Monday, October 31, 2011

Bad Record Keeping, Not Corruption Behind Missing $6.6 Billion In Iraq Reconstruction Funds


In June 2011, the Special Inspector General for Iraq reconstruction released a quarterly report that noted $6.6 billion in rebuilding funds went missing in 2004. The media exaggerated the story, saying that corrupt officials might have stolen the money. That led the Iraqi government to threaten to sue the United States to recover any misappropriated funds. The Inspector General however, always said that it was probably a case of bad record keeping, which was endemic at the time. Now it has conducted an audit that found that most of the money ended up in the Central Bank of Iraq, under Baghdad’s control.

The missing funds came from the Development Fund for Iraq. In May 2003, the CPA was created, and given control of the Development Fund for Iraq (DFI), which was established at the same time. The Fund collected Iraq’s oil sales, seized assets, and money left over in the Oil for Food program. In total, that gave the Americans $20.7 billion to spend on rebuilding Iraq. The Fund was located at the Federal Reserve Bank of New York. $10.2 billion was shipped from New York to Baghdad in cash, the largest such transfer in U.S. history. $1.6 billion was disbursed to the Kurdistan Regional Government, $150 million went to the Ministry of Finance, and $8 billion was deposited with the Central Bank of Iraq. No records were found for the remaining $400 million, but it was probably spent as well. Another $5.8 billion was electronically transferred to Iraq. All together, this money was used to pay for reconstruction projects, operating costs for Iraq’s ministries, and salaries and pensions for Iraqi public employees. This was the mandate given to the CPA by Washington and the U.N. Security Council.

When the CPA ended its work on June 2004, it had $6.6 billion in unspent funds. $4.7 billion of it was in the Federal Reserve Bank of New York, $1.7 billion was in the Central Bank of Iraq, and $217.7 million was in a vault at a former presidential palace of Saddam Hussein in Baghdad. On June 28, the CPA gave control of the $4.7 billion in the Federal Reserve to the governor of the Central Bank of Iraq. On July 4, the governor appointed eight bank officials to manage the funds. The $217.7 million was given to the Defense Department, and mostly spent on projects even though the Special Inspector General found that the CPA had no authority to do so. In March 2008, the Pentagon still had $24.45 million leftover from that original amount when it was transferred to the government of Iraq. That was the fate of the $6.6 billion. $6.2 billion ended up with the Central Bank of Iraq, $172.25 million was spent by the Defense Department, and $24.45 million was given to Baghdad in 2008. All along, the Special Inspector General said that the $6.6 billion was probably spent in Iraq, and blamed the poor paperwork at the time for it not being accounted for. That proved to be the case.

That bad accounting was the source of the entire story. When the CPA was shut down, it originally claimed that it had given the $6.6 billion in unspent money to the Pentagon. On July 11, the Defense Department said that it had received the funds. There were no records of the transfer however, and a Pentagon financial officer in Iraq later said that it had never received the money. As it turns out, only the $217.7 million was given to Defense, and the rest was in the hands of Iraqis. This was just another example of how badly the Americans kept track of the billions placed under their authority.

The initial reports of Iraq’s missing $6.6 billion were overblown. The media jumped on the corruption angle, without fully heeding the Special Inspector General, which said that it probably involved bad record keeping. That was ultimately the case, with the CPA, the Pentagon, and the Central Bank of Iraq all having paperwork on what happened to the money. It just took a lot of hard work to find it all, and put it together. The more important question of what were the funds expended upon, and was it money well spent were not directly addressed, but the Special Inspector answered those questions as well in its “Hard Lessons” review of America’s rebuilding of Iraq. That found that the U.S. reconstruction effort was a failure because too much was spent on security, bad contracts were signed and they were mismanaged, and too much was expended upon large projects that the Iraqis never wanted nor could maintain. The same processes that led to the money being unaccounted for in the last four years were the same that led to too much of it being wasted in the first place.

For more on the missing $6.6 billion see:


SOURCES

Harriman, Ed, “So, Mr Bremer, where did all the money go?” Guardian 7/7/05

Special Inspector General for Iraq Reconstruction, “Development Fund for Iraq: The Coalition Provisional Authority Transferred Control over Most of the Remaining DFI Funds to the Central Bank of Iraq,” 10/26/11
- “Hard Lessons,” 1/22/09

AL ARABIYA VIDEO: U.S. Army General Talks About Withdrawal From Iraq

REUTERS VIDEO: Funeral For Iraq Bomb Blast Policemen


Funeral for Iraq bomb blast policeman by reuters

DVIDS VIDEO: 1st Infantry Division Soldiers Depart Iraq

PRESS TV VIDEO: U.S. Iraq Training

UNICEF VIDEO: Living In Iraq - Aesara's Story







UNICEF VIDEO: Living In Iraq - Farrah's Story




Thursday, October 27, 2011

Kurdish Ruling Parties Split Over Regional Premiership


Kurdish President Massoud Barzani’s Kurdistan Democratic Party (KDP) and Iraqi President Jalal Talabani’s Patriotic Union of Kurdistan (PUK) have ruled Kurdistan since the 1990s. The two parties were once equals, ran together in elections, and signed a series of power sharing agreements. In the last couple years however, the KDP has been in the ascendency as the PUK has lost members to the new Change List. This has led to growing divisions between the two, which is now being played out over the Kurdistan premiership.
Nechirvan Barzani (l), KRG President Massoud Barzani (c), KRG Premier Barham Saleh (r) (Rudaw)
 In November 2011, the PUK and KDP are supposed to exchange the Kurdistan Regional Government (KRG) premiership. Current KRG Prime Minister Barham Saleh of the PUK has been in office since November 2009. When he steps down, Massoud’s nephew Nechirvan Barzani will replace him. Nechirvan was the premier from 2005-2009. Some in the PUK think that the KDP should allow Saleh to stay in office for two more years like they did with Barzani. Nechirvan was originally supposed to step down in 2008, but President Talabani agreed to let him keep his position against the will of his own party’s politburo. Sources in the KDP have told several Kurdish papers that they want the premiership back. This is a sign of the growing divide between the two parties. The PUK expect the KDP to reciprocate for allowing Nechirvan staying in office for four years by allowing Saleh to do the same, but the KDP feels more powerful now, and does not want to give the PUK anything it doesn’t have to.

The reason why the KDP is pushing to regain the premiership is because the PUK is much weaker now than in previous years. Talabani’s party has lost many of its members to the opposition Change List. In the 2009 regional parliamentary elections for instance, the Change List won in Sulaymaniya, the PUK’s home province. The decline in the PUK’s standing has led some in the KDP to argue that they should run Kurdistan unilaterally, and not share power with the PUK anymore. This opinion has been building up within the Barzani clan for quite some time, and is finally coming out publicly.

Relinquishing the regional premiership is part of the power sharing agreement the two parties signed back in 2006. On January 20, 2006, the PUK and KDP signed the Kurdistan Regional Government Unification Agreement. It divided up all the offices and administration in Kurdistan, as well as the regional and Iraqi presidencies. Under the deal, each party would hold the premiership for two years, and then pass it off to the other. The two parties signed two other power sharing agreements back in 1992 and 1998. The initial one broke down in 1994, and led to a civil war, that was ended by the second deal. When that one expired, they signed the latest one in 2006. Now that the balance of power between the PUK and KDP is breaking down, so could the agreement.

The PUK started off as a breakaway faction and rival to the KDP. In the 1990s and after the 2003 invasion, they came to be partners, and were roughly equal in standing. In the last several years, the PUK has been losing its support in Kurdistan. The KDP has taken advantage of this situation by asserting their dominance over regional politics. The latest sign of this growing tension is the KDP’s demand to regain the KRG premiership, despite the PUK’s request to hold onto it for two more years like they did with the KDP’s Nechirvan Barzani. With the power shift between the two parties, there’s no reason for the KDP to give into the PUK’s demands. Despite this, the two will maintain the public appearance of continued friendship and cooperation. The reality is that unless Talabani can manufacture a major comeback, his party will be increasingly marginalized by the KDP in the Kurdistan region, and then national politics.

SOURCES

Abu-Bakir, Idris, “KDP and PUK dispute potential swap of Prime Minister,” AK News, 9/29/11

Ahmed, Hevidar, “KDP Source: We’re Taking Premiership,” Rudaw, 10/15/11

Alaaldin, Ranj, “Troubled times in Iraqi Kurdistan,” Guardian, 7/23/09

Amnesty International, “Hope and Fear, Human rights in the Kurdistan Region of Iraq,” April 2009

Danly, James, “The 2009 Kurdish Elections,” Institute for the Study of War, 7/23/09

Mohammed, Jaza, “should he stay or should he go? doubts over iraqi Kurdish pm’s resignation,” Niqash, 10/6/11

Rudaw, “PUK Official: Party Won’t Run With KDP in Kurdistan Election,” 10/10/11

KTRH VIDEO: Maj. Gen. Jeffrey Buchannan

Wednesday, October 26, 2011

Iraq’s Oil Capacity Reaches New High, But Exports Drop For September 2011


Iraq’s oil production continues to see steady increases due to the work of foreign oil companies. The problem is that the country’s export infrastructure is at capacity, and cannot handle the recent rise. September 2011 was a perfect example, when the Oil Ministry announced a new post-invasion high in capacity, but a drop in exports.

In September, Iraq said that it had greatly increased its oil capacity, but that its foreign sales were down. The Oil Ministry told the press that its capacity had reached 2.95 million barrels a day for the month, the highest since 2003. Despite that good news, the Ministry said it had only exported 63.1 million barrels in September, which was down from 67.9 million barrels shipped in August. According to Oil Minister Abdul Karim Luaibi, the country’s export infrastructure is at capacity. That means while production is going up in the southern fields that were auctioned off to foreign companies in 2009 such as Rumaila, West Qurna 1, and Zubair, Iraq cannot sell it. Rather the excess is being stored for now. Iraq was still able to earn $6.619 billion last month at an average price of $104.897 per barrel. That was down from $7.124 billion earned in August. September was also only the third month this year where Iraq did not break the $7 billion mark in profits.
Map of the Rumaila, Zubair, and West Qurna oil fields in Basra, which are responsible for a majority of Iraq's oil production (The Dossier)
The Oil Ministry has been aware for a long time that it needs to upgrade its infrastructure and fields, and is finally starting to do that. In October it announced that Exxon Mobile, British Petroleum (BP), and Eni were going to invest $100 billion to enhance the West Qurna 1, Rumaila, and Zubair fields. An Italian firm also signed a two-year, $468.5 million contract to do renovation work on the southern fields as well. Exxon Mobile, BP, Lukoil, and Royal Dutch Shell also agreed to build a joint water injection plant to boost production at Rumaila, West Qurna 1 and 2, Zubair, and Majnoon in a project that will cost an estimated $3 billion. Creating water pressure is an important step to extract oil. Finally, this month the Oil Ministry signed a $518 million contract with Leighton Offshore to build the first of four new oil terminals in Basra with a capacity of 900,000 barrels of exports each. The deal also involves building an underwater pipeline. This terminal is due to come on line in January 2012, and when all four are completed they will greatly increase the flow of oil from the south where most of Iraq’s reserves are. All together, the Oil Ministry has some grand plans to increase the country’s capacity. The problem is that Iraq rarely finishes any major projects on time, and without them, the country will continue to produce far more than it can sell. That means lost profits until its new pipelines, terminals, etc. are completed.

There were also some problems with the reporting on the Oil Ministry’s numbers. There were two main issues, one with profits and the other with the average number of barrels exported for the month. First, the government said that it exported 53 million barrels from Basra and 10.2 million from Kirkuk. That matched the 63.1 million barrels total that was reported. The problem was that the news had Iraq earning $5.5219 billion from the south and $1.9 billion from the north, which totals $7.4 billion. That is far above the $6.619 billion number the press used. Multiplying 63.1 million barrels by the average price for that month, $104.89, equals $6.619 billion, so those figures for the two pipelines were wrong. Second, the media said that Iraq exported an average of 2.2 million barrels a day for September, at $104.89 per barrel, earning $6.619 billion. In comparison, for August it exported 2.19 million barrels, at $104.92 per barrel, and earned $7.124 billion. If the prices were roughly the same for the two months, there’s no way Iraq could earn less in September, while exporting more oil than August. If the country exported 63.1 million barrels, dividing that by the 30 days of September equals an average of 2.1 million barrels, not 2.2 claimed by the press agencies. There is other evidence to support the lower average export number as well. That includes the fact that the northern pipeline to Turkey was shut down for six days at the end of September to early October, because of leaks in Salahaddin province. Another issue, was that the Rumaila oil field experienced an explosion at a gas compressor that shut down production for a day. Finally, the Kurds cut their production by two thirds at the beginning of the month from 160,000 barrels a day to 50,000, because it was protesting a new draft oil law being discussed in parliament. Altogether, the numbers and the three incidents that decreased production all point to 2.1 million barrels being a more realistic average for September. Together, that means either the Oil Ministry gave out the wrong numbers, or the press was sloppy with theirs.

September says a lot about Iraq’s oil industry. While foreign companies are hard at work, the country’s exports have flat-lined, because its infrastructure cannot handle the rise in production. It desperately needs to move forward as quickly as possible with its plans for the port of Basra, so that it can take advantage of all this development. Luckily, international petroleum prices are still high because of the conflict in Libya, so even without any new pipelines or terminals, Iraq is still earning large profits. Unfortunately, it could be making a lot more if it had moved ahead earlier with its projects. Hopefully, Iraq will reach a balance between adding to its infrastructure and its production soon, so that it can take more advantage of this boom in prices before they decrease.

Iraq Oil Exports And Profits 2010-2011
Month
Avg. Exports
(Mil/
Bar/
Day)
Avg. Price Per Barrel
Revenue
(Mil)
Jan. 10
1.92
$73.97
$4.441
Feb.
2.05
$73.04
$4.229
Mar.
1.84
$76.20
$4.351
Apr.
1.80
$79.66
$4.222
May
1.88
$73.85
$4.335
Jun.
1.86
$71.10
$3.889
Jul.
1.82
$71.21
$4.009
Aug.
1.82
$71.43
$3.957
Sep.
2.02
$73.07
$4.428
Oct.
1.91
$77.10
$4.526
Nov.
1.92
$80.59
$4.618
Dec.
1.95
$86.31
$5.222
Jan. 11
2.16
$90.78
$6.082
Feb.
2.20
$98.44
$6+
Mar.
2.15
$107.13
$7.167
Apr.
2.14
$114.26
$7.342
May
2.22
$108
$7.45
Jun.
2.27
$105.16
$7.173
Jul.
2.16
$108.80
$7.3
Aug.
2.19
$104.92
$7.124
Sep.
2.10
$104.89
$6.619

SOURCES

Agence France Presse, “Explosion at Iraq oil field halts crude,” 9/21/11
- “Kurdistan region halts oil exports: Iraq minister,” 9/11/11

Alsumaria, “Iraq exports 63 million barrels of crude oil in September 2011,” 10/21/11

Aswat al-Iraq, “URGENT: Erosion of main pipeline stops Iraq’s oil exports through Turkey,” 9/29/11

Hafidh, Hassan, “Iraq, Oil Majors Agree To Build Oil Field Water Injection Plant,” Dow Jones, 10/19/11
- “Iraq oil output capacity jumps to 2.95 million bpd,” Zawya Dow Jones, 10/22/11
- “Oil Giants in $100 Billion Iraq Investment,” Dow Jones, 10/19/11

Al-Hamdanai, Karim, “Italian firm wins $486.5 million contract to modernize Iraq’s oil export installations in south,” Azzaman, 9/17/11

Mohammed, Aref, “Iraq expects to pump oil from new Gulf terminal Jan 1,” Reuters, 9/29/11

Al Rafidayn, “Shahristani: oil exports from Kurdistan declined over the past two weeks, and contracts for non-transparent region,” 9/10/11

Reuters, “UPDATE 1-Iraq awards $518 mln oil expansion deal to Leighton,” 10/4/11

Yee, April, “Bickering in Iraq over oil revenue hurts country,” The National, 9/13/11
- “Iraqi Kurdistan draws bidders,” The National, 9/13/11

Zawya, Aswat al-Iraq, “Crude Exports Resume through Ceyhan Pipeline,” Iraq Business News, 10/3/11

CNBC VIDEO: Missing Money In Iraq


PRESS TV: U.S. Withdrawal From Iraq Interview With Dr. Ali Al-Nashimi

Tuesday, October 25, 2011

Local Elections In Iraq Delayed Once Again


In October 2011, Iraq’s Election Commission announced that local elections were going to be postponed once again. Voting was originally supposed to happen in 2005, but have been delayed several times since then because of security concerns and political disagreements. In early 2011, Baghdad once again brought up the issue in response to popular protests. Now that those have subsided the authorities have no pressure upon them to follow through with their promises, which probably means that balloting for neighborhood and district councils will be held off indefinitely even though many of them have been in office for the last eight years.

On October 17, the Election Commission told the press that district and neighborhood voting would be delayed. The reason was because parliament went on a 60-day holiday that month, and has not passed a law to authorize the balloting. Even after that is accomplished, the Commission needs three months to prepare. That means the elections, if they ever happen, will not occur until mid-2012 at the earliest. This is not the first time parliament has put off their duties on this issue, and will probably not be the last. All kinds of arguments, and power disputes are brought up whenever there is an election in Iraq, so the easiest thing for the country’s politicians to do is nothing, and maintain the status quo.

Three times before, Baghdad has brought up local elections. In 2005, local balloting was supposed to happen after the January provincial elections. That didn’t happen because of the lack of security as the civil war was taking off. Then in January 2009, parliament said the country would cast ballots by July, but then never followed through on its promise. Finally, in early 2011, popular protests broke out in the country. Some demonstrators blamed their district and neighborhood councils for the lack of services, and called for them to be sacked. That led Prime Minister Nouri al-Maliki to propose local elections. In March, the regions committee in parliament held discussions with the provincial councils and the Ministry of Municipalities about new voting. Each province was supposed to conduct a detailed analysis of each of their districts and their boundaries. The regions committee then complained that Baghdad, Basra, Maysan, and Salahaddin were doing nothing. That effectively blocked any elections because Baghdad and Basra are the two largest governorates in the nation. Some local politicians were also afraid of being replaced, so they refused to cooperate. Still, in April, officials said that voting could occur by June. That was then pushed back to September, when parliamentarians claimed that the parties were arguing over how to deal with the disputed territories. The Kurds for example, were pushing for a census before any voting. That worried some Arab lawmakers who believed that a census was the first step in implementing Article 140 of the Constitution, which outlines how the disputed areas will determine whether they want to remain under central government control or be annexed by Kurdistan. The deadlock over this issue was just the latest reason for the legislature to not act. Come September, the Election Commission and the Regional Development Commission even came up with a draft election law, which was supposed to be voted on by the end of the month, but nothing happened. That leads up to the current delay, when now there are not even parliamentarians at their jobs for the next two months.

The Americans’ created Iraq’s district and neighborhood councils. Most of them were put together right after the 2003 invasion, based upon Ottoman boundaries. Others were formed during the 2007 Surge. The local politicians were either appointed by the Americans, or elected through caucuses or direct votes. This was an attempt by the U.S. military to create grassroots democracy in Iraq, based upon city and county governments back home. The councils have small budgets to pay their salaries, deliver food rations and pensions, and provide access to the ministries, but on the other hand they can’t make laws, raise money, or control development projects. The fact that the American created them is also problematic, because some high officials and politicians resent that.

This confluence of events is why Iraq has not had new local elections. There are too many arguments about how to conduct them, so parliament has refused to act. The fact that there are no more protests also means that there is no one applying outside pressure upon the authorities to make a final decision on the vote. The councils were originally created to help spread democracy throughout the country, and they have to an extent. At the same time, their hybrid status and long term in office with no popular referendum shows the limits of the new Iraq. Despite holding several elections since 2005, Iraqi politics have deadlocked. The country is notorious for delaying any important political decisions as a result, and this is just another example.

SOURCES

Al-Haidari, Faraj, “Electoral Commission postpones local elections,” AK News, 10/17/11

Al-Wannan, Jaafar, “Parliament to vote on bill for local elections,” AK News, 9/18/11

Al-Zubaidi, Ahmed, “Vice is likely to postpone the election districts and areas,” Radio Free Iraq, 8/21/11

STRATFOR GLOBAL INTELLIGENCE VIDEO: Dispatch: The Implications Of U.S. Forces Leaving Iraq

MSNBC VIDEO: Iraq's Future Remains Uncertain