Rebuilding Iraq: Integrated Strategic Plan Needed to Help Restore Iraq's Oil and Electricity Sectors
GAO-07-677
Published: May 15, 2007. Publicly Released: May 15, 2007.
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Highlights
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.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of State | 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. |
In response to our recommendation, Multinational Force-Iraq (MNF-I) set up an Energy Fusion Cell with the Ministries of Oil and Electricity to unify efforts on Iraq's energy sector among the coalition and to pursue the development of an Iraqi national energy strategy. An Energy Development Committee chaired by U.S. Embassy Iraq Transition Assistance Office's (ITAO) Electrical and Oil sectors and the Energy Attach? was also established to coordinate overall efforts and to discuss high-level strategic energy issues with the Iraqi government. In late 2007, ITAO presented the Iraqi government with a draft outline of an Iraqi integrated energy strategy as the basis for a national strategy. In a May 2008 letter, the MNF-I Commanding General asked the Iraqi Prime minister to establish a ministerial-level oversight committee to develop an Iraqi national energy strategy. In 2009 the Iraqi government directed that a group be formed as part of the Council of Ministers to work with ITAO, the State Department's Economics section, and the Energy Fusion Cell to identify and recommend an appropriate international consulting firm for the Iraqi government to retain and draft a formal National Energy Strategy Plan. As of 2010, the World Bank had the lead on assisting Iraq in developing a national energy policy and strategy. The World Bank funded an international contractor to provide technical assistance in developing the strategy which was to be completed in June 2012. Subsequently, in June 2012 the World Bank and the Iraqi Prime Minister's Advisory Commission extended the technical assistance for developing an integrated national energy strategy (INES) to June 30, 2013. According to the World Bank, the final INES Report containing critical strategic recommendations for the development of Iraq's energy sector is now in the final stages of completion. Endorsement of the INES by the Iraqi Cabinet will be followed by further dissemination of the report to Ministerial stakeholders; Parliament; academia; the international community; the media; and others over a period of several months.
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| Department of State | 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. |
In response to our recommendation, the Department of State agreed with the need for this action and remained committed to assist the Iraqi government, but stated that it was the direct responsibility of the Iraqi government. In 2007, the United States funded the installation of meters on the Al Basrah Oil Terminal. The Department of State also supported the government of Iraq?s efforts to work with a private firm to develop a strategy to meter production at the fields and the refineries. However, as of May 2011, independent audits continued to find that Iraq lacks an effective system of metering for its oil sector.
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| Department of State | 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. |
In response to our recommendation, the Department of State agreed with the need for this action and remained committed to assist the Iraqi government, but stated that it was the direct responsibility of the Iraqi government. In 2007, the U.S. Embassy-Baghdad provided technical assistance and conducted diplomatic efforts to develop and expedite the passage of hydrocarbon legislation. These efforts were met with resistance from the Iraqi government. To address the sensitivity in Iraq over the distribution of oil revenues and other matters, the hydrocarbon legislation was divided into four separate pieces of legislation. The U.S. government continued to provide technical assistance. However, the hydrocarbon legislation has not passed.
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| Department of State | 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. |
In response to our recommendation, the Department of State commented that Ministry Advisory Teams were working with the Ministries of Oil and Electricity and that their principal focus was on activities cited in the recommendation. The Department of State acknowledged that the Iraqi government bureaucracy was a hindrance to these capital intensive sectors, and stated that it planned to continue to offer assistance on reforming the Iraqi procurement process. Improving Iraqi budget execution was part of a broader U.S assistance effort to improve the capacity of the Iraqi government through automation of the financial management system, training, and advisors embedded with ministries. USAID, through its Tatweer program, provided administrative technical support on procurement and budget execution across multiple ministries within the Iraqi government, including for the oil and electricity sectors. In addition, as of May 2010, the Department of the Treasury had dedicated 5 advisors to the Iraqi government who were responsible for budget and other issues. Also, as of May 2010, the Treasury, World Bank, and United Kingdom Department for International Development had (1) encouraged and sponsored two budget strategy workshops that were chaired by the Ministry of Finance and included other ministries, and (2) supported development of an Iraqi accounting manual to be distributed throughout the government that would bring Iraq into compliance with international financial management standards.
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| Department of State | 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. |
Despite diplomatic efforts, the Department of State and the Iraqi government continued to face challenges in securing adequate funding to sustain Iraq's current energy infrastructure improvements and for future oil and electricity reconstruction. Given the commercial potential associated with Iraq's oil and electricity sectors, the U.S. embassy, coalition partners, and the Iraqi government concluded that the process of finding funding for this sector would be best handled by an international financial institution. According to the Department of State, as of 2010 the World Bank had taken the lead on seeking funding for the Iraqi government's oil and electricity sectors as part of the development of a national energy strategy. Although the goal to secure funding for the electricity and oil sectors remains, investors rather than donors are now being pursued.
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Topics
Critical infrastructureCrude oilElectric energyFederal aid to foreign countriesFederal fundsForeign governmentsIraq War and reconstructionOil resourcesStrategic planningElectric power generationElectric power transmissionCrude oil pipeline operationsBudgetingInternational organizations