Iraq Is Failing to Spend Billions in Oil Revenues
Karim Sahib/Agence France-Presse — Getty Images
Iraqi children lined up in Baghdad for fuel last January. Although the Oil Ministry has the money to rebuild, it is not spending most of it.
By JAMES GLANZ
Published: December 11, 2006
BAGHDAD, Dec. 10 — Iraq is failing to spend billions of dollars of oil revenues that have been set aside to rebuild its damaged roads, schools and power stations and to repair refineries and pipelines.
Iraqi ministries are spending as little as 15 percent of the 2006 capital budgets they received for the rebuilding — with some of the weakest spending taking place at the Oil Ministry, which relies on damaged and frequently sabotaged pipelines and pumping stations to move the oil that provides nearly all of the country’s revenues. In essence, the money is available — despite extensive sabotage, the oil money is flowing — but the Iraqi system has not been able to put it to work.
The country is facing this national failure to spend even as American financial support dwindles. Among reasons for the problems — like a large turnover in government personnel — is a strange new one: bureaucrats are so fearful and confused by anticorruption measures put in place by the American and Iraqi governments that they are afraid to sign off on contracts.
The inability to spend the money raises serious questions for the government, which has to demonstrate to citizens who are skeptical and suspicious of government corruption that it can improve basic services, and that at a time when American funds for reconstruction are being reduced, it can prove to other foreign donors that it can quickly put to use the money they may be willing to commit.
After the expenditure of roughly $22 billion in American taxpayer dollars on Iraq reconstruction, the increase of the Iraqi capital budget was seen by many as a sign that oil revenues could finally begin paying for the rebuilding, four years after Bush administration predictions that the country could afford the program on its own.
Iraq’s overall capital budget in 2006 was nine trillion Iraqi dinars, or about $6 billion, said Abdulbasit Turki Saeed, president of the Iraqi Board of Supreme Audit and a member of the Iraqi cabinet’s economic committee.
But Mr. Saeed said that across the entire government, only about 20 percent of the capital budget had been spent, according to the committee’s recent figures. A senior Western official agreed with that estimate.
“It’s slow. It’s disappointing,” the Western official said, speaking on the condition of anonymity because he was not authorized to discuss the subject publicly. “In general, they have had trouble getting projects started.”
The problem was briefly acknowledged in the report last week by the bipartisan Iraq Study Group, which gave similar figures for capital expenditures and said that “many ministries can do little more than pay salaries.”
In interviews, alarmed Western and Iraqi officials sought to put the best face on the problem, saying they thought that the pace of spending had picked up in the last two to three months as the government began taking steps to improve its performance.
Those officials said that in a nation with reconstruction needs around every corner, the puzzling phenomenon of unspent money was partly explained by the rapid turnover in governments, security woes, endemic corruption and a lack of technocrats skilled at jobs like writing contracts and managing complex projects. In short, nearly all the ills that have undermined the American rebuilding program seem to be plaguing the Iraqi one.
Hussain al-Shahristani, the Iraqi oil minister, said he thought that he could spend substantially more of this year’s budget if he could resolve administrative bottlenecks, like Finance Ministry delays in authorizing payments.
“It’s the bureaucracy,” Mr. Shahristani said. “Particularly financial people take too long to change their old habits.”
But some American and Iraqi officials here are also saying that the stringent measures they had favored to slow the rampant corruption may be especially daunting for bureaucrats who have little experience with Western-style regulations and oversight. Those officials say that Iraqis who have seen their colleagues arrested and jailed in anticorruption sweeps are reluctant to put their own name on a contract.
“As it’s applied right now, this new thing scares the hell out of everybody,” one Western official here said.
The colliding priorities of oversight and spending have left American and Iraqi officials in a quandary as they work behind the scenes on the so-called “Compact with Iraq” — the centerpiece of the American Embassy’s effort to create economic and political milestones that this nation promises to meet in exchange for pledges of foreign investment and support.
A previously undisclosed letter to Mr. Rathi from prime minister Nuri Kamal al-Maliki, dated Sept. 6, is close to an accusation that Mr. Rathi himself is guilty of corruption. The letter, a copy of which was provided to The New York Times, directs him to account for what the prime minister asserts are hundreds of thousands of dollars of undocumented expenses by the commission.
Ali al-Shabot, a spokesman for Mr. Rathi, who was traveling last week, at first insisted that the letter was secret and that he could not discuss it. But finally he dismissed its charges as based on bad information. Mr. Shabot indicated there was at least one good reason that, despite the pressure, the commission would remain in business. He confidently pointed out that international donors who provide financing to Iraq do so “with the guarantee that there are institutions to oversee the money.”
While it is clear that new financial support is unlikely without a strong anticorruption campaign in place, Iraq’s inability to spend its own money undermines the message that the country will actually be able to use the support if provided.
“People we are trying to deal with and obtain additional funds for Iraq will come back and say, ‘Iraq is not spending its own resources,’ ” said Yahia Said, a research fellow at the London School of Economics who is working as a consultant to the United Nations on the compact.
Mr. Shahristani, the oil minister, who has put new anticorruption measures in place on top of those imposed from the outside, said the solution was to teach the bureaucrats how to cope with the new rules.
“Obviously I’ve heard of these complaints,” he said of the criticisms of the anticorruption organizations. “I don’t think that they have gone too far. I think this is necessary given the level of corruption that we have inherited.”
Iraq’s total budget is about $32 billion in 2006 and is projected to be more than $40 billion in 2007, said Bayan Jabr, the Iraqi finance minister, in an interview. Most of the budget, which comes almost entirely from oil revenues, is consumed in operating expenses, including roughly $8 billion for ministry salaries and pensions and $6 billion for Iraq’s socialist-style food and fuel subsidies.
The nation has spent those funds much more easily than it has spent the $6 billion for capital improvements — a number that by some projections could roughly double next year in view of Iraq’s vast infrastructure needs.
According to a report by the Oil Ministry, about half of the money was to go for repair of pipelines, building refineries, improving oil fields, repairs on export terminals, and other improvements to the oil industry. The remainder was to be spent on projects ranging from improving the electrical system to irrigation systems to roads and government buildings of various types.
The same report says that, for example, Iraq is in need of major new oil storage tanks, a 42-inch-diameter pipeline in the south and better electrical generation to run the oil pumps.
Officials are still sorting out what went wrong in the early months of the 2006 program, but some of the problems were similar in kind if not in detail to the ones that derailed major portions of the American effort.
First, after the December 2005 elections, politicians jockeyed for ministerial posts for months, creating uncertainty about whether priorities would change, and then the newly seated officials were unfamiliar with their jobs. At the same time, deepening security problems not only made purchasing and construction difficult, but also continued to drive skilled midlevel ministry employees out of the country.
Final numbers across the ministries will not be available until year’s end, but Mr. Jabr, the finance minister, said that a few trends had emerged. Expenditures at the Housing and Construction Ministry and the Oil Ministry were low, while at the other end of the spectrum, the Electricity and Water Resources Ministries were spending as much as three-quarters of their allocations.
But the overall picture is clear, said Lt. Gen. Martin E. Dempsey, who as commander of the Multi-National Security Transition Command-Iraq works extensively with the Interior and Defense Ministries, which he expects to spend about half of their capital budgets this year.
“I think the government of Iraq has got a challenge writ large,” General Dempsey said. “The 27 ministries will not execute their 2006 budgets.”
American and Iraqi officials are already taking steps to improve the situation, streamlining the contracting process, giving training sessions on the process to ministry employees and, Mr. Jabr said, putting in place measures to penalize ministries that do not spend money fast enough.
General Dempsey said the unspent money in the security ministries in 2006 would not be lost, because Iraq had agreed to allow the funds to be held in the same foreign accounts that are used to coordinate the Pentagon’s military purchases until the agencies were ready to use it.
As the financial and political stakes rise within the Iraqi-financed rebuilding program, few officials have escaped blame.
The public integrity commission is cited most often as intimidating. But those who deal with investigations of questionable deals and officials on the take in a historically corrupt country are not surprised by those complaints. “This is normal,” said Mr. Shabot, the integrity commission spokesman. “They hate us because we are monitoring them.”
Mr. Jabr expressed deep impatience with ministry officials who, he said, told him that part of the reason they were moving so slowing was to avoid running afoul of the integrity commission.
“I said, ‘Why are you afraid? If you are not a thief, don’t be afraid,’ ” Mr. Jabr recalled.
http://www.nytimes.com/2006/12/11/world/mi...059&partner=AOL
