Iraq Reconstruction Report

200605192340If you have wondered how effective the enemy attacks on Iraq’s oil infrastructure have been – it comes to more than half of the $21 billion budget by the US Congress for total reconstruction [see my chart at left]. Roughly 40% of the total spent on reconstruction to date has been sucked up by security costs [originally budgeted at 9%].

The 92 page CSIS report released April 21, 2006 Iraqi Economic Reconstruction and Development [PDF] gives a fairly good overview of what has happened to the reconstruction program.

Administration mistakes have been widely discussed [disbanding the Iraq army, failure to provide immediate security, …] However, there has been little analysis of the State and Defense structural problems. E.g., regulations which dictate such short service tours for State personnel that they have hardly figured out their job, nor developed Iraqi relationships by the time they are on the plane home. Also undiscussed are the extremely small number of competent people – and the even smaller number of those who were actually willing to leave the comforts of home for a few months in Iraq.

So the unsatisfactory progress of reconstruction is partly due to Executive blunders, partly due to long-standing weaknesses in US post-conflict competence, partly due to the condition of Iraq infrastructure and culture of corruption, and yes, significantly due to the impact of the insurgency. It’s a complicated story, which certainly supports Tom Barnett’s basic thesis that the US badly needs to restructure State and Defense to create an effective “SysAdmin” capability [see earlier posts on The Pentagon’s New Map].

Instead of the daily police-blotter stories, isn’t this a superb opportunity for some in-depth media analysis and reportage? These are real issues that deserve open debate and then resolution. The appropriation for reconstruction runs out in 2006. The pledged $13.5 billion of Non-US Foreign Aid has been largely a no-show. What is going to happen next year? What is the plan for transferring responsibility to complete the job to Iraqis?

The Executive Summary is as good a summary of the CSIS report as I could do:

The US aid effort in Iraq has not accomplished most of its sectoral goals, and more importantly, has not effectively initiated the reconstruction of the country’s economy. After three years of struggle, the expenditure of more than $ 20 billion US aid funds, $ 37 billion Development Fund for Iraq (DFI) -UN accumulated from the oil for food program’s revenues and the seizure of bank accounts-and death of thousands of US and other coalition soldiers and tens of thousands of Iraqis, Iraq is producing less oil, has less electricity and less water than it did during the Saddam period. After studying the modern Iraqi economic history as a background, this work analyzes why.

Insurgency has been a major obstacle to an effective reconstruction. However, shortcomings of the US aid planning and execution indicate that even if there was not an endemic insurgency in Iraq, the reconstruction would still be ineffective.

While planning the reconstruction, US authorities did not conduct a survey of the country’s capabilities and needs, and did not develop a strategically integrated national development plan for Iraq. It did not realistically plan to deal with the challenges posed by a state-run economy and corruption, what effectively had become a “command kleptocracy.”

The Iraqi economy had been run by the government from its independence from Britain in 1932 until the US-led coalition occupation in 2003. It was heavily militarized, and shaped around the need to favor the areas and factions favorable to the regime. The Coalition Provisional Authority’s efforts to introduce rapid liberalizing reforms were mixed to the point of being chaotic and did not help establish a properly functioning financial and business sector. This was the direct result of the lack of any continuity and coordination within the CPA effort, but it was also the result of a lack of any comprehensive development plan for the country.

The lack of a coherent plan and strategy help created compartmentation and clusters within various US agencies in charge of the aid effort, increasing the lack of coordination. Additionally, the US aid planners did not carry out an adequate physical survey of the country’s infrastructure, analyze present and future requirements, allow for the impact of underfunding since early in the Iraq-Iraq War, dependence on obsolete equipment, or realistically address the problems in converting to US-planned and supplied systems. Coalition efforts also relied heavily on increasing oil exports, but did not properly analyze the problems in Iraq’s oil infrastructure.

The failure to plan for security in the face of a rising insurgency made things far worse, but shortcomings in aid planning of the reconstruction were exacerbated by inefficient execution. The US personnel in charge of the reconstruction often lack experience and basic competence. They had no experience in dealing with the scale of effort involved, command economies, or operating in a counterinsurgency environment.

They were not familiar with Iraq, did not speak Arabic and usually were not be deployed in the country long enough to build competence and rapport. Besides, most Iraqis were excluded from the reconstruction of their country. Until 2006, all projects were given out to non-Iraqi multinationals that did not employ many Iraqis. The contracts were given out mostly without competitive bidding and were in the form of “indefinite delivery-indefinite quantity”. These multi-billion-dollar projects were not audited either. The first audit body was set up only months before the CPA’s tenure came to an end.

The $20.9 IRRF is expected to expire at the end of 2006. The transition of the reconstruction effort will be problematic. Most US agencies are not ready for the hand-over, the Iraqis do not have technical and financial capability to sustain the ongoing projects and completed assets. This is the biggest threat to the long-term effectiveness of the US aid effort, but the problem is greatly compounded by the fact that the transition must occur in mid-war and without a stable Iraqi government or credible Iraqi plans for economic growth and development.

Upon the assessment of these deficiencies, this report recommends the following to increase the effectiveness of the effort to reconstruct Iraq’s economy:

Protecting oil assets

• Focus priority on oil asset protection by strengthening the security measures, especially in the north of Iraq.

• Create strict physical buffer zones in various forms for off-shore terminals, pipelines, refineries, oil installations and strategic pipeline conjunction points.

• Introduce high technology to increase the effectiveness of surveillance systems to enhance infrastructure security, namely unmanned aerial vehicles (UAV), electronic motion detectors and video cameras.

Increasing project effectiveness

• Expand initiatives such as the Project Partnership Agreement (PPA) to incorporate both Iraqi ministry officials and local companies.

• Make available the funds necessary to ensure the sustainability and maintenance of completed and ongoing projects in 2006-2007.

• Put pressure on contractors to complete delayed projects.

• Replace all cost-plus contracts with fixed price contracts.

• Fully adhere to and implement the findings of SIGIR audits.

• Collect cost-to-complete data to allow auditors to assess funds spent and funds available.

Refineries

• Increase labor and facility productivity to make full use of existing refinery capacity.

• Eliminate fuel subsidies incrementally, done in strategic coordination with increases in refined products to prevent social outbreak.

Electricity

• Convert all remaining indefinite delivery-indefinite quantity (IDIQ) projects to projects with measurable targets.

• Increase the number of Direct Contracting Initiatives.

• Use the remaining US fund slated for electricity generation to the build new power plants that do not rely on fuel.

• Expand the Rapid Contracting Initiative for electricity distribution, especially for the outstanding Baghdad Essential Services contract.

Creating competence of US employees

• Increase the duration of tours of US personnel deployed in Iraq to at least one year.

• Introduce orientation periods for newly deployed staff.

• Create a “civilian corps” composed of USAID, DOD and others agency staff with experience in political and economic reconstruction as well as community building.

• Amend the OPM rules that govern the deployment of federal workers abroad to include an exception for the civilian corps to be stationed in the field to adequately fulfill the requirements of their mission.

Planning for the transition to Iraqis

• Create a database of all assets funded with US money.

• Activate the Sustainment Coordinator.

• Make a uniform financial assessment necessary for the hand-over of assets to Iraqis.

• Prepare a report of short and long term financial cost findings from the assessment needs to be submitted to the Iraqi Planning and Finance Ministries with a breakdown of individual project and assets, to assist the Iraqi government to budget for these costs.

Non-US aid: Encourage allies to:

• Follow through with their donation pledges –most important assistance.

• Forgive at least part of Iraq’s debt and extend reparations relief if they have not yet done so – especially the Gulf States, Saudi Arabia and Kuwait in particular.

• Cooperate with the Iraqi government on the training of Iraqi security forces in Iraq.

• Train Iraq’s oil workers and exchange best practices.

• Support different fractions [sic], especially the Sunni to engage politically.

Learning lessons for the future

• Make the completion of an all-encompassing capability and needs assessment the first step in future reconstruction planning.

• Produce an all encompassing and strategic national development strategy after the completion of comprehensive assessment.

• Set up a coordination body to determine the projects necessary to implement the national development strategy, combining experienced staff from agencies participating in the effort and experts from the local community.

• Determine and award projects only on the basis of an integrated national development plan.

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2 thoughts on “Iraq Reconstruction Report

  1. This is a good report that deserves Congressional attention. The key points revolve around the failure to control contracts – “money follows blood” is an all too apropos metaphor. IDIQ and Cost Plus contracts are the bane of the cost controllers existence. When I worked contracting issues out of Ukraine, the first thing American contractors did after winning a contract was to start working on how to “grow the contract” (a process that adds in just enough new requirements to incrementally increase costs without exceeding the threshold requiring the contract to be re-bid).

    Personnel issues of three month tours are counterproductive, although good for morale and good for huge numbers of federal employees to do their time in theater (although credibility is questionable with three months in theater if all that time is spent inside the green zone). Tours of one year hurt readiness on the Korean Peninsula, except that their is a base cadre of personnel on longer tours, providing the continuity necessary to maintain effectiveness.

    Back to Iraq – the key to Iraq is self sufficiency. The populace must buy into the new freedoms in order to minimize insurgents. The Iraqi economy must get back on its feet and that can be done through improved oil pumping and refining. The terrorists attack the pipelines, well, bury the pipelines in sand and maintain a monitoring system. Iraqis can do the construction work at a bargain price. Let’s apply Iraqi standards of valuation vice the U.S. pay structure. And let’s get those contracts that were issued during war time under control. We can get there and yes, it will take time, but no time like the present to start implementing a coordinated plan with Iraqis taking on more of everything.

    This is not a call for U.S. withdrawal – we are needed there for as long as we are needed there and we are still needed. We’ll have a presence there for quite some time – we have a tendency to stay in every country we’ve liberated. That’s a small price to pay for liberty.

  2. Craig,

    Thanks for your comments. “Money follows blood” indeed. I expected corruption on the Iraqi side – but I was particularly disappointed to see so much careless contracting to US firms. And that very few Iraqis were employed on those contracts. Wasn’t it obvious that we needed to employ Iraqis and involve Iraqis wherever possible?

    I certainly agree that “the key to Iraq is self sufficiency”. And a necessary condition to self sufficiency is security – i.e., the freedom to work for the Iraqi government without fear that your family will be murdered.

    I don’t agree with the theory of some analysts that the Coalition presence is causing the terror and intimidation. I do believe that the Iraqis will find it very difficult to put down the terror without help – which many democrats seem determined to withdraw.

    I’ve been reading your excellent Strategic Outlook Institute blog – and have added to my daily read.

    Steve Darden

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