Rebuilding Iraq: Status of Funding and Reconstruction Efforts
Published: 2005-07-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Rebuilding Iraq is a U.S. national security and foreign policy priority and constitutes the largest U.S. assistance program since World War II. Billions of dollars in grants, loans, assets, and revenues from various sources have been made available or pledged to the reconstruction of Iraq. The United States, along with its coalition partners and various international organizations and donors, has embarked on a significant effort to rebuild Iraq following multiple wars and decades of neglect by the former regime. The U.S. effort to restore Iraq's basic infrastructure and essential services is important to attaining U.S. military and political objectives in Iraq and helping Iraq achieve democracy and freedom. This report provides information on (1) the funding applied to the reconstruction effort and (2) U.S. activities and progress made in the oil, power, water, and health sectors and key challenges that these sectors face.
section_title: What GAO Found
paragraphs: As of March 2005, the United States, Iraq, and international donors had pledged or made available more than $60 billion for security, governance, and reconstruction efforts in Iraq. The United States provided about $24 billion (for fiscal years 2003 through 2005) largely for security and reconstruction activities. Of this amount, about $18 billion had been obligated and about $9 billion disbursed. The State department has reported that since July 2004, about $4.7 billion of $18.4 billion in fiscal year 2004 funding has been realigned from large electricity and water projects to security, economic development, and smaller immediate impact projects. From May 2003 through June 2004, the Coalition Provisional Authority (CPA) controlled $23 billion in Iraqi revenues and assets, which was used primarily to fund the operations of the Iraqi government. The CPA allocated a smaller portion of these funds--about $7 billion--for relief and reconstruction projects. Finally, international donors pledged $13.6 billion over 4 years (2004 through 2007) for reconstruction activities, about $10 billion in the form of loans and $3.6 billion in the form of grants. Iraq had accessed $436 million of the available loans as of March 2005. As of the same date, donors had deposited more than $1 billion into funds for multilateral grant assistance, which disbursed about $167 million for the Iraqi elections and other activities, such as education and health projects. The U.S. reconstruction effort in Iraq has undertaken many activities in the oil, power, water, and health sectors and has made some progress, although multiple challenges confront each sector. The U.S. has completed projects in Iraq that have helped to restore basic services, such as rehabilitating oil wells and refineries, increasing electrical generation capacity, restoring water treatment plants, and reestablishing Iraqi basic health care services. However, as of May 2005, Iraq's crude oil production and overall power generation were lower than before the 2003 conflict, although power levels have increased recently; some completed water projects were not functioning as intended; and construction at hospital and clinics is under way. Reconstruction efforts continue to face challenges such as rebuilding in an insecure environment, ensuring the sustainability of completed projects, and measuring program results.

section_title: Letter
paragraphs: Rebuilding Iraq is a U.S. national security and foreign policy priority and  constitutes the largest U.S. assistance program since World War II. In  October 2003, the World Bank and United Nations reported that in the  summer of 2003 most Iraqis had limited or no access to essential services,  that water supplies were contaminated, and that the health system was  overburdened. In addition, the lack of basic infrastructure and services,  particularly in the electricity sector, had contributed to a lack of security in  various parts of the country. As of March 31, 2005, billions of dollars in  grants, loans, assets, and revenues from various sources had been made  available or pledged to the reconstruction of Iraq. The U.S. effort to restore  these services is important to attaining U.S. military and political objectives  in Iraq and helping Iraq achieve democracy and freedom.
The reconstruction of Iraq is occurring in a difficult environment. Looting  and sabotage of many infrastructure facilities and offices were pervasive  after Operation Iraqi Freedom and have continued to varying degrees. In  addition, according to senior military officials, the insurgency in Iraq has  grown in size, complexity, and intensity and has affected reconstruction  priorities. Infrastructure in such areas as the oil, water, and electricity  sectors has been subject to attacks. In addition, workers have been  threatened, the ability to safely transport materials has been compromised,  and access to work sites has been hindered. Another complicating factor in  the reconstruction effort, according to Coalition Provisional Authority  (CPA) and U.S. officials, has been the state of some Iraqi infrastructure,  which was more severely degraded than officials anticipated or initial  assessments indicated and was exacerbated by post-2003 conflict looting  and sabotage.
This report is part of our effort under the Comptroller General’s authority  to monitor Iraq reconstruction and is being addressed to you because of  your committee’s jurisdictions. It provides a broad overview of funding  made available for the relief and reconstruction of Iraq, U.S. relief an  reconstruction activities for select sectors in Iraq, and challenges  associated with these sectors. This report does not link the funding to program results, nor does it evaluate the quality of program results.  Specifically, this report provides information on (1) the funding applied to  the reconstruction effort and (2) U.S. activities and progress made in the  oil, power, water, and health sectors and key challenges that these sectors  face.
To address these objectives, we obtained and analyzed records, reports,  and data from government officials and contractors, as well as multiple  funding databases. We also examined reports of other oversight entities  that performed reviews related to contract management, internal controls,  and oversight of some CPA and U.S. relief and reconstruction activities. We  interviewed U.S. government and former CPA officials and contract  personnel in the United States and Iraq. Although we did not travel to Iraq  to make project site visits during this period due to security concerns, we  interviewed U.S. and Iraqi officials via teleconference and, when possible,  in person when these officials traveled to the United States. (See app. 1 for  details on our scope and methodology.) We conducted this part of our  review from September 2004 through May 2005 in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: From May 2003 through June 2004, the CPA was the UN-recognized  coalition authority led by the United States and the United Kingdom that  was responsible for the temporary governance of Iraq and for overseeing,  directing, and coordinating the reconstruction effort. Within the CPA, the  Project Management Office (PMO) was established to provide  prioritization and management of projects and contract support of  U.S.-funded reconstruction projects. In May 2004, the President issued a  National Security Presidential Directive, which stated that after the  transition of power to the Iraqi government, the Department of State  (State) through its ambassador to Iraq would be responsible for all U.S.  activities in Iraq, with the exception of U.S. efforts relating to security and  military operations, which would be the responsibility of the Department of  Defense (DOD). On June 28, 2004, the CPA transferred power to a  sovereign Iraqi interim government, and the CPA was officially dissolved.  At that time, the U.S. role—under DOD leadership—changed from being  part of the coalition-recognized authority for temporary governance of Iraq  to supporting the sovereign Iraqi government as an ally and friend, under  State leadership. Management authority and responsibility of the U.S.  reconstruction program also transitioned at that time from DOD to State.
The Presidential Directive also established two temporary offices: the Iraq  Reconstruction and Management Office (IRMO) to facilitate transition of  reconstruction efforts to Iraq; and the Project and Contracting Office  (PCO) to facilitate acquisition and project management support for  U.S.-funded reconstruction projects. Iraq-based personnel from both  offices are under U.S. chief of mission authority in Baghdad, although the  U.S. Department of the Army funds, staffs, and oversees the operations of  the PCO. IRMO is a State Department organization and its responsibilities  include strategic planning, prioritizing requirements, monitoring spending,  and coordinating with the military commander. Under the authority of the  U.S. Chief of Mission in Baghdad, the PCO’s responsibilities include  contracting for and delivering services, supplies, and infrastructure funded by $12.4 billion of the $18.4 billion for Iraq relief and reconstruction in the  fiscal year 2004 emergency supplemental passed by the Congress. (See fig. 1.)
Other U.S. government agencies also play significant roles in the  reconstruction effort. For example, USAID is responsible for projects to  restore Iraq’s infrastructure, support healthcare and education initiatives,  expand economic opportunities for Iraqis, and foster improved  governance. The U.S. Army Corps of Engineers (USACE) provides  engineering and technical services to the PCO, USAID, and military forces  in Iraq, including planning, design, and construction management support  for military and civil infrastructure construction.
section_title: Multiple and Diverse Funding Sources Support Iraq Reconstruction and Government Operations
paragraphs: As of March 2005, U.S. appropriations, Iraqi revenues and assets, and  international donor pledges totaling about $60 billion had been made  available to support the relief and reconstruction and government  operations of Iraq. U.S. appropriations of more than $24 billion for relief  and reconstruction activities have been used largely for security and  essential services—including the repair of infrastructure, procurement of  equipment, and training of Iraqis—and have been reallocated over time as  priorities have changed. Iraqi revenues and assets, which totaled about $23  billion in cumulative deposits, were turned over to the new Iraqi  government in June 2004 and have largely funded the operating expenses of  the Iraqi government. International donor funds have been primarily used  for public and essential service reconstruction activities; however, most of  about $13.6 billion pledged over a 4-year period is in the form of potential  loans that have not been accessed by the Iraqis.
subsections: section_title: U.S. Appropriated Funding Focused on Infrastructure Repair and Training of Forces; Funding Has Been Reallocated as Priorities Changed
paragraphs: As of March 2005, of the $24 billion in appropriated U.S. funds made  available for relief and reconstruction in Iraq from fiscal years 2003 through  2005, about $18 billion had been obligated and about $9 billion had been  disbursed. These funds were disbursed for activities that include  infrastructure repair of the electricity and oil sectors; infrastructure repair,  training, and equipping of the security and law enforcement sector; and  CPA and U.S. administrative expenses. Many current U.S. reconstruction  efforts are consistent with initial efforts the CPA developed before June  2004. As priorities changed, particularly since the transition of power to the  Iraqi Interim Government, the U.S. administration reported that it had  reallocated about $4.7 billion of the $18.4 billion fiscal year 2004 emergency  supplemental among the various sectors. (See fig. 2.) These reallocations  were reported in October 2004, January 2005, and April 2005. As of May  2005, the administration was assessing whether additional reallocations  would be needed for short-term reconstruction efforts.
In October 2004, the administration reported that it had reallocated  appropriated funds from the $18.4 billion fiscal year 2004 emergency  supplemental based on a review of all U.S. reconstruction funding  priorities. The administration reported that it had reprogrammed about  $1.8 billion to security and law enforcement and about $1.2 billion to  economic and private sector development and governance activities. These  funds were reallocated from future water and electricity infrastructure  projects. In addition, about $450 million in the oil sector had been  reprogrammed from refined fuel imports to oil reconstruction projects.
This review, prompted by both the transition from the CPA to a new State  Department-led mission and a significant increase in insurgent activity in  mid-2004, determined that the deteriorating security situation, the desire of  the interim Iraqi government to quickly expand its security forces, and the  need to create more jobs for the Iraqi people demanded a significant  reallocation of funding.
In January 2005, the administration reported that it had reallocated $457  million. The administration reported that $246 million of this amount was  for smaller projects to provide immediate and visible essential services in  four cities—Fallujah, Samarra, Najaf, and Sadr City—affected by coalition  battles with the insurgents. According to agency documents and officials,  these services included critical health needs, power distribution, and  potable water projects. This funding was shifted from longer term power  generation, transmission, water, and hospital projects. The remaining $211  million of the reallocated funds was redistributed within the electricity  sector from longer range transmission projects to more immediate needs,  such as spare parts procurements, turbine upgrades, and repair and  maintenance programs.
In April 2005, the administration reported that it had reallocated $832  million—$225 million for job creation activities and $607 million for  essential services projects and programs. To fund these efforts, the  embassy cancelled five longer term potable water projects and future  energy projects. The $225 million reallocation for job creation activities  primarily includes activities in targeted Baghdad neighborhoods and  through USAID’s Community Action Program throughout Iraq. Of the $607  million reallocation for essential services, $444 million is for the electricity  sector, including operations and maintenance projects at a number of  strategic power plants to reportedly enhance the sustainability of ongoing  projects, the completion of several electricity generation and rehabilitation  projects, and the coverage of cost growth due to increased security costs in  the electricity sector. The remaining funds allocated for essential services  programs include funds for gas/oil separation plants, operations and  maintenance projects for water treatment plants recently turned over to  the Iraqis, and prison and courthouse security projects.
section_title: Iraqi Revenues and Assets Funded Iraqi Government Operations with Limited Focus on Reconstruction
paragraphs: Iraqi funds, which totaled about $23 billion in cumulative deposits from  May 2003 through June 2004, are a mix of revenues and assets that the CPA  used primarily to support the Iraqi budget for operating expenses, such as  salary payments and ministry operations. A smaller portion of the $23  billion—approximately $7 billion—was allocated for relief and  reconstruction projects, primarily for the import of refined fuel products,  security, regional programs, and oil and power projects. These Iraqi funds  came from revenues in the Development Fund for Iraq (DFI) and vested  and seized assets from the previous Iraqi regime. Of the $23 billion, nearly  $17 billion had been disbursed as of June 28, 2004.
The DFI was initially comprised of Iraqi oil proceeds, UN Oil for Food  program surplus funds, and returned Iraqi government and regime financial  assets. From May 2003 to June 2004, nearly $21 billion had been deposited,  $17 billion allocated, and $14 billion disbursed. The CPA turned DFI  stewardship over to the new Iraqi government in June 2004. The majority  of the funding had been used for Iraqi ministry operations, including  salaries and other Iraqi budget support. Iraqi oil revenues continued to be  deposited into the DFI after June 28, 2004. According to State Department  estimates, about $18 billion in oil revenues had been deposited into the DFI  since the transition from the CPA to the interim Iraqi government, as of  May 31, 2005.
The vested assets were former Iraqi regime funds frozen and held in U.S.  financial institutions after the first Persian Gulf War and subsequently  vested by the President in the U.S. Treasury in March 2003. In addition,  assets of the former regime were seized by coalition forces within Iraq.  These combined vested and seized assets totaled about $2.65 billion and  had largely been obligated and disbursed by the time the CPA transferred  authority to the Iraqi Interim Government. The vested and seized assets  were used primarily on ministry operations, salaries, and regional  programs, such as the Commander’s Emergency Response Program.
section_title: International Reconstruction Assistance Supports Public and Essential Service Reconstruction Activities, but Pledges Are Mostly Loans
paragraphs: International donors’ funds have been largely used to support public and  essential service reconstruction activities; however, most of donors’  pledges are in the form of loans that have not been accessed by the Iraqis.  International donors have pledged about $13.6 billion in support of Iraq  reconstruction over a 4-year period from 2004 through 2007. Of this  amount, about $10 billion, or 70 percent, is in the form of loans, primarily  from the World Bank and International Monetary Fund (IMF). Donors have  pledged the remaining $3.6 billion as grants, to be provided multilaterally or  bilaterally.
Of the $10 billion in loans pledged over the 4-year period, about $1 billion  was pledged to be provided to Iraq in 2004. As of March 31, 2005, Iraq had  accessed $436 million of the available amount. The IMF provided a $436  million emergency post-conflict assistance loan to Iraq in September 2004  to facilitate Iraqi debt relief. According to a State Department official, the  Iraqi government is currently in discussions with the World Bank and the  government of Japan about lending programs, which total $6.5 billion.
Of the $3.6 billion in grants pledged over the 4-year period, about $700  million was pledged to be provided to Iraq in 2004, some of which would be  provided multilaterally and some bilaterally. The 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 United Nations Development Group and the  other by the World Bank Group. As of March 31, 2005, more than $1 billion  had been deposited into these funds; the largest deposits were made by  Japan ($491 million), the European Commission ($227 million), and the  United Kingdom ($127 million). Of that amount, about $683 million had  been obligated and about $167 million had been disbursed to individual  projects.
Of the $167 million disbursed by the IRFFI, the UN trust fund had disbursed  about $155 million for projects in 11 categories, as of March 2005.  Currently, the largest portion of UN trust fund disbursements has been  made to activities that support the electoral process (about $87 million),  education and culture (about $25 million), health (about $13 million), and  infrastructure and housing (about $12 million). The remaining  disbursements have supported activities in refugee assistance; agriculture,  water resources, and the environment; food security; governance and civil  society; water and sanitation; poverty reduction and human development;  and mine action. Funds for projects are disbursed to participating UN  agencies for implementation. The World Bank trust fund has disbursed $12  million for projects that include capacity building, textbooks, school and  health rehabilitation, water and sanitation projects, and private sector  development. The World Bank is implementing a capacity-building project,  and the Iraqi ministries are implementing the remaining projects.
Donors have also provided bilateral assistance for Iraq reconstruction  activities; however, complete information on this assistance is not readily  available.  As of April 6, 2005, the State Department had been able to  identify about $1.3 billion—of the $13.6 billion pledged—in funding that  donors had provided as bilateral grants directly to Iraqi institutions,  implementing contractors, and non-governmental organizations for  reconstruction projects outside the International Reconstruction Fund  Facility for Iraq. As we reported in June 2004, the United States was  working with the Iraqis to develop a database for tracking all bilateral  commitments made to reconstruction activities in Iraq. One year later, this  database for tracking all donor assistance projects in Iraq remained under development with assistance from the United States and the UN. In March  2005, the UN gave Iraqi staff of the Ministry of Planning and Development  Cooperation a 7-day training session in the use and management of this  database. The UN plans to provide technical and management support to  the ministry and additional training over the next year. According to a State  Department official, the database was planned to be operational in time for  the IRFFI Donor Committee meeting in Amman, Jordan, which was held   July 18-19, 2005.
section_title: Some Progress Achieved in Select Sectors While Facing Significant Challenges
paragraphs: The U.S. efforts to reconstruct Iraq’s essential services sectors have shown  some progress to date yet continue to face significant challenges. Of the  approximately $9 billion of appropriated funds the United States had  disbursed for reconstruction, as of March 31, 2005, approximately $3.1  billion had been spent on restoring Iraq’s oil, electricity, water and health  sectors. Overall, the U.S. program in these sectors has accomplished  activities that focused on essential services restoration, such as  refurbishing and repairing oil facilities, increasing electrical generating  capacity, restoring water treatment plants, and expanding the availability of  basic health care. Initial activities to restart the oil infrastructure have  largely been completed; however, activities to sustain production and  export levels have been slower than originally planned and these levels  remained below pre- March 2003 conflict capacity, as of May 2005. Progress  has been made in rehabilitating electric facilities and generation capacity  has been increased. Overall production levels for the electricity sector  were lower in May 2005 than before the March 2003 conflict, although  power generation exceeded this level for the latter part of June 2005. While  the water and sanitation program has made some progress toward  completing a reduced scope of activities, this progress has been difficult to  measure and some completed projects have not functioned as intended.  The U.S. program to expand basic health care has made progress in helping  reestablish health services in Iraq, but larger health infrastructure projects  remained under way as of May 2005. Implementation of the U.S.  reconstruction program in these sectors continues to face challenges, such  as security, sustainability, and the measurement of program results.
subsections: section_title: Restoring and Sustaining Iraq’s Crude Oil Production and Export Have Been Slower Than Originally Planned
paragraphs: U.S. efforts in the oil sector have focused largely on (1) restoring Iraq’s oil  infrastructure to prewar production and export capacity, (2) delivering  refined fuels for domestic consumption, and (3) developing oil security and  pipeline repair teams. More than $5 billion in U.S. and Iraqi funds has been  made available for these efforts. Progress to date on U.S. activities has  been slower than planned due to a number of factors, including the security  environment and difficulties associated with funding, project prioritization,  contractor reporting, the contract management processes, and Iraq’s  political transitions. The oil sector faces challenges that include  establishing effective infrastructure security forces and pipeline repair  teams; addressing issues related to domestic refined fuel supply and  consumption; and defining the oil sector’s organizational structure, foreign  investment framework, and energy priorities.
subsections: section_title: Background
paragraphs: Iraq’s economy is highly dependent on revenues from crude oil export, and  its population is dependent on having sufficient refined fuels for power  generation, cooking, heating, and transport. According to the State  Department, Iraq’s oil export revenues are expected to account for at least  90 percent of Iraq’s projected 2005 budget revenues. This revenue is  essential to Iraq’s ability to provide for its own needs, including  reconstruction. Iraq’s oil infrastructure is an integrated network that  includes oil fields and wells, pipelines, pump stations, refineries, gas/oil  separation plants, gas processing plants, and export terminals and ports.  This infrastructure has deteriorated significantly over past decades due to  war damage, inadequate maintenance, and the limited availability of spare  parts, equipment, new technology, and financing. U.S. agency documents  estimated Iraq’s 2003 actual pre war crude oil production at 2.6 million  barrels per day (bpd) and export levels at 2.1 million bpd. Considerable  looting after Operation Iraqi Freedom and continued attacks on crude and  refined product pipelines have contributed to Iraq’s reduced oil production  and export capacities.
section_title: U.S. Activities and Projects
paragraphs: About $2.7 billion of U.S. appropriated funds and $2.7 billion in Iraqi funds  have been made available for U.S. efforts to support Iraq’s oil sector.  These efforts focus largely on (1) restoring Iraq’s oil infrastructure to  sustainable prewar crude oil production and export capacity, (2) delivering  and distributing refined fuels for domestic consumption, (3) developing oil  security and pipeline repair teams, and (4) providing technical assistance  for organizing and sustaining Iraq’s oil industry. Specific U.S. activities and  projects for the restoration of Iraqi’s oil production and export capacity  include restoring the Qarmat Ali water reinjection and treatment plant to  create and maintain sufficient oil field pressure in the Rumailah oil field;  repairing the Al-Fathah oil pipeline crossing; restoring several gas and/or  oil separation plants near Kirkuk and Basrah; and repairing natural gas and  liquefied petroleum gas plant facilities in southern Iraq. U.S. activities also  include the restoration of wells, pump stations, compressor stations,  export terminals, and refineries, and providing electrical power to many of  these oil facilities. According to agency and contracting officials, the  United States provides primarily procurement, engineering, technical  expertise and some construction services for these projects. Iraq oil  company employees conduct some repair operations and construction.
In addition to infrastructure restoration activities, the United States  facilitated and oversaw the purchase, delivery, and distribution of refined  fuels throughout Iraq, primarily using DFI funds from late May 2003  through August 2004. Used for cooking, heating, personal transportation,  and private power generation, these imports were required to supplement  domestic production due to increased demand and Iraq’s limited refining  capacity. The responsibility for this effort was transferred to Iraq’s State  Oil Marketing Organization after August 2004. The United States also  assisted in developing an oil security force and pipeline repair teams to  respond to looting, sabotage, and sustained attacks, primarily on oil  pipelines. Finally, the United States also provided technical assistance and  support to the Iraqi Ministry of Oil to define Iraq’s operational, legal, policy,  and investment frameworks for the industry.
section_title: Assessment
paragraphs: Although some activities to restart Iraq’s oil production and export have  been completed, the implementation of the U.S. program to assist in  restoring and sustaining Iraq’s crude oil production and export levels to  pre-March 2003 capacity has been slower than originally planned. Of the  $2.7 billion in appropriated funds for the oil sector, the United States had  obligated about $2 billion and disbursed $1.1 billion, as of March 31, 2005.  In addition, of the $2.7 billion in Iraqi funds, about $215 million had been  spent on these infrastructure restoration efforts. Initial production and  export targets were reached in 2003 and early 2004 as U.S. efforts were  made to complete assessments and quick repair projects, provide  dedicated power, and procure spare parts and equipment. Since  November 2004, however, crude oil production and export levels have not  been sustained primarily due to pipeline attacks and a natural decline in  production resulting from years of improper reservoir management,  according to U.S. and former CPA officials. From December 2004 through  May 2005, estimated production and export levels remained relatively  constant at about 2.1 million bpd and 1.4 to 1.6 million bpd, respectively.  (See fig. 3.) Targets for December 2005 are to reach 2.8 million bpd in  production and 1.8 million bpd in exports.
Several U.S. government, former CPA, and contractor officials stated that  funding uncertainties, project reprioritizations, inadequate contractor  reporting, and frequent changes in contract management procedures or  processes have impeded progress. In addition, some officials stated that  the overall security environment has slowed their ability to obtain or move  equipment, materials, and personnel, in some cases delaying project  progress. Some officials estimated that a combination of these factors have  contributed to delays of 2 to 6 months at different points in the oil sector  program’s overall implementation. Some significant projects experienced  further delays from late 2004 to early 2005 due to security, technical, or  legal problems that over the past several months, according to agency  officials, resulted in lower crude oil production or export. For example,  one significant project to provide water and field pressure maintenance in  southern Iraq could not be fully utilized, primarily due to associated  infrastructure degradation, thus limiting the facility’s operations and Iraq’s  level of crude oil production. In general, most larger scale, higher dollar  projects are either under way or scheduled to begin by August 2005, and  IRMO officials stated that sector efforts are focused on a defined set of  projects that the Ministry of Oil agreed to in November 2004. As of May  2005, U.S. officials and reporting indicated that the overall program is  scheduled to be completed by mid- to late-2006.
U.S. efforts directly facilitated the CPA’s purchase and delivery of imported  gasoline, liquefied petroleum gas, kerosene, and diesel for domestic use in  Iraq. About $2.3 billion of the $2.7 billion in Iraqi funds was used to  purchase, supply, and distribute these refined fuel products. These efforts  required the coordination of significant trucking operations and military  convoys to move considerable quantities of fuels and to increase the  capacity to download these fuels at several supply points throughout Iraq.  Although no longer responsible for the purchase and delivery of these  refined fuels, U.S. agencies continue to monitor Iraq’s efforts to maintain a  15-day supply of refined fuel stocks. Although estimated national supply  levels were low from November 2004 to March 2005, U.S. agency  documents report that levels of these products improved and, as of May  2005, only diesel stocks remained significantly below the 15-day supply  targets. However, agency reporting also noted distribution problems such  as criminal attacks on delivery trucks, sabotage to domestic product lines,  and black market activity related to the sale of these products. These  problems continue to negatively affect the population’s access to these  fuels for their daily needs.
Of the $2.7 billion of Iraqi funds made available for the oil sector, about  $170 million was used to develop oil security and pipeline repair teams.  CPA oil security efforts included the establishment of a U.S. task force to  manage the training and equipping of an oil security force. This effort  began in late 2003 and focused primarily on guarding fixed facilities and, to  a lesser extent, patrolling pipelines. The oil security force numbers reached  over 14,000 as of June 2004, according to agency officials; however, in  responding to our draft report State indicated that this force was not  staffed, trained, or equipped to patrol pipelines. Because the number and  intensity of pipeline attacks increased during the summer and fall of 2004,  the overall effectiveness of this force has been difficult to gauge. In  responding to our draft report, State indicated that this level of attacks  demonstrates the effectiveness of the insurgency in Iraq and the inability of  coalition forces to register the security of the oil infrastructure as a high  priority. According to agency documents, the Ministry of Oil assumed  responsibility for these security personnel in December 2004.
In a related effort, the CPA established an emergency response  organization in early 2004 to rapidly return damaged pipelines to service.  The primary contractor was responsible for a certain number of repairs; it  was also responsible for training repair crews and providing new tools and  techniques to sustain this effort after its August 2004 contract expiration. In  July 2004, the U.S. government indicated that the contractor’s performance  was unsatisfactory and withheld funds. According to U.S. officials and  documents, in August 2004 IRMO mobilized an emergency repair team; in  February 2005, the Ministry of Oil mobilized a second emergency repair  team; and responsibilities for these efforts were being transitional to the  Iraqis as of June 2005.
section_title: Challenges
paragraphs: Iraq’s economy relies on oil revenues to support its budget. In the near  term, Iraq is dependent on the completion of several of the U.S. program’s  infrastructure projects, whose successful operations are expected to  generate revenues to support Iraq’s 2005 budget. In addition to this  challenge, the Iraqis face shorter and longer term oil sector challenges that  include training, equipping, and funding effective infrastructure security  forces and pipeline repair teams; addressing issues related to domestic  refined fuel supply and consumption; and defining the oil sector’s  organizational structure, foreign investment framework, and energy  priorities, among others.
Attacks against the oil infrastructure continue and limit Iraq’s ability to  export crude oil and distribute refined products domestically. The  United States and Iraq have attempted to establish infrastructure  security forces as well as emergency response teams to address this  issue. However, difficulties in determining organizational responsibility  and funding for such efforts have impeded their completion and  contributed to insufficient protection of oil infrastructure, particularly  pipelines. According to agency reporting in April 2005, plans were being  discussed to provide mobile security for pipelines. In addition, in  response to our draft report DOD told us in July 2005 that the Iraqi  government, with Coalition support, is leading an effort to enhance oil  infrastructure security.
CPA and U.S. officials have emphasized the importance of restoring  Iraq’s refinery capacity to increase the supply of refined fuel products  for domestic use and to decrease the amount spent on refined product  imports. According to a former agency official, replacing existing  refineries with modern technology facilities may require $6 to $7 billion  over a 10-year period, while fuel imports cost over $2 billion annually.  Iraq subsidizes the refined fuels it imports and produces, and the price  of these fuels is less than a few cents per liter. U.S. officials have  reported that low prices also encourage black market activity such as  smuggling or the purchase and resale of refined products, both of which  can ultimately result in local distribution shortages and insufficient  access to these needed fuels. CPA and U.S. officials have provided  assistance to the Iraqis in developing refined fuel pricing reform  strategies. Iraq committed to increase the domestic prices of refined  products to generate an estimated $1 billion in revenues in 2005,  according to IMF and agency documents. However, potentially negative  popular reaction may make it difficult for the Iraqis to implement any  repricing strategies at this time.
Iraq’s framework for managing its oil industry and the use of its energy  resources is not yet defined. Decisions by Iraq’s new government may  alter how the country runs its oil operations and may also influence the  amount and type of capital investment that Iraqis and foreigners are  willing to provide. In addition, establishing regulations for resource  management and revenue distribution are part of the Iraqi government’s  current effort to draft a constitution. Outcomes of these activities will  affect Iraq’s overall economic goals and priorities.
section_title: Electricity Production Lower in May 2005 Than before the March 2003 Conflict
paragraphs: U.S. efforts in the electricity sector have focused on restoration and  construction of Iraq’s electrical system. As of March 31, 2005, about $5.7  billion—about $4.9 billion in appropriated funds and $816 million in Iraqi  funds—had been made available to provide electricity services that meet  Iraq’s national needs. Some progress was made in restoring Iraq’s  electricity infrastructure, reportedly adding about 1900 megawatts of  generating capacity to Iraq’s power grid between March 2003 and May 2005.  Iraq’s overall power generation was lower through May 2005 than before  the 2003 conflict, although power generation exceeded this level for the  latter part of June 2005. The causes for lower overall power generation  included planned and unplanned maintenance needs for power stations  and fuel shortages. The electricity sector faces a number of challenges to  meeting Iraq’s electricity needs, including the lack of appropriate fuel  supplies, Iraqi operation and maintenance capacity, the unstable security  environment, financing needs for distribution projects, and effective  management of electricity generation and distribution.
subsections: section_title: Background
paragraphs: 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. The report noted  the severe degradation of Iraq’s generating capacity—from about 5,100  megawatts in 1990 to about 2,300 megawatts post-1991 Gulf War—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. Spare parts were largely unavailable when UN sanctions  were in place between 1991 and 2003. Equipment and facilities had not  been maintained and required significant overhauls. In addition, some  facilities and transmission lines were damaged by U.S. forces during the  1991 Gulf War or by the looting and vandalism of facilities following the  2003 conflict.
section_title: U.S. Activities and Projects
paragraphs: About $4.9 billion in appropriated and $816 million in Iraqi funds from the  DFI have been made available for U.S. reconstruction efforts in the  electricity sector. These efforts focus on restoring or constructing  generation, transmission, distribution, and automated monitoring and  control systems in Iraq’s electrical system. Other projects have included  capacity building and training security forces to protect the electrical  infrastructure. According to agency documentation, the majority of  financial assistance in this sector has focused on generation projects, such  as rehabilitating and repairing existing equipment or procuring and  installing new turbines and generators. Transmission projects, such as  erecting transmission towers and stringing transmission lines, have been  another significant focus.
section_title: Assessment
paragraphs: Although some progress has been made in rehabilitating many Iraqi electric  facilities as of May 2005, electricity production in Iraq was lower than  before the March 2003 conflict. However, for the latter part of 2005 power  generation exceeded this level. Of the $4.9 billion appropriated as of March  31, 2005, the United States had obligated $3.7 billion and disbursed $1.7  billion, mostly for generation projects to repair existing equipment or  procure new turbines and generators for power plants. In addition, of the  $816 million in Iraqi funds authorized for U.S. activities in the electricity  sector, about $758 million had been disbursed as of March 31, 2005.
Two key targets of the U.S. reconstruction effort are increasing total  generating capacity and daily megawatt hours of electricity produced. The  first key target is to increase Iraq’s total generating capacity by 3,100  megawatts by June 2005. As of May 2005, U.S.-funded projects reportedly  had added or restored about 1900 megawatts of generating capacity to  Iraq’s power grid. However, U.S. program and contracting officials have  raised concerns about the ability of the Ministry of Electricity and local  power plant operators to sustain the added generation capacity.
The other key target has been to help Iraq produce 120,000 megawatt-hours  of electricity per day by June 2005. In May 2005, agency reports show this  target was revised to producing 110,000 megawatt-hours by December  2005. As shown in figure 4, Iraq produced more than 100,000  megawatt-hours of electricity most days between July and November 2004;  however, production dropped below prewar production levels through May  2005, varying between 51,000 and 99,800 megawatt-hours daily. Agency  reports attribute the decreased production figures to several causes,  including planned and unplanned maintenance on power stations, fuel  shortages due to insurgent attacks on oil pipelines that provide fuel to the  power plants, and limited supply of fuels allocated by the Ministry of Oil. In  commenting on our draft report, State noted that planned outages are  necessary operational procedures to ensure reliable and sustainable  operations at the plants and that the central reason for high unplanned  outages is that Ministry of Electricity workers do not yet have the  necessary skills to ensure adequate operations and maintenance practices.  As of June 2005, Iraq’s electricity production was increasing to meet greater  summer demand and exceeded 100,000 megawatts in the latter half of the  month. U.S. officials attributed the increased production to (1) power  plants that were returned to service after maintenance was completed, (2)  imported power and fuel supply from neighboring countries, and (3)  activation of U.S. funded power projects.
The electricity sector faces a number of challenges to meeting Iraq’s  electricity needs. These challenges include the lack of appropriate fuel  supplies, Iraqis lack of capacity in operation and maintenance, the unstable  security environment, financing needs for distribution projects, and  ineffective management of electricity generation and distribution.
Iraq’s limited accessible supply of natural gas and diesel fuel affects the  operation of the new gas combustion turbines provided by the United  States and continues to affect the operations and production capacity  of Iraq’s electrical power plants. The United States purchased and  installed gas combustion turbines to operate several Iraqi power plants,  including Bayji and Qudas. These turbines were readily available for  purchase, could be installed in less than 1 year, and could also be  modified to burn oil-based fuels, although with some negative effect on  the turbines’ efficiency and operation. Although Iraqi power plants have  largely relied on steam turbines that use crude oil or oil-derived fuels,  these turbines are less readily available for purchase on the world  market and require a longer installation time. Due to limited access to  natural gas, some gas combustion turbines at Iraqi power plants are  operating on low grade, oil-based fuels. The use of liquid fuels, without  adequate equipment modification and fuel treatment, decreases the  power output of the turbines by up to 50 percent, requires three times  more maintenance, and could result in equipment failure and damage  that significantly reduces the life of the equipment, according to U.S.  and Iraqi power plant officials.
U.S. agencies report they have incorporated operations and  maintenance training into the reconstruction program. However, the  Iraqis’ capacity to operate and maintain the power plant infrastructure  and equipment provided by the United States remains a challenge.  Contractors cited several instances where the Iraqis had significant  problems operating and maintaining projects after they were transferred  to the government. For example, in December 2004, the Iraqis’ inability  to operate a recently overhauled plant at Bayji led to a widespread  power outage. U.S. officials said that contractors installed the  equipment and provided the Iraqis onsite training in operating the new  or refurbished equipment. However, Iraqi power plant officials from 13  locations throughout Iraq, including Bayji, indicated that the training did  not adequately prepare their staff to operate and maintain the new gas  turbine engines. U.S. officials have acknowledged that more needs to be  done to train plant operators and ensure that advisory services are  provided after the turnover date of the projects. To address this issue, in  February 2005, USAID implemented a project to train selected  electricity plant officials (plant managers, supervisors, and equipment  operators) in various aspects of plant operations and maintenance.  According to DOD, PCO also has awarded one contract and is  developing another to address operations and maintenance concerns. A  June 29, 2005, USAID Inspector General report stated that until the  operations and maintenance challenges are addressed at both the Iraqi  power plants and ministry levels and practices at the power plants are  significantly improved, reports of damaged equipment and  infrastructure will continue and the electrical infrastructure rebuilt and  refurbished by USAID’s program will remain at risk of sustaining  damage following its transfer to the Ministry of Electricity. In comments  on our draft report, State department said that there has not been  enough focus on strengthening operations and maintenance capacity  and that such strengthering had not been a U.S. government priority in  the early phases of the reconstruction effort.
Providing security for power plants, transmission lines, and distribution  stations is another key challenge to electricity reconstruction projects  and to meeting Iraq’s electricity needs. According to U.S. agency  officials and contractors, insurgent attacks on people and infrastructure  have increased project costs and caused scheduling delays. Our  analyses of five U.S.-funded electricity sector contracts indicate that  security costs to obtain private security services and security-related  equipment as of December 31, 2004, ranged from 10 to 36 percent of  project costs. In 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 contract was terminated early.  According to agency reporting in April 2005, current plans are for the  Iraqi Ministry of Defense to provide mobile security for linear assets  such as transmission lines and pipelines.
The Iraqi electricity sector will require additional financial assistance to  restore its infrastructure to meet the national needs. The Ministry of  Electricity estimates that Iraq needs about $20 billion to restore its  electricity sector, including over $3 billion to update the distribution  network system, that provides electricity from the distribution station to  the end user. The activities of the U.S. assistance program have focused  on generation, transmission, and distribution projects to improve the  electricity sector and have provided about $100 million to address the  provision of power from the distribution station to the end user.
Effective management of electricity generation, transmission, and  distribution is affected by illegal connections to existing power lines and  the lack of metering. According to industry officials, the inability of  system operators to balance the amount of electric generation with  consumer demand can cause severe failures in both equipment and  service, as evidenced in January 2005 when the national grid collapsed  following an electrical circuit imbalance near Bayji. Further, limited and  inaccurate metering in Iraqi homes precludes the Ministry of Electricity  from measuring the amount of electricity that end users consume.  Experts indicate that the demand for electricity has increased  dramatically since UN sanctions were removed in 2003 and estimate  that the demand for electricity will exceed 8,500 megawatts this  summer. In commenting on our draft report, the State department stated  that the demand had passed 8,500 megawatts and may reach 9,000  megawatts.
section_title: Progress in the Water Sector Is Difficult to Measure and Some Completed Projects Are Not Functioning
paragraphs: U.S. reconstruction efforts in the water and sanitation sector focus on  improving Iraq’s potable water, sewage, and sanitation systems. State  reallocations have reduced available U.S. funding for improving Iraq’s  severely degraded water and sanitation sector from a peak of $4.6 billion to  a current level of $2.4 billion. The United States has made some progress in  completing large and small water and sanitation projects, but it is difficult  to determine the impact of its reconstruction effort on this sector due to  limited performance data and measures. The U.S. reconstruction program  has also suffered from delays in completing projects, and some completed  projects lack sufficient Iraqi staff and supplies to function properly or are  not operating at all due to a lack of electricity and diesel fuel.
subsections: section_title: Background
paragraphs: Water and sanitation services in Iraq deteriorated significantly after the  1991 Gulf War due to the lack of maintenance, inadequate skilled  manpower, and war damage. In 2003, post war looting destroyed equipment  and materials needed to operate treatment and sewerage facilities. Before  the 1991 Gulf War, Iraq produced enough water to supply more than 95  percent of urban Iraqis and 75 percent of rural Iraqis, according to the 2003  UN/World Bank needs assessment. Actual access was much lower due to  significant losses from leaks in the delivery network. By 2003, these  production levels had fallen to 60 percent of urban Iraqis and 50 percent of  rural Iraqis. According to the same assessment, the sewage system  primarily served Baghdad, where it reached about 80 percent of the  population. However, according to the report the sewage system was  inadequate for moving and processing waste, leading to backups of raw  sewage in the streets and treatment plants were not operational. Less than  10 percent of the urban population outside Baghdad was served by sewage  systems. The rural areas and northern Iraq—including the cities of Kirkuk  and Erbil—had no access to piped sewage systems.  According to the  UN/World Bank report, some of these areas had access to pour flush  latrines.
section_title: U.S. Activities and Projects
paragraphs: U.S. reconstruction efforts in the water and sanitation sector focus on  projects to improve Iraq’s potable water, sewage, and sanitation systems.  Specific activities funded by the U.S. reconstruction program include  repairing water and sewage treatment plants, rehabilitating dam facilities,  and conducting irrigation projects. Work has been implemented through a  combination of longer term, large scale projects and quick impact, smaller  scale projects. Agencies are executing most of their largest efforts through  five large contracts with three U.S. companies. These efforts include  rehabilitation of water and sewage treatment plants, dams, pump station,  and irrigation canals, as well as repairs of sewer lines and drinking water  canals. Smaller scale projects include neighborhood cleanups, water  supply improvements, and the rehabilitation of smaller scale sewage  systems and water treatment plants.
section_title: Assessment
paragraphs: The U.S. reconstruction program in Iraq’s water and sanitation sector has  made some progress toward completing a reduced scope of activities. As of  April 5, 2005, the State Department had reallocated funding for water and  sanitation to other priorities such as security, thus reducing available  funding by 48 percent to about $2.4 billion. As of the end of March 2005,  U.S. agencies had obligated about $1.2 billion, or 50 percent, and disbursed  about $280 million, or 12 percent, of the U.S. funding to specific projects for  the sector. USAID’s accomplishments included the repair of six sewage  treatment plants, two water treatment plants, and a primary urban water  supply in southern Iraq. As of April 3, 2005, State reported that 64 projects  were complete and 185 were in progress. However, State was unable to  provide a list of those completed projects, which would enable us to  evaluate the significance of the project numbers in terms of scope of work,  cost, or size. The United States has also funded a number of smaller scale,  quick impact projects. The primary goals of these quick impact projects  have been to meet pressing local needs and provide employment for the  Iraqi people. Although they are designed to show impact more quickly in  some cases  small-scale projects do not have the potential long-term effect  of the larger projects.
Reduced funding and increased costs have limited the work done in the  water and sanitation sector. As of March 2005, PCO had begun 52 projects.  Although PCO initially planned to execute 137 projects with fiscal year  2004 appropriated funds, the full list of 137 projects will not be completed  using appropriated funds given the funding reallocations and State’s focus  on completing projects under way and sustaining completed projects. The  reduction in the number of planned projects is the result of a more than $2  billion decrease in program funding and underestimates of the cost of  doing business in Iraq. According to PCO, the initial CPA cost estimates for  completing projects in Iraq were too low. Increased security requirements,  inflation in the cost of construction materials and labor, and the  unexpectedly poor condition of Iraqi facilities have all contributed to  increases in project cost.
In commenting on the draft of this report, the U.S. Agency for International  Development (USAID) disagreed with our statement that agency metrics  for tracking water projects do not show how the U.S. program affects the  Iraqi people. USAID stated that the agency tracks increases in the amount  of water treated and estimates increases in beneficiary numbers.  However,  these metrics do not address the quality of water and sanitation services in  Iraq, which may hinder the U.S. ability to gauge progress toward its goal of  providing essential services.
section_title: Challenges
paragraphs: The effect of U.S. water and sanitation sector reconstruction is difficult to  quantify, and metrics used by U.S. agencies to track progress do not  provide a complete picture of results. The program has encountered delays  in execution due to security conditions and other factors, and completed  projects are at risk of failing due to lack of needed staff and supplies after  transfer to the Iraqis.
Iraq has no comprehensive metering of water usage. Without metering,  the ministries lack information on the amount of water consumed or  lost. U.S. officials estimate that approximately 60 percent of water  produced in Iraq is unaccounted for—lost to illegal taps, unmetered  usage, and leaking water pipes. Because of water losses and the lack of  metering, the extent to which clean potable water from improved  facilities is reaching users is unknown.
Agency metrics for tracking progress in the water and sanitation sector  do not show how the U.S. program is affecting the Iraqi people. PCO and  State have developed metrics to track the progress of the U.S. water and  sanitation reconstruction program in terms of projects completed,  treatment capacity, and agricultural area irrigated. While these measures  provide some insights on progress, they do not track the contribution of  projects toward the overall objective of providing essential services or  measure increased access to clean water and improved sanitation in  Iraq, as this data from the end user is difficult to gather. In commenting  on our draft report, USAID said that the agency tracks increases in the  amount of water treated and estimates increases in beneficiary  numbers. However, these metrics do not address the quality of water  and sanitation services in Iraq, which may hinder the U.S. ability to  gauge progress toward its goal of providing essential services.  For  example, because of problems with the distribution network, water that  is potable at the treatment plants may be contaminated by the time it  reaches users. According to a senior PCO official in the water sector,  potable water and sewage mains in Iraq are sometimes adjacent to each  other, allowing leaking sewage to enter the water mains. In response to  our draft report, State also noted that there are significant difficulties in  accurately measuring water quantity and water quality delivered to Iraqi  households and that the measurement of access to potable water and  improved sanitation is generally done through the use of surveys.  However, State commented that the department has elected not to  reallocate funding away from projects to conduct regular surveys on  essential services.
The U.S. effort to rehabilitate Iraq’s water and sanitation sector has  faced challenges from the insurgency, coordination and management  difficulties, and poor onsite conditions. Contractor and agency reporting  cite numerous instances of project delays due to unsafe conditions. PCO  has estimated that deteriorating security has added an average of about  7 percent to project costs in the water and sanitation sector. Contractors  and agency officials also cited difficulties in defining project scope and  coordinating with Iraqi ministries as further impeding progress. For  example, Iraqi ministry and local officials disagreed on the proper scope  of one project, and PCO’s resolution of the issue was delayed by security  conditions limiting its ability to meet with Iraqi officials. Unusable  project sites and the unexpectedly poor condition of Iraqi facilities have  also contributed to delays and increased costs. USAID abandoned one  landfill project, projected to cost $20 million if completed, because the  Iraqi government provided an unusable site. Contractors arriving in the  field also found unanticipated conditions, such as sewer blockages and  treatment equipment that required repair.
Both USAID and PCO have incorporated employee and management  training efforts into their reconstruction programs. However, the  projects completed by USAID and PCO have encountered significant  problems in facility operations and maintenance after project handover  to Iraqi management. Iraqis lacked adequate resources and personnel to  operate these facilities in the long term. To address these issues, in April  2005 State reallocated $25 million for a USAID pilot project to provide  continuing operations, maintenance, and supply acquisition training and  support at selected sites after handover. PCO has also developed a risk  assessment process designed to anticipate potential sustainability  issues by evaluating various factors that contribute to the successful  transition of projects to the Iraqis.
section_title: Progress Made in Expanding Basic Heath Care, and Larger Infrastructure Projects Are Under Way
paragraphs: U.S. reconstruction efforts in the health sector focus on restoring and  expanding the availability of basic health care in the country. The United  States has provided about $866 million in appropriated funds for health  activities to reestablish, restore, and expand the availability of health care  in Iraq. The majority of this funding—about $750 million—is focused on  infrastructure projects and medical equipment supplies; the remainder  provides for medical staff training and management training for the  Ministry of Health. While U.S. agencies have completed initial activities to  reestablish Iraqi health services, larger infrastructure, equipment, and  training projects to restore and expand the availability of basic health care  are still under way. The Iraqi health sector faces a number of challenges in  providing basic and preventive health services, including procurement and  delivery of medical equipment and supplies and measuring program  results. At the same time, long-term technical assistance will be required to  build the management and infrastructure capacity needed to provide  access to a quality health care system over time.
subsections: section_title: Background
paragraphs: More than 30 years ago, Iraq was a regional leader in health care, but years  of neglect and mismanagement under Saddam’s regime left the Iraqi health  system in a deteriorated state and a segment of the Iraqi population and the  poor with little or no health care. The 2003 UN/World Bank needs  assessment described the Iraqi health care system as inefficient and  inequitable, noting that health care facilities and equipment were in poor  condition. The Iraqi health system was a hospital-oriented model that did  not emphasize sustainable health development; care was centralized in  urban areas and services only partially matched the needs of the  population. The 2003 UN/World Bank needs assessment further noted that  the health system did not provide equitable access to basic health services;  lacked cost-effective public health interventions; required large-scale  imports of medicines, medical equipment, and health workers; and  collected little health service data. The 2003 assessment determined that  basic health care services needed to be restored and that the system  needed to be transformed into a national health care system based on  primary care, that provides health services reflecting population needs and  priorities with a focus on prevention and treatment.
According to the 2003 UN/World Bank needs assessment, Iraqi health care  spending during the 1990s had fallen by as much as 90 percent and Iraq’s  health outcomes were among the poorest in the region—well below the  levels found in comparable income countries. Infant, child, and maternal  mortality rates more than doubled from 1990 to 1996 with 65 percent of  births occurring outside of health institutions; adult mortality increased,  and life expectancy fell to 60 years of age. Widespread looting after  Operation Iraqi Freedom, the subsequent unpredictability of electricity and  the water supply, and attacks by insurgents further weakened the  functional capacity of Iraqi health care services. According to the Iraqi  Ministry of Health, about one-third of primary care clinics, more than 12  percent of hospitals, 30 percent of family planning clinics, and 15 percent of  child care clinics were looted or damaged or both; two main public health  laboratories were destroyed; and four of seven central warehouses for  storage of drugs and supplies were partially looted and their vaccine supply  was lost.
section_title: Activities and Projects
paragraphs: The U.S. program for the Iraqi health sector is primarily focused on  restoring and expanding the availability of basic health care, including  maternal and child health care, to the majority of the population. Activities  funded by the U.S. reconstruction program (1) address medical facility  needs to support an evolving health care model for equitable access to  basic health care; (2) provide medical equipment and training of medical  staff; and (3) provide training to strengthen management by the Ministry of  Health. The majority of U.S. financial assistance in this sector—over 80  percent—is focused on rehabilitating and constructing hospitals and health  care centers and supplying medical equipment for hospitals and clinics.  The remainder of this assistance provides for the training of medical staff  and capacity building within the Ministry of Health, including management  training for infectious disease control, national health policy reform, and  decentralization of health care activities at the local, governorate, and  ministry levels. U.S. activities in the Iraqi health sector fall into four key  areas: health phase I ($80 million), nationwide hospital and clinic  improvements ($439 million), equipment procurement and modernization  training ($297 million), and the construction of the Basrah Pediatric  Facility ($50 million).
section_title: Assessment
paragraphs: The United States has made some progress in its effort to restore and  expand the availability of basic health care in Iraq; however, the majority of  large-scale infrastructure projects remain under construction. As of March  31, 2005, U.S. agencies had obligated $533 million and disbursed $116  million of the $866 million allocated for health activities in Iraq. According  to agency reporting, initial activities to reestablish Iraqi health services  have been largely completed, including the vaccination of 70 percent of  eligible Iraqi children, about 5 million Iraqi children against measles,  mumps, and rubella and 3 million children against polio; rehabilitation of  110 health clinics; training of about 700 health care trainers; and the  procurement of medical equipment kits for 600 health centers. However,  due to the security environment and procurement delays, 37 of 600 medical  equipment kits had not been delivered as of May 20, 2005, according to U.S.  officials.
Further efforts to improve hospitals and clinics, procure equipment, and  provide training are under way. For example, according to IRMO reporting,  as of April 6, 2005, of the planned renovations for 20 hospitals and new  construction for 1 hospital, the United States had started planned  renovations on the 20 hospitals and begun construction of the Basrah  Pediatric Facility. According to agency documentation, the execution  phase of these health projects took longer than expected to complete due  to the complex designs for health care facilities, long lead times for medical  equipment manufacturing and delivery, construction delays due to land  ownership issues, the poor quality of sites, and security issues related to  the contractors and the delivery of construction supplies. In addition,  according to U.S. officials, the training program for the medical staff for the  new primary health clinics was expected to begin in June 2005.
section_title: Challenges
paragraphs: Iraq’s health sector needs long-term financial support for its health care  system. In addition, the U.S. program to restore and expand the availability  of basic health care faces challenges in the procurement and delivery of  medical equipment and supplies and in measuring program results.
According to the UN/World Bank assessments, Iraqi and agency  documents, and U.S. officials, the Iraqi health sector will require  continued long-term financial assistance to restore and strengthen its  health system to modern day medical levels; support infrastructure  maintenance and medical supply requirements; and support  management operations—assistance that is not available in the U.S.  program or through the international community. The activities of the  U.S. assistance program—largely focused on improving the physical  infrastructure of the health system—is likely to have a longer term  impact on the health sector; however, the impact of these infrastructure  improvements is not likely be visible until construction is complete, new  equipment is in service, and management capacity of the Iraqi health  ministry has been strengthened. U.S. officials acknowledge that  additional resources will be needed over the next 3 to 5 years for Iraq to  address health services and strengthen the delivery of primary health  care services, although the continuation of such activities is not an  element of the U.S. program in Iraq at this time.
The U.S. program to provide medical equipment and supplies to  hospitals and health clinics across Iraq is an important element in  strengthening Iraqi health service delivery. Delays in the delivery of  U.S.-provided equipment may affect the Iraqis’ ability to provide primary  health care. For example, the completed delivery of USAID-funded  health kits, coupled with primary health care provider training, is  expected to result in an increase in the capability of primary health care  providers to deliver care to the Iraqi population. Although the equipment  items for these health kits were received by May 2004, the delivery of  these kits to Iraqi health clinics was still incomplete, as of May 2005.  Agency documents and officials indicated several reasons why medical  equipment had not been delivered, including long lead times for medical  equipment manufacturing and delivery, the security environment, the  timing of equipment delivery with the completion of infrastructure  construction, and the need to obtain agreement on equipment lists from  the Ministry of Health. To address the Ministry of Health’s limited  capacity to accept, store, and distribute large shipments of supplies and  equipment, the PCO has developed a revised distribution plan,  according to a U.S. official. Further, as of May 2005, the construction  plans for 150 primary health clinics did not have an identified  procurement plan for backup power generators, furniture, consumable  supplies, incinerators, or a security perimeter. According to a U.S.  official, without full power supply—by generators or from the power  grid—these clinics will be able to provide only the most basic services  and limited or no maternal and/or pediatric services. In response to our  draft, DOD told us that they plan to build 142 primary health clinics  supplied with generators, furniture, and three months of consumables.
IRMO has developed metrics to track the progress of the U.S. health  reconstruction program in Iraq. Limitations to the available metrics and  data make it difficult to assess the outcome of U.S. activities in the  health sector. For example, IRMO’s measurements of progress track the  completion of facilities, which is an indicator of increased access to  health care. However, the measures available do not indicate how well  these facilities are equipped or staffed to provide primary health care  services. The measures used by IRMO do not relate the progress of U.S.  projects to the overall effort of improving the quality and access of  health care in Iraq.
section_title: Conclusions
paragraphs: The United States, along with its coalition partners and various  international organizations and donors, has undertaken a challenging and  costly effort to stabilize and rebuild Iraq. Over the past 2 years, the United  States, coalition partners, and, more recently the Iraqis have undertaken  and accomplished numerous activities to stabilize and rebuild Iraq,  including efforts to help restore basic essential and social services. This  enormous effort has been undertaken in an unstable security environment,  and is concurrent with the institutional development of Iraqis to govern and  secure the country. As we reported in June 2004, these challenges continue  to affect the pace and cost of reconstruction. A key challenge to the  success of the rebuilding effort will be the Iraqis’ ability to sustain the  rehabilitated and new infrastructure and to address continuing  maintenance and basic service needs. U.S. reconstruction efforts include  requirements to build operational and ministerial capacity to sustain this  infrastructure. As U.S. activities that have already started reach completion  by the end of the year, the options and plans developed and actions taken  to address this challenge will be critical to the success of the U.S.  reconstruction program and the overall reconstruction effort in Iraq.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided drafts of this report to the Departments of Defense and State  and the U.S. Agency for International Development. The Departments of  Defense and State did not provide written comments; however, they  provided technical comments, which we incorporated where appropriate.
The U.S. Agency for International Development provided written  comments, which are reprinted in appendix II. In particular, in response to  our statement that agency metrics for tracking water projects do not show  how the U.S. program is affecting the Iraqi people, USAID stated that the  agency tracks increases in the amount of water treated and estimates  increases in beneficiary numbers. However, these metrics do not address  the quality of water and sanitation services in Iraq, which may hinder the  U.S. ability to gauge progress toward its goal of providing essential  services. For example, because of problems with the distribution network,  water that is potable at the treatment plants may be contaminated by the  time it reaches users.
USAID also provided technical comments, which we incorporated where  appropriate.
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.
section_title: Scope and Methodology
paragraphs: In monitoring resources supporting the reconstruction of Iraq, we focused  on the sources and uses of U.S., Iraqi, and international funding. U.S.  agencies provided us with electronic data files for appropriated funds, the  Development Fund for Iraq (DFI), vested assets, and seized assets. These  files generally included objective or project descriptions with allocated,  obligated, and disbursed amounts. We assigned each of the funding line  items to broad categories based on the descriptive information available in  the data files. To assign the data to a category, we relied on project  descriptions from agency data files.
In addressing the amount of U.S. funds that have been appropriated,  obligated, and disbursed for the Iraq reconstruction effort, we collected  funding information from the Department of Defense (DOD), including the  Project and Contracting Office (PCO), the U.S. Army Corps of Engineers  (USACE), and others; Department of State; the Department of the Treasury;  U.S. Agency for International Development (USAID); and the Coalition  Provisional Authority (CPA). Data for U.S. appropriated funds are as of  March 31, 2005. We also reviewed Defense Contract Audit Agency reports,  U.S. agency inspector generals’ reports, Special Inspector General for Iraq  Reconstruction (SIGIR) reports, other audit agency reports, and Office of  Management and Budget (OMB) documents. 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 the category descriptions we have made.
To identify sources and uses of DFI funds, vested assets, and seized assets,  we relied on funding data from the CPA and DOD through June 28, 2004. To  determine the reliability of these data, we examined the financial files and  interviewed CPA officials responsible for the data. Based on these  evaluations, we determined the data are sufficiently reliable to describe the  major deposits to the DFI and the allocations and disbursements by major  categories. We did not audit these data and are not expressing our opinion  on them. After June 28, 2004, the stewardship of the DFI was turned over to  the Iraqi Interim Government. We continued to obtain data from DOD  regarding DFI funds obligated before June 28, 2004, and vested and seized  funds balances.
To address international assistance for rebuilding Iraq, we collected and  analyzed information provided by the State Department’s Bureau of  Economic and Business Affairs. We also collected and reviewed reporting  documents from the International Reconstruction Fund Facility for Iraq  (IRFFI). To describe the activities of international donors, we reviewed  documents pertaining to the international donor conferences and the IRFFI  and interviewed U.S. officials. To assess the reliability of the data on the  pledges, commitments, and deposits made by international donors, we  interviewed officials at State who are responsible for monitoring 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 aggregate level.
For the U.S. reconstruction program, we focused our effort on U.S.  activities in the Iraqi oil, electricity, water, and health sectors. Specifically,  we focused on the condition of the sectors, the status of the U.S. effort in  these sectors, and the challenges affecting overall sector progress. To  determine the condition of the sectors, we reviewed assessments made by  the United Nations and World Bank, USAID, CPA, and contractors. We also  discussed sector conditions with cognizant U.S. agency officials,  contractors, and Iraqi officials.
To determine the status of the U.S. effort in the oil, electricity, water, and  health sectors, we reviewed documents obtained from the United Nations,  World Bank, CPA, State’s Iraq Reconstruction Management Office (IRMO),  the PCO, USAID, the USACE, agency contractors, and selected Iraqi  ministries. We reviewed reports and planning documents prepared by  USACE, USAID, CPA, State, PCO, and contractors. We also interviewed  U.S. government and former CPA officials and contract personnel in the  United States and Iraq and participated in videoconferences between  USACE headquarters and Baghdad personnel. Specifically, we interviewed  USAID, State, PCO, USACE, and former CPA officials, in Washington, D.C.  and Iraq and their contractor representatives in the United States and Iraq.
To determine the challenges affecting sector progress, we reviewed  contractor and agency reporting and interviewed agency officials in the  United States and Iraq. Specifically, we reviewed CPA, PCO, State, USAID,  the USACE, and other reporting. We also interviewed agency officials in  Washington, D.C. and Iraq from USAID, State, PCO, USACE, Defense  Intelligence Agency, and former CPA officials; their contractor  representatives in the United States and Iraq; and Iraqi representatives  from the Ministry of Electricity, including Iraqi plant operators.
To assess the reliability of the data in the oil, power, water, and health  sectors, we interviewed officials at CPA, DOD, State, and USAID  responsible for gathering and monitoring data on reconstruction efforts.  We reviewed the data for discrepancies and checked them against other  sources, when available. We determined that the data were sufficiently  reliable to report general trends in each sector. Data obtained on crude oil  production and refined fuels inventories are based on Iraqi estimates  provided to State. Data on exports are based on U.S. agency estimates  related to daily export activities at terminals. Data on revenue are based on  U.S. agency estimates that use internationally recognized financial sources  for pricing calculations, such as Bloomberg and Platts. According to State,  the information that it periodically reports on production, export, and  revenue represents analysis based on the best available information. Data  obtained on daily electricity produced are from Iraqi, USAID, or DOD  estimates provided to State.
We conducted this part of our review from September 2004 through May  2005 in accordance with generally accepted government auditing  standards. Although we did not travel to Iraq to make project site visits  during this period due to security concerns; we interviewed U.S. officials  via teleconference and videoconference. In addition, when possible we  interviewed Iraqi officials when these officials traveled to the United  States.
section_title: Comments from the U.S. Agency for International Development
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Joseph A. Christoff, (202) 512-8979.
section_title: Staff Acknowledgments
paragraphs: Key contributors to this report include Monica Brym, Lynn Cothern,  Aniruddha Dasgupta, Muriel Forster, Charles D. Groves, B. Patrick Hickey,  John Hutton, Sarah J. Lynch, Jodi Prosser, Michael Simon, and Audrey  Solis.  Martin de Alteriis, Sharron Candon, Patrick Dickriede, Philip Farah,  Hynek Kalkus, Mary Moutsos, Nanette Ryen, Josie Sigl, and George Taylor  provided technical assistance.