Development Fund for Iraq — Report of Factual Findings — 1 كانون الثاني 2004 (AUD-56bc552c) Arabic

Development Fund for Iraq Report of Factual Findings in connection with the Oil Proceeds Receipts Account For the period from 1 January 2004 to 28 June 2004 KPMGBahrain September 2004 This report contains 7 pages KPMG Fakhro Aucit 5th floor Chamber of Commerce Building PO Box 710. Manama Kingdom of Bahrain CR No. 6220 Telephone +973 17 22~7 Fax +97317227443 Internet www.kpmg.oom.bh Report of Factual Findines !n connection with the Oil Proceeds Receipts Account To the International Advisory and Monitoring Board of the Developtrent Fund for Iraq To the Project and Contracting Office (successor to the Coalition Provisional Authority) We have performed the procedures enumerated in the attached Appendix, which were agreed with the International Advisory and Monitoring Board of the Development Fund for Iraq and the Coalition Provisional Authority, solely to assist you in evaluating the Development Fund for Iraq's compliance with United Nations Security Council Resolution (UNSCR) 1483 paragraphs 20 and 21, for the period from 1 January 2004 to 28 June 2004. The Coalition Provisional Authority was responsible for the Development Fund for Iraq's compliance with UNSCR 1483. This Agreed-Upon Procedures engagement was conducted in accordance with the International Standard on Related Services 4400: Engagements to Perform Agreed-upon Procedures Regarding Financial Information and with the International Organization of Supreme Audit Institutions (INTOSAI) Standards on Government Auditing. The sufficiency of these procedures is solely the responsibility of those parties specified in this report. Consequently, we make no representation regarding the sufficiency of the procedures described in the Appendix, either for the purpose for which this report has been requested or for any other purpose. Development Fund for Iraq Report of Factual Findings in connection with the Oil Proceeds Receipts Account For the period from 1 January 2004 to 28 June 2004 (all amounts are in US dol1ars) 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 Yark (FRBNY) for the period from I January 2004 to 28 Jlnle 2004. We compared the amOlnlts of export sales of petrolemn and petroleum products, as recorded by the Iraqi State Oil Marketing Organization (SOMO), to the 8JIlO1nlts deposited into the Oil Proceeds Receipts AccOlnlt (OPRA). 1.2.4 .2.6 Findings Export sales of petroleum and petrOleum products are required to be 8I1"8Dged and invoiced exclusively by SOMO, the sales arm of the Iraqi Ministry of Oil. As there is no Iraqi inftastnlctm'e for the export of natural gas, there were no export sales of nat\D"a1 gas from Iraq. We fOWld that, for the period from 1 January 2004 to 28 J\me 2004, export sales of petroleum and petroleum products were \mdertaken through cash and barter transactions. Export sales ofpetmlewn (crude oil) made through casb transactions, as recorded by SOMa in its acCO\D1ting records for the period from I January 2004 to 28 June 2004, amounted to 58,085,192,743. See section 1.2.8 for barter transactions. Export sales of petroleum products (mainly residual fuel oil) made tIn-ough cash transactions, as recorded by SOMa in its accounting records for the period from 1 January 2004 to 28 JWle 2004, amoWlted to $686,549. See section 1.2.8 for barter transactions. Proceeds from export sales of petroleum and petroleum products are required to be paid directly into the OPRA acco\D1t, through irrevocable documentary letters of credit, with pI'OCeeds received approximately 30 days after the petroleum or the petroleum products have been lifted. Development Fund for Iraq Report of Factual Findings in connection with the Oil Proceeds Receipts Account, continued For the period from 1 January 2004 to 28 Juue 2004 (all amounts are in US dollars) We fo\D1d that proceeds &om export sales of petroleum and petroleum ~ucts for the period from 1 January 2004 to 28 J\D1e 2004 were deposited in the OPRA account as follows: Period deposited in OPRA 1 January 2004 to 28 June 2004 Post-28 June 2004 $ 6,884,062,972 1.201.816.320 $ 8.085.879.292 1.2.7 Cash advances received for and proceeds of export sales of petroleum and petrolewn products dwing the period from I January 2004 to 28 June 2004 amo\Dlting to $20,038,000 were deposited in an Iraqi bank &CCO\Dlt controlled by the State Oil Marketing Organization, the sales ann of the Iraqi Ministry of Oil. This amo\Dlt was not deposited in the OPRA account, or the Development Fund for Iraq (DFI) and the Compensation Fund in accordance with United Nations Secmity Council Resolution 1483. SOMO also engages in barter transactions for exports of petroleum and petrolemn products. Barter transactions consist mainly of exports of residual fuel oil for light fuel products and the export of crude oil for electricity fi'om Syria. The exports of residual fuel oil and crude oil, and the imports of light fuel products are recorded in the 8CCO\Dlting records at SOMO. We found that the value of these barter transactions, as recorded by SOMO, for the period from 1 January 2004 to 28 J\D1e 2004 was $209,881,292. As these were non-cash transactions, no proceeds were depOsited in the OPRA 8CCO\D1t, or the DFI and the Compensation F\D1d. The CPA believed that an \mkI1own quantity of petrolewn and petroleum products was illegally exported from Iraq (smuggling), by-passing the authorized processes of marketing, sales and cash collection. Despite the key internal controls put in place by the CPA and SOMO, the CPA also believed that internal control systems over the Iraqi oil industry were insufficient to ensure that all petroleum and petroleum products were accounted for in the absence of a metering system. The CPA was unable to reliably estimate the amounts of petroleum and petrolewn products that were illegally exported for the period from 1 January 2004 to 28 June 2004. It was not practicable to extend om procedures sufficiently to quantify such amounts. Development Fund for Iraq Report of Factual Findings in connection with the Oil Proceeds Receipts Account, continued For the period from 1 January 2004 to 28 June 2004 (all amounts are in US dollars) 2 Oil Proceeds Receipts Account 2.1 Procedure We recalculated the amo\D1ts to be transfen'ed ftom the OPRA acCO\D1t dwing the period ftom 1 January 2004 to 28 J\D1e 2004, pmsuant to the allocation requirements of UNSCR 1483 paragraphs 20 and 21, and agreed these payments to the cash deposited in the DFIand to the cash transferred to the Compensation F\D1d. 2.2 Findings The proceeds of export sales of petrolemn and peb"olemn products were deposited in the OPRA aCCO\Dlt and immediately thereafter, 95% was deposited in the DFI and the remaining 5% was deposited in the Compensation F1D1d. The Compensation Fund was established in accordance with UNSCR 687 and subsequent relevant resolutions, as a result of the Iraqi invasion of Kuwait d1U'ing 1990. The resulting proceeds from export sales of petrole\D11 and petrolewn products during the period from inception (22 May 2003) to 28 June 2004, which were deposited in the OPRA account and inn11ediately transferred to the DFI and the Compensation Fund dW'ing the period from I January 2004 to 28 June 2004, were as follows: Compensation Fund Year of export 2004 2003 S 6,884,062,972 1.154.242.501 S 8.038.305.473 OPRA DFI $ 6,539,859,823 1.096.530.376 $ 7.636.390.199 $ 344,203,149 57.712.125 $ 401.915.274 $1,154,242,501 represents the proceeds of certain exports sales of petroleum during the period from inception to 31 December 2003, which were deposited in the OPRA account in early 2004. We fo\D1d that the allocation was pursuant to UNSCR 1483 paragraphs 20 and 21 3 3.1 3.2 Development Fund for Iraq Report of Factual Findings in connection with the Oil Proceeds Receipts Account, continued For the period from 1 January 2004 to 28 June 2004 (all amounts are in US dollars) Compensation Fund Procedure We obtained a letter from the United Nations confinning the amount transferred from the OPRA account to the Compensation Fund during the period from 1 January 2004 to 28 June 2004. Findings We fo\D1d no difference between the total amO\D1t transferred from the OPRA account to the Compensation Fund and the amoJ.mt confirmed by the United Nations. Development Fund for Iraq Report of Factual Findings in connection with the Oil Proceeds Receipts Account, continued For the period from 1 January 2004 to 28 June 2004 (all amounts are in US dollars) Because the above procedures do not constitute either an audit or a review made in accordance with International Standards on Auditing or International Standards on Review Engagements, we do not express any assmance on the Oil Proceeds Receipts Account for the period &om 1 January 2004 to 28 June 2004. Had we performed additional procedures, other matters might have come to oW' attention that would have been reported to you. We have perfonned an ex~m1nation of the statement of cash receipts and payments of the Development Fund for Iraq for the period from 1 January 2004 to 28 June 2004, with our audit report issued thereon on 30 September 2004. We expressed a qualified audit opinion on the completeness of cash receipts, as also noted in our findings in section 1.2.7 above. We fuIther expressed a qualified audit opinion on the completeness of export sales of petroleum and petroleum products, as also noted in om findings in section 1.2.9 above. This report is intended solely for the information and use of the International Advisory and Monitoring Board of the Development Fund for Iraq and the Project and Contracting Office. and is not intended to be. and should not be. used by. or relied upon by. anyone other than these specified parties. However. this report is a matter of public record and its distribution is not limited. We do not accept or assume responsibility for any other pW'pose or to any other person to whom this statement is shown or into whose hands it may come save where expressly agreed by our consent in writing. Manama, Kingdom of Bahrain 30 September 2004 Development Fund for Iraq Agreed-Upon Procedures in connection with the Oil Proceeds Receipts Account For the period from 1 January 2004 to 28 June 2004 Appendix In accordance with the engagement letter issued on 27 April 2004, the ~dm'es to be applied to the OPRA aCCO\Dlt held on behalf of the Central Bank of Iraq at the FRBNY are as follows: 1. Obtain from the FRBNY statements of transactions for the period from 1 January 2004 to 28 June 2004; agree the amounts of export sales of petroleum, petroleum products and natlD"a1 gas, as recorded by the Iraqi State Oil Marketing Organization, to the amounts deposited in the OPRA account. 2. Recalculate the amounts to be transferred from the OPRA account, pmsuant to the allocation requirements of UNSCR 1483 paragraphs 20 and 21, and agree these payments to the cash deposited in 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 account to the Compensation Fund during the period from 1 January 2004 to 28 June 2004.