United States Government Accountability Office

GAO Report to Congressional Committees

 

REBUILDING IRAQ

Integrated Strategic 

Plan Needed to Help 

Restore Iraq’s Oil and 

Electricity Sectors 

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). 

May 2007 

GAO-07-677 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 2007

REBUILDING IRAQ

Integrated Strategic Plan Needed to Help 

Highlights of GAO-07-677, a report to Restore Iraq’s Oil and Electricity Sectors 

Congressional Committees 

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. 

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 

Millions of barrels per day

Source: Iraq Ministry of Oil estimates collected by State Department’s Iraq Reconstruction and Management Office.

0.0

0.5

1.0

1.5

2.0

2.5

3.0 Production capacity goal

Export goal

Production for domestic use

Production exported

Au

Sept. 

Oct. 

Nov. 

g. July 

Feb. 

Mar.

Apr.

May 

June 

Nov

Dec. 

Jan. 

Dec. 

. Oct. 

S

Au

ept. 

g. July June 

Oct. 

Nov. 

Dec. 

Jan. 

Feb. 

Mar. 

Apr.

May 

S

Auept. 

g. July 

Feb. 

Mar.

Apr.

May 

June 

Oct. 

Nov. 

Dec. 

Jan. 

S

Au

ept. 

g. July 

June 2003 2004 2006 2005

www.gao.gov/cgi-bin/getrpt?GAO-07-677.

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. 
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 

Page i GAO-07-677 Iraq Electricity and Oil
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 

Page ii GAO-07-677 Iraq Electricity and Oil
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 work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 

Page iii GAO-07-677 Iraq Electricity and Oil
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), 

 1

These 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. 

2

In 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. 

Page 1 GAO-07-677 Iraq Electricity and Oil
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. 

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

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 

Results in Brief 

 3

GAO, Rebuilding Iraq: Governance, Security, Reconstruction, and Financing 

Challenges, GAO-06-697T (Washington, D.C.: Apr. 25, 2006); Rebuilding Iraq: More

Comprehensive National Strategy Needed to Help Achieve U.S. Goals, 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, GAO-06-953T 

(Washington, D.C.: July 11, 2006); and Securing, Stabilizing, and Rebuilding Iraq: Key

Issues for Congressional Oversight, GAO-07-308SP (Washington, D.C.: Jan. 9, 2007). 

Page 2 GAO-07-677 Iraq Electricity and 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.

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 

Page 3 GAO-07-677 Iraq Electricity and Oil
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 

Page 4 GAO-07-677 Iraq Electricity and Oil
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 

Page 5 GAO-07-677 Iraq Electricity and Oil
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. 

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. 

Background 

Page 6 GAO-07-677 Iraq Electricity and Oil
Figure 1: Overview of Oil Network 

Sources: GAO; photo (U.S. Army Corps of Engineers); clip art (Map Resources).

Cluster pump 

stations

pump and filter 

water

Water piping

Oil

well

Oil piping

Gas oil 

separation 

plant

Pumping 

stations

Compressor 

station

Gas

Oil refinery

NGL/LPG

Water 

treatment 

plant

Water 

source

Water

Oil

Gas

Local use

Local use

(gasoline, kerosene, 

and other petroleum 

products)

Crude oil production Gas oil separation 

plants

Processing Distribution

• Production areas in the north 

(Kirkuk) and south (Rumaila) 

• Roughly 1,600 total oil wells

(600 in north and 1,000 in south) 

• Function is to separate 

gas, water, salt and 

other contaminants from 

crude; crude must be 

processed at separation 

plant before it can be 

transported or refined 

• 52 gas oil separation 

plants of various sizes

and capacities (18 in 

north and 34 in south)

• Function is to refine crude 

oil/gas mixture into usable 

consumer products (fuel 

oil, diesel, kerosene, 

benzene, gasoline, LPG, 

natural gas, etc.) 

• 3 major refineries (Bayji in 

North, Daura in Baghdad, 

and Basrah in south) and 

14 smaller refineries 

• Gulf oil terminals function as

metering stations and 

transshipment facilities from 

pipeline to ship for export

• 2 export terminals, both in 

south, Al Basrah Oil Terminal 

and Khor al Amaya Oil 

Terminal 

• 2 export pipelines, both in 

north, to Turkey and Syria

Al Basrah

Oil Terminal

Exports

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 

Page 7 GAO-07-677 Iraq Electricity and Oil
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 counteroffensive (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. 

 4

The first year of data that the U.S. Department of Energy’s Energy Information 

Administration (EIA) reports for Iraq is 1970.

Page 8 GAO-07-677 Iraq Electricity and Oil
Figure 2: Crude Oil Production Levels in Iraq, 1970-2005

Millions of barrels per day

Source: GAO analysis of data from the U.S. Department of Energy, Energy Information Administration.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1970

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Iran-Iraq War

(1980-1988)

Gulf War

(1990-1991)

UN Sanctions

(1990-2003)

Coalition invasion 

of Iraq begins 

March 2003

UN Oil for Food 

Program

(1995-2003)

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 

 5

UN/World Bank, Joint Iraq Needs Assessment (Baghdad, Iraq: Oct. 2003). 

Page 9 GAO-07-677 Iraq Electricity and Oil
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. 

Figure 3: Overview of Electricity Network 

Sources: GAO analysis of U.S. Army Corps of Engineers (USACE) and State Department's Iraq Reconstruction Management Office

data; USACE and Nova Development (clip art).

Generation Transmission Distribution

Generation facilities produce power 

for the system

Transmission networks carry power across the country Distribution networks deliver the transmitted 

power to local areas, homes, and businesses

• An automated monitoring and control system monitors performance, protects power facilities, and is

essential to providing a reliable and predictable power supply 

• The system being developed for Iraq will allow the Ministry of Electricity to monitor real-time output 

and distribution, prompting timely controls for equitable distribution of power to the governorates

Automated monitoring and control system

182 generation units/power plants

 11 kv 400 kv 

switchyard substation (Gasoline,

diesel, water, etc.)

Transmission 

tower

Fuel

400 kv

132 kv

substation

132 kv 

33 kv 

substation

33 kv

11 kv

substation

Consumer

Industry

Hospitals, 

government 

buildings, etc.

kv Substations km of lines

400 22 3,916

132 207 12,200

Thermal

Gas

Hydro

35%

46%

19%

kv Substations km of lines

33 527 12,292

11 75,900 70,802

km kilometer

kv kilovolt

From May 2003 through June 2004, the Coalition Provisional Authority 

(CPA), led by the United States and the United Kingdom, was the UNPage 10 GAO-07-677 Iraq Electricity and Oil
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 

 6

GAO, Rebuilding Iraq: More Comprehensive National Strategy Needed to Help Achieve

U.S. Goals, GAO-06-788 (Washington, D.C.: July 2006). 

Page 11 GAO-07-677 Iraq Electricity and Oil
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. 

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. 

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. 

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. 

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 

United States Has Spent 

Billions in U.S. and Iraqi 

Funds to Support 

Reconstruction 

United States Has Spent 

Billions to Support 

Reconstruction of Iraq’s Oil and 

Electricity Sectors 

Page 12 GAO-07-677 Iraq Electricity and Oil
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 Reconstruction Fund

(IRRF 1)/ P.L. 108-11 

DOD/Restore Iraq Oil $166.0 $166.0 $166.0

The Natural Resources Risk Remediation 

Fund (NRRRF)/ P.L. 108-11 

DOD/ Restore Iraq Oil 802.0 800.6 797.7

2004 Iraq Relief and Reconstruction Fund

(IRRF 2)/ P.L. 108-106 

DOD 1,724.7 1,604.6 1,163.0

Total oil $2,692.7 $2,571.2 $2,126.7

Electricity sector

IRRF 1/ P.L. 108-11 DOD / Restore Iraq Electricity $300.0 $299.9 $299.9

USAID/ Restore Critical 

Infrastructureb

Not available Not available Not available

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 Response 

Program for FY2004-06 (CERP)c

 /P.L. 108-

106, P.L. 108-287, P.L. 109-13, P.L.109-

148, P.L. 109-234 

DOD 163.6 163.6 Not available

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. 

a

According 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. 

b

According 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. 

c

DOD 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. 

Page 13 GAO-07-677 Iraq Electricity and Oil
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 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 

U.S. Agencies Spent Billions in 

Iraqi Funds on Oil and 

Electricity Reconstruction 

Activities 

 7

Funding 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. 

8

P.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. 

Page 14 GAO-07-677 Iraq Electricity and Oil
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. 

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. 

Page 15 GAO-07-677 Iraq Electricity and Oil
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. 

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. 

Billions of Additional 

Dollars Needed to Rebuild 

Oil and Electricity Sectors, 

but Future Iraqi Funding Is 

Uncertain 

Billions of Additional Dollars 

Are Needed to Fund the 

Rebuilding of the Oil and 

Electricity Sectors 

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. 

Page 16 GAO-07-677 Iraq Electricity and Oil
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. 

Iraq’s Oil and Electricity 

Ministries Have Not Spent 

Existing Funds for 

Infrastructure Improvements 

and Future Iraqi Funds Are 

Uncertain 

 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. 

Page 17 GAO-07-677 Iraq Electricity and Oil
Figure 4: 2006 Ministry of Oil and Electricity Spending by Major Category, as of November 2006 

U.S. dollars (in millions)

Source: GAO analysis of Iraq’s budget, provided by U.S. Treasury.

Budgeted expenses

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Capital Total

projects

Capital

goods

Goods &

service

Salaries

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Remaining

Expended

Capital Total 

projects

Capital

goods

Goods &

service

Salaries

85%

expended

89%

expended 26%

expended

3%

expended

4%

expended

33%

expended

35%

expended 10%

expended

4%

expended 32%

expended

Ministry of Oil Ministry of Electricity

U.S. dollars (in millions)

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 

 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.

Page 18 GAO-07-677 Iraq Electricity and Oil
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

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 

 15World Bank, Operation Procurement Review (June 2005).

Page 19 GAO-07-677 Iraq Electricity and Oil
wasteful public investment in times of boom, and depresses investment 

when oil prices are low.

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 

 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). 

Page 20 GAO-07-677 Iraq Electricity and Oil
remaining from the Saddam Hussein regime, which presents financial 

challenges for Iraq’s reconstruction and economic development.19

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. 

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. 

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

Iraq’s Oil and 

Electricity Production 

Goals Have Not Been 

Met, Oil Production 

Figures May Be

Overstated, and Iraq 

Faces Difficulties 

Sustaining 

Infrastructure 

U.S. Oil and Electricity 

Goals Have Not Been Met 

 19GAO, Securing, Stabilizing, and Rebuilding Iraq: Key Issues for Congressional

Oversight, GAO-07-308SP (Washington, D.C.: Jan. 2007). 

Page 21 GAO-07-677 Iraq Electricity and Oil
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. 

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. 

Iraq’s Crude Oil Production and 

Exports Have Not Met 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. 

Page 22 GAO-07-677 Iraq Electricity and Oil
Figure 5: Iraqi Reported Crude Oil Production, Exports, and U.S. Goals, June 2003 through December 2006

Millions of barrels per day

Source: Iraq Ministry of Oil estimates collected by State Department’s Iraq Reconstruction and Management Office.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Production capacity goal

Export goal

Production for domestic use

Production exported

Au

Sept. 

Oct. 

Nov. 

g. 

July 

Feb. 

Mar. 

Apr. 

May 

June 

Dec

Jan.

. 

Dec. 

Au

Sept. 

Oct. 

Nov. 

g. 

July 

Feb.

Mar. 

Apr. 

May 

June 

Dec

Jan.

. 

Sep

Oct.

Nov. 

t. 

Aug. 

July 

Feb. 

Mar.

Apr. 

May 

June 

Oct. 

Nov. 

Dec. 

Jan. 

Au

Sept. 

g. 

July 

June 

2003 2005 2004 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 

 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. 

Page 23 GAO-07-677 Iraq Electricity and Oil
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.

Table 3: U.S. Goals and 2006 Averages for Iraq Oil Sector

Metric U.S. Goal 2006 Average

2007 Average, as of 

February 28, 2007 

Crude oil production 

(million barrels per day) 

3.0 mbpd 

(capacity) 

2.1 mbpd 1.9 mbpd 

Crude oil exports 

(million barrels per day) 

2.2 mbpd 1.5 mbpd 1.4 mbpd 

Natural gas production 

(million standard cubic 

feet per day) 

800 mscfd 

(capacity) 

730 mscfd N/A 

LPG production 

(tons per day) 

3,000 tpd 

(capacity) 

1,709 tpd N/A 

National stock levels of 

refined fuels: diesel, 

kerosene, gasoline, 

LPG

15 days for each 

fuel 

Diesel: 5 days 

Kerosene: 10 days 

Gasoline: 3 days 

LPG: 5 days 

Diesel: 3.5 days 

Kerosene: 4 days 

Gasoline: 2 days 

LPG: 1 days 

Source: GAO analysis based on State Department and Defense Department data. 

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 

Iraq’s Crude Oil Production 

May Be Overstated 

 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. 

Page 24 GAO-07-677 Iraq Electricity and Oil
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. 

 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. 

Page 25 GAO-07-677 Iraq Electricity and Oil
Figure 6: Comparison of IRMO and EIA Data on Iraq’s Crude Oil Production 

Millions of barrels per day

Source: Iraq Ministry of Oil estimates collected by State Department’s Iraq Reconstruction and Management Office and

U.S. Energy Information Administration data.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Iraq crude oil production (EIA data)

Iraq crude oil production (IRMO data)

Au

Sept.

Oct.

Nov.

g.

Au

Sept.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May

June

July

Dec.

g.

July

May

June

Dec

Jan.

Feb.

Mar.

Apr.

.

Oct.

Nov.

Au

Sept.

g.

July

May

June

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

Au

Sept.

g.

June

July

2003 2005 2004 2006

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 

Page 26 GAO-07-677 Iraq Electricity and 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 AlBasrah 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. 

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. 

Iraq’s Electricity Production 

Has Not Met Goals or 

Increasing Demand 

 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. 

Page 27 GAO-07-677 Iraq Electricity and Oil
Table 4: U.S. Goals and 2006 Averages for Iraq Electricity Sector

Metric U.S. Goal 2006 Average

2007 Average, as of 

February 28, 2007 

Peak generation 6,000 mw (capacity) 4,280 mw 3,803 mw 

Average daily 

generation 

110,000 mwh 94,665 mwh 84,796 mwh 

Hours of power

nationwide and in 

Baghdad 

12 hours (hrs) Nationwide: 11.0 hrs 

Baghdad: 5.9 hrs 

Nationwide: 8.6 hrs 

Baghdad: 5.1 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.

Page 28 GAO-07-677 Iraq Electricity and Oil
Figure 7: Peak Electricity Generation and Demand in Iraq, May 2005 to December 2006 

Megawatt hours

Source: Iraq Ministry of Electricity estimates collected by Department of State.

60,000

0

92,000

124,000

156,000

188,000

220,000

Prewar (98,000 mwh)

Target (110,000 mwh)

Weekly average demand

Weekly average peak generation

2005 2006

May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.

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. 

Page 29 GAO-07-677 Iraq Electricity and Oil
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,

 28See Emergency Supplemental Appropriations Act for the Defense and Reconstruction of 

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

Page 30 GAO-07-677 Iraq Electricity and Oil
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. 

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. 

• 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.

• 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). 

 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. 

Page 31 GAO-07-677 Iraq Electricity and Oil
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. 

Page 32 GAO-07-677 Iraq Electricity and Oil
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. 

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. 

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 SunniShi’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. 

Major Challenges 

Hinder Efforts to 

Meet Iraq’s Oil and 

Electricity Needs 

Poor Security Conditions 

Have Slowed 

Reconstruction and 

Increased Costs 

Page 33 GAO-07-677 Iraq Electricity and Oil
Figure 8: Enemy-Initiated Attacks against the Coalition and Its Iraqi Partners

2003 2004 2005 2006 2007

Number of attacks

Sources: Multi-National Force-Iraq, April 2007.

0

1,000

2,000

3,000

4,000

5,000

6,000

Attack(s) on Iraqi security forces

Attack(s) on civilians

Attack(s) on coalition

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

Sept.

Oct.

Au

Sept.

g.

Aug.

July

July

June

Nov

Dec.

Jan.

Feb.

Mar.

Apr.

May

.

Oct.

Au

Sept.

g.

July

Feb.

Mar.

Apr.

May

June

May

June

Nov

Dec.

Jan.

.

Oct.

Au

Sept.

g.

May

June

July

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 

Page 34 GAO-07-677 Iraq Electricity and Oil
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

Source: State Department’s Iraq Reconstruction Management Office.

Page 35 GAO-07-677 Iraq Electricity and Oil
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

 30GAO, Rebuilding Iraq: Status of Funding and Reconstruction Efforts, GAO-05-876 

(Washington, D.C.: July 28, 2005). 

Page 36 GAO-07-677 Iraq Electricity and Oil
contractors would incur security costs of about 14 percent on electricity

contracts worth about $732 million.31

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 

 31GAO, Rebuilding Iraq: Status of DOD’s Reconstruction Program, 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). 

Page 37 GAO-07-677 Iraq Electricity and Oil
quality. Additional information on the nature and status of these efforts 

and the SIBs is classified.

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 

 35According to State Department officials, the most recent fuel prices were increased on

January 5 and March 20, 2007.

Page 38 GAO-07-677 Iraq Electricity and Oil
measure of the electricity consumed by households and businesses, which 

contributes to inaccurate billing and low cost recovery. 

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

 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. 

Page 39 GAO-07-677 Iraq Electricity and Oil
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. 

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 

 39U.S. Department of State, Section 1227 Report on Iraq (Washington, D.C.: Jan. 5, 2007). 

Page 40 GAO-07-677 Iraq Electricity and Oil
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. 

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. 

Page 41 GAO-07-677 Iraq Electricity and Oil
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

Page 42 GAO-07-677 Iraq Electricity and Oil
production practices, such as the flaring of natural gas, underscoring the 

need for such a plan. 

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. 

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: 

Conclusions 

Recommendations for 

Executive Action 

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 

Page 43 GAO-07-677 Iraq Electricity and Oil
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. 

We provided a draft of this report to the Departments of Defense and 

State. DOD provided technical comments, which we incorporated where 

appropriate.

Agency Comments 

and Our Evaluation 

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 

Page 44 GAO-07-677 Iraq Electricity and Oil
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. 

Page 45 GAO-07-677 Iraq Electricity and Oil
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. 

Page 46 GAO-07-677 Iraq Electricity and Oil
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 christoffj@gao.gov. 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 

Page 47 GAO-07-677 Iraq Electricity and Oil
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 

Page 48 GAO-07-677 Iraq Electricity and Oil
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 

Page 49 GAO-07-677 Iraq Electricity and Oil
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 

Page 50 GAO-07-677 Iraq Electricity and Oil
Appendix I: Objectives, Scope, Appendix I: Objectives, Scope, and and Methodology 

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 

Page 51 GAO-07-677 Iraq Electricity and Oil
Appendix I: Objectives, Scope, 

and Methodology 

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

 1

The 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).

2

The Department of State, Quarterly Update to Congress; 2207 Report (Washington, D.C.: 

Oct. 2006). 

3

The Iraqi Ministry of Planning Donor Assistance Database is available at http://www.mopiraq.org/dad. 

Page 52 GAO-07-677 Iraq Electricity and Oil
Appendix I: Objectives, Scope, 

and Methodology 

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. 

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 

Page 53 GAO-07-677 Iraq Electricity and Oil
Appendix I: Objectives, Scope, 

and Methodology 

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. 

Page 54 GAO-07-677 Iraq Electricity and Oil
Appendix II: Comments from the Department Appendix II: Comments from the Department of State 

of State 

Page 55 GAO-07-677 Iraq Electricity and Oil
Appendix II: Comments from the Department 

of State 

Page 56 GAO-07-677 Iraq Electricity and Oil
Appendix II: Comments from the Department 

of State 

Page 57 GAO-07-677 Iraq Electricity and Oil
Appendix III: GAO

A

 Contact and Staff 

cknowledgments 

Page 58 GAO-07-677

Appendix III: GAO Contact and Staff 

Acknowledgments 

Joseph Christoff (202) 512-8979 or christoffj@gao.gov

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. 

Iraq Electricity and Oil

GAO Contact 

Acknowledgments 

(320383) 
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