Tuesday, May 01, 2007


By William Fisher

Evidence of widespread corruption, shoddy work, and poor management, has called into question the claims of the Bush Administration that sabotage by insurgents is responsible for the failure of its multi-billion dollar Iraq reconstruction effort.

The new and growing body of evidence comes from the Special Inspector General for Iraq Reconstruction (SIGIR) (www.sigir.mil), the Government Accountability Office (GAO) (www.gao.gov), the investigative arm of Congress, and CorpWatch, (www.corpwatch.org), a non-partisan not-for-profit monitoring organization.

The head of SIGIR, Stuart Bowen, reports that his agency sampled eight projects that the Administration had touted as successes, and found that seven were no longer operating because of plumbing and electrical failures, lack of proper maintenance, apparent looting and expensive equipment never used.

The GAO tells Congress Iraqi government institutions are undeveloped and confront significant challenges in staffing a competent, non-partisan civil service, effectively fighting corruption, using modern technology; and managing resources effectively.

And CorpWatch reports that smugglers are suspected of diverting billions of dollars worth of crude oil onto tankers because the oil metering system that is supposed monitor how much crude flows into and out of (oil terminals) has not worked since the March 2003 US invasion of Iraq.

With all of the approximately $30 billion in US reconstruction money now spent, future projects will become largely the responsibility of the Iraqi government. But, SIGIR’s April 23 report to Congress, says, “The Iraqi government has had difficulty operating and sustaining the aging oil infrastructure, maintaining the new and rehabilitated power generation facilities, and developing and sustaining the logistics systems for the Ministries of Defense and Interior.”

“Iraqi government institutions are undeveloped and confront significant challenges in staffing a competent, non-partisan civil service; effectively fighting corruption; using modern technology; and managing resources effectively,” says the report.

The GAO agrees. It tells Congress, “Iraqi capacity and commitment to manage and fund reconstruction and security efforts remains limited. Since 2003, the United States has obligated about $29 billion to help Iraq rebuild its infrastructure and develop Iraqi security forces to stabilize the country. However, key goals have not been met. The Iraqi government has not sustained reconstruction and security efforts, in part because Iraqi government institutions are undeveloped and lack needed management and human resource skills according to U.S. officials.

GAO adds, “The inability of the Iraqi government to spend its 2006 capital budget also increases the uncertainty that it can sustain the rebuilding effort.”

The Bush Administration, usually under pressure from federal inspectors or press accounts, has reluctantly acknowledged that some of its reconstruction projects have been abandoned, delayed or poorly constructed. But the most recent inspections by the Inspector General reveal for first time the failure of projects officially declared successes.

Examples include:

· The Baghdad International Airport, where $11.8 million was spent on new electrical generators, but $8.6 million worth is no longer functioning.

· A maternity hospital in the northern city of Erbil, where a newly built water purification system is not functioning and an expensive incinerator for medical waste is padlocked and medical waste including syringes, used bandages, and empty drug vials are clogging the sewage system and probably contaminating the water system.

· At the same hospital, a system for distributing oxygen has been ignored by the medical staff, which told inspectors they distrusted the sophisticated new equipment and had gone back to using tried-and-true oxygen tanks — which are stored unsafely throughout the building.

· Expensive generators are missing from the Camp Ur military base, having been hauled off to another post. Also at Camp Ur, three modular buildings constructed at a cost of $1.8 million were dismantled and removed with no explanation given.

· Barracks renovated for enlisted soldiers are already in disrepair just a year after being handed over to the Iraqi Army. Electrical wiring is pieced together to accommodate retrofitted lights and appliances that were not in the original design. Newly installed fixtures, hardware and appliances have been pilfered or abused. A number of electrical generation systems were not adequately maintained and were inoperable at the time of the SIGIR's inspections. Leaks from the upstairs floor had damaged floor tiles and ceilings on the ground floors. An inadequate design, combined with low-quality fixtures and poor workmanship, made the facilities too fragile for the volume of use they experienced. The problem was compounded by poor maintenance and abuse by the tenants.

SIGIR acknowledged that the eight projects it inspected did not represent a full statistical measure of the thousands of projects in the American rebuilding program. But inspectors said their findings raised serious new concerns about the effort.

The projects visited by SIGIR teams were located throughout Iraq. The agency’s inspections were limited to a small sampling because many locations were considered too dangerous for inspectors to visit.

The reconstruction effort was originally touted to be almost as high a priority as the military “surge” to stabilize Iraq, allow the government to function and business to flourish, and promote good will toward the US.

But “These first inspections indicate that the concerns that we and others have had about the Iraqis sustaining our investments in these projects are valid,” SIGIR’s Bowen told the New York Times. Bowen said that because he suspected that completed projects were not being maintained, he had ordered his inspectors to undertake a wider program of returning to examine projects that had been completed for at least six months, a phase known as “sustainment.”

The American reconstruction program has been repeatedly criticized for not including in its rebuilding budget enough of the costs for spare parts, training, stronger construction and other elements that would enable projects continue to function once they have been built.

The new reports provide support for that position: Bowen says the Iraqis appear to share responsibility for the latest problems, which surfaced after the US turned the projects over to the Iraqi government. Still, the new findings show that the enormous American investment in the reconstruction program is at risk, Bowen said.

The United States has spent billions of dollars rebuilding the infrastructure and developing Iraqi security forces. However, the Iraqi government has had difficulty operating and sustaining the aging oil infrastructure, maintaining the new and rehabilitated power generation facilities, and developing and sustaining the logistics systems for the Ministries of Defense and Interior. Neither ministry is considered self-sufficient in logistics, command and control, or intelligence.

As a result:

Iraq's oil production and exports have consistently fallen below their respective program goals. In 2006, oil production averaged 2.1 million barrels per day, compared with the U.S. goal of 3.0 million barrels per day. The Ministry of Oil has had difficulty operating and maintaining the refineries. According to U.S. officials, Iraq lacks qualified staff and expertise at the field, plant, and ministry level, as well as an effective inventory control system for spare parts.

In 2006, electrical output reached 4,317 megawatts of peak generation per day, falling short of the U.S. goal of 6,000 megawatts. Prewar electrical output averaged 4,200 megawatts per day. Production also was outpaced by increasing demand, which has averaged about 8,210 megawatts per day. The Iraqi government has had difficulty sustaining the existing facilities. Problems include lack of training, inadequate spare parts, and an ineffective asset management and parts inventory system. Moreover, plants are sometimes operated beyond their recommended limits, resulting in longer downtimes for maintenance.

Although the US-led coalition plans to begin turning over certain support functions to Iraqi ministerial control in the spring of 2007, it is unlikely that the Ministry of Defense will achieve complete self-sufficiency in logistics, command and control, or intelligence before mid-2008, the Special IG reported.

The Ministry of Interior, which also receives critical support from the coalition, is also not self-sufficient in logistics, command and control, or intelligence. Because the ministry is unable to provide maintenance for vehicles of the national police, the coalition has let several contracts to train Iraqi mechanics, provide spare parts to contractors, and repair police vehicles. In addition, the ministry is not able to self-sufficiently operate or maintain its communications networks.

Furthermore, according to the SIGIR report, the coalition estimates that, if the security environment in Baghdad improves, the ministry's intelligence organization will be self-sufficient by mid-2008. However, if this self-sufficiency depends on improved security, there may be cause for concern, given that the average total attacks per day have increased, rising from about 70 per day in January 2006 to a record high of about 180 per day in October 2006.

SIGIR reports that the Iraqi civil service remains hampered by inadequately trained or unskilled staff whose political and sectarian loyalties jeopardize the ministries' ability to provide basic services and build credibility among Iraqi citizens. Government ministries and their budgets are being used as sources of power for political parties with ministry positions staffed with party cronies as
rewards for political loyalty.

According to US officials, patronage leads to staff instability as many are replaced when the government changes or a new minister is named. Some Iraqi ministries, including the Ministries of Interior, Agriculture, Health, Transportation, and Tourism, are led by ministers whose allegiance is to political parties hostile to US goals. These ministers use their positions to pursue partisan agendas that conflict with the goal of building a government that represents all ethnic groups. US officials have expressed reservations about working in some of these ministries, noting that the effectiveness of programs is hampered by the presence of unresponsive or anti-US officials.

Corruption in Iraq is reportedly widespread – as it tends to be throughout the Middle East -- and also poses a major challenge to building an effective Iraqi government.

Says SIGIR: “Corruption jeopardizes future flows of needed international assistance and reportedly undermines the government's ability to make effective use of current reconstruction assistance.”

According to US government and World Bank reports, there are several reasons for corruption in Iraq. These include an ineffective banking system that leaves the government dependent on cash transactions; nontransparent, obsolete ministry procurement systems; and ineffective, inadequately resourced accountability institutions, such as the ministries' inspectors general.

GAO and SIGIR are both working with Iraq's accountability organizations -- the Board of Supreme Audit, Commission on Public Integrity, and inspectors general of the ministries -- to strengthen their capabilities.

The Iraqi Government has budgeted some $10 billion for reconstruction projects, but Iraqi ministries lack adequate information technology and have difficulty managing their resources, according to US officials and an international assessment. This further contributed to the corruption problem.

For example, US officials said that the Ministry of Interior relies on manual processes such as hand-written ledgers and a cash-based payroll system that has resulted in Iraqi police leaving their posts to deliver cash to their families. US officials also estimated that 20 to 30 percent of the Ministry of Interior personnel are "ghost employees" -- nonexistent staff paid salaries that are collected by other officials.

Unclear budgeting and procurement rules have affected Iraq's efforts to spend capital budgets effectively and efficiently, according, to US officials. The inability to spend the money raises serious questions for the government, which has to demonstrate to skeptical citizens that it can improve basic services and make a difference in their daily lives. The US government has launched a series of
initiatives in conjunction with other donors to address this issue and improve the Iraqi government's budget execution.

As of August 2006, the government of Iraq had spent, on average, only eight percent of its annual capital goods budget and 14 percent of its annual capital projects budget. Some of the weakest spending occurs at the Ministry of Oil, which relies on damaged and outdated infrastructure to produce the oil that provides nearly all of the country's revenues.

The Ministry of Oil's $3.5 billion 2006 capital project's budget targeted key enhancements to the country's oil production, distribution, and export facilities. However, as of August 2006, the ministry had spent less than one percent of these budgeted funds.

Moreover, the key ministries of Interior and Defense have multiple rules and regulations. The lack of procurement and budgeting rules creates opportunities for corruption and mismanagement.

The Pentagon’s (DOD) contracting policies and practices share significantly in the failure of reconstruction efforts. According to the GAO, DOD relies heavily on contractors for reconstruction projects and faces significant management and oversight challenges. For example, military commanders and senior DOD officials do not have visibility over contractors; this prevents DOD from knowing the extent to which it is relying on contractors for support in Iraq. DOD also lacks clear and comprehensive guidance and leadership for managing and overseeing contractors. Key contracting issues -- including unclear requirements and failure to reach agreement on key terms and conditions in a timely manner -- have prevented DOD from achieving successful acquisition outcomes. Finally, DOD does not have a sufficient number of oversight personnel to ensure that the contracts that are in place are carried out efficiently and according to the contract requirements, and military commanders and contract oversight personnel do not receive sufficient training to effectively manage contracts and contractors in Iraq.

GAO’s December 2006 review of DOD's use of contractors in Iraq found that DOD's limited visibility unnecessarily increased contracting costs to the government and introduced unnecessary risk.

It said, “Without visibility over where contractors are deployed and what government support they are entitled to, costs to the government may increase. For example, at a contractor accountability task force meeting we attended in 2006, an Army Material Command official stated that an Army official estimated that about $43 million is lost each year on free meals provided to contractor employees at deployed locations who also receive a per diem food allowance.”

Also, the GAO reports, “when senior military leaders began to develop a base consolidation plan, officials were unable to determine how many contractors were deployed and therefore ran the risk of over-or under-building the capacity of the consolidated bases.”

Meanwhile, Pratap Chatterjee of CorpWatch has raised the question, “How much crude oil is Iraq actually exporting?” He says, “Nobody really knows how much is potentially being stolen by corrupt officials because the contractors in charge of fixing the meters have yet to calibrate them, four years after the invasion.”

Chatterjee has recently reported that “Heavily armed soldiers spend their days at two oil terminals scanning the horizon looking for suicide bombers and stray fishing boats, while “right under their noses, smugglers are suspected to be diverting an estimated billions of dollars worth of crude onto tankers because the oil metering system that is supposed monitor how much crude flows into and out of (the oil terminals) has not worked since the March 2003 U.S. invasion of Iraq.

The two offshore terminals -- Al Basra Oil Terminal (ABOT) and the smaller Khawr Al Amaya Oil Terminal (KAAOT) deliver some 1.6 million barrels of crude oil, at least 85 percent of Iraq's output, to buyers from all over the world.

Chatterjee reports, “Officials blame the four-year delay in repairing the relatively simple system on ‘security problems’. Others point to the failed efforts of the two US companies hired to repair the southern oil fields, fix the two terminals, and the meters: Halliburton of Houston, Texas, and Parsons of Pasadena, California.

He reports, “Rumors are rife among suspicious Iraqis about the failure to measure the oil flow. A May 2006 study of oil production and export figures by Platt's Oilgram News, an industry magazine, showed that up to $3 billion a year is unaccounted for.

"Iraqi oil is regularly smuggled out of the country in many different ways," an oil merchant in Amman told The Nation magazine last month, Chatterjee says.

"Emir al-Hakim, the head of the Supreme Council of the Islamic Revolution in Iraq is spending all his time in Basra selling oil as if it were his own. People there call him Uday al-Hakim, meaning he is behaving the same way Uday Saddam Hussein was acting.

The smuggling and black market operations bear striking parallels to Saddam Hussein's tactics for circumventing the UN embargo. Saddam was accused of selling some $5.7 billion worth of petroleum products on the black market over the six years of the Oil-for-Food program while United Nations inspectors turned a blind eye. Today, his successors stand accused of similar abuses, Chatterjee reports.

He adds, “Iraq sits on 115 billion barrels of proven oil reserves, the third largest in the world (behind Saudi Arabia and Canada). From a society that once used its oil revenue to create a social welfare state that provided education, health care and social services, the country has plummeted into the ranks of the poorest countries of the world. Economists call this the ‘resource curse’. Those blessed with non-renewable resources often benefit the least, because a few wealthy people control the resources, or war prevents almost anyone from the benefiting.”

Chatterjee points out that US contractors have played a key role in the repair and upgrading of Iraq's oil infrastructure and expected the industry to pay for reconstruction. “In January 2004, under project Restore Iraqi Oil II (RIO II), the Bush administration contracted with Halliburton to fix southern Iraq's oil fields and with Parsons to handle the northern fields. The two companies were supposed to be supervised by yet another contractor, New Jersey-based Foster Wheeler.”

Halliburton and Parsons have long histories in Iraq, going back more than 40 years. Brown & Root, which is now part of Halliburton, began work in Iraq in 1961, while Parsons dipped into Iraq's oil sector in the 1950s. Foster Wheeler dates its work in Iraq to the 1930s.

But, Chatterjee reports, “With billions of dollars to spend and extensive experience with oil infrastructure and Iraqi ports, Halliburton and Parsons seem unable to deal with the routine problem of broken meters at the Southern Iraq terminals. The kinds of meters they were supposed to repair or replace at ABOT are commonly found at hundreds of similar sites around the world. Because they are custom-built, shipped, then assembled and calibrated on site, the process can take up to a year. But the problem has persisted for four years.”

He adds, “After the 2003 invasion, the meters appear to have been turned off and there have since been no reliable estimates of how much crude has been shipped from the southern oil fields.”

"I would say probably between 200,000 and 500,000 barrels a day is probably unaccounted for in Iraq," Chatterjee reports, quoting Mikel Morris, who worked for the Iraq Reconstruction Management Organization (IRMO) at the US embassy in Baghdad.

Neither US officials nor contractors have provided good reasons why, four years into the US occupation, the meters have not been calibrated, repaired, or replaced, Chatterjee says.

Today no government officials have been able to establish conclusively whether oil is being smuggled or not. Even the future of the oil metering remains unclear. The report issued by SIGIR in January 2007 notes that repair and rehabilitation work at ABOT was scheduled to be finished by May 2007, but "it is unclear whether this project will be completed” because the funding could be cut.