White House reports Iraq oil repair progress to Congress
The White House has reported to the US Congress that Iraq's oil production currently stands at 2.3 million b/d and is expected to increase to 2.5 million b/d by Apr. 1.
The White House said Iraq has a "theoretical potential" to produce 3 million b/d.
Congress appropriated $1.7 billion toward oil infrastructure projects last November. That amount was part of an $18.6 billion reconstruction budget bill designed to help repair war-related damage in Iraq and Afghanistan. The legislation requires the White House to issue quarterly reports on how it spends the money (OGJ Online, Nov. 5, 2003.)
The Pentagon Jan. 5 said that, through the US Army Corps of Engineers (USACE), it will start spending this month the $1.2 billion allocated by Congress to improve Iraqi petroleum production systems.
USACE is expected to announce the winning bids for the work Jan. 17; the contracts will replace a controversial sole-source contract administered by Halliburton Co. subsidiary KBR last year
KBR still may have an opportunity to perform additional work; it is one of several companies that bid on the new, competitively bid proposal. Even if it does not win one of the new contracts, there is a possibility that the company could remain in Iraq in a subcontractor role.
Efforts to extinguish an oil well fire in southern Iraq last year were undertaken under a subcontract from Halliburton Co.'s Kellogg Brown & Root subsidiary. KBR in March 2003 won a contract from the US Army Corps of Engineers to implement a contingency plan developed at the US Department of Defense's request for assessing and extinguishing oil well fires in Iraq and evaluating and repairing the country's petroleum infrastructure. Photo courtesy of Halliburton.
null
Priority projects
Priority oil infrastructure construction projects include $272 million for infrastructure repair, including specialized equipment for gas-oil separator plants, pipelines, compressors, and pump stations.
Another $125 million will go for the repair of a water plant and associated "cluster stations" that inject water into the Rumaila oil fields, a process the US called "critical" to maintaining current production rates and managing reservoir pressure.
USACE also expects to spend $108 million to centralize power generation capacity at two Basra area oil fields in southern Iraq to provide a dependable dedicated power source.
Completing the list is $50 million to repair a 1,500 tonne/day liquefied petroleum gas plant and $40 million for oil reservoir management.
Oil projects
The White House said money generated from exporting oil represents 95% of Iraq's revenue; last year oil receipts totaled $3.9 billion. This year, revenue is "currently forecasted" to nearly triple to about $13 billion. However, US officials cautioned that figure is "highly uncertain" and will depend on the volume of oil production, oil exports, and world market prices.
During 2004, oil revenue will be used to help pay for the salary and operating costs of the Iraqi government, the White House report said. As of early January, US officials estimated the Iraqi budget at $15.6 billion in 2004.
But for the foreseeable future, the US will pay for and import fuel into Iraq for domestic needs such as cooking, home heating, and transportation in order to avert a humanitarian crisis.
The cost of that imported fuel has been a political sore spot in Congress. A draft Pentagon audit found that USACE's contractor Halliburton Co. likely overpaid a Kuwaiti subcontractor for the fuel, but the US government is expected to clear Halliburton of any wrongdoing.
Halliburton has vigorously defended itself since the criticisms began last fall; it says it followed Pentagon procedures.
To meet domestic Iraqi fuel demand, Congress allotted $690 million. But because there were fuel shortages before Congress approved funding, US officials spent $189 million from Iraq's budget to pay for immediate imports of kerosine, LPG, and benzene. After the appropriations bill became law, the Pentagon took some of the US money that had been earmarked for fuel imports and moved it to other reconstruction activities, including "democracy-building activities" ($158 million) and "private sector development" ($31 million.)
In the second quarter of this year, US officials expect to spend the remaining $501 million given to them by Congress for domestic fuel use: $400 million will be spend to import fuel and to build a 15 day product reserve. After the second quarter, US officials will spend the remaining $101 million for "continued production shortfalls" during 2004.
US Army Corps of Engineers inspector checks valve repairs at Cluster Pump Station 3 in North Ar Rumaila oil field in southern Iraq. Photo by Wayne Stroupe, courtesy of USACE.
null
Other money sources
Additional money for reconstruction, including fuel imports, later may come from the Development Fund for Iraq, which now has a cash balance of $8.3 billion. Funds in the DFI are mostly from oil proceeds; the largest deposit came when the United Nations transferred uncommitted balances from its now-defunct Oil-for-Food program.
Working with the UN, the US has pledged to make DFI spending transparent and open to independent audits by the International Advisory & Monitoring Board.
IAMB met Dec. 22 in Washington, DC, for an organizational meeting and plans to launch a web site early this year.
A public interest group that has been critical of how the US has spent past Iraqi oil revenue called on IAMB to include Iraqis in any future audits.
"Given the accelerated handover of responsibility to a provisional government in June, Iraqis urgently need to acquire more responsibility and authority at all stages of the budgeting process," said the Open Society Institute. OSI estimates that the coalition has spent $1.5 billion in Iraqi oil revenues without any external audit or independent monitoring of where the money went.
The US may find itself open to far less criticism in the future, depending on what role it gives the new interim government in shaping the future structure of the country's oil sector. US companies currently expect that coalition authorities will allow the new government to keep Iraq's oil sector nationalized; it is possible it could be modeled after state-run institutions now in place in Kuwait and Saudi Arabia, but discussions are still ongoing.
The US government's expectation is that, by the end of 2005, an interim government "will be replaced by a government elected by the people of Iraq under a constitution written be an assembly that is directly elected."
Future revenue
Beyond the congressional appropriations, oil revenue will be a key engine driving Iraq's growth, but oil money alone is not expected to be enough to rebuild the country. Even with robust oil exports, it will take a lot more money, well beyond the $18 billion donated by the US, to rebuild the country, according to US government and UN estimates.
The White House told lawmakers that most of the necessary capital investments for Iraq will have to come from outside donors; currently, US allies have offered $13 billion in grants and loans.
That figure, the White House said, is based on the low end of the range of assistance offered by the World Bank. The bank pledged $2.5-4.5 billion, while the affiliated International Monetary Fund pledged $1.7-3.4 billion.
US officials said that they expect the total amount of grants and loans pledged by the international community (including the US) will be "at least" $32 billion.
