a GAO United States Government Accountability Office Report to Congressional Committees July 2005 REBUILDING IRAQ Status of Funding and Reconstruction Efforts GAO-05-876 What GAO Found United States Government Accountability Office Why GAO Did This Study H ighlights AccountabilityIntegrityReliability www.gao.gov/cgi-bin/getrpt?GAO-05-876 . To view the full product, including the scope and methodology, click on the link above. For more information, contact Joseph Christoff at (202) 512-8979 or firstname.lastname@example.org.
Highlights of GAO-05-876 , a report to congressional committees Jul y 2005 REBUILDING IRAQ Status of Funding and Reconstruction Efforts A s of March 2005, the United States, Iraq, and international donors had pledged or made available more than $60 billion for security, governance, and reconstruction efforts in Iraq. The United States provided about $24 billion (for fiscal years 2003 through 2005) largely for security and reconstruction activities. Of this amount, about $18 billion had been obligated and about $9 billion disbursed.
The State department has reported that since July 2004, about $4.7 billion of $18.4 billion in fiscal year 2004 funding has been realigned from large electricity and water projects to security, economic development, and smaller immediate impact projects. From May 2003 through June 2004, the Coalition Provisional Authority (CPA) controlled $23 billion in Iraqi ... more. less.
revenues and assets, which was used primarily to fund the operations of the Iraqi government. The CPA allocated a smaller portion of these funds 4about $7 billion 4for relief and reconstruction projects.<br><br> Finally, international donors pledged $13.6 billion over 4 years (2004 through 2007) for reconstruction activities, about $10 billion in the form of loans and $3.6 billion in the form of grants. Iraq had accessed $436 million of the available loans as of March 2005. As of the same date, donors had deposited more than $1 billion into funds for multilateral grant assistance, which disbursed about $167 million for the Iraqi elections and other activities, such as education and health projects.<br><br> The U.S. reconstruction effort in Iraq has undertaken many activities in the oil, power, water, and health sectors and has made some progress, although multiple challenges confront each sector. The U.S.<br><br> has completed projects in Iraq that have helped to restore basic services, such as rehabilitating oil wells and refineries, increasing electrical generation capacity, restoring water treatment plants, and reestablishing Iraqi basic health care services. However, as of May 2005, Iraq 9s crude oil production and overall power generation were lower than before the 2003 conflict, although power levels have increased recently; some completed water projects were not functioning as intended; and construction at hospital and clinics is under way. Reconstruction efforts continue to face challenges such as rebuilding in an insecure environment, ensuring the sustainability of completed projects, and measuring program results.<br><br> Funding Distribution by Sector of $18.4 Billion for Iraq Relief and Reconstruction Note: Other includes democracy, education, governance, agriculture, transportation, telecommunications, health, employment, privatization, and administrative costs. Rebuilding Iraq is a U.S. national security and foreign policy priority and constitutes the largest U.S.<br><br> assistance program since World War II. 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.<br><br> The U.S. effort to restore Iraq 9s basic infrastructure and essential services is important to attaining U.S. military and political objectives in Iraq and helping Iraq achieve democracy and freedom.<br><br> This report provides information on (1) the funding applied to the reconstruction effort and (2) U.S. activities and progress made in the oil, power, water, and health sectors and key challenges that these sectors face. Page iGAO-05-876 Rebuilding Iraq Contents Letter 1 Results in Brief 2 Background 4 Multiple and Diverse Funding Sources Support Iraq Reconstruction and Government Operations 6 Some Progress Achieved in Select Sectors While Facing Significant Challenges 12 Conclusions 34 Agency Comments and Our Evaluation 35 Appendixes Appendix I:Scope and Methodology 40 Appendix II:Comments from the U.S.<br><br> Agency for International Development 43 Appendix III:GAO Contact and Staff Acknowledgments 44 Figures Figure 1:Transition of Reconstruction Management from DOD Authority to State Authority5 Figure 2:Funding Distribution by Sector of the $18.4 Billion for Iraq Relief and Reconstruction in the Fiscal Year 2004 Emergency Supplemental7 Figure 3:Iraqi Oil Production, Export, and Revenue, June 2003 through May 2005 16 Figure 4:Daily Electricity Produced in Iraq, January 1, 2004-June 30, 200523 Contents Page iiGAO-05-876 Rebuilding Iraq Abbreviations bpdbarrels per day CERPCommander 9s Emergency Response Program CPACoalition Provisional Authority DFIDevelopment Fund for Iraq DODDepartment of Defense IAMBInternational Advisory and Monitoring Board IMFInternational Monetary Fund IRFFIInternational Reconstruction Fund Facility for Iraq IRMOIraq Reconstruction and Management Office PCOProject Contracting Office PMOProject Management Office UNUnited Nations USACEU.S. Army Corps of Engineers USAIDU.S. Agency for International Development This is a work of the U.S.<br><br> government and is not subject to copyright protection in the United States. It may be reproduced and distributed in its entirety without further permission from GAO. However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately.<br><br> Page 1GAO-05-876 Rebuilding Iraq United States Government Accountability Office Washington, D.C. 20548 Page 1GAO-05-876 Rebuilding Iraq A July 28, 2005 Letter Congressional Committees Rebuilding Iraq is a U.S. national security and foreign policy priority and constitutes the largest U.S.<br><br> assistance program since World War II. In October 2003, the World Bank and United Nations reported that in the summer of 2003 most Iraqis had limited or no access to essential services, that water supplies were contaminated, and that the health system was overburdened. In addition, the lack of basic infrastructure and services, particularly in the electricity sector, had contributed to a lack of security in various parts of the country.<br><br> 1 As of March 31, 2005, billions of dollars in grants, loans, assets, and revenues from various sources had been made available or pledged to the reconstruction of Iraq. The U.S. effort to restore these services is important to attaining U.S.<br><br> military and political objectives in Iraq and helping Iraq achieve democracy and freedom. The reconstruction of Iraq is occurring in a difficult environment. Looting and sabotage of many infrastructure facilities and offices were pervasive after Operation Iraqi Freedom and have continued to varying degrees.<br><br> In addition, according to senior military officials, the insurgency in Iraq has grown in size, complexity, and intensity and has affected reconstruction priorities. Infrastructure in such areas as the oil, water, and electricity sectors has been subject to attacks. In addition, workers have been threatened, the ability to safely transport materials has been compromised, and access to work sites has been hindered.<br><br> Another complicating factor in the reconstruction effort, according to Coalition Provisional Authority (CPA) and U.S. officials, has been the state of some Iraqi infrastructure, which was more severely degraded than officials anticipated or initial assessments indicated and was exacerbated by post-2003 conflict looting and sabotage. This report is part of our effort under the Comptroller General 9s authority to monitor Iraq reconstruction and is being addressed to you because of your committee 9s jurisdictions.<br><br> It provides a broad overview of funding made available for the relief and reconstruction of Iraq, U.S. relief an reconstruction activities for select sectors in Iraq, and challenges associated with these sectors. This report does not link the funding to 1 United Nations/World Bank, Joint Iraq Needs Assessment (New York, October 2003).<br><br> Page 2GAO-05-876 Rebuilding Iraq program results, nor does it evaluate the quality of program results. Specifically, this report provides information on (1) the funding applied to the reconstruction effort and (2) U.S. activities and progress made in the oil, power, water, and health sectors and key challenges that these sectors face.<br><br> To address these objectives, we obtained and analyzed records, reports, and data from government officials and contractors, as well as multiple funding databases. We also examined reports of other oversight entities that performed reviews related to contract management, internal controls, and oversight of some CPA and U.S. relief and reconstruction activities.<br><br> We interviewed U.S. government and former CPA officials and contract personnel in the United States and Iraq. Although we did not travel to Iraq to make project site visits during this period due to security concerns, we interviewed U.S.<br><br> and Iraqi officials via teleconference and, when possible, in person when these officials traveled to the United States. (See app. 1 for details on our scope and methodology.) We conducted this part of our review from September 2004 through May 2005 in accordance with generally accepted government auditing standards.<br><br> Results in Brief As of March 2005, more than $60 billion had been pledged or made available from U.S. appropriations, Iraqi resources, and international sources for Iraq 9s reconstruction and government operations. Of this amount, the United States provided about $24 billion from fiscal year 2003 through 2005, largely for reconstruction activities in security and essential services.<br><br> As of March 2005, about $18 billion of this amount provided by the United States had been obligated and about $9 billion disbursed for activities including infrastructure repair of the electricity and oil sectors; infrastructure repair, training, and equipping of the security and law enforcement sector; and CPA and U.S. administrative expenses. Over the course of the reconstruction effort, this funding has been realigned several times from large-scale infrastructure projects in electricity and water to meet immediate needs in security and economic development and to fund smaller, more visible reconstruction projects.<br><br> Since July 2004, the United States has reportedly reallocated about $4.7 billion of the $18.4 billion fiscal year 2004 emergency supplemental among the various sectors, as priorities have changed. Iraqi revenues and assets 4which totaled about $23 billion in cumulative deposits from May 2003 through June 2004 4have largely funded Iraqi government operations. A smaller portion of these funds, approximately $7 billion, was allocated for relief and reconstruction projects, primarily for the import of refined fuel products, security, regional Page 3GAO-05-876 Rebuilding Iraq programs, and oil and power projects.<br><br> Finally, most of the $13.6 billion pledged by international donors for reconstruction assistance from 2004 through 2007 is in the form of loans 4about $10 billion. The remainder is in the form of grants to be provided multilaterally or bilaterally. As of March 2005, Iraq had accessed $436 million of the available amount pledged in loans.<br><br> Donors have deposited grants of more than $1 billion into a funding mechanism for multilateral assistance to Iraq, which had obligated $683 million and disbursed about $167 million to individual projects as of March 2005. These funds were used primarily for reconstruction activities in public and essential services, including support for the Iraqi elections and infrastructure rehabilitation, capacity building, and governance and public sector reform projects. The United States has undertaken many relief and reconstruction activities in the oil, power, water, and health sectors in Iraq and has made some progress; however, multiple challenges confront each sector.<br><br> The U.S. program has accomplished activities focused on restoring basic essential services, such as rehabilitating oil wells and refineries to restart Iraq 9s oil production and export, increasing electrical generating capacity by reportedly adding about 1900 megawatts of generation capacity to Iraq 9s power grid, restoring some water treatment plants, and reestablishing Iraqi health services by providing vaccines and completing initial health clinic rehabilitation and training projects. However, restoring and sustaining Iraq 9s crude oil production and export capacity have been slower than originally planned, and these levels were lower in May 2005 than in March 2003.<br><br> Similarly, Iraq 9s overall power generation through May 2005 was lower than before the 2003 conflict, although power generation exceeded this level in the latter part of June 2005. Progress in the water sector is difficult to measure, and some completed water construction projects are not functioning as intended. Finally, health care projects to expand the availability of basic health care, such as constructing facilities and providing medical equipment, are under way as of May 2005.<br><br> Reconstruction efforts continue to face challenges, such as rebuilding in an insecure environment, ensuring the sustainability of projects to be turned over to the Iraqis, and measuring program results. In commenting on a draft of this report, the U.S. Agency for International Development (USAID) disagreed with our statement that agency metrics for tracking water projects do not show how the U.S.<br><br> program affects the Iraqi people. USAID stated that the agency tracks increases in the amount of water treated and estimates increases in beneficiary numbers. However, these metrics do not address the quality of water and sanitation services in Page 4GAO-05-876 Rebuilding Iraq Iraq, which may hinder the U.S.<br><br> ability to gauge progress toward its goal of providing essential services. The Departments of Defense and State and USAID also provided technical comments. Background From May 2003 through June 2004, the CPA was the UN-recognized coalition authority led by the United States and the United Kingdom that was responsible for the temporary governance of Iraq and for overseeing, directing, and coordinating the reconstruction effort.<br><br> Within the CPA, the Project Management Office (PMO) was established to provide prioritization and management of projects and contract support of U.S.-funded reconstruction projects. In May 2004, the President issued a National Security Presidential Directive, which stated that after the transition of power to the Iraqi government, the Department of State (State) through its ambassador to Iraq would be responsible for all U.S. activities in Iraq, with the exception of U.S.<br><br> efforts relating to security and military operations, which would be the responsibility of the Department of Defense (DOD). On June 28, 2004, the CPA transferred power to a sovereign Iraqi interim government, and the CPA was officially dissolved. At that time, the U.S.<br><br> role 4under DOD leadership 4changed from being part of the coalition-recognized authority for temporary governance of Iraq to supporting the sovereign Iraqi government as an ally and friend, under State leadership. Management authority and responsibility of the U.S. reconstruction program also transitioned at that time from DOD to State.<br><br> The Presidential Directive also established two temporary offices: the Iraq Reconstruction and Management Office (IRMO) to facilitate transition of reconstruction efforts to Iraq; and the Project and Contracting Office (PCO) to facilitate acquisition and project management support for U.S.-funded reconstruction projects. Iraq-based personnel from both offices are under U.S. chief of mission authority in Baghdad, although the U.S.<br><br> Department of the Army funds, staffs, and oversees the operations of the PCO. IRMO is a State Department organization and its responsibilities include strategic planning, prioritizing requirements, monitoring spending, and coordinating with the military commander. Under the authority of the U.S.<br><br> Chief of Mission in Baghdad, the PCO 9s responsibilities include contracting for and delivering services, supplies, and infrastructure funded Page 5GAO-05-876 Rebuilding Iraq by $12.4 billion of the $18.4 billion for Iraq relief and reconstruction in the fiscal year 2004 emergency supplemental passed by the Congress. 2 (See fig. 1.) Figure1: Transition of Reconstruction Management from DOD Authority to State Authority Other U.S.<br><br> government agencies also play significant roles in the reconstruction effort. For example, USAID is responsible for projects to restore Iraq 9s infrastructure, support healthcare and education initiatives, expand economic opportunities for Iraqis, and foster improved governance. The U.S.<br><br> Army Corps of Engineers (USACE) provides engineering and technical services to the PCO, USAID, and military forces in Iraq, including planning, design, and construction management support for military and civil infrastructure construction. 2 This was the amount apportioned to PCO as of April 2005. See Emergency Supplemental Appropriations Act for Defense and for the Reconstruction of Iraq and Afghanistan, 2004, P.L.<br><br> 108-106. Coalition Provisional Authority (DOD) U.S. Mission, Baghdad (State) Contracting, prioritizing, and management support of U.S.-funded projects.<br><br> Prioritizing and managing of U.S.-funded projects. Contracting support of U.S.-funded projects Project and Contracting Office (DOD) Iraq Reconstruction Management Office (State) Program Management Office (DOD) S ources: Departments of Defense and State; GAO (analysis). Supporting Sovereign Iraqi Government (July 2004-present) Coalition Provisional Authority (May 2003-June 2004) Page 6GAO-05-876 Rebuilding Iraq Multiple and Diverse Funding Sources Support Iraq Reconstruction and Government Operations As of March 2005, U.S.<br><br> appropriations, Iraqi revenues and assets, and international donor pledges totaling about $60 billion had been made available to support the relief and reconstruction and government operations of Iraq. U.S. appropriations of more than $24 billion for relief and reconstruction activities have been used largely for security and essential services 4including the repair of infrastructure, procurement of equipment, and training of Iraqis 4and have been reallocated over time as priorities have changed.<br><br> 3 Iraqi revenues and assets, which totaled about $23 billion in cumulative deposits, were turned over to the new Iraqi government in June 2004 and have largely funded the operating expenses of the Iraqi government. International donor funds have been primarily used for public and essential service reconstruction activities; however, most of about $13.6 billion pledged over a 4-year period is in the form of potential loans that have not been accessed by the Iraqis. 4 U.S.<br><br> Appropriated Funding Focused on Infrastructure Repair and Training of Forces; Funding Has Been Reallocated as Priorities Changed As of March 2005, of the $24 billion in appropriated U.S. funds made available for relief and reconstruction in Iraq from fiscal years 2003 through 2005, about $18 billion had been obligated and about $9 billion had been disbursed. 5 These funds were disbursed for activities that include infrastructure repair of the electricity and oil sectors; infrastructure repair, training, and equipping of the security and law enforcement sector; and CPA and U.S.<br><br> administrative expenses. Many current U.S. reconstruction efforts are consistent with initial efforts the CPA developed before June 2004.<br><br> As priorities changed, particularly since the transition of power to the Iraqi Interim Government, the U.S. administration reported that it had 3 Reconstruction activities include infrastructure rehabilitation and construction, equipment procurement, operations and maintenance training, and capacity building. 4 The World Bank Group defines a pledge as an indication of intent to mobilize funds for which an approximate sum of contribution is specified.<br><br> International donor pledges for Iraq range from $13.6 billion to $17.3 billion, reflecting the range of loans pledged by the World Bank and International Monetary Fund (IMF). This amount does not include identified humanitarian assistance or export credits and guarantees. Given the uncertainty of the ultimate amount of loans to be provided by the World Bank and IMF, we have used the lower pledge amount in this report.<br><br> 5 This amount does not include $5.7 billion appropriated in May 2005 for assistance to the Iraqi security forces in the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror and Tsunami Relief, 2005, P.L. 109-13. In addition, it does not include $325 million from the same Act, which according to DOD, was released for the Commander 9s Emergency Response Program in Iraq.<br><br> Page 7GAO-05-876 Rebuilding Iraq reallocated about $4.7 billion of the $18.4 billion fiscal year 2004 emergency supplemental among the various sectors. (See fig. 2.) These reallocations were reported in October 2004, January 2005, and April 2005.<br><br> As of May 2005, the administration was assessing whether additional reallocations would be needed for short-term reconstruction efforts. Figure2: Funding Distribution by Sector of the $18.4 Billion for Iraq Relief and Reconstruction in the Fiscal Year 2004 Emergency Supplemental Note: Other includes democracy, education, governance, agriculture, transportation, telecommunications, health, employment, privatization, and administrative costs. In October 2004, the administration reported that it had reallocated appropriated funds from the $18.4 billion fiscal year 2004 emergency supplemental based on a review of all U.S.<br><br> reconstruction funding priorities. The administration reported that it had reprogrammed about $1.8 billion to security and law enforcement and about $1.2 billion to economic and private sector development and governance activities. These funds were reallocated from future water and electricity infrastructure projects.<br><br> In addition, about $450 million in the oil sector had been reprogrammed from refined fuel imports to oil reconstruction projects. As of July 2004As of October 2004As of April 2005 Oil Other Water Security and justice Electricity Oil Water Other Electricity Water Security and justice Oil Electricity Other Source: GAO analysis of State Department data. 23% 23% 30% 33% 24% 13% 21% 34% 23% 22% 9% 12% Security and justice 15% 9% 9% Other Security and justice Essential services Page 8GAO-05-876 Rebuilding Iraq This review, prompted by both the transition from the CPA to a new State Department-led mission and a significant increase in insurgent activity in mid-2004, determined that the deteriorating security situation, the desire of the interim Iraqi government to quickly expand its security forces, and the need to create more jobs for the Iraqi people demanded a significant reallocation of funding.<br><br> In January 2005, the administration reported that it had reallocated $457 million. The administration reported that $246 million of this amount was for smaller projects to provide immediate and visible essential services in four cities 4Fallujah, Samarra, Najaf, and Sadr City 4affected by coalition battles with the insurgents. According to agency documents and officials, these services included critical health needs, power distribution, and potable water projects.<br><br> This funding was shifted from longer term power generation, transmission, water, and hospital projects. The remaining $211 million of the reallocated funds was redistributed within the electricity sector from longer range transmission projects to more immediate needs, such as spare parts procurements, turbine upgrades, and repair and maintenance programs. In April 2005, the administration reported that it had reallocated $832 million 4$225 million for job creation activities and $607 million for essential services projects and programs.<br><br> To fund these efforts, the embassy cancelled five longer term potable water projects and future energy projects. The $225 million reallocation for job creation activities primarily includes activities in targeted Baghdad neighborhoods and through USAID 9s Community Action Program throughout Iraq. 6 Of the $607 million reallocation for essential services, $444 million is for the electricity sector, including operations and maintenance projects at a number of strategic power plants to reportedly enhance the sustainability of ongoing projects, the completion of several electricity generation and rehabilitation projects, and the coverage of cost growth due to increased security costs in the electricity sector.<br><br> The remaining funds allocated for essential services programs include funds for gas/oil separation plants, operations and maintenance projects for water treatment plants recently turned over to the Iraqis, and prison and courthouse security projects. 6 Subsequently, in July 2005, the administration reported that in response to congressional action it intended to reallocate $20 million of this amount to democracy-building activities. Page 9GAO-05-876 Rebuilding Iraq Iraqi Revenues and Assets Funded Iraqi Government Operations with Limited Focus on Reconstruction Iraqi funds, which totaled about $23 billion in cumulative deposits from May 2003 through June 2004, are a mix of revenues and assets that the CPA used primarily to support the Iraqi budget for operating expenses, such as salary payments and ministry operations.<br><br> A smaller portion of the $23 billion 4approximately $7 billion 4was allocated for relief and reconstruction projects, primarily for the import of refined fuel products, security, regional programs, and oil and power projects. These Iraqi funds came from revenues in the Development Fund for Iraq (DFI) 7 and vested and seized assets from the previous Iraqi regime. Of the $23 billion, nearly $17 billion had been disbursed as of June 28, 2004.<br><br> The DFI was initially comprised of Iraqi oil proceeds, UN Oil for Food program surplus funds, and returned Iraqi government and regime financial assets. 8 From May 2003 to June 2004, nearly $21 billion had been deposited, $17 billion allocated, and $14 billion disbursed. The CPA turned DFI stewardship over to the new Iraqi government in June 2004.<br><br> 9 The majority of the funding had been used for Iraqi ministry operations, including salaries and other Iraqi budget support. Iraqi oil revenues continued to be deposited into the DFI after June 28, 2004. According to State Department estimates, about $18 billion in oil revenues had been deposited into the DFI since the transition from the CPA to the interim Iraqi government, as of May 31, 2005.<br><br> 7 According to U.N. Security Council Resolution 1483, the funds deposited into the DFI were to be used to meet the costs of Iraqi civilian administration, humanitarian needs, infrastructure repairs, economic reconstruction, and other purposes benefiting the people of Iraq. The resolution also noted that independent public accountants, approved by the International Advisory and Monitoring Board (IAMB), are to audit the DFI.<br><br> The IAMB 9s terms of reference define its oversight responsibilities, which include evaluating the public accountant 9s reports, monitoring internal controls and financial reporting, and directing special audits. 8 As directed under U.N. Security Council Resolution 1483, 95 percent of oil proceeds are to be deposited into the DFI.<br><br> The remaining 5 percent of oil proceeds are to be deposited into a U.N. Compensation Fund account to process and pay claims for losses resulting from Iraq 9s invasion and occupation of Kuwait. 9 According to agency documents and officials, after the transition, the Iraqis approved the transfer of about $3 billion in funds for remaining obligations that had been made by the CPA before June 28, 2004.<br><br> As of April 30, 2005, about $1 billion of this $3 billion remained to be disbursed . Page 10GAO-05-876 Rebuilding Iraq The vested assets were former Iraqi regime funds frozen and held in U.S. financial institutions after the first Persian Gulf War and subsequently vested by the President in the U.S.<br><br> Treasury in March 2003. 10 In addition, assets of the former regime were seized by coalition forces within Iraq. These combined vested and seized assets totaled about $2.65 billion and had largely been obligated and disbursed by the time the CPA transferred authority to the Iraqi Interim Government.<br><br> 11 The vested and seized assets were used primarily on ministry operations, salaries, and regional programs, such as the Commander 9s Emergency Response Program. 12 International Reconstruction Assistance Supports Public and Essential Service Reconstruction Activities, but Pledges Are Mostly Loans International donors 9 funds have been largely used to support public and essential service reconstruction activities; however, most of donors 9 pledges are in the form of loans that have not been accessed by the Iraqis. International donors have pledged about $13.6 billion in support of Iraq reconstruction over a 4-year period from 2004 through 2007.<br><br> Of this amount, about $10 billion, or 70 percent, is in the form of loans, primarily from the World Bank and International Monetary Fund (IMF). Donors have pledged the remaining $3.6 billion as grants, to be provided multilaterally or bilaterally. Of the $10 billion in loans pledged over the 4-year period, about $1 billion was pledged to be provided to Iraq in 2004.<br><br> As of March 31, 2005, Iraq had accessed $436 million of the available amount. The IMF provided a $436 million emergency post-conflict assistance loan to Iraq in September 2004 to facilitate Iraqi debt relief. According to a State Department official, the Iraqi government is currently in discussions with the World Bank and the government of Japan about lending programs, which total $6.5 billion.<br><br> 10 In March 2003, the President used authorities in the International Emergency Economic Powers Act (50 USC § 1701 et seq.), as amended by provisions in the USA PATRIOT Act of 2001 (P.L. 107-56), to confiscate the property of the former Iraqi regime under U.S. jurisdiction and vest the assets in the U.S.<br><br> Treasury. 11 As of April 30, 2005, about $145 million remained to be paid against liabilities incurred using these assets, according to agency documents and officials. 12 As of June 2005, the Commander 9s Emergency Response Program (CERP) has received about $1.4 billion, which includes DFI, Iraqi seized assets, and appropriated funds, according to DOD.<br><br> According to agency documents and officials, these funds are disbursed in the form of small grants to military commanders to support a range of local relief, reconstruction, and rule of law activities. Page 11GAO-05-876 Rebuilding Iraq Of the $3.6 billion in grants pledged over the 4-year period, about $700 million was pledged to be provided to Iraq in 2004, some of which would be provided multilaterally and some bilaterally. The established mechanism for channeling multilateral assistance to Iraq is the International Reconstruction Fund Facility for Iraq (IRFFI), which is composed of two trust funds, one run by the United Nations Development Group and the other by the World Bank Group.<br><br> As of March 31, 2005, more than $1 billion had been deposited into these funds; the largest deposits were made by Japan ($491 million), the European Commission ($227 million), and the United Kingdom ($127 million). Of that amount, about $683 million had been obligated and about $167 million had been disbursed to individual projects. Of the $167 million disbursed by the IRFFI, the UN trust fund had disbursed about $155 million for projects in 11 categories, as of March 2005.<br><br> Currently, the largest portion of UN trust fund disbursements has been made to activities that support the electoral process (about $87 million), education and culture (about $25 million), health (about $13 million), and infrastructure and housing (about $12 million). The remaining disbursements have supported activities in refugee assistance; agriculture, water resources, and the environment; food security; governance and civil society; water and sanitation; poverty reduction and human development; and mine action. Funds for projects are disbursed to participating UN agencies for implementation.<br><br> The World Bank trust fund has disbursed $12 million for projects that include capacity building, textbooks, school and health rehabilitation, water and sanitation projects, and private sector development. The World Bank is implementing a capacity-building project, and the Iraqi ministries are implementing the remaining projects. Donors have also provided bilateral assistance for Iraq reconstruction activities; however, complete information on this assistance is not readily available.<br><br> As of April 6, 2005, the State Department had been able to identify about $1.3 billion 4of the $13.6 billion pledged 4in funding that donors had provided as bilateral grants directly to Iraqi institutions, implementing contractors, and non-governmental organizations for reconstruction projects outside the International Reconstruction Fund Facility for Iraq. As we reported in June 2004, the United States was working with the Iraqis to develop a database for tracking all bilateral commitments made to reconstruction activities in Iraq. One year later, this database for tracking all donor assistance projects in Iraq remained under Page 12GAO-05-876 Rebuilding Iraq development with assistance from the United States and the UN.<br><br> 13 In March 2005, the UN gave Iraqi staff of the Ministry of Planning and Development Cooperation a 7-day training session in the use and management of this database. The UN plans to provide technical and management support to the ministry and additional training over the next year. According to a State Department official, the database was planned to be operational in time for the IRFFI Donor Committee meeting in Amman, Jordan, which was held July 18-19, 2005.<br><br> Some Progress Achieved in Select Sectors While Facing Significant Challenges The U.S. efforts to reconstruct Iraq 9s essential services sectors have shown some progress to date yet continue to face significant challenges. Of the approximately $9 billion of appropriated funds the United States had disbursed for reconstruction, as of March 31, 2005, approximately $3.1 billion had been spent on restoring Iraq 9s oil, electricity, water and health sectors.<br><br> 14 Overall, the U.S. program in these sectors has accomplished activities that focused on essential services restoration, such as refurbishing and repairing oil facilities, increasing electrical generating capacity, restoring water treatment plants, and expanding the availability of basic health care. Initial activities to restart the oil infrastructure have largely been completed; however, activities to sustain production and export levels have been slower than originally planned and these levels remained below pre- March 2003 conflict capacity, as of May 2005.<br><br> Progress has been made in rehabilitating electric facilities and generation capacity has been increased. Overall production levels for the electricity sector were lower in May 2005 than before the March 2003 conflict, although power generation exceeded this level for the latter part of June 2005. While the water and sanitation program has made some progress toward completing a reduced scope of activities, this progress has been difficult to measure and some completed projects have not functioned as intended.<br><br> The U.S. program to expand basic health care has made progress in helping reestablish health services in Iraq, but larger health infrastructure projects remained under way as of May 2005. Implementation of the U.S.<br><br> 13 In response to our draft report, the State Department told us that this database had been transferred to the Iraqis. 14 This amount does not include appropriated funding for reconstruction activities in these sectors under the Commander 9s Humanitarian Relief and Reconstruction Program, Commander 9s Emergency Response Program, USAID 9s Community Action Program, USAID 9s Office of Transition Initiatives, or Office of Foreign Disaster Assistance programs. Page 13GAO-05-876 Rebuilding Iraq reconstruction program in these sectors continues to face challenges, such as security, sustainability, and the measurement of program results.<br><br> Restoring and Sustaining Iraq 9s Crude Oil Production and Export Have Been Slower Than Originally Planned U.S. efforts in the oil sector have focused largely on (1) restoring Iraq 9s oil infrastructure to prewar production and export capacity, (2) delivering refined fuels for domestic consumption, and (3) developing oil security and pipeline repair teams. More than $5 billion in U.S.<br><br> and Iraqi funds has been made available for these efforts. Progress to date on U.S. activities has been slower than planned due to a number of factors, including the security environment and difficulties associated with funding, project prioritization, contractor reporting, the contract management processes, and Iraq 9s political transitions.<br><br> The oil sector faces challenges that include establishing effective infrastructure security forces and pipeline repair teams; addressing issues related to domestic refined fuel supply and consumption; and defining the oil sector 9s organizational structure, foreign investment framework, and energy priorities. Background Iraq 9s economy is highly dependent on revenues from crude oil export, and its population is dependent on having sufficient refined fuels for power generation, cooking, heating, and transport. According to the State Department, Iraq 9s oil export revenues are expected to account for at least 90 percent of Iraq 9s projected 2005 budget revenues.<br><br> This revenue is essential to Iraq 9s ability to provide for its own needs, including reconstruction. Iraq 9s oil infrastructure is an integrated network that includes oil fields and wells, pipelines, pump stations, refineries, gas/oil separation plants, gas processing plants, and export terminals and ports. This infrastructure has deteriorated significantly over past decades due to war damage, inadequate maintenance, and the limited availability of spare parts, equipment, new technology, and financing.<br><br> U.S. agency documents estimated Iraq 9s 2003 actual pre war crude oil production at 2.6 million barrels per day (bpd) and export levels at 2.1 million bpd. 15 Considerable looting after Operation Iraqi Freedom and continued attacks on crude and refined product pipelines have contributed to Iraq 9s reduced oil production and export capacities.<br><br> 15 According to Iraqi estimates, 2002 production and export levels averaged about 2.2 million bpd and 1.5 million bpd, respectively, and 2003 crude production levels reached 2.8 million bpd. Page 14GAO-05-876 Rebuilding Iraq U.S. Activities and Projects About $2.7 billion of U.S.<br><br> appropriated funds and $2.7 billion in Iraqi funds have been made available for U.S. efforts to support Iraq 9s oil sector. 16 These efforts focus largely on (1) restoring Iraq 9s oil infrastructure to sustainable prewar crude oil production and export capacity, (2) delivering and distributing refined fuels for domestic consumption, (3) developing oil security and pipeline repair teams, and (4) providing technical assistance for organizing and sustaining Iraq 9s oil industry.<br><br> Specific U.S. activities and projects for the restoration of Iraqi 9s oil production and export capacity include restoring the Qarmat Ali water reinjection and treatment plant to create and maintain sufficient oil field pressure in the Rumailah oil field; repairing the Al-Fathah oil pipeline crossing; restoring several gas and/or oil separation plants near Kirkuk and Basrah; and repairing natural gas and liquefied petroleum gas plant facilities in southern Iraq. 17 U.S.<br><br> activities also include the restoration of wells, pump stations, compressor stations, export terminals, and refineries, and providing electrical power to many of these oil facilities. 18 According to agency and contracting officials, the United States provides primarily procurement, engineering, technical expertise and some construction services for these projects. Iraq oil company employees conduct some repair operations and construction.<br><br> 16 Iraqi fund amounts are based on reporting by U.S. government officials and KPMG, the external auditor for the International Advisory and Monitoring Board, and are as of December 31, 2004. 17 According to USACE documents, Iraq 9s gas/oil separation plants, or GOSPs, separate crude from natural gas liquids and serve approximately 12 to 50 oil wells.<br><br> Processing some of these liquids results in the production of liquefied petroleum gas, which is used primarily in Iraq for cooking and heating. 18 The electrical power element of this activity is specifically dedicated to oil production, pumping, refining, and other oil sector operations separate from the national electricity system. Page 15GAO-05-876 Rebuilding Iraq In addition to infrastructure restoration activities, the United States facilitated and oversaw the purchase, delivery, and distribution of refined fuels throughout Iraq, primarily using DFI funds from late May 2003 through August 2004.<br><br> Used for cooking, heating, personal transportation, and private power generation, these imports were required to supplement domestic production due to increased demand and Iraq 9s limited refining capacity. 19 The responsibility for this effort was transferred to Iraq 9s State Oil Marketing Organization after August 2004. The United States also assisted in developing an oil security force and pipeline repair teams to respond to looting, sabotage, and sustained attacks, primarily on oil pipelines.<br><br> Finally, the United States also provided technical assistance and support to the Iraqi Ministry of Oil to define Iraq 9s operational, legal, policy, and investment frameworks for the industry. Assessment Although some activities to restart Iraq 9s oil production and export have been completed, the implementation of the U.S. program to assist in restoring and sustaining Iraq 9s crude oil production and export levels to pre-March 2003 capacity has been slower than originally planned.<br><br> Of the $2.7 billion in appropriated funds for the oil sector, the United States had obligated about $2 billion and disbursed $1.1 billion, as of March 31, 2005. In addition, of the $2.7 billion in Iraqi funds, about $215 million had been spent on these infrastructure restoration efforts. Initial production and export targets were reached in 2003 and early 2004 as U.S.<br><br> efforts were made to complete assessments and quick repair projects, provide dedicated power, and procure spare parts and equipment. 20 Since November 2004, however, crude oil production and export levels have not been sustained primarily due to pipeline attacks and a natural decline in production resulting from years of improper reservoir management, according to U.S. and former CPA officials.<br><br> From December 2004 through May 2005, estimated production and export levels remained relatively constant at about 2.1 million bpd and 1.4 to 1.6 million bpd, respectively. 19 U.S. activities to improve refineries have focused on assisting the Iraqis in improving the reliability and capacity of existing refineries.<br><br> According to agency officials, this included providing expertise to help identify key areas for project improvements and procuring associated spare parts, materials, and equipment to operate the refineries at levels close to maximum capacity. 20 As of June 2005, DOD and the contractor were reaching agreement on the number and final cost of these oil restoration projects, including the expected price of the work completed. Page 16GAO-05-876 Rebuilding Iraq (See fig.<br><br> 3.) Targets for December 2005 are to reach 2.8 million bpd in production and 1.8 million bpd in exports. 21 Figure3: Iraqi Oil Production, Export, and Revenue, June 2003 through May 2005 21 A large portion of the crude oil that is not exported is used to create refined fuels for domestic use, such as liquefied petroleum gas for cooking. According to a UN document, 600,000 bpd of crude oil is needed to meet the domestic requirement.<br><br> Iraq 9s 2005-2007 National Development Strategy stated that Iraq 9s refining capacity is approximately 550,000 bpd. In commenting on our draft report, State noted that actual performance of the refining sector has been less than 500,000 bpd. Thousands of barrels per dayBillions of dollars Source: Department of State estimates.<br><br> Year 0 500 1,000 1,500 2,000 2,500 3,000 0.0 0.5 1.0 1.5 2.0 2.5 Revenue Exports Production May '05 Apr. '05 Mar. '05 Feb.<br><br> '05 Jan. '05 Dec. '04 Nov.<br><br> '04 Oct. '04 Sept. '04 Aug.<br><br> '04 July '04 June '04 May '04 Apr. '04 Mar. '04 Feb.<br><br> '04 Jan. '04 Dec. '03 Nov.<br><br> '03 Oct. '03 Sept. 03 Aug.<br><br> '03 July '03 June '03 Page 17GAO-05-876 Rebuilding Iraq Several U.S. government, former CPA, and contractor officials stated that funding uncertainties, project reprioritizations, inadequate contractor reporting, 22 and frequent changes in contract management procedures or processes have impeded progress. In addition, some officials stated that the overall security environment has slowed their ability to obtain or move equipment, materials, and personnel, in some cases delaying project progress.<br><br> Some officials estimated that a combination of these factors have contributed to delays of 2 to 6 months at different points in the oil sector program 9s overall implementation. Some significant projects experienced further delays from late 2004 to early 2005 due to security, technical, or legal problems that over the past several months, according to agency officials, resulted in lower crude oil production or export. For example, one significant project to provide water and field pressure maintenance in southern Iraq could not be fully utilized, primarily due to associated infrastructure degradation, thus limiting the facility 9s operations and Iraq 9s level of crude oil production.<br><br> In general, most larger scale, higher dollar projects are either under way or scheduled to begin by August 2005, and IRMO officials stated that sector efforts are focused on a defined set of projects that the Ministry of Oil agreed to in November 2004. As of May 2005, U.S. officials and reporting indicated that the overall program is scheduled to be completed by mid- to late-2006.<br><br> U.S. efforts directly facilitated the CPA 9s purchase and delivery of imported gasoline, liquefied petroleum gas, kerosene, and diesel for domestic use in Iraq. About $2.3 billion of the $2.7 billion in Iraqi funds was used to purchase, supply, and distribute these refined fuel products.<br><br> These efforts required the coordination of significant trucking operations and military convoys to move considerable quantities of fuels and to increase the capacity to download these fuels at several supply points throughout Iraq. Although no longer responsible for the purchase and delivery of these refined fuels, U.S. agencies continue to monitor Iraq 9s efforts to maintain a 15-day supply of refined fuel stocks.<br><br> Although estimated national supply levels were low from November 2004 to March 2005, U.S. agency documents report that levels of these products improved and, as of May 22 U.S. officials and documents reported that a prime contractor 9s inadequate reporting of costs has been detrimental to the oil sector program 9s ability to accurately assess project progress and associated costs.<br><br> According to U.S. officials and documents, primarily due to this issue, some remaining unawarded work was moved from this contractor to another contractor. According to agency and contractor officials and documents as of June 30, 2005, the action taken by the contractor to improve its reporting had been determined to meet government requirements.<br><br> Page 18GAO-05-876 Rebuilding Iraq 2005, only diesel stocks remained significantly below the 15-day supply targets. However, agency reporting also noted distribution problems such as criminal attacks on delivery trucks, sabotage to domestic product lines, and black market activity related to the sale of these products. These problems continue to negatively affect the population 9s access to these fuels for their daily needs.<br><br> Of the $2.7 billion of Iraqi funds made available for the oil sector, about $170 million was used to develop oil security and pipeline repair teams. 23 CPA oil security efforts included the establishment of a U.S. task force to manage the training and equipping of an oil security force.<br><br> This effort began in late 2003 and focused primarily on guarding fixed facilities and, to a lesser extent, patrolling pipelines. The oil security force numbers reached over 14,000 as of June 2004, according to agency officials; however, in responding to our draft report State indicated that this force was not staffed, trained, or equipped to patrol pipelines. Because the number and intensity of pipeline attacks increased during the summer and fall of 2004, the overall effectiveness of this force has been difficult to gauge.<br><br> In responding to our draft report, State indicated that this level of attacks demonstrates the effectiveness of the insurgency in Iraq and the inability of coalition forces to register the security of the oil infrastructure as a high priority. According to agency documents, the Ministry of Oil assumed responsibility for these security personnel in December 2004. In a related effort, the CPA established an emergency response organization in early 2004 to rapidly return damaged pipelines to service.<br><br> The primary contractor was responsible for a certain number of repairs; it was also responsible for training repair crews and providing new tools and techniques to sustain this effort after its August 2004 contract expiration. In July 2004, the U.S. government indicated that the contractor 9s performance was unsatisfactory and withheld funds.<br><br> According to U.S. officials and documents, in August 2004 IRMO mobilized an emergency repair team; in February 2005, the Ministry of Oil mobilized a second emergency repair team; and responsibilities for these efforts were being transitional to the Iraqis as of June 2005. Challenges Iraq 9s economy relies on oil revenues to support its budget.<br><br> In the near term, Iraq is dependent on the completion of several of the U.S. program 9s 23 According to agency documents and officials, $9 million of U.S. appropriated funds were also set aside for emergency pipeline response repair.<br><br> Page 19GAO-05-876 Rebuilding Iraq infrastructure projects, whose successful operations are expected to generate revenues to support Iraq 9s 2005 budget. In addition to this challenge, the Iraqis face shorter and longer term oil sector challenges that include training, equipping, and funding effective infrastructure security forces and pipeline repair teams; addressing issues related to domestic refined fuel supply and consumption; and defining the oil sector 9s organizational structure, foreign investment framework, and energy priorities, among others. "Attacks against the oil infrastructure continue and limit Iraq 9s ability to export crude oil and distribute refined products domestically.<br><br> The United States and Iraq have attempted to establish infrastructure security forces as well as emergency response teams to address this issue. However, difficulties in determining organizational responsibility and funding for such efforts have impeded their completion and contributed to insufficient protection of oil infrastructure, particularly pipelines. According to agency reporting in April 2005, plans were being discussed to provide mobile security for pipelines.<br><br> In addition, in response to our draft report DOD told us in July 2005 that the Iraqi government, with Coalition support, is leading an effort to enhance oil infrastructure security. "CPA and U.S. officials have emphasized the importance of restoring Iraq 9s refinery capacity to increase the supply of refined fuel products for domestic use and to decrease the amount spent on refined product imports.<br><br> According to a former agency official, replacing existing refineries with modern technology facilities may require $6 to $7 billion over a 10-year period, while fuel imports cost over $2 billion annually. Iraq subsidizes the refined fuels it imports and produces, and the price of these fuels is less than a few cents per liter. U.S.<br><br> officials have reported that low prices also encourage black market activity such as smuggling or the purchase and resale of refined products, both of which can ultimately result in local distribution shortages and insufficient access to these needed fuels. CPA and U.S. officials have provided assistance to the Iraqis in developing refined fuel pricing reform strategies.<br><br> Iraq committed to increase the domestic prices of refined products to generate an estimated $1 billion in revenues in 2005, according to IMF and agency documents. However, potentially negative popular reaction may make it difficult for the Iraqis to implement any repricing strategies at this time. Page 20GAO-05-876 Rebuilding Iraq "Iraq 9s framework for managing its oil industry and the use of its energy resources is not yet defined.<br><br> Decisions by Iraq 9s new government may alter how the country runs its oil operations and may also influence the amount and type of capital investment that Iraqis and foreigners are willing to provide. In addition, establishing regulations for resource management and revenue distribution are part of the Iraqi government 9s current effort to draft a constitution. Outcomes of these activities will affect Iraq 9s overall economic goals and priorities .<br><br> Electricity Production Lower in May 2005 Than before the March 2003 Conflict U.S. efforts in the electricity sector have focused on restoration and construction of Iraq 9s electrical system. As of March 31, 2005, about $5.7 billion 4about $4.9 billion in appropriated funds and $816 million in Iraqi funds 4had been made available to provide electricity services that meet Iraq 9s national needs.<br><br> Some progress was made in restoring Iraq 9s electricity infrastructure, reportedly adding about 1900 megawatts 24 of generating capacity to Iraq 9s power grid between March 2003 and May 2005. Iraq 9s overall power generation was lower through May 2005 than before the 2003 conflict, although power generation exceeded this level for the latter part of June 2005. The causes for lower overall power generation included planned and unplanned maintenance needs for power stations and fuel shortages.<br><br> The electricity sector faces a number of challenges to meeting Iraq 9s electricity needs, including the lack of appropriate fuel supplies, Iraqi operation and maintenance capacity, the unstable security environment, financing needs for distribution projects, and effective management of electricity generation and distribution. Background According to senior U.S. agency officials, Iraq 9s electricity infrastructure was in worse condition following the 2003 conflict than initially anticipated or reported in the 2003 UN/World Bank needs assessment.<br><br> The report noted the severe degradation of Iraq 9s generating capacity 4from about 5,100 megawatts in 1990 to about 2,300 megawatts post-1991 Gulf War 4largely due to war damage to generation stations. Although the report notes that production was restored to about 4,500 megawatts before the 2003 conflict, U.S. officials said that Iraq 9s electrical infrastructure had experienced significant deterioration due to the war and years of neglect under Saddam 9s regime.<br><br> Spare parts were largely unavailable when UN sanctions 24 A megawatt is a measurement of the rate at which electric energy can be transferred and is used as a measure of electric generation capacity. Page 21GAO-05-876 Rebuilding Iraq were in place between 1991 and 2003. Equipment and facilities had not been maintained and required significant overhauls.<br><br> In addition, some facilities and transmission lines were damaged by U.S. forces during the 1991 Gulf War or by the looting and vandalism of facilities following the 2003 conflict. U.S.<br><br> Activities and Projects About $4.9 billion in appropriated and $816 million in Iraqi funds from the DFI have been made available for U.S. reconstruction efforts in the electricity sector. These efforts focus on restoring or constructing generation, transmission, distribution, and automated monitoring and control systems in Iraq 9s electrical system.<br><br> Other projects have included capacity building 25 and training security forces to protect the electrical infrastructure. According to agency documentation, the majority of financial assistance in this sector has focused on generation projects, such as rehabilitating and repairing existing equipment or procuring and installing new turbines and generators. Transmission projects, such as erecting transmission towers and stringing transmission lines, have been another significant focus.<br><br> Assessment Although some progress has been made in rehabilitating many Iraqi electric facilities as of May 2005, electricity production in Iraq was lower than before the March 2003 conflict. However, for the latter part of 2005 power generation exceeded this level. Of the $4.9 billion appropriated as of March 31, 2005, the United States had obligated $3.7 billion and disbursed $1.7 billion, mostly for generation projects to repair existing equipment or procure new turbines and generators for power plants.<br><br> 26 In addition, of the $816 million in Iraqi funds authorized for U.S. activities in the electricity sector, about $758 million had been disbursed as of March 31, 2005. 25 Capacity building includes training to build management capability within the ministry and operations and maintenance capability at the power stations.<br><br> 26 This amount does not include appropriated or Iraqi funding disbursed for electricity sector activities from the Commander 9s Humanitarian Relief and Reconstruction Program, Commander 9s Emergency Response Program, Rapid Regional Response Program, Accelerated Iraqi Reconstruction Program, or USAID 9s Community Action Program, Office of Transition Initiatives programs, or Office of Foreign Disaster Assistance programs. Page 22GAO-05-876 Rebuilding Iraq Two key targets of the U.S. reconstruction effort are increasing total generating capacity and daily megawatt hours of electricity produced.<br><br> The first key target is to increase Iraq 9s total generating capacity by 3,100 megawatts by June 2005. 27 As of May 2005, U.S.-funded projects reportedly had added or restored about 1900 megawatts of generating capacity to Iraq 9s power grid. However, U.S.<br><br> program and contracting officials have raised concerns about the ability of the Ministry of Electricity and local power plant operators to sustain the added generation capacity. The other key target has been to help Iraq produce 120,000 megawatt-hours of electricity per day by June 2005. In May 2005, agency reports show this target was revised to producing 110,000 megawatt-hours by December 2005.<br><br> As shown in figure 4, Iraq produced more than 100,000 megawatt-hours of electricity most days between July and November 2004; however, production dropped below prewar production levels through May 2005, varying between 51,000 and 99,800 megawatt-hours daily. Agency reports attribute the decreased production figures to several causes, including planned and unplanned maintenance on power stations, fuel shortages due to insurgent attacks on oil pipelines that provide fuel to the power plants, and limited supply of fuels allocated by the Ministry of Oil. In commenting on our draft report, State noted that planned outages are necessary operational procedures to ensure reliable and sustainable operations at the plants and that the central reason for high unplanned outages is that Ministry of Electricity workers do not yet have the necessary skills to ensure adequate operations and maintenance practices.<br><br> As of June 2005, Iraq 9s electricity production was increasing to meet greater summer demand and exceeded 100,000 megawatts in the latter half of the month. U.S. officials attributed the increased production to (1) power plants that were returned to service after maintenance was completed, (2) imported power and fuel supply from neighboring countries, and (3) activation of U.S.<br><br> funded power projects. 27 The date for meeting this target was extended to December 2005. Page 23GAO-05-876 Rebuilding Iraq Figure4: Daily Electricity Produced in Iraq, January 1, 2004-June 30, 2005 Challenges The electricity sector faces a number of challenges to meeting Iraq 9s electricity needs.<br><br> These challenges include the lack of appropriate fuel supplies, Iraqis lack of capacity in operation and maintenance, the unstable security environment, financing needs for distribution projects, and ineffective management of electricity generation and distribution. "Iraq 9s limited accessible supply of natural gas and diesel fuel affects the operation of the new gas combustion turbines provided by the United States 28 and continues to affect the operations and production capacity of Iraq 9s electrical power plants. The United States purchased and installed gas combustion turbines to operate several Iraqi power plants, including Bayji and Qudas.<br><br> These turbines were readily available for 0 20,000 40,000 60,000 80,000 100,000 120,000 6/1/2005 5/1/2005 4/1/2005 3/1/2005 2/1/2005 1/1/2005 12/1/2004 11/1/2004 10/1/2004 9/1/2004 8/1/2004 7/1/2004 6/1/2004 5/1/2004 4/1/2004 3/1/2004 2/1/2004 1/1/2004 Megawatt hours Date Prewar Target 7 day average Actual Sources: U.S. Department of State and USAID estimates. 28 The UN Oil for Food Program also purchased gas combustion turbines for Iraq 9s electricity sector.<br><br> Page 24GAO-05-876 Rebuilding Iraq purchase, could be installed in less than 1 year, and could also be modified to burn oil-based fuels, although with some negative effect on the turbines 9 efficiency and operation. Although Iraqi power plants have largely relied on steam turbines that use crude oil or oil-derived fuels, these turbines are less readily available for purchase on the world market and require a longer installation time. Due to limited access to natural gas, some gas combustion turbines at Iraqi power plants are operating on low grade, oil-based fuels.<br><br> The use of liquid fuels, without adequate equipment modification and fuel treatment, decreases the power output of the turbines by up to 50 percent, requires three times more maintenance, and could result in equipment failure and damage that significantly reduces the life of the equipment, according to U.S. and Iraqi power plant officials. "U.S.<br><br> agencies report they have incorporated operations and maintenance training into the reconstruction program. However, the Iraqis 9 capacity to operate and maintain the power plant infrastructure and equipment provided by the United States remains a challenge. Contractors cited several instances where the Iraqis had significant problems operating and maintaining projects after they were transferred to the government.<br><br> For example, in December 2004, the Iraqis 9 inability to operate a recently overhauled plant at Bayji led to a widespread power outage. U.S. officials said that contractors installed the equipment and provided the Iraqis onsite training in operating the new or refurbished equipment.<br><br> However, Iraqi power plant officials from 13 locations throughout Iraq, including Bayji, indicated that the training did not adequately prepare their staff to operate and maintain the new gas turbine engines. U.S. officials have acknowledged that more needs to be done to train plant operators and ensu<br><br>