Summary
Since 2003, the United States has provided several billion dollars in reconstruction funds to help rebuild Iraq oil and electricity sectors, which are crucial to rebuilding Iraq's economy. For example, oil export revenues account for over half of Iraq's gross domestic product and over 90 percent of government revenues. The U.S. rebuilding program was predicated on three key assumptions: a permissive security environment, the ability to restore Iraq's essential services to prewar levels, and funding from Iraq and international donors. This report addresses (1) the funding made available to rebuild Iraq's oil and electricity sectors, (2) the U.S. goals for these sectors and progress in achieving these goals, and (3) the key challenges the U.S. government faces in these efforts.
Billions have been provided to rebuild Iraq's oil and electricity sectors, but Iraq's future needs are significant and sources of funding uncertain. From fiscal years 2003 through 2006, the United States spent about $5.1 billion to rebuild the oil and electricity sectors. The United States also spent an additional $3.8 billion in Iraqi funds on these sectors. However, Iraq will need billions of additional dollars to rebuild these sectors. The Iraqi government and donors represent important sources of potential funding. However, the oil and electricity ministries have encountered difficulties spending capital improvement budgets because of weaknesses in budgeting and procurement practices and major security challenges. Moreover, Iraq has not made full use of potential international contributions. It is also unclear what additional financial commitments, if any, will be provided to Iraq's oil and electricity sectors as part of a new international compact. Despite 4 years of effort and the substantial resources expended, production in both sectors has consistently fallen below U.S. program goals. In addition, State's estimate of Iraq's oil production levels may be overstated due to inadequate metering that does not allow precise measurement of crude oil production. The Iraqi government projects that it will be able to meet the demand for electricity in 2009. However, these projections assume that the Ministry of Electricity will be assured of the stable supply of the fuel needed for electricity generation, which has been lacking due to poor coordination between the oil and electricity ministries. A variety of security, corruption, legal, and planning challenges have impeded U.S. and Iraqi efforts to restore Iraq's oil and electricity sectors. The challenging security environment and insufficient protection efforts have continued to place workers and infrastructure at risk. Corruption, smuggling, and other illicit activities result in revenue losses and low cost recovery. Furthermore, the Iraqi government has difficulty attracting foreign investment because, according to the World Bank, it lacks an adequate legal framework, including comprehensive hydrocarbon legislation that would govern distribution of future oil revenues and granting of exploration rights. Finally, although the oil and electricity sectors are mutually dependent, the Iraqi government lacks integrated planning for these sectors, which has led to inefficient management of the country's resources.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
Director:
Team:
Phone:
Joseph A. Christoff
Government Accountability Office: International Affairs and Trade
(202) 512-8979
Recommendations for Executive Action
Recommendation: The Secretary of State, in conjunction with relevant U.S. agencies and in coordination with the donor community, should work with the Iraqi government and particularly the Ministries of Oil and Electricity to develop an integrated energy strategy for the oil and electricity sectors that identifies and integrates key short-term and long-term goals and priorities for rebuilding, maintaining, and securing the infrastructure; funding needs and sources; stakeholder roles and responsibilities, including steps to ensure coordination of ministerial and donor efforts; environmental risks and threats; and performance measures and milestones to monitor and gauge progress. The strategic plan should include an integrated fuel strategy to ensure the delivery of appropriate refined fuels for more efficient electricity production and a risk-based method for prioritizing future projects.
Agency Affected: Department of State
Status: In process
Comments: Update pending.
Recommendation: The Secretary of State, in conjunction with relevant U.S. agencies and in coordination with the donor community, should work with the Iraqi government and particularly the Ministries of Oil and Electricity to set milestones and assign resources to expedite efforts to establish an effective metering system for the oil sector that will enable the Ministry of Oil to more effectively manage its network and finance improvements through improved measures of production, consumption, revenues, and costs.
Agency Affected: Department of State
Status: In process
Comments: Update pending.
Recommendation: The Secretary of State, in conjunction with relevant U.S. agencies and in coordination with the donor community, should work with the Iraqi government and particularly the Ministries of Oil and Electricity to improve the existing legal and regulatory framework, for example, by setting milestones and assigning resources to expedite development of viable and equitable hydrocarbon legislation, regulations, and implementing guidelines that will enable effective management and development of the oil sector and result in increased revenues to fund future development and essential services.
Agency Affected: Department of State
Status: In process
Comments: Update pending.
Recommendation: The Secretary of State, in conjunction with relevant U.S. agencies and in coordination with the donor community, should work with the Iraqi government and particularly the Ministries of Oil and Electricity to set milestones and assign resources to expedite efforts to develop adequate ministry budgeting, procurement, and financial management systems.
Agency Affected: Department of State
Status: In process
Comments: Update pending.
Recommendation: The Secretary of State, in conjunction with relevant U.S. agencies and in coordination with the donor community, should work with the Iraqi government and particularly the Ministries of Oil and Electricity to implement a viable donor mechanism to secure funding for Iraq's future oil and electricity rebuilding needs and for sustaining current energy sector infrastructure improvement initiatives once an integrated energy strategic plan has been developed.
Agency Affected: Department of State
Status: In process
Comments: Update pending.
