Order Code RL31833
Iraq: Reconstruction Assistance
Updated November 15, 2007
Curt Tarnoff
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division

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Iraq: Reconstruction Assistance
Summary
A large-scale assistance program has been undertaken by the United States in
Iraq since mid-2003. To date, nearly $43 billion has been appropriated for Iraq
reconstruction. On February 5, 2007, the Administration presented a regular FY2008
State/Foreign Operations appropriations request providing $391.8 million for Iraq
reconstruction. On June 21, 2007, the House approved H.R. 2764, the FY2008
State/Foreign Operations regular appropriations bill, rejecting requested regular
FY2008 funding for Iraq. Pending approval of a final State/Foreign Operations bill,
FY2008 regular funding is provided under a second continuing resolution, Division
B of H.R. 3222 (P.L. 110-116), approved November 13, 2007. It funds FY2008
programs at the same level as FY2007. On September 6, 2007, the Senate approved
its version of H.R. 2764, including a floor amendment rejecting most aid to Iraq
under the bill. On October 22, the Administration presented a revised FY2008
Global War on Terror emergency request, including $4.9 billion for Iraq
reconstruction.
Contributions pledged by other donors at the October 2003 Madrid donor
conference and in subsequent meetings have amounted to roughly $18.4 billion in
grants and loans, of which about $2.5 billion had been disbursed.
On June 28, 2004, the entity implementing assistance programs, the Coalition
Provisional Authority (CPA), dissolved, and sovereignty was returned to Iraq. U.N.
Security Council Resolution 1546 of June 8, 2004, returned control of assets held in
the Development Fund for Iraq to the government of Iraq. U.S. economic assistance
is now provided through the U.S. embassy while security aid is chiefly managed by
the Pentagon.
Many reconstruction efforts on the ground are completed or ongoing, but
security concerns have slowed progress. Reconstruction programs include the
training and equipping of Iraqi security forces; construction of road, sanitation,
electric power, oil production, and other infrastructure; and a range of programs to
offer expert advice to the Iraqi government, establish business centers, provide school
books and vaccinations, finance village development projects, and promote civil
society, etc.
The report will be updated as events warrant. For discussion of the Iraq political
situation, see CRS Report RL31339, Iraq: Post-Saddam Governance and Security,
by Kenneth Katzman.

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Contents
Most Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Funding for Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
U.S. Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
FY2008 Regular Appropriations and Congressional Action . . . . . . . . . 5
FY2008 Global War on Terror Emergency Appropriations Request . . 6
Oil Revenue and the Iraqi Capital Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Iraqi Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Other Donors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Iraq Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
United Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
International Compact for Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
U.S. Assistance Policy and Program Structure . . . . . . . . . . . . . . . . . . . . . . . . . . 12
U.S. Reconstruction Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Reconstruction Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Current Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Reconstruction Programs and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Infrastructure Sustainability and Asset Transfer . . . . . . . . . . . . . . . . . 19
Capacity Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Provincial Reconstruction Teams (PRTs) . . . . . . . . . . . . . . . . . . . . . . 21
The Role of Iraqis in Reconstruction and the DOD Plan to Re-start
State-Owned Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Accountability, Waste, and Fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Assessments of Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Appendix A: Criticisms of Iraq Reconstruction . . . . . . . . . . . . . . . . . . . . . . . . . 35
Appendix B: Audits of the Development Fund for Iraq . . . . . . . . . . . . . . . . . . . 38
List of Tables
Table 1. U.S. Assistance to Iraq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Iraq Relief and Reconstruction Fund (IRRF) . . . . . . . . . . . . . . . . . . . . 15

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Iraq: Reconstruction Assistance
Most Recent Developments
On October 22, 2007, the Administration sent a revised FY2008 Global War on
Terrorism Emergency supplemental request to Congress totaling $1.2 billion for
International Affairs 150 account reconstruction and relief programs in Iraq and
roughly $3.7 billion for Defense 050 account reconstruction programs.
On September 6, 2007, the Senate approved its version of H.R. 2764 (S.Rept.
110-128), the FY2008 regular State/Foreign Operations appropriations bill. The
legislation contains a provision prohibiting most assistance to Iraq from the regular
FY2007 bill.
On June 21, 2007, the House approved H.R. 2764 (H.Rept. 110-197). In view
of the recently passed FY2007 supplemental appropriations and pending FY2008
emergency proposal, the House chose to delete requested FY2008 regular funding for
Iraq.
Introduction
Following years of authoritarian rule and economic sanctions, the United States
and the international community agreed in the spring of 2003 that efforts should be
made to rehabilitate economic infrastructure and introduce representative government
to post-war Iraq, among other objectives.1 To meet these ends, a large-scale
assistance program has been undertaken by the United States in Iraq. This program,
funded through a mix of appropriations accounts, is undergoing increased scrutiny
in the 110th Congress. This report describes recent developments in this assistance
effort and key issues of potential interest to Congress.2
Funding for Reconstruction
The first formal estimate of the possible cost of Iraq reconstruction amounted
to $55 billion over the four years from 2003 through 2007. This figure was the sum
total of an October 2003 World Bank and U.N. Development Group needs
assessment of 14 sectors of the Iraqi government and economy — $36 billion —
1 U.N. Security Council Resolution 1483, May 22, 2003.
2 For detailed discussion of the Iraq political situation, see CRS Report RL31339, Iraq:
Post-Saddam Governance and Security, by Kenneth Katzman.

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combined with a $19.4 billion Coalition Provisional Authority (CPA) projection for
security, oil, and other sectors not covered by the Bank/U.N. assessment.3 These
amounts, calculated in mid-2003, did not take into account the significant costs of
instability and security needs that have emerged since then.
In the succeeding years, several “spigots” have been available to fund Iraq
reconstruction. U.S. foreign aid appropriations for Iraq have been provided mostly
in annual emergency supplemental bills beginning in FY2003. International donors
have also made aid contributions. Iraqi funds, largely derived from oil export profits,
have been employed to cover the “normal” operating costs of the Iraqi government,
and, when sufficient amounts are available, have been used to address reconstruction
needs. Additionally, the reduction or rescheduling of Iraqi debt repayments has made
further resources available. These sources of reconstruction funding are discussed
below.
U.S. Assistance
In the first several years of the U.S. effort in Iraq, the bulk of U.S. assistance
was provided through a special Iraq Relief and Reconstruction Fund (IRRF)
supporting aid efforts in a wide range of sectors, including water and sanitation, food,
electricity, training and equipping of Iraqi security forces, education, and rule of law.
The Fund was established in the FY2003 Emergency Supplemental (P.L. 108-11,
H.R. 1559/H.Rept. 108-76), signed on April 16, 2003, with an appropriation of $2.5
billion. A subsequent FY2004 Emergency Supplemental (P.L. 108-106, H.R.
3289/H.Rept. 108-337), signed on November 6, 2003, added $18.4 billion to the
IRRF. The Fund was placed under the direct control of the President.
In addition to the IRRF, funds drawn from other accounts have been used for
similar purposes. Department of Defense appropriations have gone to pay part of the
costs for repair of Iraq’s oil infrastructure, for training and equipping of the Iraqi
army, and toward the Commander’s Emergency Response Program (CERP). In
addition to drawing from the IRRF, the U.S. Agency for International Development
(USAID) has used its own funds to pay for humanitarian and other programs in Iraq.
The FY2005 emergency supplemental (P.L. 109-13, H.R. 1268/H.Rept.109-72),
signed on May 11, 2005, provided $5.4 billion for a new DOD account, the Iraq
Security Forces Fund (ISFF), supporting the training and equipping of Iraqi security
forces. Previously, most security training funds had been provided out of the IRRF.
Policy responsibility for the IRRF, originally delegated to the CPA (under DOD
authority), had, since the end of the occupation in June 2004, belonged to the State
Department as a result of a Presidential directive (NSPD 36, May 11, 2004), which,
nonetheless, continued to give DOD the main role in directing security aid. Putting
funding for security assistance entirely under DOD, however, is a sharp departure
from historic practice. Under most military assistance programs — Foreign Military
Financing (FMF) and the International Military Education and Training Program
(IMET) — State makes broad policy and DOD implements the programs. The
3 For the full text of the report online, see the World Bank website at [http://siteresources.
worldbank.org/INTIRAQ/Overview/20147568/Joint%20Needs%20Assessment.pdf].

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conference report on the supplemental adopted the President’s formula for the new
account but required that the Iraq Security Forces Fund be made available “with the
concurrence of the Secretary of State.” The FY2006 Emergency Supplemental (P.L.
109-234) added $3 billion to the ISFF, the FY2007 regular Defense appropriations
(P.L. 109-289) added another $1.7 billion, and the FY2007 Supplemental (P.L. 110-
28) added $3.8 billion.
For the regular FY2006 foreign operations appropriations, the Administration
departed from previous practice by requesting $414 million in Iraq reconstruction
funds under traditional foreign aid accounts instead of funneling requests exclusively
through emergency supplementals and for the IRRF. However, some Members felt
that sufficient funds remained unobligated in the IRRF — at the time, $3-$5 billion
— from which the Administration could draw to pay for continuing reconstruction.
As a result, Congress provided (P.L. 109-102, H.R. 3057) only $61 million in funds
for Iraq ($60.4 million after rescission) — $5 million for the Marla Ruzicka Iraqi
War Victims Fund and $28 million each for the democratization activities of the
International Republican Institute and the National Democratic Institute.
In the FY2006 Emergency Supplemental Appropriations (P.L. 109-234), signed
into law on June 15, 2006, Congress approved (H.R. 4939; H.Rept. 109-494)
roughly $5 billion for Iraq reconstruction activities — $3 billion for the ISFF; $378
million for the CERP; and $1.6 billion in so-called “stabilization” assistance for Iraq
to be provided largely under the ESF account ($1.485 billion).4
FY2007 regular foreign operations funding for Iraq was provided under the
terms of a continuing appropriations resolution (H.R. 5631/P.L. 109-289 Division B,
as amended by H.J.Res. 20, P.L. 110-5, on February 15, 2007). It set funding levels
for major aid accounts. When country allocations based on those levels were
formally released in mid-2007, Iraq received only $176.3 million, $595 million less
than the Administration request. This amount is mainly composed of $122.8 million
in ESF intended to continue programs to sustain U.S.-funded infrastructure and to
support democracy, governance, civil society, economic policy reform, private sector,
and agriculture programs (versus a request of $478.8 million), and $20 million in the
International Narcotics and Law Enforcement (INCLE) account aimed at rule of law
programs (versus a request of $254.6 million).
4 The conference report also provided funding for operational and security costs — $220.8
million for the PRTs, $101 million for USAID, and $24 million for the SIGIR.

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Table 1. U.S. Assistance to Iraq
(appropriations in $ millions)
2007
2007
2008 Regular
2008 Emerg.
Fiscal Year
2003
2004
2005
2006
Regular
Supp.
Total
(req.)
(req.)
Iraq Relief and Reconstruction Fund (IRRF)
2,473.0
18,439.0
—
10.0
—
—
20,922.0
—
—
DOD - Iraq Security Forces Fund (ISFF)
—
—
5,700.0
3,007.0
1,700.0
3,842.3
14,249.3
—
3,000.0
DOD - Iraq Army
51.2
—
—
—
—
—
51.2
—
—
DOD - CERP
—
140.0
718.0
753.0
375.0
350.4
2,336.4
—
609.7a
DOD - Oil Repair
802.0
—
—
—
—
—
802.0
—
—
DOD - Iraq Freedom Fund
—
—
—
—
—
50.0
50.0
—
100.0
Other USAID Funds
469.9
—
—
—
—
—
469.9
—
—
Economic Support Fund (ESF)
—
—
—
1,535.4
122.8
1,574.0
3,232.2
298.0
797.0
Democracy Fund
—
—
—
—
—
250.0
250.0
—
—
INCLE (Int’l Narcotics & Law Enforcement)
—
—
—
91.4
20.0
150.0
261.4
75.8
159.0
IFTA (Treasury Dept. Tech Asst.)b
—
—
—
13.0
—
2.8
15.8
—
—
MRA (Migration & Refugee Asst.)
—
—
—
—
20.0
45.0
65.0
—
195.0
NADR (Nonprolif, Anti-Terror, De-mining)
—
—
—
—
12.4
7.0
19.4
16.0
—
IMET (Int’l Mil. Ed & Training Program )
—
—
—
—
1.1
—
1.1
2.0
—
IDFA (Int’l Disaster and Famine Assist.)
—
—
—
—
—
45.0
45.0
—
80.0
Total U.S. Reconstruction Assistance
3,796.1
18,579.0
6,418.0
5,409.8
2,251.3
6,316.5
42,770.7
391.8
4,940.7
Sources: SIGIR Report to Congress, October 30, 2007; Department of State, Iraq Weekly Status Report, November 7, 2007; and CRS calculations.
Note: The table does not contain agency operational costs, except where these are embedded in the larger reconstruction accounts.
a. The total CERP request of $1,219.4 million is for both Iraq and Afghanistan. The amount included here assumes that half will be used in Iraq.
b. Assistance may have been provided in unmarked years; amounts not reported.

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The FY2007 Supplemental Appropriations (H.R. 2206, P.L. 110-28), signed
into law on May 25, 2007, was meant in part to address the President’s new strategy
for Iraq, announced on January 10, 2007. The strategy, seeking to deal with
increasing instability, especially in Baghdad, proposed the introduction of about
26,200 more U.S. troops and other efforts to create a more secure environment for
successful political and economic development, including a significant expansion in
the number of Provincial Reconstruction Teams (PRTs) and increase in U.S. civilian
staff. The enacted version of the FY2007 Supplemental provided a total of $6.3
billion in Iraq reconstruction assistance, $316 million less than the Administration
request of about $6.6 billion.5
The enacted FY2007 Supplemental imposed conditions on the availability of the
nearly $1.6 billion in appropriated Iraq reconstruction funds under the ESF account.
Funds were to be withheld until the President certified in reports to be submitted
before July 15 and September 15, 2007, that the government of Iraq had made
progress in 18 benchmarks, including whether it enacted the hydro-carbon law, taken
specific steps toward provincial and local elections, reformed de-Baathification laws,
and begun expenditure of the promised $10 billion Iraqi funds for reconstruction.
The benchmark certification requirements could be waived by the President. The
reports were submitted as required, and the President has released the funds through
waivers.
FY2008 Regular Appropriations and Congressional Action. On
February 5, 2007, the Administration requested $391.8 million in regular FY2008
State/Foreign Operations appropriations, mostly in ESF, for the kinds of community,
small-scale activities that are undertaken by the PRTs, such as improvements to
community infrastructure, job training, vocational education, and micro-loans. In
addition to PRT assistance, the request would provide support at the national level
for Ministerial capacity development, agriculture and private sector reform, and
strengthening of the judicial process and democratization efforts.
On June 12, 2007, the House Appropriations Committee marked up H.R. 2764,
the FY2008 State/Foreign Operations regular appropriations bill (H.Rept. 110-197).
In view of the recently passed FY2007 supplemental appropriations and pending
FY2008 emergency proposal, the committee did not include requested FY2008
regular funding for Iraq. On June 21, the House approved the measure, after rejecting
amendments to restore $158 million (Wolf) and another (Shays) to shift $50 million
to Iraq. On July 10, 2007, the Senate Appropriations Committee, reporting its
version of H.R. 2764 (S.Rept. 110-128), did not specifically address the Iraq aid
request — funds could be used for Iraq from unallocated portions of ESF and other
requested accounts, if they are available. However, a floor amendment was adopted
during Senate consideration of the bill, prohibiting aid to Iraq under the FY2008
regular appropriations legislation with some small exceptions. The Senate approved
its version of H.R. 2764 on September 6. Pending approval of a final State/Foreign
Operations bill, FY2008 regular funding is provided under a second continuing
5 With regard to operational costs, H.R. 2206 provided $100 million for DOD PRT support,
allowed an unspecified portion of the $750 million provided to the Embassy for PRT
operations, and provided $35 million for SIGIR expenses.

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resolution, Division B of H.R. 3222 (P.L. 110-116), approved November 13, 2007.
It funds FY2008 programs at the same level as FY2007.
FY2008 Global War on Terror Emergency Appropriations Request.
The Administration’s FY2008 supplemental request, originally made in February
2007, was revised on October 22, 2007. The FY2008 emergency request for Iraq
reconstruction activities totals $4.9 billion:
! $797 million for ESF, the main spigot of assistance provided by the
PRTs. Funds help stabilize an area by supporting local small-scale,
employment-generating, economic projects. PRTs also utilize ESF
to increase the capacities of local government officials to spend
Iraqi-owned capital funds allocated by the Iraqi government for
infrastructure programs. At the national level, ESF supports
Ministerial capacity development, agriculture and private sector
reform, and the strengthening of democratization efforts.
Of the ESF request, $25 million would support a new Iraq Enterprise Fund
based on the model in east Europe and the former Soviet Union. Enterprise funds are
U.S. government-funded private sector-run bodies that primarily provide loans or
equity investments to small and medium business. In the former communist
countries, they also took other steps to encourage growth of the private sector,
including support for mortgage lending markets and establishment of private equity
funds. The most successful example, the Polish Fund, made many profitable
investments, helping companies grow that otherwise were unable to obtain financial
support in the period just after the fall of communism. Some of the Funds, however,
have been much less successful, either by taking on poor investment risks, or unable
to locate promising businesses because of the poor business climate or competition
from other private sector funding sources. Some observers question the usefulness
of the funds because their ostensible development purpose seems often to conflict
with pressures for economic profit. The Administration has proposed authorization
language for inclusion in the supplemental to allow the Administration to establish
the Fund.
! $159 million under INCLE to support rule of law and corrections
programs. The Administration request is expected to fund prison
construction, something that Congress has sometimes cut from
previous requests. The request is also intended to extend judicial
reform and anticorruption efforts to the provinces.
! $195 million under the MRA account to address the continuing
refugee crisis in the region. An estimated 2.0 million Iraqis have
fled the country and another 2.2 million have been displaced due to
sectarian violence and instability.
! $80 million under the IDFA account to provide medical care, food,
shelter and other relief to refugees and displaced people.
! $3 billion under the ISFF for training and equipping of Iraqi security
forces.

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! Likely at least half of a $1.2 billion CERP request that includes
Afghanistan to allow U.S. military officers to provide reconstruction
assistance in areas of operations
! $100 million under the Iraq Freedom Fund for the Task Force to
Improve Business and Stability Operations in Iraq. The Task Force,
funded at $50 million under the previous supplemental, seeks to
stimulate the economy and create employment for Iraqi citizens by
rehabilitating some of the roughly 200 state-owned enterprises that
composed a large portion of the Iraqi economy prior to the U.S.
occupation. See below for further discussion.
FY2008 emergency funds were also requested for operational costs (not
included in the reconstruction aid total or in Table 1) for staffing and administering
reconstruction programs: $679 million for PRT and $45.8 million for USAID
operations.
Oil Revenue and the Iraqi Capital Budget
Oil revenues have been a critical element in reconstruction funding. Prior to the
war, the Administration had expected that Iraq’s oil reserves would help it “shoulder
much of the burden for [its] own reconstruction.”6 The May 22, 2003, U.N.
Resolution 1483 which ended sanctions permitted the occupying coalition to use oil
reserves for more long-term reconstruction purposes. The resolution shifted
responsibility for oil profits and their disbursal from the U.N. to the United States and
its allies by establishing a Development Fund for Iraq (DFI) held by the Central Bank
of Iraq and into which oil profits and other Iraqi assets would be deposited.7
During the occupation, DFI funds available to the CPA — $20.7 billion by June
28, 2004 — were used to support a wide range of reconstruction activities, including
the currency exchange program, oil and electricity infrastructure repair, purchase of
firefighting equipment, the Iraqi operating budget, and the Oil for Food Program’s
monthly food baskets, responsibility for which was transferred from the U.N. to the
CPA in November 2003. Under Security Council Resolution 1546, adopted on June
8, 2004, the transitional government of sovereign Iraq obtained control over use of
DFI funds, which continue to be replenished with oil revenue.
Oil production accounted for more than 94% of the Iraqi government revenue
in 2007. Recognizing the importance of oil revenue to Iraq reconstruction, more than
6 Press briefing by Ari Fleisher, White House, February 18, 2003; Sec. 1506 Report to
Congress, July 14, 2003, p. 4.
7 On March 20, 2003, President Bush issued an executive order confiscating non-diplomatic
Iraqi assets held in the United States, an estimated $1.74 billion worth available for
reconstruction purposes. Another $927 million in assets located by the United States in Iraq
were also used for these purposes. In addition, foreign governments were reported to hold
an estimated $3.7 billion in seized or frozen assets, of which $847 million had been
deposited in the DFI by June 28, 2004. Security Council Resolution 1511 urged member
states to deposit seized assets in the DFI.

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$2.5 billion of total U.S. reconstruction funding has been devoted to efforts to restore
and expand oil production infrastructure. Oil exporting resumed in mid-June 2003,
but oil production was slowed by sabotage and corruption. In September 2004, rates
of production reached a peak of 2.67 million barrels/day compared with an estimated
pre-war rate of 2.5 million barrels/day (MBD), but rates fell after that and for much
of the time stood at around 2.0 MBD. Production has grown in recent weeks and, as
of early November 2007, stands at 2.4 MBD. The CPA target had been 2.8-3.0
MBD by end of 2004. The Iraqi government had hoped to raise production to at least
2.5 MBD in 2006, but its current goal for 2007 is 2.1 MBD.8
After paying for operating budget expenses and a variety of government social
programs, very little of Iraq’s oil revenue has been left for reconstruction. Fuel and
food subsidies as well as support for state-owned enterprises are said to account for
as much as $11 billion annually. Because these practices divert funds from needed
reconstruction for which the United States might have to compensate, Administration
officials have repeatedly pressured the Iraqi transition government to face the need
to address the subsidy issue. As part of its agreement with the IMF pursuant to a debt
reduction with the Paris Club, Iraq in mid-December 2005 began to take steps to end
its subsidy of gasoline, increasing the price of fuel from 5 cents to roughly $1.06 a
gallon.9
A further concern regarding the amount of oil income available for
reconstruction is the extent of corruption and mismanagement in the Iraqi
government. An audit of the DFI undertaken on behalf of the International Advisory
and Monitoring Board (IAMB) found that controls over export earnings are
ineffective and funds are improperly accounted for by government staff. The
Comptroller General of the GAO has also suggested that there is “massive
corruption” in the Oil Ministry, and the head of Iraq’s Commission on Public
Integrity estimates that corruption has cost the government up to $18 billion. Iraq
ranks third from the bottom on Transparency International’s corruption index.10
Iraqi ministries have had difficulty spending the revenue on capital projects such
as roads, schools, and oil production. According to U.S. officials, only about 22
percent of the 2006 capital budget of about $6.2 billion was utilized, and only three
percent of a $3.5 billion capital budget available to the Oil Ministry was spent in
2006. Among the reasons for this situation has been a rapid turnover in personnel,
8 Department of State, Iraq Weekly Status Report, November 7, 2007.
9 Country Report Iraq Updater Fiscal Policy, Economist Intelligence Unit, May 15, 2007;
“Iraqi Economy Adds to Tensions with U.S.,” Financial Times, July 7, 2005; “Iraqis
Reluctant to End Love Affair with Fuel Subsidies,” Financial Times, June 13, 2005.
10 Transparency International, 2007 Global Corruption Perception Index, September 2007;
“Corruption Cited in Iraq’s Oil Industry,” Washington Post, July 17, 2006; “An Audit
Sharply Criticizes Iraq’s Bookkeeping,” New York Times, August 12, 2006; “Iraqi Judge
Says Maliki’s Government Shields Officials Accused of Corruption,” New York Times,
October 5, 2007.

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security concerns, lack of skills in contracting and managing projects, and a fear by
government employees of being accused of corrupt practices.11
Complementing the Administration’s new strategy for Iraq, the Iraqi
government approved a 2007 budget containing $10.5 billion for capital investment,
of which $2.4 billion was expected to go to provincial governments. PRT assistance
is partly aimed at helping the government at the local level develop the capacity to
efficiently utilize these Iraqi-owned resources. The 2007 Iraq budget also included
$2.4 billion for investments in oil production and another $3 billion for the
construction of new oil refineries to reduce oil product imports. According to U.S.
officials, the government of Iraq has taken significant steps in 2007 to execute its
capital budget, including formation of a senior-level task force, establishment of new
procedures such as revised procurement regulations, and additional training.
Although, as of July, allocations by the ministries were triple the previous year’s rate,
the SIGIR has noted that the current rate may still be insufficient to fully execute the
budget by the end of year. More than 47% of provincial government budgets had
been committed as of September. The allocation and expenditure of the Iraqi capital
budget was one of the 18 benchmarks assessed under section 1314 of the FY2007
Supplemental. The Administration found progress on this factor to be satisfactory.12
The Iraqi government has reportedly approved a $40 billion budget for 2008,
$20 billion of which is expected to be spent on capital projects.13
Iraqi Debt
At the time of the invasion, Iraq’s debt, both public and private, was estimated
at $125 billion.14 Since then, the United States has argued that any new Iraqi
government should not be burdened with debts associated with the policies of its
previous ruler and has supported a near total forgiveness of debt. Some large holders
of Iraqi debt — France, Germany, and Russia for instance — were more inclined to
reschedule debt than to forgive it, arguing that, as an oil rich country, Iraq could
afford someday to pay its debts.15
Several steps led to a partial resolution of the debt issue. A series of meetings
in early 2004 between the President’s personal envoy for Iraq debt reduction, former
Secretary of State James Baker III, and the leaders of debt-holding countries led to
11 “Oil Revenues are in the Billions, but Iraq is Failing to Spend Them,” New York Times;
and SIGIR, Report to Congress, July 30, 2007, p. 5..
12 SIGIR, Report to Congress, July 30, 2007, p. 5; White House, Benchmark Assessment
Report, September 14, 2007, p.27.
13 “‘08 Budget is Baghdad’s Biggest, if Only It Can Spend It,” New York Times, November
15, 2007.
14 Based on Paris Club data. Does not include $29 billion in unpaid Gulf War reparations.
International Monetary Fund, Iraq: Use of Fund Resources — Request for Emergency Post-
Conflict Assistance, September 24, 2004.
15 G-7 Agrees That Iraq Needs Help with Debt,” Washington Post, April 13, 2003;
“Restructuring, Not Forgiveness,” Financial Times, April 15, 2003.

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CRS-10
statements of support, but no firm commitment, for varying levels of relief. By
September 2004, Iraq had both assumed sovereignty and cleared its overdue financial
obligations to the IMF, making it easier for Iraq to negotiate an agreement with
private and government creditors. Further, Congress authorized $360 million (P.L.
108-309) to cover the costs of cancelling the roughly $4 billion Iraqi debt obligation
owed the United States. These factors culminated in an agreement by the 19 Paris
Club government creditors on November 20, 2004, to write off roughly $32 billion
in Iraqi debt, 80% of what it owed to this group. Recently, the Russian government
threatened to cancel its $13 billion cancellation commitment under the deal if Iraq
rescinds an oil contract with a Russian company made under the Hussein regime.16
In addition to Paris Club creditors, Iraq has borne about $69 billion in other
bilateral debt (mostly to Gulf States countries) and more than $21 billion in
commercial debt. Of the latter, most claims have been resolved. In May 2007, four
nations offered to forgive nearly $21 billion of Iraqi bilateral debt as part of their
participation in the International Compact with Iraq. Saudi Arabia, for example,
reportedly is negotiating to forgive 80% of Iraq’s estimated $15 billion debt to that
country.17
Other Donors
Immediately following the U.S. intervention in Iraq, U.N. appeals for postwar
humanitarian relief to Iraq met with $849 million in grant donations from non-U.S.
donors.18 Additionally, the Madrid donor conference, held on October 23-24, 2003,
produced a minimum total of $13.6 billion in reconstruction aid pledges from more
than forty other donors. Later pledges have raised the total non-U.S. reconstruction
aid offer to $18.4 billion as of September 2007.19
Of this reconstruction assistance, grant aid pledges from other donors total more
than $5 billion. These include $1.5 billion by Japan, $1.5 billion by the United
Kingdom, $270 million by Spain, $968 million by the European Commission, $460
million by South Korea, and $273 million by Italy. About $10.1 billion in loans have
been offered, including by Japan ($3.5 billion), the World Bank ($3.0 billion), the
IMF ($2.6 billion), and the Islamic Development Bank ($500 million). Of all these
16 “Iraq, with U.S. Support, Voids a Russian Oil Contract,” New York Times, November 4,
2007.
17 SIGIR, Report to Congress, July 30, 2007, p. 134. See CRS Report RL33376, Iraq’s
Debt Relief: Procedure and Potential Implications for International Debt Relief, by Martin
A. Weiss for further details.
18 Includes appeal and outside-appeal aid from all donor countries, except the United States.
U.N. Office for the Coordination of Humanitarian Affairs. Total Humanitarian Assistance
for Iraq Crisis 2003. April 5, 2004.
19 SIGIR, Report to Congress, October 30, 2007, p 144; State Department, 2207 Report to
Congress, October 2007, Appendix II.

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CRS-11
pledges, more than $2.5 billion has been disbursed, much of it as a contribution to
the IRFFI (see below).20
Japan and Britain have been notably active in providing bilateral assistance.
Japan, the second largest donor after the United States, has already spent most of the
$1.5 billion in grant aid it pledged and has developed projects for use of $1.6 billion
of a $3.5 billion concessional loan. Among other things, it has provided significant
funding for electrical power station rehabilitation, water treatment units and tankers,
medical equipment, and firetrucks and police vehicles. The loan is funding port and
power plant rehabilitation and irrigation improvements. Britain has offered
considerable technical assistance and related support for improvements in the justice
system, governance, and economic policy.
Among multilateral contributions, the IMF provided a $469 million Emergency
Post-conflict Assistance package in 2004 and continues to offer a roughly $750
million Standby Arrangement on which Iraq can draw, but has yet to do so. The
World Bank has allocated $399 million of a $500 million concessional loan program,
including a $100 million education project, $135 million road project, and $124
million electric power project.21
Iraq Trust Fund. During much of the occupation, donors had been reluctant
to contribute to reconstruction because they had no say in where the funds are to be
allocated.22 To deal with this concern, a multi-donor trust fund, the International
Reconstruction Fund Facility for Iraq (IRFFI), was established on December 11,
2003. It encourages contributions by keeping them outside the control of the United
States, but supports needs identified in the World Bank needs assessment and
approved by the Iraqi government. The Facility has two windows, one run by the
Bank (the World Bank Iraq Trust Fund) and one by the United Nations (UNDG Iraq
Trust Fund). As of July 31, 2007, donors had deposited about $1.7 billion in the
Facility. The World Bank Fund ($462 million deposited) has financed textbooks,
school rehabilitation, and water and sanitation infrastructure, and has provided
hundreds of Iraqi civil servants with management training. The UNDG Fund ($1.3
billion deposited) is supporting a wide range of projects, most to be implemented by
the Iraqi government.23
United Nations. In addition to the above donor projects, the United Nations,
has been largely responsible for providing assistance and guidance to promote the
democratization of Iraq, including support to the transitional government and the
Iraqi Electoral Commission. U.N. envoy Lakhdar Brahimi helped negotiate the
transition to sovereignty, and a U.N. team headed by Carina Perelli assisted the
20 SIGIR, Report to Congress, October 30, 2007, p. 144.
21 IMF, Iraq Financial Position in Fund as of September 30, 2007 [http://www.imf.org];
World Bank, World Bank Operations in Iraq, as of September 30, 2007.
22 “U.S. Seeks Help With Iraq Costs, But Donors Want a Larger Say,” New York Times, July
14, 2003; “Bush’s Plea for Iraq Aid Falls on Deaf Ears,” Financial Times, September 25,
2003.
23 IRFFI website [http://www.irffi.org].

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CRS-12
implementation of elections for the National Assembly, successfully held on January
30, 2005. With U.N. assistance the electoral law was drafted, thousands of registrars
were trained, 540 registration centers were set up around the country, millions of
ballots were printed, 5,300 voting centers established, and thousands of poll watchers
trained. Much of the U.N. election work was conducted from outside Iraq, with only
about 40 expatriates in Iraq and 600 Iraqi employees implementing activities.
Subsequently, the U.N. helped with the constitution-writing process, the
constitutional referendum, and the December 2005 parliamentary election. With
Trust Fund support, the development organizations within the United Nations are
actively working on dozens of projects. There are about 800 mostly local staff in
Iraq, and about 200 international staff based in Jordan. U.N. Security Council
Resolution 1770, approved August 10, 2007, extended the U.N. Mission for Iraq
(UNAMI) another year and called on the U.N. to expand its role in assisting Iraq. As
a result, the number of U.N. international staff in Iraq itself is expected to nearly
double from its current level of about 50.24
International Compact for Iraq.
In response to a continuing U.S. effort
to encourage greater levels of donor contributions, the U.N. and Iraq, on July 27,
2006, launched an International Compact with Iraq. Under this initiative,
participating donor countries have pledged funds and, in return, Iraq has promised
a five-year program of specific reforms and actions leading to long-term economic
and political development. The Compact was finalized at a donor meeting held in
Egypt on May 3, 2007, attended by more than 60 countries. Roughly $700 million
in grant and loans commitments and $21 billion in debt relief are estimated to be
associated with the Compact, not counting a $10.7 billion pledge from the United
States that was requested in the FY2007 Supplemental, FY2008 regular, and FY2008
Emergency budget proposals made in February 2007.25
U.S. Assistance Policy and Program Structure
On June 28, 2004, the Coalition Provisional Authority (CPA), the agency
established to temporarily rule Iraq and implement reconstruction programs, was
dissolved as Iraq regained its sovereignty. At that time, broad responsibility for
assistance programs moved from the Secretary of Defense to the Secretary of State.26
At the Department of State, the Senior Advisor and Coordinator for Iraq is David
Satterfield. In Iraq, the United States provides assistance and, to the extent possible,
policy guidance to the Iraqi government through its U.S. embassy. Ryan Crocker is
the Ambassador. The embassy employs about 1,000 U.S. direct hire staff.
24 “Security Council Approves a Broader U.N. Mandate in Iraq to Seek Reconciliation,” New
York Times, August 11, 2007.
25 Ambassador David Satterfield, State Department briefing on April 30, 2007; SIGIR,
Report to Congress, July 30, 2007, p. 131.
26 According to National Security Presidential Directive (NSPD) of May 11, 2004. It made
the Secretary of State responsible for “continuous supervision and general direction of all
assistance for Iraq.”

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CRS-13
On May 15, 2007, President Bush chose Lieutenant General Douglas Lute to
serve as his so-called “war czar” in the capacity of Assistant to the President and
Deputy National Security Advisor. He is expected to coordinate and manage the
implementation of the new strategy in Iraq, including assistance program activities.
By executive order (13431), on May 15, 2007, an Iraq Transition Assistance
Office (ITAO) was established in the embassy, supplanting some of the functions of
the Iraq Reconstruction Management Office (IRMO) that had, itself, supplanted CPA
efforts in setting requirements and priorities for the aid program. The ITAO is
headed by Mark Tokola. Under the President’s new strategy for Iraq, an office of the
Coordinator for Economic Transition in Iraq (CETI), headed by Ambassador
Timothy Carney, has been established to help integrate assistance with military
strategy and facilitate the transition to Iraqi self-reliance.
The Project and Contracting Office (PCO), formerly the CPA’s Program
Management Office (PMO), are run by the Army Corps of Engineers, Gulf Region
Division (GRD), headed by Brig. Gen. Michael J. Walsh.27 The GRD-PCO is chiefly
responsible for the roughly $10 billion in FY2004-funded IRRF programs dedicated
to infrastructure construction, as well as follow-on sustainability efforts. The
GRD/PCO coordinates, manages and monitors contracting and expenditures in six
sectors — transport and communications; electricity; buildings/health;
security/justice; public works/water resources; and oil. Although in the Department
of the Army, it reports to the Department of State as well as to the Department of the
Defense.
Overall responsibility for management of U.S. military activity in Iraq belongs
to Gen. David H. Petraeus, commander of the multinational forces in Iraq. He also
serves as principal military adviser to the U.S. ambassador. Utilizing the roughly $5
billion in IRRF funds and $14 billion of ISFF funds, with the policy guidance of the
Ambassador, Lt. General James Dubik is the officer immediately in charge of
overseeing the training and support of all Iraqi security forces. Although the State
Department had assumed control of technical assistance provided to the different Iraq
ministries, in October 2005 it ceded responsibility to DOD for the two ministries
most closely involved in security matters — Interior and Defense. Among reasons
given for this switch are that DOD has greater resources at its disposal and that State
has had difficulty filling advisor positions in these ministries, the latter point disputed
by some. In most other countries, State has responsibility for training police forces.28
A third major U.S. actor in the implementation of the aid program is the U.S.
Agency for International Development (USAID). Responsible for about $5.2 billion
of assistance to date, USAID manages a wide range of economic, social, and political
development programs. Its programs have included a $2.7 billion construction
project contracted to Bechtel and most activities related to public health, agricultural
development, basic and higher education, civil society, local governance,
democratization, and policy reform.
27 The PCO and IRMO were established by the May 11, 2004 NSPD. See GRD-PCO website
at [http://www.rebuilding-iraq.net].
28 “Aid to Iraq Ministries to Shift to Pentagon,” Washington Post, September 26, 2005.

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CRS-14
The post of CPA Inspector General, created under the FY2004 Emergency
Supplemental legislation (P.L. 108-106), was redesignated the Special Inspector
General for Iraq Reconstruction (SIGIR) by the FY2005 DOD Authorization (P.L.
108-375). Special Inspector General Stuart Bowen, Jr., reports to both the Secretary
of Defense and State. The SIGIR office has about 60 employees examining a range
of issues, including the extent and use of competition in contracting; efficient and
effective contract management practices; and charges of criminal misconduct. The
SIGIR issued his first report to Congress regarding his audits and investigations on
March 30, 2004, and has reported quarterly since then.29
The life span and scope of authority of the SIGIR have been recurrent issues of
concern to Congress. P.L. 108-375 extended the SIGIR beyond its originally
mandated December 2004 expiration until 10 months after 80% of the reconstruction
funds were obligated. The FY2006 Foreign Operations appropriations (P.L. 109-
102) permitted it to function until 10 months after 80% of FY2004 IRRF funds were
expended. The FY2007 Defense Authorization (H.R. 5122/P.L. 109-364) terminated
the SIGIR office on October 1, 2007. Two months after passage of this bill, on
December 20, 2006, P.L. 109-440 set the termination date at 10 months after 80% of
IRRF funds are expended, but, in its definition of IRRF funds for termination
purposes, included all IRRF funding as well as any FY2006 funds made available for
reconstruction purposes regardless of funding account, including ISFF and ESF. In
effect, the legislation extended the life of the SIGIR into 2008. The FY2007
supplemental (P.L. 110-28) adds FY2007 funding to the definition of IRRF for
purposes of determining the SIGIR termination date.
The SIGIR’s scope of authority originally encompassed only the IRRF, although
the SIGIR has responded to specific congressional and executive branch requests to
audit other account programs. The FY2007 Defense Authorization made all FY2006
reconstruction appropriations, regardless of account, subject to SIGIR jurisdiction as
though they were under the IRRF. More recently, both House and Senate committee
reports on the FY2007 supplemental appropriations indicated they also expected
SIGIR authority to include FY2007 reconstruction funding irrespective of funding
account, but they did not address the issue with legislation. The FY2008 Defense
Authorization, H.R. 1585, that was approved by the House on May 17, 2007,
contains language that would broaden the authority of the SIGIR to include all
reconstruction programs from all accounts and all years (and include these as well in
determining termination). Agreement was reached on the House floor during debate
on H.R. 2764, the FY2008 State/Foreign Operations appropriations, to withdraw a
provision with a similar purpose when that bill reaches conference so as to avoid
competing versions.
U.S. Reconstruction Assistance
Among the key policy objectives laid out by the Bush Administration is the
economic and political reconstruction of Iraq. Discussion and debate have been
29 See [http://www.sigir.mil/] for reports and audits.

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CRS-15
ongoing regarding the strategy to reach these ends utilizing reconstruction aid funds
and the effectiveness of aid implementation.
Reconstruction Priorities
Reconstruction priorities have changed over time. Allocations within the Iraq
Relief and Reconstruction Fund (IRRF), the main U.S. assistance account in the first
few years, mirrored shifting events on the ground. For example, in November 2003,
when the CPA decided to accelerate the hand-over of sovereignty, it immediately
revised the allocation of FY2004 IRRF appropriations that had been legislatively
mandated only weeks previously in order to increase substantially the
democratization effort — from $100 million to $458 million. After the State
Department took charge in June 2004, the new U.S. Embassy country team
reallocated FY2004 IRRF resources, emphasizing security needs, increased oil
production, greater employment, and democracy as the highest priorities, at the
expense of many large-scale economic infrastructure projects — in particular water
and sanitation and electricity — that were viewed as too slow and dependent on an
improved security situation to have an immediate impact. Although these and later
reallocations were pragmatic responses to new events on the ground, their cumulative
impact has been to divert funds from previously planned programs. As a result, water
and sanitation projects were cut by half (from $4.3 billion to $2.1 billion), and
electric power programs lost a quarter of their original funding (from $5.6 to $4.2
billion).
Table 2. Iraq Relief and Reconstruction Fund (IRRF)
($ millions)
Current
Obligations as of
Sector
allocation
November 7, 2007
Exp.
FY2004 Supplemental (P.L. 108-106)
Security and Law Enforcement
4,984
4,361
4,254
Justice and Democracy
2,283
2,242
2,118
Electricity
4,199
4,047
3,576
Oil Infrastructure
1,713
1,595
1,533
Water and Sanitation
2,076
1,971
1,719
Transport and Telecommunications
453
450
372
Roads, Bridges, Construction
329
322
236
Health
798
775
703
Private Sector
821
819
801
Education, Refugees, Governance
426
421
389
Administrative Expenses
213
209
208
Total FY2004 Supplemental
18,296
17,213
15,907
FY2003 Supplemental (P.L. 108-11)
2,475
2,232
2,139
Total IRRF
20,771
19,446
18,046
Sources: Department of State, Iraq Weekly Status Report, November 7, 2007.

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CRS-16
Current Priorities. As of the end of September 2006, IRRF funds are no
longer available for obligation, and large-scale infrastructure programs will no longer
be funded by the United States (although targeted neighborhood-oriented
infrastructure projects and sustainment of completed projects will continue).30 The
major elements of current assistance are as follows:
! Military-Security Assistance. Almost two-thirds of total FY2007
regular and supplemental appropriations are for the training and
equipping of Iraqi security forces. This effort is funded entirely
from the ISFF.
Economic-social-democratization assistance is funded mostly with Economic
Support Fund (ESF) assistance, categorized under three “tracks”:
! Security Track. Under the security track are assistance programs
most closely associated with the Administration’s new strategy for
Iraq, largely programs supporting work of the Provincial
Reconstruction Teams (PRTs). Fifteen new PRTs have been
established to join the existing 10, but concentrated in strategic
locations, embedded with combat battalions (ePRTs). These work
with Iraqi local leaders to identify economic and political
development projects that can be implemented with U.S. financing
(see PRT section below for details).
! Economic Track. This track encompasses assistance to help Iraqis
operate, maintain, and sustain U.S.-funded infrastructure projects
(see sustainability section below for discussion).
! Political Track. Under the political track are a range of efforts to
support governance, democratization, and rule of law programs at all
levels of government in Iraq, including helping Iraqi ministries
improve their ability to operate and helping local governments
administer their provinces and municipalities.
Security, sustainability, PRTs, and governance remain key features of the
Administration budget requests for FY2008.
Reconstruction Programs and Issues
Status. Reconstruction programs have shown mixed results to date. There are
many positive outputs, such as schools rehabilitated, vaccinations provided, and so
on. However, in the most critical sectors — electric power and oil production —
30 According to the SIGIR, most of the “unobligated” FY2003 IRRF funds were used to
reimburse the State Department for reconstruction costs incurred prior to the appropriation.
SIGIR, Report to Congress, October 31, 2007, p. 61. According to the State Department,
$402 million of the remaining “un-obligated” FY2004 IRRF funds are considered “expired”
and can only be used for claims and adjustments related to existing IRRF-funded contracts.
2207 Report to Congress, October 2007, p. 1.

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CRS-17
outputs have been less than originally envisioned. (In recent months, there have been
noteworthy improvements in both of these sectors.) Moreover, the impact of U.S.
projects on Iraq is hard to estimate, and the extent to which they and other-donor
contributions meet the total needs of Iraq has not been fully assessed. Although
mismanagement and corruption play a large role in diminishing returns from
reconstruction efforts, it has been the lack of stability and the effects of the
insurgency that have most affected the course of reconstruction to date.
A brief review of assistance sectors:31
! Security and Justice. More than 1,200 facilities — police stations,
border forts, fire stations, courts, etc. — have been completed.
About 359,700 police and military security forces have been trained
and equipped. Security responsibility for 8 of the 18 provinces has
now been transferred to Iraqi military control. Reports indicate,
however, that many security forces are insufficiently trained to
required levels of competence, and a number are linked to sectarian
militias. The police are a particular concern; the September 2007
Independent Commission report recommended that the National
Police force be eliminated and reconstituted. Additional challenges
are the efforts to develop logistics capabilities in the Iraqi Army; in
September 2007, U.S. logistics support was withdrawn from both
army and police training and operations centers.32
! Healthcare. The focus of this sector has been to rehabilitate and
equip facilities and provide medical services such as immunizations.
Health care providers have been trained and completed health
facilities equipped. The immunization program has been a success,
with nearly 98% of children under five immunized against polio.
Nonetheless, according to a July 2007 Oxfam International report,
90 percent of Iraq’s 180 hospitals lack basic medical and surgical
supplies. Many construction projects experienced considerable
delays, and contracts won by U.S. firms had to be revoked and re-
awarded to Iraqis. Of 20 hospitals being refurbished, 12 were
completed by the original contractor and the rest re-awarded to
Iraqis. Only 7 of a planned 142 new clinics will be finished by the
original contractor; 80 have been completed. Further, the Basrah
Children’s Hospital has had significant cost overruns. Moreover, the
ability to open new facilities has been hindered by the lack of
31 SIGIR, Report to Congress, October 30, 2007, p. 89-132; Department of State, 2207
Report to Congress, October 2007; Department of State, Iraq Weekly Status Report,
November 7, 2007.
32 General James Jones, et al., The Report of the Independent Commission on Security
Forces in Iraq, September 6, 2007 [http://www.csis.org/isf/], SIGIR, Report to Congress,
October 30, 2007, p. 11, 29-38.

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CRS-18
doctors; since 2003, the number of doctors has fallen from 24,000
to 14,000.33
! Transportation and Communications. Key results in this sector
are the restoration of the deepwater port at Umm Qasr, and repairs
on 96 of 98 railway stations, as well as two international and three
regional airports. Although the airports and seaport have shown
considerable activity, only a tiny percentage of Iraqi trains run
because of security concerns. The SIGIR notes that road repairs,
mostly village roads, are only targeting a very small percentage of
total road and bridge work required (for example, only 8 repaired
bridges of 1,156 in poor condition or destroyed) and have been
delayed by security problems. While U.S. assistance has supported
modernization of the postal service and rebuilding of the landline
telephone network, the strongest advance is due to the private sector
provision of mobile phone technology, helping to raise total phone
users from 913,000 to nearly 10 million.
! Democracy. Local governance has been strengthened through
establishment of councils and community associations. More than
6,000 grassroots projects have been conducted through USAID
grants provided to more than 1,450 community action groups. Voter
education, training of election monitors, and related activities
contributed to three successful elections in 2005. Technical experts
provide advice to government agencies regarding adoption of
possible budgetary and management reforms. However, as the
SIGIR notes, steps have not been taken to hold long-promised local
elections, and limited progress has been made on achieving national
reconciliation, including amending the Iraqi constitution.34
! Education, Agriculture and Private Sector Development. About
6,716 schools have been rehabilitated and 60,000 teachers trained.
Irrigation systems were rehabilitated, 68 veterinary clinics
reconstructed, and 83,500 date palm offshoots were planted.
Agricultural extension agents are being trained and agribusiness
supported. Bank credit officers have been trained, and credit is
provided to micro and small business. Efforts to reinvigorate state-
owned factories have met with limited success to date (see
discussion below).
! Refugees and IDPs. More than 4.4 million Iraqis have fled their
homes due to sectarian violence. Roughly half are refugees in other
countries and the other half are internally displaced people (IDPs).
Most U.S. assistance in this sector is channeled through the U.N.
High Commission for Refugees (UNHCR), the International Red
33 Oxfam International, Rising to the Humanitarian Challenge in Iraq, July 30, 2007, p.11;
SIGIR, Report to Congress, October 30, 2007, p.127-128.
34 SIGIR, Report to Congress, October 30, 2007, p. 89-90.

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CRS-19
Cross, and other agencies. More than $500 million has been
allocated to date.35
! Electricity. U.S.-funded projects have added 2,120 megawatts
(MW) to Iraq’s generating capacity. Before the war, electric power
was 4,500 MW and, until recently, capacity fell well below this level
despite an early goal of reaching 6,000 MW. However, by the third
quarter of 2007, it had increased to around 4,550 MW, a post-war
record. In Baghdad, Iraqis receive fewer hours of electricity than
before the war (averaging about 9 hours in late October); elsewhere
they receive more than previously (about 13 hours). In addition to
the impact of insurgent activity, other challenges to the growth of
electrical power are the rising demand for electricity, a lack of
centralized monitoring and control systems, poorly maintained
infrastructure, and a shortage of fuels to operate power plants. The
GAO estimates that an infrastructure investment of $27 billion is
required to meet demand.36
! Oil and Gas. Although the original U.S. goal was 2.8-3.0 MBD by
end of 2004, oil and gas production remained stagnant and well
below the pre-war level of 2.5 million barrels/day for some years.
Production held steady during most of the past year at around 2.0
MBD, falling in mid-August to 1.2 MBD due to power outages.
However, in the past few months the level has risen, reaching 2.4
MBD at end of October 2007. According to the SIGIR, poor
infrastructure, corruption, and difficulty maintaining and operating
U.S.-funded projects join the destruction caused by the insurgency
as major challenges. As the IRRF projects end, only relatively small-
scale CERP activities in this sector remain.
! Water and Sanitation. Water and sanitation sector assistance has
provided clean water to 6.7 million people and sanitation to 5.1
million. However, according to the aforementioned Oxfam report,
the number of Iraqis without access to clean water has risen since
2003 from 50 percent to 70 percent and 80 percent lack sanitation.
CERP funds now play the main role in water assistance.37
Infrastructure Sustainability and Asset Transfer.
As
large-scale
construction projects — power plants, water and sanitation systems, oil facilities, etc.
— were completed, there has been concern regarding the ability of Iraqis to maintain
and fund their operations once they are handed-over to Iraqi authorities. This
concern has grown following SIGIR “sustainment reviews” that suggested projects
transferred to Iraqi control are not being adequately maintained. For instance, a July
35 See CRS Report, CRS Report RL33936, Iraqi Refugees and Internally Displace Persons:
A Deepening Humanitarian Crisis? for details.
36 “Iraq Far From U.S. Goals for Energy,” Washington Post, September 2, 2007.
37 Ibid, Oxfam, p. 3.

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CRS-20
2007 assessment found that two Baghdad region power station units that had been
rehabilitated with U.S. funds were not operational, largely because of insufficiently
maintained equipment.38
To insure long-term sustainability, the U.S. effort — the so-called “economic
track” now led by the Army Corps of Engineers — has focused on capacity
development — providing training to the appropriate personnel in the labor force
who will operate and maintain facilities and insuring sufficient funds are available
for repairs and equipment replacement following project completion. At the Ministry
level, the IRMO (now ITAO) is assisting development of policies and laws
conducive to efficient use and maintenance of infrastructure. The SIGIR has pressed
the embassy to encourage ministries to develop strategic plans for sustainment of its
infrastructure.39
In addition, the United States is providing significant assistance to support the
physical protection of important infrastructure, in particular electricity and oil
facilities. Efforts to secure infrastructure include the construction of security
perimeters, lighting and communications improvements, establishment of exclusion
zones for pipelines, and enhancements to the forward operating bases used by the
Iraqi army to protect infrastructure.40
The long-term responsibility for sustainability, however, lies with the Iraqi
government. The IRMO estimated that it would cost about $1.2 billion annually to
operate and maintain U.S.-sponsored projects.41 Whether the Iraqi government can
shoulder the burden of additional costs will likely depend on the level of resources
it is able to draw on from oil profits and international donors.
Although a “principal objective” of the U.S. infrastructure construction program
has always been the “swift transition of the reconstruction effort to Iraqi management
and control,” the SIGIR found in July 2007 that the Iraqi government had not
accepted any U.S. project transfers since July 2006. As of May 31, 2007, 2,363
projects valued at $5.3 billion awaited transfer. According to the SIGIR, the U.S.
government in some cases has continued to fund maintenance of projects pending
acceptance by Iraq.42
38 SIGIR, Report to Congress, April 30, 2007, p. 147; SIGIR, Report to Congress, July 30,
2007, p.7; SIGIR, Project Assessment 07-103, Doura Power Station Units 5 and 6, July 18,
2007.
39 Briefing by PCO on Capacity Development, March 17, 2005; SIGIR, Report to Congress,
April 30, 2007, p. 83-85.
40 SIGIR, Report to Congress, April 30, 2007, p. 81.
41 SIGIR, Transition of Iraq Relief and Reconstruction Fund Projects to the Iraqi
Government, Audit 06-017, July 2006.
42 Iraq Reconstruction Pre-Proposal Conference Briefing Slide Show, DOD, January 21,
2004; SIGIR, Transferring Iraq Relief and Reconstruction Fund Capital Projects to the
Government of Iraq, Audit 07-004, July 25, 2007.

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Capacity Development. Much effort and assistance has gone into improving
the capabilities of government ministries, including equipping and training personnel
at all levels of service. Ministry officials and staff, however, remain deficient in
knowledge of modern administrative systems and management practices. The
current focus is on improving budget execution and service delivery, considered by
many to be essential elements of an effective Iraqi government. As noted earlier,
both the national Government of Iraq and provincial governments have had difficulty
implementing capital budgets. U.S. programs, including institution of provincial
procurement assistance teams and a range of training programs in public
administration, appear to have led to some improvement over the previous year’s
performance in this regard.
In the past year, the SIGIR has highlighted problems with U.S. implementation
and coordination of capacity development programs, pointing out that, as there is no
single organization responsible for the reconstruction effort, the capacity building
program has gone without an integrated plan providing coordination and priorities
to the multiple organizations responsible for it, points reiterated in a recent GAO
report on the effort. Perhaps responding to the SIGIR’s concerns, in early 2007, the
newly appointed Coordinator for Economic Transition began leading an Embassy
Budget Execution Initiative. This initiative encompasses an interagency task force
to coordinate U.S. activities, including those of USAID and the U.S. senior
consultants assigned to each ministry. The GAO report suggests that this and parallel
efforts have not yet resolved coordination issues and that only now are U.S. officials
beginning to develop a capacity development strategy.43
Provincial Reconstruction Teams (PRTs). In an effort to expand
outreach to the provinces and strengthen local government, the U.S. Embassy, in
mid-2005, began establishing Provincial Reconstruction Teams (PRTs). The PRTs
are made up of Embassy, PCO, USAID, military, and other agency staff, between 35
and 100 members in each, with the State Department as leader. Prior to the new Iraq
strategy announced in January 2007, 10 PRTs had been established in Kirkuk,
Ninewa (Mosul), and Babil (Hillah), as well as in Baghdad, Anbar, Diyala, Salah-ad-
Din, Basrah, Nasiriyah, and Irbil (for all of Kurdistan). The latter three PRTs are
British, Italian, and South Korean-led, respectively.44 In addition to the PRTs, there
are seven Provincial Support Teams (PSTs), much smaller teams that provide advice
to provincial officials.45
The PRTs are now a major purveyor of U.S. reconstruction aid — responsible
for over $1 billion in FY2006 and FY2007 ESF funds — and a key element in the
President’s new strategy for Iraq. In its first iteration, that plan would have added 10
43 SIGIR, Status of Ministerial Capacity Development in Iraq, Audit 06-045, January 30,
2007; SIGIR, Report to Congress, July 30, 2007, p. 61-66; SIGIR, Report to Congress,
October 31, 2007, p. 101-105; GAO, U.S. Ministry Capacity Development Efforts Need an
Overall Integrated Strategy to Guide Efforts and Manage Risk, GAO-08-117, October 2007.
44 SIGIR, Review of the Effectiveness of the Provincial Reconstruction Team Program in
Iraq, 07-015, October 18, 2007; Department of State, 2207 Report to Congress, October
2006, p. 5. “Military to Protect U.S. Aid Teams in Iraq,” Washington Post, April 14, 2006.
45 The PSTs are either being converted to PRTs or blended into existing PRTs.

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CRS-22
new PRTs and expanded the number of total civilian staff from 290 to nearly 600.46
In June 2007, however, the plan was revised. Now, a total of 15 new PRTs have
been established and total personnel needs are expected to rise to 800. These new
PRTs are structured differently than their predecessors. The new PRTs — called
ePRTs — are embedded in Brigade Combat Teams with the Brigade Commander
acting as leader. In essence, the strategy envisions that, as U.S. and Iraqi military
forces work to clear an area, ePRT staff will work with local Iraqis to further stabilize
the area by drawing on all available spigots of U.S. and Iraqi government funding to
create jobs and meet other basic needs. Of the 15 ePRTs — nine are in Baghdad,
three in Anbar, one in northern Babylon, one in southern Diyala, and one is in Wasit
province. As of end August 2007, about 133 of the anticipated staff had been
deployed, with more to follow by December.47
While the new ePRTs are more focused on establishing stability, the regular
PRTs emphasize improvement of local governance. They work together with local
community and Iraqi government representatives — forming the Provincial
Reconstruction Development Councils (PRDCs) — to identify projects that can be
implemented and carried out with U.S. financing. It is anticipated that, as a result of
this collaboration, local governments may be strengthened while U.S. projects
achieve more lasting support. The PRTs also work closely with provincial
governments to strengthen their capacities and enable them to better interact with the
central government, as well as to more effectively utilize the Iraqi government funds
that have been allocated to each province. According to U.S. officials, only about
22% of the 2006 Iraqi capital budget of about $6 billion was utilized.48 In
conjunction with the Administration’s new strategy, the Iraqi government has
allocated a $10.5 billion capital budget for 2007. An additional expected benefit of
the PRTs is that U.S. agencies may better coordinate their reconstruction programs.
At the disposal of all PRTs is a tool-box of projects that can be implemented at
the grass-roots level. In addition to a range of economic projects directly handled by
the PRTs, USAID runs several programs under the framework of the PRTs. The
Community Action Program (CAP) funds projects identified by local representative
associations, stimulating democratic participation, while meeting local needs and
creating short-term employment. The Community Stabilization Program (CSP)
addresses economic needs in specific strategic cities, providing youth programs,
micro and small enterprise support, and vocational training. The Local Governance
Program (LGP) helps build management and knowledge skills of provincial
government personnel. Complementing the work of the PRTs and USAID, funding
from the Commander’s Emergency Response Program (CERP) is also available to
pacify the local population where PRTs reside. A large proportion of CERP projects
support local, small-scale infrastructure construction, especially in the water and
sanitation and electrical power sectors. In August 2007, a new Quick Response Fund
46 Ambassador Satterfield, Teleconference, February 7, 2007.
47 SIGIR, Report to Congress, July 30, 2007, p.53-60; SIGIR, Status of the Provincial
Reconstruction Team Program Expansion in Iraq, Audit 07-014, July 25, 2007.
48 SIGIR, Report to Congress, July 30, 2007, p. 61.

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CRS-23
(QRF) that mimics the flexibility of the CERP in funding local community projects
was made available to the PRTs.
There have been security and staffing constraints to the work of PRTs, however,
that might also pose problems for the expansion effort. One reason there had been
limited grassroots development work in the provinces up to the creation of the PRTs
is the lack of security. Although originally reluctant to divert the necessary
manpower from its other responsibilities, the Department of Defense agreed to
provide protection to the PRTs. A Memorandum of Understanding to this effect was
signed in November 2006. However, according to an October 2006 SIGIR report,
minimum “movement” by PRT personnel required three armored vehicles and eight
“shooters.” Normal business was, therefore, difficult. The SIGIR reported that many
PRT members could not regularly meet with local government officials to carry out
their capacity-building chores; and in the two locations where coalition military
forces provided security, due to U.S. rules forbidding their use, U.S. personnel
generally could not leave their compounds.49 Further, a former PRT diplomat who
left in January 2007 suggested that local Iraqis were too intimidated to meet with
U.S. staff and that training sessions had been cancelled due to security concerns.50
In January 2007 congressional testimony, however, Secretary Rice indicated that
civilian staff were able to meet regularly with local government personnel, and
Ambassador Satterfield claimed in February 2007 that the SIGIR’s views on this
issue did not reflect current reality. But a March 2007 article based on PRT foreign
service officer reports indicated that the security problem had persisted.51 The
October 2007 SIGIR report continued to find that PRT performance was impeded by
security concerns, and its draft version even recommended that personnel be
reassigned to better functioning PRTs until security improved. According to the
SIGIR, the Embassy and military have promised new efforts to ensure that PRTs are
not hindered by lack of appropriate security.52
The March 2007 article mentioned above also raised the concern that security
obstacles facing PRTs might increase as U.S. troops protecting PRT staff hand
responsibility for security over to Iraqi forces. In September 2007 testimony to
Congress, a SIGIR official noted that there was little coordination between the PRTs
and U.S. military in those cases where security has been handed to the Iraqis. As a
result, the official suggested that U.S. civilians will be unable to move about freely
and, consequently, PRTs may be unable to function in those areas where the U.S.
military steps down.53
49 SIGIR, Status of the Provincial Reconstruction Team Program in Iraq, 06-034, October
29, 2006.
50 “Ex-Envoy Says Iraq Rebuilding Plan Won’t Work,” Reuters, February 17, 2007.
51 “Rice’s Rebuilding Plan Hits Snags,” Washington Post, January 15, 2006; Testimony of
Secretary Rice to Senate Foreign Relations Committee, January 11, 2007; Teleconference
of Ambassador Satterfield, February 7, 2007; Shawn Dorman, “Iraq PRTs: Pins on a Map,”
Foreign Service Journal, March 2007.
52 SIGIR, Review of the Effectiveness...., October 18, 2007, p. x.
53 Shawn Dorman, “Iraq PRTs: Pins on a Map,” Foreign Service Journal, March 2007;
(continued...)

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A second issue is the availability of qualified U.S. government civilian staff.
Early reports of its first year of operations suggested that State was having difficulty
enticing its personnel to volunteer for PRT posts. According to the SIGIR, DOD
stepped in to provide military civil affairs personnel in place of the State posts, but
required skills for such posts as local government, city management, business
development, and agricultural advisers were not being fully met. That situation has
continued as the ePRTs are established. About 104 of the new ePRT posts are
temporarily occupied by military personnel or civilians until State is able to recruit
sufficient numbers of skilled individuals. Those recruited in specialized skills are
mostly contract personnel, because such skills are not typically available from either
the State or USAID foreign service. As many as 278 such personnel are expected to
eventually be needed. According to the October 2007 SIGIR report, many PRTs are
at half-capacity, there is a mismatch of skills to requirements, and there are only 29
bilingual Arabic-speaking cultural advisers of 610 personnel. 54
The Role of Iraqis in Reconstruction and the DOD Plan to Re-start
State-Owned Enterprises. One facet of the U.S. reconstruction effort has been
an attempt to encourage economic growth and decrease unemployment by trying to
utilize Iraqis in the implementation of projects. In 2003-2004, this involved making
Iraqi businessmen aware of contract opportunities and encouraging U.S. contractors
to employ Iraqi firms. Although U.S. government requirements could be waived for
Iraqi contractors, most work for Iraqi business came in the form of subcontracts for
U.S. prime contractors.
When the State Department took over reconstruction in July 2004, however,
greater efforts were made to contract project work directly with Iraqis. By 2005, the
SIGIR estimated that about 70%-80% of new contracting was directly with Iraqis.55
A contributing factor in this effort was the deleterious impact of security on the
activities of the large-scale contractors. In January 2005, Contrack International,
holder of a $325 million roads and bridges construction contract, announced its
withdrawal.56 Consequently, many bridge and road projects were then implemented
directly with the Ministry of Construction, with estimated savings of between 30%
and 40%.57 As some U.S. contractors were shown to perform inadequate work, they
were replaced by Iraqi contractors. The PCO claims that hundreds of Iraqi firms are
53 (...continued)
Testimony of Ginger Cruz, Deputy SIGIR, to House Armed Services Committee, Subcomm.
on Oversight, September 5, 2007.
54 SIGIR, Report to Congress, October 30, 2007, p.87; “Pentagon Agrees to Help Fill State
Department’s Iraq Reconstruction Jobs on Temporary Basis,” New York Times, February
20, 2007; Teleconference of Ambassador David Satterfield, February 7, 2007; and Robert
Perito, Provincial Reconstruction Teams in Iraq, United States Institute of Peace, February
2007.
55 Stuart Bowen, Testimony to House Foreign Operations Appropriations Subcommittee,
September 7, 2005.
56 BNA, Inc. Federal Contracts Report, January 11, 2005.
57 Ambassador Jeffrey, Testimony to House Foreign Operations Subcommittee, September
7, 2005. State Department, 2207 Report to Congress, October 2005, p. 3.

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currently working on U.S.-funded reconstruction projects, although these numbers
are falling significantly as construction projects are completed. CERP and USAID
Community Action Program grants are often designed to directly employ large
numbers of Iraqis, many at the village level. About 116,490 Iraqis are reported to be
currently employed under all U.S.-funded projects.58
In the past year, U.S. defense officials, seeking to create employment
opportunities for Iraqi citizens, have begun rehabilitating some of the roughly 200
state-owned enterprises that composed a large portion of the Iraqi economy prior to
the U.S. occupation. Soon after the occupation began, the CPA attempted to
privatize them in an effort to open up a free market economy in Iraq, but officials
gave up on what promised to be a politically unpopular endeavor when the turnover
of sovereignty was accelerated. The Defense Department plan envisioned the
production in Iraq of items required by the U.S. military, some of which are currently
produced by neighboring countries. Additionally, U.S. firms have been asked to
consider purchasing supplies from Iraqi enterprises.
To support this effort, the Administration sought $100 million in DOD FY2007
supplemental funding; Congress approved $50 million for this purpose. The
Administration is currently seeking another $100 million in the DOD Iraq Freedom
Fund account under the FY2008 emergency supplemental to continue this effort.
Funds are being used to supply generators and other supplies.59 According to the
press, however, DOD officials have been disappointed with the results. Between
November 2006 and September 2007, 17 factories had started-up: among them, one
producing Iraqi uniforms, another armored vehicles, and another household ceramic
bathware for domestic Iraqi consumption. Only 5,000 jobs have been created versus
the DOD employment goal of 150,000 jobs in 140 restarted factories by September
2008.
Skepticism had been expressed regarding the DOD plan. Some observers
questioned the extent to which violence would be reduced as a result of expanded
employment. Some were concerned that the SOEs might provide targets for
insurgents. Others have suggested that, unless well-managed, investments in SOEs
might provide opportunities for corruption and political manipulation.60 DOD
officials attribute the program’s problems to a lack of enthusiasm by U.S. companies,
the Iraqi consumer’s preference for imported goods, the lack of electricity, and the
58 Department of State, Iraq Weekly Status Report, November 7, 2007.
59 DOD News Briefing with Deputy Undersecretary Paul Brinkley, March 28, 2007; “To
Stem Iraqi Violence, U.S. Aims to Create Jobs,” Washington Post, December 12, 2006;
“Bush to Propose Restoring Iraqi Factories to Create Jobs,” New York Times, January 10,
2007; “Aging and Shut, Iraq Factories May Reopen and Mitigate Ills,” New York Times,
January 18, 2007.
60 United States Institute of Peace, State-Owned Enterprises: Post-Conflict Political
Economy Considerations, March 2007. “Defense Skirts State in Reviving Iraqi Industry,”
Washington Post, May 14, 2007.

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uncertain political and security environment. However, the SIGIR notes an
acceleration in the pace of the program in recent months.61
CERP. Drawn from DFI and Department of Defense funds rather than IRRF
or ESF appropriations, the Commander’s Emergency Response Program (CERP)
contributes to the reconstruction effort by providing U.S. military commanders on the
ground with “walking around money” intended to win hearts and minds throughout
Iraq. Up to now, a total of $2.8 billion — $548 million in Iraqi funds and nearly $2.3
billion in U.S. DOD appropriations — has been made available for this purpose.
The CERP supports a wide variety of reconstruction activities at the local level,
from renovating health clinics to digging wells to painting schools, provided in the
form of small grants. CERP also funds infrastructure efforts, such as repair or
provision of electric generators and construction of sewer systems. Commanders
identify local needs and dispense aid with few bureaucratic encumbrances. Major
subordinate commanders have authority to approve grants up to $500,000. The
grants have been credited with helping the military better exercise their security
missions, while at the same time meeting immediate neighborhood development
needs. In addition to reconstruction, CERP funds are used for compensation
payments to the families of killed or injured Iraqis.62
As the IRRF program has declined, the CERP program has grown as a major
spigot of U.S. aid in Iraq. From its beginnings as a small-scale village program —
the average grant in FY2004 was $67,000 — it is now the major source of U.S.
infrastructure construction aid with an average grant in FY2006 of $140,000.
The SIGIR and others have raised some concerns regarding the CERP, most
derived from the essentially different security and reconstruction objectives of
military and civilian efforts, respectively. Among the SIGIR’s concerns is that there
is no mechanism to measure the outputs and outcomes of CERP projects. Secondly,
the high turnover of military personnel in Iraq means that there is little continuity in
management and oversight of the projects. Other observers have noted that civil
affairs officers and others allocating CERP grants are not development specialists and
have been provided little or no training on the selection and management of
reconstruction activities. The program’s early rationale — that the military were the
only ones able to conduct small-scale reconstruction in places where civilian U.S.
officials and NGO aid personnel were unable to go — appears less strong now that
civilian ePRT personnel are embedded in combat battalions. Further, the October
2007 SIGIR report on the PRTs points to cases where the use of CERP funds to meet
local needs conflicted with PRT efforts to make local government assume
61 “U.S. Falters in Bid to Boost Iraqi Business,” Washington Post, August 24, 2007; SIGIR,
Report to Congress, October 30, 2007, p. 95; “In Iraq, One Man’s Mission Impossible,”
CNNMoney.com, September 4, 2007.
62 SIGIR, Report to Congress, January 30, 2007, Appendix G.

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responsibility for provision of local services and work with the provincial and
national government, instead of the U.S. military, to address problems.63
Security. The successful conduct of reconstruction work is contingent on an
environment of order and stability. Although recent reports suggest a lessening of
violence in parts of the country, the cumulative effect on the reconstruction effort of
years of continued instability has been manifold.
! The instability has hindered implementation of reconstruction
projects. Security threats have prevented PRT personnel from
communicating directly with local governments, construction
workers from appearing at their jobs, and project managers from
monitoring project work.64
! Completed reconstruction projects and pre-existing infrastructure
have been destroyed. For instance, in June 2007, eight of the twelve
400-kV transmission lines were out of service, greatly reducing the
electricity supply to Baghdad. Major pipelines continue to be
sabotaged, shutting down oil exports. Along with criminal activity
and poor equipment, insurgent attacks are estimated to be
responsible for the loss of $16 billion in oil revenue during a two
year period from 2005-2006.65
! Reconstruction costs rose substantially due to the need to provide for
security and insurance for personnel. Estimates of the portion of
project costs devoted to security have varied widely. A 2006 SIGIR
survey of major U.S. contractors found security costs to range from
a low of 7.6% to a high of 16.7%. Unanticipated security costs as
well as the related need to shift $1.8 billion from water and power
projects to the training and equipping of Iraqi forces has meant that
infrastructure programs could accomplish less than originally
anticipated.66
! Implementing organizations and personnel have fled. Fearing for
their safety, many aid implementors have been withdrawn from the
country. U.N. and bilateral aid donors have been reluctant to initiate
63 SIGIR, Review of the Effectiveness of the Provincial Reconstruction Team Program in
Iraq, 07-015, October 18, 2007, p. 23-24.
64 For example, the SIGIR reports that on March 24, 2006, a project manager received an e-
mail threatening all employees — as a result, no one came to work the next day. SIGIR,
Report to Congress, April 30, 2006, p. 12. SIGIR, Status of the Provincial Reconstruction
Team Program in Iraq, 06-034, October 29, 2006.
65 SIGIR, Report to Congress, August, 2007, p. 69, 77; “ Militias Seize Control of Grid,”
New York Times, August 23, 2007; “Iraq Insurgents Starve Capital of Electricity,” New York
Times, December 19, 2006; Report Details Oil Industry Losses, Washington Post, September
29, 2006.
66 SIGIR, Fact Sheet in Major Contractors’ Security Costs, 06-044, January 30, 2007.

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projects of their own; many are running programs from Jordan or
Kuwait utilizing Iraqi personnel to the extent possible.67
! The quality of aid has likely been negatively affected as
implementors cannot meet with local people and design and monitor
projects as they would in other countries. The pool of foreign
expertise available to advise the government and NGOs is restricted
to those few willing to endure the country’s hardships. U.S. agency
personnel stay only a short time and therefore institutional
knowledge is not maintained. Among the 2.4 million Iraqis who
have fled the country are professionals necessary to successful
reconstruction. According to the U.N., in May 2006, 22 doctors,
nurses, and non-medical staff were killed and 50 were wounded. In
2006, more than 300 teachers and Ministry of Education staff were
killed.68
! In a broader sense, prolonged insecurity has undermined the trust of
the Iraqi people in U.S. and now Iraqi government leadership to
bring about a democratic and economic transformation in Iraq,
opening the door to further political discontent and possible civil
war.69
There are two elements in the effort to provide the security that might allow
political and economic reconstruction to take hold — U.S. and coalition
peacekeeping forces and the training of Iraqi security forces to replace them. The
number of U.S. troops is roughly 171,000. There are also about 11,668 troops from
27 other nations.70
About $19.2 billion in U.S. appropriations has been aimed at building Iraqi
security forces. According to the State Department, in early November 2007, there
were 194,200 trained and equipped conventional Iraqi police and Ministry of Interior
forces and 165,500 army and other defense forces, although the actual number of
active duty soldiers has been said to be 65 percent of the total because of leave,
67 “Wolfowitz Says Iraq Violence Impedes Rebuilding Aid,” Wall Street Journal, June 1,
2005; “Driven from Iraq, Aid Groups Reflect on Work Half Begun,” New York Times,
November 15, 2004; “Security Conditions Continue to Hamper U.N. in Iraq,” Washington
File, August 11, 2004; “Charities Get Ready to Leave,” London Times, September 9, 2004.
68 “Civilian Death Toll Reaches New High in Iraq, U.N. Says,” New York Times, November
23, 2006; “As Death Stalks Iraq, Middle-Class Exodus Begins,” New York Times, May 19,
2006; “Iraq’s Attorneys Practicing in a State of Fear, Washington Post, June 10, 2006;
“Professionals Fleeing Iraq as Violence, Threats Persist,” Washington Post, January 23,
2006.
69 “In Jaded, Perilous Capital, A Collision of Perceptions,” Washington Post, July 29, 2005;
“As Violence Deepens, So Does Pessimism,” Washington Post, May 18, 2004; “Fueling
Anger in Iraq,” Washington Post, December 9, 2003; “The Best, Brightest, and Wealthiest
Flee Iraq,” Chicago Tribune, November 21, 2004.
70 Iraq Index, Brookings Institution, [http://www.brookings.edu/iraqindex], November 12,
2007, page 24, 26; Department of State, Iraq Weekly Status Report, November 7, 2007.

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attrition, and desertion.71 Reports by officials and observers have suggested that
many fewer could be said to be capable of the most demanding jobs. In June 2007,
the U.S. military commander formerly in charge of training informed Congress that
an additional 20,000 Iraqi soldiers would be needed to ensure security.72 During the
past three years, poorly trained and equipped security forces, no-shows and
desertions, dismissals of police for criminal behavior, bribe-taking for obtaining
higher rank or for release of insurgent suspects, and infiltration of police and other
units by sectarian militia groups have threatened U.S. plans to increase security using
Iraqi personnel.73 While the September 14, 2007, Benchmark Assessment Report
argues that the Iraqi forces are showing progress, it also notes that they are not
making satisfactory progress toward increasing the number of units capable of acting
independently of coalition partners.74 As noted earlier, the September 2007 Jones
Commission report called for the breakup and reconstitution of the police due to the
high level of corruption and sectarianism.75
Accountability, Waste, and Fraud
A lack of transparency in early contracting and numerous reports in the media
suggesting that reconstruction funds were being squandered led to the establishment
in the FY2004 supplemental of an Inspector General for the CPA, now called the
Special Inspector General for Iraq Reconstruction (SIGIR). To date, the SIGIR has
issued more than 101 audits and 102 project assessments, and it has conducted 96
limited onsite inspections as well as dozens of investigations of possible criminal
activity.76
Some of the most egregious examples of misconduct appear to center on the
CPA’s use of Iraqi funds (see Appendix B on the DFI). While some investigations
of reconstruction programs have raised the possibility of criminal activity, many
others have produced evidence of poor project implementation and questionable
management and oversight of projects, the majority of these the responsibility of the
Army Corps of Engineers which runs the Embassy’s Project and Contracting Office.
SIGIR auditors and project assessment teams with engineering, audit, and
investigative experience have traveled to major U.S.-funded IRRF project sites to see
if work is being performed properly. Although most conclude that projects were
71 Department of State, Iraq Weekly StatusReport, November 7, 2007. SIGIR, Report to
Congress, July 30, 2007, p. 47.
72 “Big Boost in Iraqi Forces is Urged,” Washington Post, June 13, 2007.
73 GAO, Stabilizing Iraq: Factors Impeding the Development of Capable Iraqi Security
Forces, GAO-07-612T, March 13, 2007; “U.S. Officers Detail Problems with Iraqi
Soldiers,” Washington Post, November 1, 2006; “In Baghdad, a Force Under the Militias’
Sway,” Washington Post, October 31, 2006; “Flaws Cited in Effort to Train Iraqi Forces,”
Washington Post, November 21, 2006.
74 White House, p. 24.
75 General James L. Jones, Chairman, The Report of the Independent Commission on the
Security Forces of Iraq, September 6, 2007, p.20.
76 See SIGIR website [http://www.sigir.mil/] for audit reports to date. SIGIR, Report to
Congress, October 30, 2007, Section 3.

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either carried out as intended or point out correctable quality control and structural
deficiencies, the SIGIR has found some projects to be especially problematic,
including the following:
! The Basrah Children’s Hospital, expected to cost $50 million, will
run to at least $98 million and nearly a year behind schedule.
Bechtel, the project contractor, has been removed and the project
will be completed using local contractors. USAID, the agency
responsible, failed to report the cost and delays, in part because it
had only one contracting officer and one technical officer to oversee
20 projects worth $1.4 billion.77
! In September 2006, the SIGIR reported that the Baghdad Police
College, a $75 million construction project implemented by Parsons,
was riddled with deficiencies, including improperly fabricated
wastewater plumbing which poses a health and structural hazard.
Press reports in November 2007 indicate that the problems have still
not been fixed by the contractor, despite promises made to
Congress.78 The Mosul police headquarters, constructed by an Iraqi
contractor at a cost of nearly $1 million, is similarly troubled.79
! A $218 million first responders network is ineffective —
communication is not possible between the three established zones
of the system and Iraqi citizens cannot call in to request emergency
assistance, among other problems.80
! After the expenditure of $186 million, only 6 of 150 planned
primary health care centers to be constructed by Parsons were
completed and only 14 more were expected to be finished. A
contract was awarded to Iraqi firms to complete 121 partially
constructed centers.81
! An October 2005 assessment of five electrical substations was
positive for the substations themselves, but found that installation of
distribution lines to the end users, part of the original plan, had to be
eliminated (presumably due to funding reallocations) and, therefore,
77 SIGIR, Audit 06-026, July 2006; “U.S. Neglect Found in Long-Delayed Iraq Hospital
Project,” Washington Post, July 29, 2006.
78 SIGIR, Project Assessment-06-078.1 and 06-079.1, September 27, 2006; “Heralded Iraq
Police Academy a ‘Disaster’, Washington Post, September 28, 2006; “Baghdad’s Police
Academy Remains in Poor Condition, Despite a Repair Pledge,” New York Times,
November 6, 2007.
79 “U.S. Agency Cites Flaws in Another Iraqi Construction Project,” New York Times,
October 12, 2006.
80 SIGIR, Audit 06-020, July 2006.
81 SIGIR, Audit 06-011, April 2006; SIGIR, Report to Congress, October 30, 2006, p. 78;
“In a Dispute, Army Cancels Rebuilding Contract in Iraq,” New York Times, May 13, 2006.

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the benefits of the new substations would not be derived until the
Ministry of Electricity could perform the work. All five substations
were connected to transmission lines by end November 2006,
although they were operating at 36% capacity pending connection to
upstream substations.82
! A project to run 16 oil pipelines under the Tigris River failed amidst
warnings from a geologist that the subsoil was not conducive to
drilling, demonstrating a lack of appropriate oversight by the Army
Corps of Engineers. Nearly $76 million in DFI funds were wasted.83
! An examination of Task Force Shield, a program to train and
manage an oil and electricity infrastructure protection force, found
it had been unsuccessful after the expenditure of $147 million. In
part, this outcome was due to the absence of a clear management
structure for the various U.S. agencies involved. Further, auditors,
reportedly, could not determine how many Iraqis were trained or
how many weapons were purchase.84
! An audit of “design-build” contracts that characterize many of the
infrastructure projects found very high administrative costs in some
cases. About 55% of KBR work on the RIO project and 43% of a
Parsons oil project were consumed by overhead costs. Security is
likely one factor in the high level of overhead found here, and
enforced idleness while awaiting government direction to begin
work is another. However, the audit also found inadequate
accounting and billing systems to capture administrative costs in
four of five contracts examined.85
! Roughly 370,000 weapons purchased with $133 million in IRRF
funds for the use of Iraqi security forces were not accompanied by
spare parts or technical repair manuals, and were not registered to
insure accountability. (Some of these weapons have reportedly
made their way to the black market.)86
82 SIGIR, Project Assessments PA-05-05 to 09, in Report to Congress, October 30, 2005,
p. 53; SIGIR, Report to Congress, January 20, 2007, p. 195-198.
83 SIGIR, Project Assessment SA-2005-001, in Report to Congress, January 30, 2006, p. 73-
75; “Rebuilding of Iraqi Oil Pipeline as Disaster Waiting to Happen,” New York Times,
April 25, 2006.
84 SIGIR, Audit 06-009, April 2006; “In Shadows, Armed Groups Propel Iraq Toward
Chaos,” New York Times, May 24, 2006.
85 SIGIR, Audit 06-028, October 2006; “Idle Contractors Add Millions to Iraq Rebuilding,”
New York Times, October 25, 2006.
86 SIGIR, Audit 06-033, October 2006. “Black-Market Weapon Prices Surge in Iraq Chaos,”
New York Times, December 10, 2006.

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! A DynCorp project to provide services to international police
trainers spent nearly $44 million on a residential camp that was not
used (including an Olympic-size swimming pool that was
unauthorized) and about $36 million for weapons that cannot be
accounted for. The audit found the State Department Bureau for
International Narcotics and Law Enforcement (INL) and State Office
of Acquisition Management provided poor contract administration.87
! A 2007 SIGIR financial of the State Department’s DynCorp contract
for training Iraqi police could not be completed, because documents
were in disarray, invoices had not been validated, and INL did not
know what it received for the $1.2 billion in expenditures.88
! A more than $38 million project to provide a new accounting system
for the Iraq Ministry of Finance has been of limited use and has been
suspended pending clarification of Iraqi government support for the
effort.89
Assessments of Reconstruction
There have been dozens of reports and articles during the past four years that
have sought to analyze, criticize, and recommend action regarding the progress of
reconstruction aid.90 Many focus on the history of the aid program with a view
toward explaining the current state of affairs. Others, like the Iraq Study Group
report, seek to improve future outcomes. See Appendix A for a collection of critical
views.
87 SIGIR, Audit 06-029, January 2007.
88 SIGIR, Audit 07-016, October 19, 2007.
89 SIGIR, Audit 08-001, October 23, 2007.
90 Among the most incisive are Anthony Cordesman, Cleaning Up the Mess, Center for
Strategic and International Studies, July 7, 2004; David Rieff, “Blueprint for a Mess,” New
York Times Magazine, November 2, 2003; George Packer, “War After War: Letter from
Baghdad,” The New Yorker, November 24, 2003; Kenneth M. Pollack, “After Saddam:
Assessing the Reconstruction of Iraq,” Foreign Affairs, January/February 2004; John Hamre
and others, Iraq’s Post-Conflict Reconstruction: A Field Review and Recommendations,
Center for Strategic and International Studies, July 17, 2003; James Fallows, “Blind into
Baghdad,” The Atlantic Monthly, January/February 2004; Center for Strategic and
International Studies, Post-Conflict Reconstruction Project, Frederick Barton and Bathsheba
Crocker, Co-Directors, Progress or Peril? Measuring Iraq’s Reconstruction, September
2004 and November 12 Update; Larry Diamond, Squandered Victory: The American
Occupation and the Bungled Effort to Bring Democracy to Iraq, Henry Holt, 2005; James
Fallows, “Why Iraq Has no Army,” The Atlantic Monthly, December 2005; Rajiv
Chandrasekaran, Imperial Life in the Emerald City: Inside Iraq’s Green Zone, Knopf, 2006;
and George Packer, The Assassins’ Gate: America in Iraq, Farrar, Straus and Giroux, 2005;
International Crisis Group, Reconstructing Iraq, September 2, 2004, available at
[http://www.crisisgroup.org/home/index.cfm?]; T. Christian Miller, Blood Money, Little,
Brown, and Company, 2006, and SIGIR, Iraq Reconstruction: Lessons in Program and
Project Management, March 2007.

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Another category of assessments are reviews of specific projects, some findings
of which are noted in the previous section. Security concerns in Iraq have made
difficult the kind of expert and anecdotal reports usually produced in other places by
interest groups and the news media. Most project assessments, therefore, have come
from the various government auditors.91 Even these, however, appear constrained by
security in the number of site-visits they are able to undertake to review project
results. The SIGIR is conducting some of its assessments by aerial imagery because
of the risk to its personnel. Government Accountability Office (GAO) investigators
were not even able to visit Iraq while preparing a 2005 report on water and sanitation
programs.92
An exception to the dearth of private sector accounts of specific project work
is a February 2006 report by a professional from the Institute of Electrical and
Electronics Engineers who appears to have been given unusual access to power
plants and officials in the electric power sector. In brief, the author highlights
reasons for the long-reported failure of assistance to bring electric power at least up
to pre-war standards. Among these are the specific targeting of electrical
infrastructure by insurgents, the lack of maintenance skills by Ministry of Electricity
workers, and management and personnel problems in the Iraqi government, made
worse by the presence of thousands of fictitious employees drawing paychecks. Less
well known reasons are the low levels of revenue flowing to the Ministry due to
limited use of electric metering and a low rate structure. U.S.-funded construction
is also directly faulted for poor planning, including a mismatch between the generator
technologies provided to Iraq and the fuel available to it. In one case, the best fuel
for the generators — natural gas — was being burned off at an oil field just across
the street from the power plant, and no effort had been made to capture it for use. The
assessment is a reminder that the provision of equipment alone is insufficient —
multiple factors must be addressed to bring significant improvements.93
Some observers have suggested that one problem with assessing the progress
of reconstruction is that there is no “big picture” overview. Responsible government
agencies provide information regarding how many infrastructure projects are being
started and completed, how many small-scale grants are being provided, and how
many people are being trained, but there is little detail regarding to what degree the
overall national need for drinking water, schools, health care, electricity, and other
requirements is being met by the billions of dollars in U.S. resources — not to
mention Iraqi and other donor resources — targeted at these needs. When such data
has been gathered, it suggests that the needs are much larger than donor or other
resources currently being made available. For example, the GAO has estimated that
91 For a list of audits and inspections from all agencies, see SIGIR, Report to Congress,
January 30, 2007, Appendices I, J, K, L.
92 SIGIR, Report to Congress, July 30, 2005, p. 60-66. For an assessment of several aspects
of reconstruction, see GAO, Rebuilding Iraq: Status of Funding and Reconstruction Efforts,
GAO-05-876, July 2005. Also, GAO, Rebuilding Iraq: U.S. Water and Sanitation Efforts
Need Improved Measures for Assessing Impact and Sustained Resources for Maintaining
Facilities, GAO-05-872, September 2005.
93 Glenn Zorpette, “Re-engineering Iraq,” IEEE Spectrum, February 2006, available at
[http://www.spectrum.ieee.org/feb06/2831].

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it will take $50 billion in infrastructure investments to meet needs in the electricity
and oil production sectors alone.94
Finally, even when assessments of reconstruction are conducted, observers may
not agree on what they find. In three assessments of the effort to train and equip Iraqi
security forces released in September 2007, somewhat differing perspectives
emerged. The White House Benchmarks report required under the FY2007
Supplemental appropriations found progress toward increasing the number of Iraqi
security forces being capable of operating independently of U.S. troops to be
unsatisfactory. The GAO, pointing out that the number of independent units declined
between March and July 2007, chose to describe the objective as not being met. And
the Iraqi Security Forces Independent Assessment Commission led by General James
Jones found that, while the Iraqi Army is capable of taking over an increasing amount
of day-to-day combat responsibilities, the Iraqi forces would be unable “to fulfill their
essential security responsibilities independently over the next 12-18 months.”95
94 “Iraq Far From U.S. Goals for Energy,” Washington Post, September 2, 2007.
95 White House, Benchmarks Assessment Report, September 14, 2007; GAO, Iraqi
Government Has Not Met Most Legislative Security and Economic Benchmarks, GAO-07-
1230T, September 7, 2007; General James L. Jones, Chairman, The Report of the
Independent Commission on the Security Forces of Iraq, September 6, 2007, p. 8.

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Appendix A: Criticisms of Iraq Reconstruction
Included among the many suggestions of what has gone wrong in the Iraq
reconstruction effort from a wide range of sources are the following:
! Inadequate security. As noted earlier in this report, lack of a
secure environment in which to undertake reconstruction meant
delays in project implementation and completion; destruction of
completed projects; greatly increased costs which, in turn, drained
funding from other projects; and a loss of foreign expertise and local
participation that would have made projects more effective. Among
the reasons were a failure to anticipate post-invasion security needs
and the early decision of the CPA administrator to disband the Iraqi
military. Initially, security forces received hurried and insufficient
training.
! No prior planning. Planning for post-Iraq reconstruction was inept.
Military officials planned for a humanitarian crisis that never
happened. Moreover, accounts suggest that efforts to plan for
reconstruction were actively discouraged by the Pentagon leadership
lest it raise potential obstacles to U.S. invasion. The State
Department’s 2002 Future of Iraq Project, which utilized dozens of
Iraqi experts to anticipate post-war concerns, including the
possibility of widespread looting, was studiously ignored by DOD.
! Mismanaged transition to Iraqi governance. Many critics have
pointed to the slow pace of forming a publically approved Iraqi
authority which could have provided Iraqis with a sense of
ownership in the reconstruction and democratic process and
discouraged disorder. In the first six months, foreign aid workers
had no counterpart in the Iraqi ministries able to make decisions that
might advance reconstruction. CPA-imposed de-Baathification
disrupted the functioning of the Iraqi bureaucracy and meant the loss
of skilled Iraqis from management positions. Further, large-scale
reconstruction efforts were designed with little regard for Iraqi views
and were originally meant to be implemented by U.S. contractors
with Iraqis playing a secondary role.
! Discouraging a U.N. and International Role. The Administration
sought at first to keep control of post-war reconstruction in U.S.
hands, rather than internationalizing it as had been done in Kosovo
and Bosnia. Critics asserted that, had the U.N. been in a position of
greater responsibility, it would have deflected Iraqi criticism of the
United States, legitimized occupation policies, and encouraged
financial and peacekeeping participation by bilateral donors. Donors
were unresponsive to U.S. pleas for either military or financial
assistance, partly because they were not being offered a “seat at the
table” in determining the future of Iraq. The decision to exclude

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some countries from competing for Iraq contracts, in the view of
many, further alienated potential international support.
! Inadequate U.S. civilian administration. Early on, a British
official was quoted as saying of the CPA, “this is the single most
chaotic organization I have ever worked for.”96 The CPA was
understaffed, lacking experience and knowledge of the country, in
many cases with no background in assistance programs, and too
isolated from the Iraqi people (with headquarters in a former palace
and requiring a military bodyguard when they ventured outside).
The level of aid expertise improved under State Department
management, but security concerns continued to limit contact with
Iraqis and insufficient staff numbers negatively affected project
oversight as well as PRT implementation.
! Excessive Reliance on the U.S. Military. Although actual
reconstruction is inherently a civilian effort, in Iraq much of it was
implemented by military personnel. In January 2003, the President
placed sole authority for reconstruction in the hands of DOD, rather
than with development assistance or democracy experts at USAID
and State. In June 2004, after the State Department was given the
lead role, the Army continued to manage about $10 billion in
infrastructure projects, insuring a continued lack of coordination
between assistance entities. Utilizing the CERP program, military
commanders on the ground continue to influence reconstruction at
the grassroots level. Some assert that these are roles for which the
military had not been prepared — there is a long learning curve and
many mistakes were made — and which emphasize to the Iraqi
people the “occupation” character of the U.S. presence. Instead,
some critics suggested that a corps of civilian reconstruction
specialists should have been deployed around the country. As early
as July 2003, the Hamre Assessment Mission report recommended
that 18 provincial CPA offices be established with 20-30 civilian
staff in each.97 It was not until mid-2005, that the PRT program was
launched. Its spread was delayed by military reluctance to provide
security.
! Poor Accountability. As discussed earlier in this report, a number
of projects were poorly implemented. In some cases, funds may
have been misused. What unites many of these accounts, perhaps
most notably the CPA’s cavalier treatment of billions in Iraqi-owned
funds, is that they could have been prevented by more thorough
oversight by government managers.
96 “America’s Rebuilding of Iraq Is in Chaos, Say British,” London Daily Telegraph, June
17, 2003.
97 John Hamre, and others. Iraq’s Post-Conflict Reconstruction: A Field Review and
Recommendations, July 17, 2003, page 5.

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! Ineffective Assistance. Measurable objectives in critical sectors,
such as oil production and electric power generation, were not met.
But the full picture of the effectiveness of the reconstruction effort
in most sectors is clouded by the impact of instability and conflict.
! Inadequate Levels of Assistance. The high cost of conducting
reconstruction projects in Iraq: due to protective security spending
and large overhead costs — amounting in some cases to a quarter or
more of project totals — meant that amounts appropriated for
economic reconstruction did not produce the equivalent in goods and
services that one would expect in other aid recipient countries. In
short, less bang for the buck. Further, funds originally intended for
economic reconstruction, particularly water and electricity programs,
were diverted to training of Iraqi security forces.
! Too Broadly Dispersed Assistance. The aid effort attempted to do
too much in too many sectors from health to electricity to
microenterprise to roads. As a result, too few resources were
scattered over too many projects to produce a significant impact in
any one of them. Assistance should have been concentrated more
intensively in key areas such as oil production and governance so
that Iraqi funds could have been generated and Iraqi managers could
spend them.
! Poor Contracting and Procurement Processes. The SIGIR has
looked at contracting actions from before the war through the CPA
to the present. Among other problems, it points to the failure to
involve contracting and procurement personnel in the planning
stages of post-conflict reconstruction operations, the lack of
emphasis given contracting for smaller projects, the use of sole-
source and limited competition contracting, and the failure to give
a single unified contracting entity the authority to coordinate all
contracting activity.98
98 SIGIR, Iraq Reconstruction: Lessons in Contracting and Procurement, July 2006.

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Appendix B: Audits of the Development Fund for
Iraq
Many questions have been raised regarding the CPA’s use and monitoring of
DFI funds. Although the funds were derived from Iraqi, mostly oil, resources, under
Security Council Resolution 1483 (May 2003) the CPA had complete control over
them during the occupation and responsibility under international law to insure they
were used appropriately. To prioritize and recommend how DFI resources were
used, the CPA established a Program Review Board in June 2003. Although
composed of coalition, multilateral bank, and U.N. officials, the multilateral bank
members had no vote and the U.N. official served only as an observer. The Program
Review Board published brief minutes of its meetings but little detail regarding the
nearly 2,000 contracts it awarded utilizing Iraqi funds. Reportedly, U.S. contractors
received as much as $1.9 billion of DFI funds, of which Halliburton subsidiary
Kellogg, Brown & Root (KBR) was awarded $1.7 billion (mostly the Restore Iraqi
Oil project).99
Security Council Resolution 1483 required that an international advisory board
to monitor the sale and use of oil be established, but at first the CPA opposed
international institution efforts to create a system of “special audits” that would allow
the board to look at any issue. CPA failure to establish the board led to international
criticism, and Security Council Resolution 1511 (October 2003) recommended that
the board be established as a priority and that the DFI should be “used in a
transparent manner.”100 Soon after, the CPA announced that it would allow the
advisory board to go forward and the first meeting of the International Advisory and
Monitoring Board (IAMB) was held on December 5, 2003. However, a delay in
appointing accountants by the CPA continued to prevent work up to early February
2004. In March 2004, the IAMB recommended installation of a metering system for
oil extraction to prevent diversion (still not implemented), and criticized the use of
non-competitive bidding for contracts funded by the DFI.101
In its June 2004 audit, KPMG, the accounting firm designated by the IAMB to
audit the DFI, noted the CPA’s inadequate accounting systems and records and lack
of controls over ministry spending of DFI resources, opening the door for corruption.
KPMG also pointed out the use of non-competitive bidding for some contracts
funded by the DFI. Subsequent audits highlighted multiple financial irregularities.102
99 “$1.9 Billion of Iraq’s Money Goes to U.S. Contractors,” Washington Post, August 4,
2004.
100 Security Council Resolution 1511, October 16, 2003, para. 23. “Oil to Come Under Iraqi
Control as U.S. Fails to Form Advisory Board,” Financial Times, August 19, 2003; “Annan
Deals a Blow to U.S. Draft Resolution,” Financial Times, October 3, 2003.
101 The IAMB’s mandate was extended to December 31, 2007, under U.N. Security Council
Resolution 1723. The IAMB website is at [http://www.iamb.info/]; IAMB, Press Release,
March 24, 2004; “Monitoring Panel for Iraq Spending Yet to Start Work,” Financial Times,
February 5, 2004.
102 KPMG Audit dated June 29, 2004, available online at IAMB website
(continued...)

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A representative on the IAMB accused the Administration of withholding
information on non-competitive contracts, and repeated requests to U.S. agencies for
information on sole-sourced contracts funded by the DFI were not answered.103 The
organization Christian Aid accused the CPA of being “in flagrant breach of the U.N.
resolution” giving it use of DFI funds. “Last minute” spending by the CPA of $2.5
billion in DFI resources in the weeks prior to the turn-over of sovereignty also drew
critical attention. Among other things, the spending went for equipment for security
forces, vocational training, and oil and electric infrastructure, and local projects.
Iraqi officials, too, were critical of the contrast between the slow spending of U.S.
funds and the rapid draw-down of the DFI.104
A January 2005 audit by the SIGIR seems to have confirmed the IAMB
accusations with a finding that the CPA “provided less than adequate controls” for
$8.8 billion of DFI resources it moved through Iraqi ministries.105 An April 2005
SIGIR audit concluded that CPA managers of DFI funds distributed in the South-
Central region of Iraq could not account for more than $96.6 million in cash and
receipts. An October 2005 audit found that South-Central personnel could not
account for more than $20.5 million in Rapid Regional Response Program funds and
made $2.6 million in excessive payments. In late 2005, several U.S. citizens were
criminally charged with respect to the handling of these funds — and have since pled
guilty. In February 2007, five more were indicted.106
102 (...continued)
[http://www.iamb.info/]; Iraq Revenue Watch, Disorder, Negligence and Mismanagement:
How the CPA Handled Iraq Reconstruction Funds, Report no. 7, September 2004; Iraq
Revenue Watch, Audit Finds More Irregularities and Mismanagement of Iraq’s Resources,
December 2004; “Big Spender,” Financial Times, December 10, 2004.
103 Press Release, “Statement by the International Advisory and Monitoring Board on Iraq,”
September 8, 2004; “U.S. Won’t Turn Over Data for Iraq Audits,” Washington Post, July
16, 2004.
104 Christian Aid, Fuelling Suspicion: the Coalition and Iraq’s Oil Billions, June 2004; “U.S.
Is Quietly Spending $2.5 Billion from Iraqi Oil Revenue to Pay for Iraqi Projects,” New
York Times, June 21, 2004.
105 According to IG Bowen, the Iraq Commission on Public Integrity is investigating $1.5
billion that may have gone missing in the Ministry of Defense. “Special Inspector General
Stuart Bowen,” Washington Post, November 9, 2005.
106 Among other things, the SIGIR found a $500,000 contract in Karbala that was not
carried out, a $1 million grant for training librarians that was not delivered, and a half
constructed $7.3 million police academy. “Guilty Plea in Iraq Bid-Rigging,” Washington
Post, February 2, 2006; “U.S. Accuses Pair of Rigging Iraq Contracts,” Washington Post,
November 18, 2005; “2nd Army Officer Charged in Iraq Rebuilding Scandal,” New York
Times, December 16, 2005; Management of Rapid Regional Response Program Grants in
South-Central Iraq, Report No. 05-015, October 25, 2005; Audit of Oversight of Funds
Provided to Iraqi Ministries through the National Budget Process, Report No. 05-004,
January 30, 2005; and Control of Cash Provided to South-Central Iraq, Audit Report No.
05-006, April 30, 2005, available at SIGIR website [http://www.sigir.mil]; “5 Indicted in
Probe of Iraq Deals,” Washington Post, February 8, 2007.

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The Restore Iraqi Oil project (RIO), a KBR contract to repair oil fields and
import gasoline and other oil products into Iraq, involved the use of about $1.5
billion in Iraqi funds blended with about $900 million in IRRF and DOD funds.
Defense Contract Audit Agency auditors disputed $263 million in charges (later
lowered to $221 million) made under the contract. Either the charges were inflated
— KBR paid a Kuwait company 40% more for gasoline than the U.S. military pays
— or they were unsupported by documentation. In the end, the Army, citing the
wartime conditions under which KBR operated, decided to ignore its auditors and
pay KBR all but about $10 million of the disputed charges. However, it also
removed $112 million from the amount used to establish the contractor’s fee pool —
equivalent to a $5.8 million cut in KBR’s receipts.107
In November 2006, an audit of the same program conducted by the IAMB
agreed that the Army was justified in reimbursing KBR but also found that the
excessive cost of the program was in large part due to the cost of fuel delivery,
accounting for as much as 86 percent of the total cost. In one $871 million work
order, for example, only $112 million was attributable to the cost of fuel; the rest was
for the fleet of tanker trucks which transported it to Iraq from Kuwait. Payment was
made for the trucks even when, due to a lack of armed escorts, they sat idle. Rather
than an indictment of KBR, the IAMB audit suggests Army mismanagement of the
program.108
107 GAO, Defense Contract Management: DOD’s Lack of Adherence to Key Contracting
Principles on Iraq Oil Contract Put Government Interests at Risk,” GAO-07-839, July 2007;
“Army to Pay Halliburton Unit Most Costs Disputed by Audit, New York Times, February
27, 2006; “Now You See It: An Audit of KBR,” New York Times, March 20, 2005; Defense
Contract Audit Agency, Audit Report 3311, October 8, 2004, available at Government
Reform Committee minority website [http://www.democrats.reform.house.gov]. In
December 2005, the IAMB called on the United States to “seek resolution” with the Iraqi
government — possibly make repayment — on up to $208 million of the Iraqi funds that
went to KBR for work questioned by the DCAA. “U.S. Owes $208 Million to Iraq, U.N.
Audit Finds,” Washington Post, November 6, 2005.
108 Crowe Chizek and Company, Updated Report of Agreed-Upon Procedures Regarding
the Settlement Between USACE and KBR, November 16, 2006; “Cost of Taking Fuel to Iraq
is Questioned in New Audit, New York Times, November 7, 2006.

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