Development Fund for Iraq — Agreed-Upon Procedures Report — 22 أيار 2003 (AUD-964826c7)

Development Fund for Iraq Agreed-Upon Procedures Report For the period from 22 May 2003 to 31 December 2003 (Oil Proceeds Receipts Account) KPMG Bahrain June 2004 This report contains 7 pages Development Fund for Iraq Agreed-Upon Procedures Report For the period from 22 May 2003 to 31 December 2003 (Oil Proceeds Receipts Account) (all amounts are in US dollars) ________ 1 Reconciliation of Export Sales to Oil Proceeds Receipts Account 1.1 Procedure We obtained statements of transactions from the Federal Reserve Bank of New York (FRBNY) for the period to 31 December 2003. We compared the amounts of export sales of petroleum, as recorded by the Iraqi State Oil Marketing Organization (SOMO), to the amounts deposited into the Oil Proceeds Receipts Account (OPRA). 1.2 Findings 1.2.1 Export sales of petroleum and petroleum products are required to be arranged and invoiced exclusively by SOMO, the sales arm of the Iraqi Ministry of Oil. 1.2.2 We found that, for the period to 31 December 2003, all export sales of petroleum products (residual fuel oil) were undertaken through barter transactions. Additionally, as there is no Iraqi infrastructure for exports of natural gas, there were no export sales of natural gas from Iraq. 1.2.3 Export sales of petroleum (crude oil) recorded by SOMO in its accounting records for the period to 31 December 2003 amounted to $5,076,633,501. 1.2.4 Proceeds from export sales of petroleum are paid directly into the OPRA account, through irrevocable documentary letters of credit, with proceeds received approximately 30 days after the petroleum has been lifted. We found that proceeds from export sales of petroleum for the period to 31 December 2003 were deposited in the OPRA account as follows: Year OPRA 2003 $ 3,922,391,000 2004 1,154,242,501 $ 5,076,633,501 2 1.2.5 1.2.6 Development Fund for Iraq Agreed-Upon Procedures Report, continued For the period from 22 May 2003 to 31 December 2003 (Oil Proceeds Receipts Account) (all amounts are in US dollars) ________ SOMO also engages in barter transactions for exports of petroleum and petroleum products. Barter transactions consist of exports of residual fuel oil for light fuel products and the export of crude oil for electricity from Syria. The exports of residual fuel oil and crude oil, and the imports of light fuel products are recorded in the accounting records at SOMO. We found that the value of these barter transactions, as recorded by SOMO, for the period to 31 December 2003 was $120,906,678. As these were non-cash transactions, no proceeds were deposited in the OPRA or in the Compensation Fund, established in accordance with the UNSCR 687 and subsequent relevant resolutions. The CPA believes that an unknown quantity of petroleum and petroleum products was illegally exported from Iraq (smuggling), especially in the early months post-hostilities, by- passing the authorized processes of marketing, sales and cash collection. Despite the internal controls put in place by the CPA and SOMO, the CPA also believes that internal control systems over the Iraqi oil industry were insufficient to ensure that all petroleum and petroleum products were accounted for. The CPA is unable to reliably estimate the amounts of petroleum and petroleum products that were illegally exported for the period to 31 December 2003. It was not practicable to extend our procedures sufficiently to quantify such amounts. 3 Development Fund for Iraq Agreed-Upon Procedures Report, continued For the period from 22 May 2003 to 31 December 2003 (Oil Proceeds Receipts Account) (all amounts are in US dollars) ________ 2 Oil Proceeds Receipts Account 2.1 Procedure We recalculated the amounts transferred from the OPRA account during the period to 31 December 2003, pursuant to the allocation requirements laid down by UNSCR 1483 paragraphs 20 and 21, and agreed these payments to the cash deposited in the DFI and to the cash transferred to the Compensation Fund. 2.2 Findings 2.2.1 The resulting proceeds from export sales of petroleum and petroleum products for the period to 31 December 2003 were deposited in 2003 and early 2004, as follows: Compensation Year OPRA DFI Fund 2003 $ 3,922,391,000 $ 3,726,271,450 $ 196,119,550 2004 1,154,242,501 1,096,530,376 57,712,125 $ 5,076,633,501 $ 4,822,801,826 $ 253,831,675 2.2.2 We found that the allocation was pursuant to the requirements laid down by the UNSCR 1483 paragraphs 20 and 21. 4 Development Fund for Iraq Agreed-Upon Procedures Report, continued For the period from 22 May 2003 to 31 December 2003 (Oil Proceeds Receipts Account) (all amounts are in US dollars) ________ 3 Compensation Fund 3.1 Procedure We obtained a letter from the United Nations confirming the amount transferred from the OPRA account to the Compensation Fund during the period to 31 December 2003. 3.2 Findings We found no difference between the total amount transferred from the OPRA account to the Compensation Fund and the amount confirmed by the United Nations. 5 Development Fund for Iraq Agreed-Upon Procedures For the period from 22 May 2003 to 31 December 2003 (Oil Proceeds Receipts Account) ________ Appendix In accordance with the engagement letter issued on 27 April 2004, the procedures to be applied to the Development Fund for Iraq’s Oil Proceeds Receipts Account (OPRA) held on behalf of the Central Bank of Iraq at the Federal Reserve Bank of New York (FRBNY) are as follows: 1. Obtain from the FRBNY statements of transactions for the period from inception (22 May 2003) to 31 December 2003; agree the amounts of export sales of petroleum, petroleum products and natural gas, as recorded by the Iraqi State Oil Marketing Organization, to the amounts deposited into the Oil Proceeds Receipts Account (OPRA). 2. Recalculate the amounts to be transferred from the OPRA account, pursuant to the allocation requirements laid down by UNSCR 1483 paragraphs 20 and 21, and agree these payments to the cash deposited into the DFI and to the cash transferred to the Compensation Fund. 3. Obtain a confirmation from the United Nations regarding the amounts transferred from the OPRA to the Compensation Fund during the period to 31 December 2003. 7