The United States, along with its coalition partners and various international organizations and donors, have committed billions of dollars to the reconstruction of Iraq in the face of an unstable security situation and other challenges. These funds have come from multiple and diverse sources, the effective use of which requires significant oversight and cooperation. The Coalition Provisional Authority (CPA) has been responsible for the allocation of U.S. and Iraqi funds. The Departments of Defense and State, and the U.S. Agency for International Development, among others, have played play a primary role in U.S. efforts to fund and execute the reconstruction effort. To a large extent, these agencies have used contracts and personal services contractors to implement their programs. Agency inspectors general, the CPA inspector general, and other auditing authorities are responsible for auditing aspects of the reconstruction effort. This enclosure describes (1) the sources and amounts of funds that have been made available for the reconstruction of Iraq, and (2) the amounts of U.S. and Iraqi funds that have been obligated and disbursed as of April 30, 2004,and the uses to which those funds have been applied. Funds for U.S. military operations are not described in this enclosure. Data for U.S. appropriated funds are as of April 30, 2004, with the exception of some CPA Program Management Office obligations and disbursements, which are as of May 25 and June 16, respectively. Iraqi funds data are as of May 6, 2004. CPA established the Development Fund for Iraq to accommodate Iraqi funds that would be used to benefit the Iraqi people and facilitate the reconstruction of their country. from the deposed regime. Of the funding available for the reconstruction effort, about $24 billion had been obligated as of the end of April 2004. Of this amount, about $13 billion came from the Development Fund for Iraq and about $8 billion from U.S. appropriated funds. About $4 billion of the $4.5 billion in U.S. funds appropriated in 2003 and about $4.2 billion of the $19.6 billion in U.S. funds appropriated in 2004 have been obligated. The remaining $2.5 billion in obligated funds came from vested and seized assets. Obligations to date have primarily been applied to the operating expenses of the Iraqi ministries; restoration of essential services such as oil, water, and power; and humanitarian and human services, including the procurement of food and liquid petroleum gas for domestic consumption. Figure I.1: Total Funds Available, Obligated, and Disbursed for Iraq Reconstruction by Source, as of April 2004 Of the $13.6 billion pledged, donors have committed about $1 billion to the International Reconstruction Fund Facility for Iraq. “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 refer to former regime assets seized within Iraq. An obligation is a binding agreement that will result in immediate or future outlays of funds. The reconstruction of Iraq has been supported from multiple sources of funds. The largest share of these funds has come from U.S. appropriations. The other sources, in descending order of amounts, are the DFI, vested assets, and seized assets (see fig. I.2). In addition, international donors have pledged about $14 billion to the reconstruction effort. Congress has appropriated about $24 billion of the approximately $58 billion provided to date for the relief and reconstruction of Iraq. The funds appropriated in fiscal year 2003 were made available until September 30, 2004; those appropriated in fiscal year 2004 were made available until September 30, 2006. In April 2003, Congress enacted the Emergency Wartime Supplemental Appropriations Act, which, when combined with previously appropriated funds, provided about $4.5 billion for the reconstruction of Iraq. Of this $4.5 billion, the act provided $2.475 billion for an Iraq Relief and Reconstruction Fund (IRRF). The act also included a provision for the Iraq Freedom Fund (IFF) to support ongoing military operations in Iraq, among other things, and for a Natural Resources Risk Remediation Fund to finance emergency firefighting, repair damaged oil facilities, and preserve oil distribution capability. In addition, some funds were transferred from the IFF to support the new Iraqi Army (about $50 million) and for CPA operating expenses (about $600 million). The Natural Resources fund provided about $800 million to the reconstruction effort. In addition, agencies have also been reimbursed about $575 million for expenses incurred before the passage of the supplemental appropriations act. In November 2003, Congress enacted another emergency wartime supplemental appropriation, of which $18.4 billion was provided for Iraq relief and reconstruction. In addition, under the same act, the CPA received its own funding authority of $983 million for operating expenses. Further, $140 million was transferred from the IFF to support regional emergency response programs. As of May 6, 2004, the DFI had received deposits of about $18 billion. This fund, established by the CPA in May 2003 and noted by U.N. Security Council Resolution 1483, was created to benefit the Iraqi people and facilitate the reconstruction of their country. The U.N. resolution provided for an initial deposit of $1 billion from unencumbered Oil for Food program funds. The resolution further authorized the subsequent deposits of (1) proceeds from the sale of Iraqi oil, natural gas, and petroleum products; (2) U.N. funds such as unused Oil for Food program funds; and (3) transferred assets from the former Iraqi regime that U.N. member states had frozen in the 1990. The DFI does not include U.S. appropriated funds. See enclosure III for more detailed information on the DFI. Vested Assets and Assets Seized in Iraq Approximately $2.7 billion in assets the United States confiscated and seized from the former regime have been made available for use in Iraq’s reconstruction. In March 2003, the U.S. government confiscated more than $1.7 billion in Iraqi assets located in U.S. financial institutions and vested them in the U.S. Treasury. These funds were Iraqi government funds originally frozen in 1990 consistent with a U.N. Security Council Resolution and held in U.S financial institutions from 1990 to 2003. From May to September 2003, the United States transferred these funds to Iraq. As of May 2004, coalition forces seized more than $900 million of regime assets in Iraq. The Oil for Food program was established by the United Nations and Iraq in 1996 to address concerns about the humanitarian situation in Iraq after the imposition of international sanctions in 1990. The program allowed the Iraqi government to use the proceeds of its oil sales to pay for food, medicine, and humanitarian goods for the benefit of the Iraqi people. U.N. Security Council Resolution 1483 provides for the deposit of oil revenues and some Oil for Food program funds in the DFI until an internationally recognized, representative government of Iraq has been constituted. See U.S. General Accounting Office, United Nations: Observations on the Management and Oversight of the Oil for Food Program, GAO-04-730T (Washington D.C.: Apr. 28, 2004). The international donors described in this enclosure include individual nations, the European Commission, and international financial institutions. International donors, exclusive of the United States, have pledged or committed nearly $14 billion to the reconstruction of Iraq through 2007. These contributions will be made either bilaterally or through a newly established multilateral mechanism known as the International Reconstruction Fund Facility for Iraq. For detailed information on international donors, see enclosure II. Overall, about $24 billion in U.S. and Iraqi funds has been obligated for the reconstruction effort in Iraq as of April 30, 2004. About $13 billion in obligations has come from the DFI, and about $8 billion from U.S. appropriated funds. The remaining $2.5 billion in obligations has come from vested assets and seized assets. Reliable information on the international donors’ obligations and expenditures is not available. Table 1.1 provides a detailed breakdown of obligations by sources of funding for the broad range of activities associated with the reconstruction of Iraq, not solely for infrastructure. The World Bank Group defines a pledge as an indication of intent to mobilize funds for which an approximate sum of contribution is specified. International donor pledges range from $13.6 billion to $17.3 billion, reflecting the range of loans pledged by the World Bank and International Monetary Fund (IMF). Given the uncertainty of the ultimate amount of loans provided by the World Bank and IMF, we have used the lower pledge amount in this report. Table I.1: U.S., DFI, Vested and Seized Funds Obligated by Activity, as of April 2004 U.S. oversight of the U.S., Iraqi, and international funds used to rebuild Iraq? 2. To what extent are existing accounting and management information systems adequate to provide complete and reliable reporting on the implementation of the reconstruction effort? 3. What are the roles and responsibilities of the CPA Inspector General with the transfer of power to the Iraqis? What is the relationship between the CPA Inspector General, the State Department Inspector General, and U.S. ambassador to Iraq? 4. To what extent has the unstable security environment affected the U.S. government’s ability to provide adequate oversight of the reconstruction effort, including the auditing of contracts and funding expended? 5. What effect does the transfer of authority to the Iraqis have on the U.S. agencies’ ability to monitor and audit the reconstruction investment made with these funds? The size and scope of Iraq’s reconstruction needs through 2007 have been estimated to total about $56 billion. The United Nations Development Group and the World Bank Group prepared a needs assessment from June 2003 through August 2003 to define Iraq reconstruction requirements. According to the October 2003 assessment, Iraq needs an estimated $36 billion from 2004 through 2007. Sectors covered by this assessment include education, health, electricity, transportation, agriculture, and cross-cutting areas such as human rights and the environment. The assessment also notes that the Coalition Provisional Authority (CPA) estimates that an additional $20 billion will be needed from 2004 through 2007 to rebuild other critical sectors (e.g., security and oil) outside the scope of the U.N./World Bank assessment. The World Bank Group defines a pledge as an indication of intent to mobilize funds for which an approximate sum of contribution is specified. reconstruction projects in 2004. An Iraqi-led process, endorsed by the Iraqi Governing Council and put into effect by the Administrator of the Coalition Provisional Authority, is responsible for coordinating all international assistance for rebuilding and reforming institutions in Iraq. However, this process has not had the capability to track the total amounts of bilateral assistance flowing into Iraq. The ability to track all international contributions made to support Iraq’s reconstruction, including bilateral assistance, is an important element for identifying the sectors receiving assistance, identifying any gaps in assistance, and ensuring that assistance is coordinated. As of May 26, 2004, the European Commission and 18 donor countries had committed The World Bank and the U.N. Development Program administer the IRFFI in coordination with international donors and Iraqi authorities. The Donor Committee, with members from 14 countries and the European Commission, is to oversee the activities of the IRFFI and endorse its priorities. At a February 2004 international donors meeting held in Abu Dhabi, participants focused on IRFFI’s operation and funding. Specifically, information was shared with donors on Iraq’s reconstruction plans and project priorities, U.S. assistance spending plans, and the IRFFI’s preferred spending and project plans. Table II.2 presents a summary of the donors’ commitments and deposits made to the IRFFI as of May 26, 2004. According to State Department officials, commitments refer to a firmer declaration of the amount that a country has pledged to provide. $1.86 billion was allocated for imports of liquid petroleum gas for domestic heating and cooking; about $1.07 billion was disbursed. $272 million was allocated for food procurement, transport, security, and production; about $204 million was disbursed. $22 million was allocated for agriculture; nearly $12 million was disbursed. $972 million was allocated for power infrastructure; about $157 million was disbursed. $437 million was allocated for oil infrastructure; about $150 million was disbursed. $30 million was allocated for transportation and telecommunications; about $10 million was disbursed. $842 million was allocated in late April and early May 2004 to address increased security needs, including resources for the Iraq security forces; about $2 million was disbursed. $52 million was previously allocated for police and security equipment; $20 million was disbursed. $197 million was allocated for the currency exchange; about $180 million was disbursed. $27 million was allocated for microloans and employment programs; about $2 million was disbursed. $21 million was allocated and disbursed for regional governance. Public buildings, miscellaneous ministry projects, and other reconstruction $18 million was allocated for a Program Management Office/Iraqi Ministry of Planning and Development Cooperation business complex; about $6 million was disbursed. $9 million was allocated for legal fees and settlements; about $3 million was disbursed. According to the CPA, since May 6, 2004, the CPA Administrator approved additional PRB-recommended allocations totaling about $1.5 billion for the essential services, humanitarian and human services, and economic reconstruction projects, and for other purposes. Essential services projects include $460 million for the oil infrastructure and $315 million for the electricity sector. Humanitarian and human services projects include $200 million to maintain current levels of food procurement through 2004 and $65 million for agriculture development. Economic reconstruction projects include $65 million for vocational training and $65 million to provide capital to critical state-owned enterprises. Examples of other allocations include $180 million for the Iraq Property Claims Commission, $125 million to protect the Iraqi budget from oil revenue volatility, and $25 million for the Victims’ Compensation Fund. The Commanders’ Emergency Response Program and the Rapid Regional Response Program have been allocated DFI funds for local humanitarian, essential services, economic, general construction, security, and governance projects, as discussed below. Under the Commanders’ Emergency Response Program, the CPA allocated $353 million through the multinational force to military division and brigade commanders; about $214 million was disbursed. According to multinational force officials, commanders have completed more than 21,000 small high-impact projects at an average cost of about $11,000. For example, as of May 8, 2004, multinational force officials reported that about $45 million had been disbursed for more than 4,100 education projects. The activities of the Rapid Regional Response Program incorporate and expand upon previous authorities of the Construction Initiative and the Directors’ Emergency Response Program. Under the program, about $265 million in DFI funds was allocated to regions and governorates; about $120 million was disbursed. According to CPA, more than 2,100 regional projects designed to create jobs, support local industry, and respond to community needs have been initiated across the northern, Baghdad central, southern central, and southern regions. The process for meeting the CPA requirements for U.S. personnel evolved as the CPA’s mission changed. The original mission of CPA’s predecessor, the Office for Reconstruction and Humanitarian Assistance, was to coordinate the efforts addressing the humanitarian, reconstruction, and administration challenges facing Iraq—not to govern the country. In May 2003, CPA replaced ORHA when it became the temporary authority governing Iraq during the period of transitional administration. The initial staffing process for the reconstruction effort was not always well coordinated between Washington and Baghdad. CPA officials stated that, prior to the CPA’s establishment, the requirements for staff were identified and personnel were recruited in an ad hoc manner. For example, U.S. officials from the CPA and the State Department stated that, due to the independent recruiting of staff by some detailees in Baghdad, agency personnel authorities were unaware of personnel who went to Iraq after the initial deployment in March 2003. Further, officials from the State Department responsible for staffing personnel to Iraq stated that they ultimately sent a representative to Baghdad to physically account for all State Department personnel present in the country. According to a CPA official, by July 2003, the process for identifying personnel requirements was centralized in Baghdad under the guidance of the CPA administrator. In addition, the CPA had generally operated with about one-third of its direct positions vacant. U.S. and CPA officials most frequently cited the hardship of the posting and the budgetary implications as the reasons for this situation. The hardship of the posting has affected some civilian agencies’ abilities to meet their staffing requirements. The security situation in Iraq has also made it difficult to attract and retain personnel. For example, USAID officials cited the security situation as a reason for the early return of some staff and the difficulty in filling direct-hire positions in Iraq. Further, State Department officials stated that some qualified agency personnel who had volunteered to go to Iraq were unable to meet the required medical standards. Another dimension of the hardship of the posting is the limitations of family accompaniment. Beginning in November 2003, the CPA requested that all personnel serve a minimum of 6 months. According to USAID officials, in some cases this required Foreign Service personnel to relocate family members from their previous posts to the United States. State Department officials also cited family relocation issues and travel plans as reasons for delays in providing personnel to Iraq. State Department officials stated that they had no difficulty in recruiting volunteers for positions in Iraq, attributing this largely to Secretary Powell’s support for the mission, incentive packages, and the department’s efforts to ensure that those who served in Iraq were not disadvantaged. Other agencies, such as USAID and the U.S. Army Corps of Engineers, while also relying on volunteers, stated that they were constrained in their ability to meet staffing requirements. USAID and Army Corps of Engineers officials said that prior downsizing had left their agencies with a smaller pool of personnel from which to draw. Additionally, some requirements that the CPA attempted to meet were beyond the capability of the agency tasked. For example, according to Department of Justice officials, the department was requested to provide three international law litigators to the CPA but had only three such personnel. To meet the requirement, Justice provided one litigator to the CPA. In addition, providing personnel on a nonreimbursable basis to the CPA creates an unbudgeted expense to the supplying agency. Replacing detailees creates additional costs for the agencies that their budgets may not be able to sustain. Further, detailing of staff not only creates gaps in the supplying agency but increases the workload of those remaining. According to State Department officials, this burden could not be sustained beyond 6 to 12 months. To counter these challenges, the CPA and executive branch agencies have relied on a number of mechanisms to support the staffing effort, including the use of special hiring authorities, temporary tours of duty (60 to 180 days), and incentive packages. The CPA had relied on a special hiring authority under 5 USC 3161 to obtain temporary civilian employees. Personnel obtained under this authority constituted about 20 percent of CPA staff. The passage of the emergency supplemental in November 2003 provided a specific budget to the CPA. According to a CPA official, this budget imposed a funding limit on CPA’s ability to hire personnel under the 3161 authority. In addition, agencies used temporary tours of duty to supply personnel to the CPA due to the hardship of the posting. Agencies also used incentive packages to compensate civilian personnel, which included danger-pay allowances and hardship differential payments. In April and May 2004, the Deputy Secretary of Defense said that the multinational force was engaged in combat and a continuing war in Iraq, rather than peacekeeping as had been expected. The increase in attacks has had a negative impact on the presence and operations of international military and civilian personnel in Iraq. It has led to an increase in U.S. force levels and to a decrease in freedom of movement for international civilians working to rebuild Iraq and assist in its political transition. United States and United Kingdom Increased Troop Levels as Other Coalition Members Reduced Them As a result of the increase in violence during April 2004, the United States and the United Kingdom decided to increase their overall force levels in the country. The United States decided to maintain a force level of about 138,000 troops until at least the end of 2005, keeping about 33,000 more troops in Iraq as of May 2004 than the 105,000 troops originally planned. On May 24, 2004, the President said that if military commanders determine that they need more troops to fulfill the mission, he would send them. The following week, the United Kingdom announced that it would send an additional 370 troops to southern Iraq in response to the increased violence, bringing its total troop contribution to the multinational force to about 8,900 military personnel. This figure includes 170 engineering personnel who would deploy for 3 months to help fortify U.K. military bases and facilities in Iraq against the increased threat of mortar and rocket attacks. In mid-April 2004, the new government of Spain announced that it would withdraw its 1,300 troops from Iraq. The government withdrew the troops much earlier than the United States expected, after violence escalated in the Spanish area of operations in Iraq. Shortly thereafter, Honduras and the Dominican Republic announced they would also withdraw their national contingents from the multinational force. During April 2004, the United States redeployed forces from Baghdad and northern areas of Iraq to cities in the south that had come under the control of a radical Shi’a militia. The United States did so because Iraqi security forces and at least one contingent of the multinational force would not or could not fight the insurgents. For example, according to a CPA official, Iraqi police in the cities of Karbala, Najaf, and Kut collapsed in April when a radical Shi’a militia overran the cities and took control of police stations. Moreover, according to a USAID report, after heavy fighting in the city of Kut, a non-U.S. contingent of the multinational force withdrew from the city as the militia overran it. International Civilian Organizations Have Reduced Operations in Iraq and Have Faced Increased Security Requirements The deteriorating security situation has also adversely affected the operations of civilian organizations in Iraq. The dangerous environment has led many to halt operations completely or to reduce activity by severely restricting staff movement around the country. No systematic data exist on the effect of these restrictions on efforts to assist in Iraq’s political transition and reconstruction. Anecdotal evidence suggests, however, that the efforts overall have been scaled back. In general, international civilian staff have had increasingly little contact with the Iraqi people, and Iraqi staff working for the coalition, including interpreters, have been increasingly threatened for cooperating with foreign organizations. Many important reconstruction efforts had to at least temporarily cease operation. Civilian organizations that continue to operate in the country face increased security measures for their personnel and compounds in the country. The following examples show the effect of the security situation on the operations of the CPA and supporting U.S. agencies, reconstruction contractors, international organizations, and nongovernmental aid organizations. Due to the unsafe security environment, the CPA and its supporting U.S. agencies have had difficulty staffing their operations, opening offices throughout the country, and providing protection for U.S. civilian personnel as they travel around the country. U.S. agencies, particularly USAID, had difficulty in attracting and retaining personnel because of security concerns. In addition, according to a CPA official, as the security situation worsened during 2003, the CPA abandoned plans to fully staff offices throughout Iraq to assist in Iraq’s political transition and reconstruction and instead established a much smaller field presence. Further, the CPA established stringent security measures that U.S. government staff had to follow in traveling outside the Green Zone, the coalition’s “safe area” in Baghdad, thereby making it difficult for them to move around the country. In late February 2004, the Department of Homeland Security decided to stop sending teams of customs investigators to assist CPA. They could no longer do their jobs because it had become too dangerous for them to move around the country. CPA officials also stated that they were concerned about the safety of their Iraqi employees, particularly their interpreters, as insurgents had increasingly targeted them for cooperating with the coalition. In an April 17, 2004, document, the CPA administrator stated that lack of security is the key obstacle to reaching reconstruction objectives. Referring to the entire reconstruction program, the administrator stated that a worsened security situation would mean that projects would take longer to complete and that the kinds of projects undertaken and their costs would change to an unknown extent. Our review of selected electricity projects showed that the security situation delayed the implementation of key projects, thereby contributing to the CPA not meeting its objective of providing 6,000 megawatts of electrical generating capacity to the Iraqi people by its original goal of June 1, 2004. In late March 2004, the CPA Inspector General reported that that rising security concerns were a significant cost driver for CPA activities and contractor projects, representing at least 10 percent to 15 percent of total costs. The United Nations and its programs have faced significant setbacks as a result of the deteriorating security situation. Most importantly, after the attacks on the U.N. headquarters in Baghdad in August and September 2003, the U.N. Secretary General redeployed all U.N. international personnel from Baghdad, Basra, and other area offices to neighboring countries, particularly Jordan and Kuwait, where they have continued to support assistance operations inside Iraq. As of late May 2004, the United Nations had not allowed most of its international personnel to return to Iraq. Although Iraqi staff continued some U.N. programs, the United Nations had to scale down or delay both ongoing activities and new initiatives. The United Nations sent three separate assessment teams to Iraq during the first half of 2004 to assist Iraqis in assessing options for forming an interim government and in preparing for national elections. The dangerous security situation forced these teams to restrict their travel around Iraq during the first half of 2004, thereby limiting their interaction with Iraqis during important political discussions about the country’s future. In discussions during the fall of 2003 and the spring of 2004, nongovernmental organization representatives stated that the deteriorating security situation has forced numerous nongovernmental aid organizations to reduce or shut down operations in Iraq. In response to the dangerous security environment, many nongovernmental organizations and contractors that we interviewed have hired private security to provide protection for their staff and compounds. In addition, one representative emphasized his view that as more international workers leave Iraq, insurgents will increasingly focus their efforts on killing Iraqi nationals who are seen as collaborators. U.N. officials and documents have expressed concern that the lack of security could threaten Iraq’s transition toward a democratic government. According to a U.N. assessment, the lack of security may lead to major disturbances that could undermine the administration of the elections, alter the established timetable, and compromise the overall credibility of the process. By mid-April 2004, the multinational force had begun to consider how it could provide security, logistical, and other support for the elections, but the United Nations and others had not yet developed a specific plan for important tasks such as the registration of political parties, voters, and candidates or the number and locations of polling sites. 1. How will the Iraqi security forces coordinate with the multinational force after the transfer of power, and how will they resolve potentially differing views on security issues? What arrangements have been made to facilitate coordination between the multinational force and the interim Iraqi government? 2. What kind of provisioning process will be used to equip the Iraqi security forces after the transfer of power? Will this be administered by the Ministries of Defense and Interior, the multinational force, or another body? 3. What level of support does the multinational force expect Iraqi security forces to provide during Iraq’s upcoming election process, and what options and contingency plans are being explored? This page left intentionally blank. A large but unknown number of militias are operating outside the control of the central government in Iraq. Some of these militias have taken hostile action against the coalition and Iraqi security forces, while others have remained neutral or are participating in Iraq’s political transition. In a February 2004 report, the United Nations warned that the existence of militias—especially those connected with political movements—could be a source of coercion and intimidation that would undermine the political credibility of Iraq’s upcoming elections, which are currently scheduled to be held by the end of January 2005.

Summary: Rebuilding Iraq is a U.S. national security and foreign policy priority. According to the President, the United States intends to help Iraq achieve democracy and freedom and has a vital national interest in the success of free institutions in Iraq. As of April 30, 2004, 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 Coalition Provisional Authority (CPA), established in May 2003, was the U.N.-recognized coalition authority led by the United States and the United Kingdom that was responsible for the temporary governance of Iraq. Specifically, the CPA wasresponsible for overseeing, directing, and coordinating the reconstruction effort. On June 28, 2004, the CPA transferred power to a sovereign Iraqi interim government, and the CPA officially dissolved. To pave the way for this transfer, the CPA helped the Iraq Governing Council develop the Law of Administration for the State of Iraq for the Transitional Period in March 2004. The transitional law provides a framework for governance of Iraq while a permanent government is formed. In June 2004, U.N. Security Council Resolution 1546 provided international support to advance this process, stating that, by June 30, CPA will cease to exist and Iraq will reassert full sovereignty. Resolution 1546 also endorsed the formation of a fully sovereign Iraqi interim government; endorsed a timetable for elections and the drafting of an Iraqi constitution; and decided that the United Nations, at the Iraq government's request, would play a leading role in establishing a permanent government. Resolution 1546 further noted the presence of the multinational force in Iraq and authorized it to take all necessary measures to contribute to security and stability in Iraq, in accordance with letters annexed to the resolution. Such letters provide, in part, that the multinational force and the Iraqi government will work in partnership to reach agreement on security and olicy issues, including policy on sensitive offensive operations. Resolution 1546 stated that the Security Council will review the mandate of the multinational force in 12 months or earlier if requested by the government of Iraq and that it will terminate the mandate if requested by the government of Iraq. As part of our broad effort to monitor Iraq reconstruction, which we undertook at the request of Congress, this report provides information on the status of the issues we have been monitoring, as well as key questions that will assist Congres in its oversight responsibilities. Specifically, this report focuses on issues associated with (1) resources, (2) security, (3) governance, and (4) essential services. For the essential services issue, we focused on the Army Corps of Engineers' Restore Iraqi Electricity project, a major component of the U.S. assistance effort to rebuild the power sector. As of the end of April 2004, about $58 billion in grants, loans, assets, and revenues from various sources had been made available or pledged to the relief and reconstruction of Iraq. Resource needs are expected to continue after the transfer of power to a sovereign Iraqi interim government. Of the funds available, the United States obligated about $8 billion of the available $24 billion in U.S. funds. The CPA obligated about $15.5 billion of the nearly $21 billion in available Iraqi funds. The international community pledged nearly $14 billion. In December 2003, the CPA put into effect an Iraqi-led process to coordinate reconstruction efforts. An October 2003 U.N./World Bank assessment noted that Iraq's ability to absorb resources as the country gains sovereignty and decision-making authority will be one of the most significant challenges to reconstruction. The security situation in Iraq has deteriorated since June 2003, with significant increases in attacks against the coalition and coalition partners. The increase in attacks has had a negative impact on military operations and the work of international civilian organizations in Iraq. As part of the effort to provide stability, the coalition plans to transfer security responsibilities from the multinational force to Iraqi security forces and to dissolve Iraqi militias operating outside the central government's control. During the escalation of violence that occurred during April 2004, these security forces collapsed in several locations. However, key elements of the CPA's transition and reintegration process remain to be finalized. With U.S. and others' assistance, Iraqis have taken control of government institutions at the national and subnational levels. National ministries are providing some services to citizens as their facilities are being rebuilt, reforms are being introduced, and their staffs trained. According to the head of the now-dissolved CPA, all ministries were under Iraqi authority as of the transfer of power on June 28, 2004. However, the security situation hinders the ability of the ministries to provide needed services and maintain daily operations. To reform the rule of law, ongoing efforts have begun to establish a functioning independent judiciary, although courts are not at their pre-war capacity. However, efforts to rebuild Iraq's judicial system and restore the rule of law face multiple challenges. U.S. officials said that rehabilitating and reforming Iraq's judicial system will likely take years. The Coalition considers reconstruction of the power sector critical to reviving Iraq's economy, supporting essential infrastructure, improving daily well-being, and gaining local support for the coalition presence in Iraq. The CPA set a goal of 6,000 megawatts of generating capacity by June 30, 2004, in anticipation of the higher demand for power during the summer months. As part of the overall effort to achieve this goal, the U.S. Army Corps of Engineers (Corps) has undertaken $1.4 billion in work under the Restore Iraqi Electricity (RIE) program. As of late May, the Corps anticipated that 59 of the 66 RIE projects expected to help meet the goal would be completed by June 30. However, electrical service in the country as a whole has not shown a marked improvement over the immediate postwar levels of May 2003 and has worsened in some governorates. RIE contractors report numerous instances of project delays due to difficulties in getting employees and materials safely to project sites. Further, the security environment continues to affect the cost of rebuilding the power sector.