US Special Inspector General for Iraq Reconstruction 
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US Government Accountability Office 
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US Congressional Research Service 
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US Department of State 
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Kurdistan Regional Government 
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American military spending on Iraq is now approaching $8 billion a month. Accounting for inflation, this is half as much again as the average monthly cost of the Vietnam War; the total spent so far has long surpassed the cost of the entire Apollo space programme. Three and a half months of occupation costs the equivalent of Iraq’s estimated oil revenues for the current financial year. We now know, thanks to the leaked report of James Baker’s Iraq Study Group, that if US troops withdrew, they would in all probability be redeployed to neighbouring countries, increasing the already massive expenditure and inevitably threatening new arenas of conflict. Here’s an unimaginable alternative. If the US army left the region, and if the money was instead handed out to every Iraqi man, woman and child, they would each receive more than $300 a month.

They need it: Iraq has run out of reconstruction money. The funds in the so-called Development Fund for Iraq – some $20 billion of Iraqi money – were spent by Paul Bremer’s Coalition Provisional Authority in the first year of the occupation. The US Embassy in Baghdad has spent virtually all of the $18.4 billion that Congress appropriated for ‘rebuilding’ the country; $5.6 billion of it was used to run the embassy, promote American ‘values’ and set up the new armed forces and police. Most of the American money never even gets to Iraq. The bulk of it has gone to American consultants, or into American contractors’ international bank accounts.

‘Most of the projects planned in sewerage, irrigation, drainage and dams have been cancelled,’ the auditors of the US Special Inspector General for Iraqi Reconstruction (SIGIR) report. Others have been ‘descoped’. A 238 km canal brings fresh water to Basra from the Gharraf river, a tributary of the Tigris. The long neglected banks of the canal are crumbling. There was a plan to line its entire length with concrete; the idea now is merely to repair one badly damaged 20 km stretch. This is what ‘descoped’ means. In July, SIGIR could find no evidence of emergency repairs or even routine maintenance. According to the increasingly implausible State Department, Iraq’s basic utilities – its electricity, oil production and water supply – have reached standards close to or above those under Saddam. The US General Accountability Office (GAO), however, says these claims are meaningless, since they are based on numbers of completed projects, without indicating how much has been done of what was originally planned.

One thing is certain: the Coalition has created and fostered the least accountable and least transparent regime in the Middle East. It’s impossible to say whether it’s also the most corrupt, because so little is known about how Iraq’s ministers spend their government’s revenue. The US Embassy says it’s trying to find out, but it hasn’t had much success. Paul Bremer handed over $8.8 billion in cash to the interim government in the first year of occupation; it has never been accounted for. American auditors are also still in the dark about Iraq’s reconstruction budget for the two years that followed: another $14 billion. ‘SIGIR has no further information about how much of these funds has been expended.’ Iraqis don’t know either, since there are no meaningful public accounts.

Public opinion polls show that Iraqis list corruption as one of their three biggest worries, along with power cuts and violence. The inspector general for the Ministry of Health recently estimated that corruption costs Iraq $4 billion each year. World Bank officials told the GAO that putting contracts out for tender is still an ‘alien concept’ for Iraqi ministries. There are countless allegations of ‘ghost employees’ on ministry payrolls, of kickbacks, cronyism, nepotism and fraud that reach right up to the president, Jalal Talabani. SIGIR says that ‘corruption is a virtual pandemic in Iraq.’ The embassy’s ‘expenditure on anti-corruption has been modest’ – some $65 million, or 0.3 per cent of its reconstruction budget. It’s spending more than $1 billion on ‘democracy building’ activities, however, such as pro-American propaganda and PR.

The propaganda keeps quiet about the torture of prisoners in secret jail cells, and about the infiltration of the security forces by sectarian militias. These activities are overseen by the Interior Ministry, which reportedly employs at least a thousand ghost employees, whose wages amount to more than $1 million a month. The US Embassy has lost track of the weapons, radios and other hardware it has supplied over the past two years, and the auditors talk of ‘uncertain property ownership’ and ‘political difficulties’. The ministry’s audit director, who is responsible for police activities throughout Iraq, has six staff and one computer. Much of the equipment intended for government use is probably with sectarian militias, or has been sold.

Iraq has a Commission on Public Integrity, along with the Iraqi Board of Supreme Audit and inspector generals in the ministries, which is supposed to investigate corruption. Arrest warrants were issued last year for several former cabinet ministers. The defence minister Hazem Shaalan, accused of being party to corruption involving more than $1.3 billion, fled to London. He is now said to be in Iraqi Kurdistan. The transport minister Louay Hatim Sultan al-Aris disappeared. The electricity minister Abdul Muhsin Shalash is reportedly living in Jordan. There are signs that efforts to prosecute these people are finally being stepped up. The labour minister Laila Abdul Latif at least went to court, though she was only convicted of a minor offence and given a suspended sentence. Another ex-electricity minister, Aiham al-Sammarai, has now been convicted of corruption and embezzlement and sentenced to two years in prison. But he’s also an American citizen so he isn’t in an Iraqi jail.

The chairman of the Commission on Public Integrity, Radhi Hamza al-Radhi, says he’s keen to prosecute at least forty former cabinet ministers and senior officials. Yet ‘it is impossible to bring to justice a high-level official without the permission of his minister and if he is implicated as well, then he does not give this permission.’ Influential suspects either have immunity from prosecution or get tipped off so they can slip out of the country. As of July, the Commission had sent 1370 cases to the central criminal courts. Only 40 yielded convictions, and only one of those convicted was a senior ministry official. Many judges are corrupt; others are frightened, and with good reason: more than twenty have been assassinated.

The State Department is unforthcoming about the real cost of the corporate armies operating in Iraq: the mercenaries, or ‘private security contractors’, who guard US officials and international contractors ensuring that Coalition forces are free to fight insurgents. The GAO estimated last year that there were more than 25,000 of these ‘contractors’, significantly outnumbering British troops. A former squaddie, kitted out with dark glasses, automatic pistol, rifle, body armour and radio, working for a construction team, can earn at least $12,000 a month. A former special forces NCO protecting a Coalition official or construction firm boss can make more than twice that. The State Department says the cost of security makes up 16 to 22 per cent of the overall outlay on big reconstruction projects, but this may be an underestimate. The GAO has observed that the State Department’s reports to Congress ‘do not identify the magnitude or impact of the costs associated with security providers on reconstruction efforts or available funding’. When asked why not, embassy officials in Baghdad claimed that ‘such requests can be burdensome for both the contractors and agency officials.’ Publishing the true cost of ‘security contractors’ would mean admitting to the American public that what has become a deeply unpopular occupation is also even more expensive than it currently appears.

American officials talk of travelling ‘the last tactical mile’, by which they mean completing the work of hooking up Iraqi neighbourhoods and houses to the electricity grid, water mains and sewage systems. But that hasn’t happened across much of the country, and it’s not likely to happen soon. SIGIR estimates that the Iraqi government needs to spend almost $1 billion next year just to keep the projects going. But the government is short of cash: American advisers within the ministries say that they are making do with only a third of the budget they asked for. The auditors asked the State Department’s development arm, the US Agency for International Development (USAID), for ‘reliable and transparent’ estimates of how much it will cost to complete its projects. An answer was not forthcoming.

American reconstruction programmes are failing for reasons the audit reports make very clear, despite USAID’s refusal to co-operate. Many of Iraq’s dilapidated power stations, bombed during the first Gulf War, were kept functioning throughout the years of UN sanctions by resourceful engineers using makeshift spare parts. After the invasion in 2003, while Coalition forces stood by, looters trashed much of what little still worked. The Coalition planned to change all that. Initially, $5.56 billion of the $18.4 billion voted by Congress was budgeted for electricity. Then, in the summer of 2004, the embassy in Baghdad appropriated $1.25 billion of that to pay for the escalating costs of the war. This June, electricity output finally exceeded – just – the prewar level. Today, Baghdadis are lucky to get eight hours of electricity a day uninterrupted by power cuts, and many depend on their own generators, but for that they have to scrabble together the cash to buy one – around $200. The embassy says there isn’t much American money left for electricity.

The privately-owned California-based engineering company Bechtel was contracted in 2o03 ‘on an urgent basis’ to build two new 250 megawatt diesel-fired generating stations near Baghdad, enough to supply 1.5 million homes. It was soon discovered, however, that ‘there was insufficient fuel and no fuel delivery system of any kind in the Baghdad area.’ So there was a change of plan. The Coalition decided to use natural gas from the Mansuria gas fields 105 kilometres north-east of Baghdad. Costs shot up from $78 million to $381 million. They bought two General Electric gas turbine generators, for $25 million each. Then they cancelled the project. The gas has never been collected, so there is no infrastructure for delivering it from the oilfields to power stations. American advisers working with the CPA knew all along that the infrastructure wasn’t in place. So, too, did the then electricity minister, Aiham al-Sammarai, the minister who faces a prison sentence for embezzlement, and who ran a successful energy consultancy near Chicago before the invasion. Still, there was no way the Coalition was going to spend millions of dollars building new gas pipelines. So the gas continues to be burned off in the oilfields. Iraq’s gas turbines now run on fuel oil, which, according to the GAO, makes them half as efficient, requires three times more maintenance, and is likely to result in damage or failure of equipment. The new electricity minister, Kareem Waheed, says that his budget ‘is only a fraction of what the ministry needs’, and SIGIR says Iraq needs to invest $20 billion in power plants over the next four years. Getting the electricity into Iraqi homes depends on massive transmission projects, more than a third of which have yet to be started on. The last tactical mile is a long way off.

Before 1991, Iraq had one of the best health services in the Middle East. Baghdad’s doctors and nurses provided care often comparable to that of their counterparts in Tel Aviv or Cairo. A decade of sanctions scuppered that: by 2002 the Health Ministry budget had been reduced by 90 per cent. According to both the UN and the World Bank, the health system needed $1.6 billion just to resume normal operation. The CPA set aside less than a quarter of that.

A new children’s hospital in Basra was to be a showcase for American generosity. It was a joint venture of Bechtel and Project Hope, one of Laura Bush’s favourite charities, overseen by USAID. Congressional Democrats questioned whether Iraq needed a state of the art 94-bed paediatric unit when existing hospitals were in dire need of basic repairs and medical supplies. The contract was signed anyway: $50 million was set aside for construction and $30 million for supplies and training. The project was to be finished by 31 December 2005. This June, the embassy finally ordered work to stop: $150 million had been spent, and Bechtel estimated that a further $98 million would be needed. Part of the problem was security on the site, but SIGIR auditors were more concerned about the ‘lack of effective programme management and oversight’ by the embassy. But the auditors also found that USAID had cooked the books and that the State Department had withheld details of delays and increased costs in its reports to Congress. In the meantime, Iraq’s existing hospitals are in dire condition. In May, the renovation of twenty maternity and children’s hospitals was halted. The contracts have been ‘descoped’ and the work won’t be finished for at least a year. The al-Hillah general hospital still lacks basic equipment, and medicines; Yarmuk hospital in southern Baghdad is in desperate need of repair.

The centrepiece of the Coalition’s health programme was to be 150 new primary care centres: at $243 million, this was the largest US-funded reconstruction project in Iraq – oil-related programmes aside. The contract was given to Parsons Global Services, which quickly subcontracted most of the work. The centres were supposed to be open and treating patients by last December. By March this year, three-quarters of the budget had been spent. Of the 150 centres, 135 were partially constructed. Only six had been finished. The embassy blamed Parsons; Parsons blamed the embassy. The subcontractors, it turned out, had further subcontracted the work ‘through a system of layered brokers’. The Iraqi construction firms at the bottom of the chain regularly went on strike, cut corners and ignored Parsons’s engineers. As a result, the buildings suffer from ‘roof failures . . . low strength concrete and poor foundations that are now costly to repair’. In April, the estimated cost of finishing 121 of the remaining centres was $36 million. So far, only two clinics are receiving patients. Meanwhile, the auditors, worried that medical equipment would go missing if delivered to the Iraqi health ministry, had it sent instead to a secure US-run warehouse at Abu Ghraib. Even so, several of the containers were found to have been broken into and the supplies stolen.

Parsons has 9000 employees and an annual turnover of $2.4 billion; its board includes James McNulty, the former director of the Pentagon’s Star Wars programme, and Admiral ‘Zap’ Zlatoper, the former commander-in-chief of the US Pacific fleet, as well as directors who have held senior positions in leading banks and universities. DynCorp, which won the contract to train the Iraqi police in Jordan, where staff rioted over pay, is one of the world’s largest private security contractors. On its board have sat former senior officials from Nasa, the FBI, the Federal Communications Commission and the US army. Bechtel has been one of the world’s largest overseas contractors for decades; other US firms which have earned more than $1 billion in Iraqi contracts include Fluor, Washington Group International and Kellogg, Brown and Root, which is owned by Dick Cheney’s former firm, Halliburton. Three years on, America’s corporate giants look stretched and exhausted in Iraq. They have proved quick at subcontracting and overrunning on costs, slower at meeting deadlines and on-site management. The auditors have also found evidence of corruption and gross incompetence in some of their dealings.

Take the question of oil pipelines. Oil from the southern oilfields is exported through a terminal port south of Basra. From the northern oilfields in Iraqi Kurdistan it goes by pipeline to the Turkish Mediterranean port of Ceyhan. To defend Iraq’s oil and electricity networks from attacks by insurgents, the CPA decided in the summer of 2003 to create ‘Task Force Shield’. This would protect 810 key oil installations, 7000 km of oil pipeline and 14,000 km of electricity cables. Erinys, a British security business which employs several of Ahmed Chalabi’s family, would train and equip 14,400 guards for an Oil Protection Force (OPF). A few months later, an American security firm was contracted to train and equip 6000 guards for an Electrical Power Security Service (EPSS). It was a disaster. The Task Force ‘ultimately proved unsuccessful’, the auditors say. ‘Although the OPF showed some initial success, the EPSS programme barely got started before it was cancelled.’ Some $147 million, two-thirds of it Iraqi money from the Development Fund, had been spent. Today, the Iraqi Defence Ministry guards the pipelines and the Oil Ministry guards all other installations. The Oil Ministry’s inspector general says its security forces are undermanned, poorly equipped and unco-ordinated. Acts of sabotage go uninvestigated. The Electricity Ministry fares even worse. The auditors discovered that ‘tribal chiefs are paid to protect transmission lines . . . but are reportedly selling materials from downed lines and exacting tariffs for access to repair lines.’

Secure pipelines are useful only if oil flows through them. Coalition aircraft bombed the bridge carrying the main pipelines from the Kirkuk oilfields over the Tigris at al-Fatah. As well as carrying oil to Turkey, the lines supplied two of Iraq’s biggest refineries. A temporary pipe was laid across the bridge until a new, sabotage-proof pipeline could be constructed. Kellogg, Brown and Root (KBR) won the contract to rebuild the crossing and three others over nearby irrigation canals. The job was expected to cost $220 million, and was supposed to be completed by March 2004. By August 2004, KBR had claimed $75.7 million for the al-Fatah crossing alone, all 600 feet of it, but the drilling was a mess. The boreholes under the river kept caving in. A geologist hired by KBR said that the riverbed was unstable and needed further testing. KBR insisted its drilling subcontractors carry on regardless, and refused to let them talk to the Army Corps of Engineers. Finally, the contract was reassigned to Parsons, who, for another $29 million, dug a trench in the riverbed and buried the pipe.

That was the easy part. SIGIR inspectors found one irrigation canal crossing half finished. The US army engineer in Kirkuk reckoned another was about a tenth complete. Parsons again had the contract, but had not inspected the crossing because, the firm said, its Iraqi subcontractor ‘would only perform the work with the guarantee of no American presence at either site’. The workers were afraid of insurgent attacks. SIGIR questioned whether the site was quite as dangerous as all that, and wondered why Parsons was paid $13 million for three months when no one was working in the area. SIGIR has also found evidence that some of the buried pipelines are smaller than the contracts stipulated. The plan now is for a subcontractor from the Republic of Georgia to finish the crossing, protected by US paratroopers.

In southern Iraq, crude oil flows fairly smoothly from the Rumaila oilfield to the Basra terminal. Yet much of it is diverted along the way into small, illegal ‘sucker’ pipes that snake through palm groves to small huts, where the oil is pumped into waiting tanker lorries. There are bigger scams, too: sometimes the entire contents of oil storage depots disappear. As a centre of oil smuggling, the British-occupied area around Basra is rivalled only by the Niger delta. More than 1600 fishing boats in Basra spirit away 15 million litres of oil a month. Basra is now the most corrupt city in Iraq. Everyone has been accused of smuggling: the Iranian-funded Shia militias, criminal syndicates, the mayor, the Baghdad Oil Ministry. More than two and a half years after the invasion, Iraq still does not meter its oil, despite repeated warnings from the International Advisory and Monitoring Board.

Iraq has the world’s second largest proven reserves of oil after Saudi Arabia, possibly up to 200 billion barrels, worth hundreds of billions of dollars. Shell, BP, Chevron and ExxonMobil all want to have what’s known as a production sharing agreement with the Iraqi government. Under the terms of such an agreement, in return for bearing the cost of getting new oilfields up and running, the companies would be guaranteed long-term access to Iraq’s reserves. Platform, the British oil monitoring group, has worked out that at a cost of production of only $40 a barrel, the companies’ return on investment would be somewhere between 42 per cent and 162 per cent, representing between $74 billion and $194 billion in profits that Platform feels should go to the Iraqi government.

This doesn’t seem likely. The oil companies have been lobbying hard in Baghdad since the first days of the occupation, and a succession of executives have been sent to work as advisers within the Oil Ministry. ‘Coalition officials and other international experts,’ the auditors say, ‘are working with the Iraqi government to craft oil legislation that would promote an efficient, competent, transparent, and investor-friendly oil and gas sector.’ In August, the Kurdish regional government published a draft petroleum act. Under articles 3 and 4, ‘Kurdistan has sole authority in respect of petroleum operations in Kurdistan and in the “Disputed Territories”, where Kurdistan is a party to the dispute, including Kirkuk.’ This has not pleased the Oil Ministry in Baghdad, which is now under intense pressure to publish a petroleum law by the end of the year with terms that British and American oil companies find attractive. If the Coalition’s mission fails, Iraq’s future rulers may prefer to invite tenders from the Chinese, the French and the Russians.

Also in August, the month that the new Baghdad Police Training Academy opened, the Baghdad morgue reported 1535 deaths from violence. SIGIR reports that the police academy is now closed: raw sewage from the toilets was leaking into the overhead light fittings. But construction of the US Embassy compound – the largest and at more than $1 billion the most expensive embassy in the world – is on schedule. So, too, is work on four large permanent US military bases. It isn’t clear how Tony Blair can think Iraq is a country on the verge of being a successful liberal democracy. But we do know what kind of mess will be left behind if the Coalition forces do eventually withdraw.

19 October

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