans to spend more resources on its own defense. Iraq’s securityrelated spending is currently projected to be about $5.3 billion in 2006, 

growing from 7 to about 13 percent of projected GDP. The amount reflects 

rising costs of security and the transfer of security responsibilities from 

the United States to Iraq.

The Iraqi government also owes over $84 billion to victims of its invasion 

of Kuwait and international creditors. As of December 2005, Iraq owed 

Page 18 GAO-06-428T 
about $33 billion in unpaid awards resulting from its invasion and 

occupation of Kuwait. As directed by the UN, Iraq currently deposits 5 

percent of its oil proceeds into a UN compensation fund.24 Final payment 

of these awards could extend through 2020 depending on the growth of 

Iraq’s oil proceeds. In addition, the IMF estimated that Iraq’s external debt

was about $51 billion at the end of 2005. 

For the past 21⁄2 years, the United States has provided $30 billion with the 

intent of developing capable Iraqi security forces, rebuilding a looted and 

worn infrastructure, and supporting democratic elections. However, the 

United States has confronted a lethal insurgency that has taken many lives

and made rebuilding Iraq a costly and challenging endeavor. It is unclear 

when Iraqi security forces will be able to operate independently, thereby 

enabling the United States to reduce its military presence. 

Similarly, it is unclear how U.S. efforts are helping Iraq obtain clean water,

reliable electricity, or competent health care. Measuring the outcomes of 

U.S. efforts is important to ensure that the U.S. dollars spent are making a 

difference in the daily lives of the Iraqi people. In addition, the United 

States must ensure that the billions of dollars it has already invested in 

Iraq’s infrastructure are not wasted. The Iraqis need additional training 

and preparation to operate and maintain the power plants, water and 

sewage treatment facilities, and health care centers the United States has 

rebuilt or restored. In response to our reports, State has begun to develop

metrics for measuring progress and plans for sustaining the U.S.-built 

infrastructure. The administration’s next budget will reveal its level of 

commitment to these challenges. 

But the challenges are not exclusively those of the United States. The 

Iraqis face the challenge of forming a government that has the support of 

all ethnic and religious groups. They also face the challenge of addressing 

those constitutional issues left unresolved from the October referendum—

power of the central government, control of Iraq’s natural resources, and 

Conclusion 

 24The UN Security Council established the UN Compensation Commission in 1991 to 

process claims and pay compensation for damages and losses resulting from Iraq’s invasion 

and occupation of Kuwait; along with the Oil for Food program, the commission received 

funding from Iraqi oil proceeds. In May 2003, UN Security Council Resolution 1483 directed

that 5 percent of oil proceeds are to be deposited into the UN Compensation Fund account. 

As of January 2006, the commission had awarded $52.5 billion to more than 1.5 million 

claimants and paid out about $20 billion of this amount. 

Page 19 GAO-06-428T 
the application of Islamic law. The new government also faces the equally

difficult challenges of reducing subsidies, controlling public salaries and 

pensions, and sustaining the growing number of security forces. This will 

not be easy, but it is necessary for the Iraqi government to begin to 

contribute to its own rebuilding and stabilization efforts and to encourage 

investment by the international community and private sector. 

We continue to review U.S. efforts to train and equip Iraqi security forces, 

develop the oil and electricity sectors, reduce corruption, and enhance the 

capacity of Iraqi ministries. Specifically, we will examine efforts to 

stabilize Iraq and develop its security forces, including the challenge of

ensuring that Iraq can independently fund, sustain, and support its new 

security forces; assess issues related to the development of Iraq’s energy 

sector, including the sectors’ needs as well as challenges such as 

corruption; and examine capacity-building efforts in the Iraqi ministries. 

Mr. Chairman, this concludes my prepared statement. I will be happy to 

answer any questions you or the other Committee members may have. 

For further information, please contact Joseph A. Christoff on (202) 512-

8979. Individuals who made key contributions to this testimony were 

Monica Brym, Lynn Cothern, Bruce Kutnick, Steve Lord, Sarah Lynch,

Judy McCloskey, Micah McMillan, Tet Miyabara, Jose Pena III, Audrey 

Solis, and Alper Tunca. 

Contact and Staff 

Acknowledgments: 

Page 20 GAO-06-428T (320410) 
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