07-F-2544 Iraq 2003 The Economy

I DECLASSIAED 1 · ~' C\HlSulting .m. C1roup Iraq 2003: The Economy Postwar Perspectives for Trade and Investment 0 PA Knowledge UmJted 2003 Prepared for: Ambassador Robin Raphel Prepared by: Judith Bamett PA ~~rjs.Group 1750 Pennsylvan~ Av.eniJe, NW ·. ·· · . . . ' S~ite 1 OQO Washlngt0n·, DC. 20QQ6 ·_.,Tel: +12024142~ Fax: +1 202·442=2001 · www.paconsUi~ng~m Version: 1.0 ,. DECLASSIFIED BY.....;. --...---..a~OATE OCf- //- 2W7 FOIACASE# Iraq 2003: The Economy 3l20I03 Mlnlsten (U) President & Prime Mlnlster--Saddam Husayn Vice President-Taha Maruf Vice President- Taha Y 11sin Ramadan Dep. Prime Mln.-Tariq Aziz Dep. Prime Mln.-Hikmat al-Azzawi Saddam's Cabinet: The Council'of Ministers (U) Dep. Prime Mln.- Ahrnad al-Khudayir Dep. Prime Mln. - Abd al-Tawab al-Huwaysh Min. of Agriculture-Abd al-llah al-Salih Min. of Awq1f & Religious Affaln- Abd al-Munim Sa lib Min. of Culture-Hamid YusufHammadi Min. of Defense-Lt. Gen. Sultan Hashim al-Jabburi Tai Min. of Education-Fahd Shaqrah Min. of Flnance--Hikmat al-Azzawi Min. of Foreign Affairs- Naji Sabri al-Hedithi Min. of Hea.ltb-Umid Mubarak Min. of Higher Educ1tlon & Scienttnc Research- Dr. Humarn Abd al-Ghafur Min. of Housing & Reconstruction- Maan Abdallah al- Sarsam Min. of Industry & Mlnerals- Muyassar Raja Shalah Mln. of Information- Muhammad al-Sahhaf Min. of Interior- Mahmud al-Ahmad ·Min. of lrrig1tion-Rasul al-Swadi Min. of Justlco-Mundhir Ibrahim al-Shawi Min. of Labor & Social Affairs- Mundhir Mudhafar al-Naqshabandi Min. of Military lnduslriallzatlon-Abd al· Tawab ai- Huwaysh AJ Mirn. of Oil ..Ainu al-Ubay® ~,,.:, ;JIJ..J .4zh Mirn. of Planning-Hasan Abd al-Munim al-Khatab MIJD. of Tr.de-Muhammad Mahdi al-Salih Min. of Transport & Com. munlcatlon--Dr. Ahmad Khalil Min. of State-Abd al-Wahhab al-Atrush Min. of State--Arshad al-Zibari Min. of State for Military Affairs-Staff Gen. Abd al- Jabbar Shanshal Adviser to the Pres.- Dr. Safa Habubi Adviser to the Prcs.-Nizar al-Qasir Adviser to the Pres.- Barzan al-Tikriti Adviser to the Pres. - Watban al-Tikriti Adviser to the Pres. for MiHtary Affalrs- Sadi al- Jabburi Govenior, Central Bank - Isam al-Huwaysh He. ad of Interests Section in the US-Alcram al-Duri Permanent Representative to the UN, New York- Muhanunad al-Dwi fJ•r Oct ober 2002 17 Working Groups • Transitional Justice • Public Finance • Public Outreach Development • Democratic Principles • Water, Agriculture & the Environment • Public Health & Humanitarian Needs • Defense Policy • Local Government • Economy & Infrastructure • Civil Society Capacity- Building • Transparency & Anti- Corruption • Education • Return of Refugees • Building a Free Media • Foreign Policy • Oil & Energy • Preserving Cultural Heritage January 30, 2003 UNCLASSIFIED 4 27 P?TirR 7777 'UP 7 SUFlll CONTACTS LIST AGRICULTURE • Prof. Kassim Al-Khatib • Prof. Sorkel Kadir • Prof. Mahdi M. Al-Kaisi Possible : • Mohammad Sait Ketane • Shi.men Khamo • Dr. Akram Aljaff • Dr. Hussein al-Atiyyah AWQAF & RELIGIOUS AFFAIRS • No one announced or contacted until after Liberation -- at a minimum -- will need more from each major religious group': • Ayatollah Siatani. • Seyed Mohammed Bahr Al·Oloum. Member of 65-person Followup and Coordinating Committee. • Seyed Abdul Majid al-Xboa'i, Secretary General, Al-Khoe'i Foundation, London . Member of 65-person Followup and Coordinating Com mittee. CULTURE • Shameem Rassam • Ghal eb Shahbander • [Awaiting Preserving Iraq's Cultural Heritage WG.] EDUCATION and HIGHER EDUCATION & SCIENTIFIC RESEARCH • Hind Rassam • Raya Barzanji • Edward Odisho • Mahmoud Darwish Ill 1111 T I I 111• lllFlll nunsrm a A I IT F - 2 - For Science: • Em manuel Kamber FINANCE • Dr. Salah al-Shaikhly • Dr . Sinan al- Shabibi • Sabri Zire Al-Saadi Special role : • Carole al-Basri, anti- corruption expert. FOREIGN AFFAIRS • [Awaiting res ul t s of Foreign Policy W G. ] • Rend Rahi m Francke • Qubad Talabani • SaJni Abdul Rahman HEALTH (to be renamed HEALTH AND ENVIRONMENT) • Dr. Maha Hussain • Dr . Ali Al-Attar • Dr . Mahmoud Thamer • Dr . Mohammed s. Ogaily • D r . Nabil P . Al-Baldawi • Dr . G hida Al-Juburi • Dr . Amer Al Juburi • Dr . Ays er Chalabi • Dr . Lena Al-Sa rraf • Mazin Enwiya • Ramsey Jiddou • Dr . Saud Amer • Dr . Parhan Bakir S?UU?Tr'S 57$ '3'QT 'SUPER sww:mus ma mmr 7 nnEJss 7 3 7 • Dr . Maj id Alousi • Dr Hamid Muntheri • Dr. Hazim Safi • Dr. Hussain Tuma • Dr. Mohammed Al-Ibrahim • Dr . Adil Al-Humadi • Dr. Mona Hanna • Dr. Hatem Mukhli s • Dr. Moiyed Al-Husseini • M s. Tara Aziz • Dr . Ilham Heather Al Sarraf Possible: • Dr . Salih Al-Wakil • Dr . Heewa Faraj • Dr . Ayman Rayes • Dr . Roseteres Warda • Dr . Adil Shamoo • Dr . Rizkar Amin • Dr . Imad Y. Al-Manseer • Dr . Haval Saasll a • Dr . Ali Sindi • Dr . Mazin Sabri • Dr . Emile To tone hi • Dr . Has am Palih HIGHER EDUCATION & SCIENTIFIC RESEARCH • [See Educat ion . ] IHI 1111 I I I Ill JIZEIH 1111&111 • us un• 111nm1 - 4 - H O USING AND RECONSTRUCTION • [Awaiting Refugees & IDP's WG. Reconstruction responsibilities may be transferred to Tr ade M inistry.] INDUSTRY AND MINERALS -- aee TRADB INFORMATION • [Awaiting Free Media WG. The Mini s t r y of Infor mation i n i t s present form will be shut down. During stabilization, media will be cont rolled by US/Coalition, which will util ize cont r actors to provide content. During t ransition, operation of individual TV, radio and print outlets wi l l be decentralized. TV stations could go to universit y journalism schools. Will need program managers/managing editors . ] • [An Iraqi Government press office will be needed for transiti onal period, but spokespeople will depend on Iraqis. Eventually, government ministries will have own press off ices.] • Gha•san al- Ati yyah INTERIOR • Or. Talib al-Hamdani • Seyed Abdul Majid al- Khoe'i • Lai th Kubba • Ibrahim Jamalaldeen • Mohammed Abdul J a.bbar • Suhair al-Mousa lly • Abdul 'Al Shalaiba • Parouk Ridha • Habib Hurmuzlu • Hu•sein al-Rakkabi • Ammar Shahbandar IRRIGATION • Dr . Azzam Alwa•h ruum , • 1 • rn n 111rH1 ?PU IWIPI I I lllFllD - 5 - • Jawad Alwash • Dr. Hedeff Essaid Possible: • Yousif Kharaka • Dr . Ali Hanoosh JUSTICE Judicial Council: • The Justice M inistry, the courts and the legal profession would be overseen by a Judicial Council that would include 5 - lO Iraqis from outside Iraq or the north, and 3-5 I raqis from central and sout hern I raq. Free Iraqi members of the Judicial Council: • Faisal Istrabadi • Judge Tareq al-Salih • J udge Reyadh Abdul Majid al- Kabban • Sermid al-Sarraf • Judge Fuad Redah • Judge Zuhair Abboud • Mohnem al-Khatib • Noury Lutayef • [KDP choice.) • [PUK choice . ) • [Six ot hers from inside Iraq.) Other Names: • Mohammed Al-Jabari • Louay Bahry LABOR AND SOCIAL AFFAIRS • Suzan Ali • Bakhtiar Amin i7 FHP• 17• lllld If Hiii ?EE?TEPW S' 'IT27 7 2 H Ill - 6 - • Safia Souhail al-Tilllimi • Rakiyah al-Kaysai • Ghanem Jawad • [For Labor, see peopl e listed under T'rad e, bel ow, ] OIL • Dr. Ibrahim Bahr Alolom • Sherzad Nazhat • Sahib Mahdi Al-Hussaini • Dr. Padhil J. Chalabi • Belal G. Atiyyab • Dunia Chalabi • Moh&mll\ed Ali Zainy • Mufit Akkoyunlu • Nawzad Omar Dizai Possibles • Ghassan Raasam • Thamir Al-Uqaili PLANNING • [See i ndi viduals listed under Fi nance, above, a nd Trade, below .] TRADE ( to be renamed DEVELOPMENT AND TRADE), INDUSTRY AND MINERALS, and MILITARY INDUSTRIALIZATION MINISTRY • Nasreen Sadeek • Aiham Alsamsnarae • Muhanned Eshaiker • Hasaan Al-Khatib • Emad Dhia • Baba Al-Shabib IP?TIHJS• 7 s5 mzr ' q s rzp TABLE OF CONTENTS Foreword 1. 2. Introduction Thinking About Trade and Investment Development 1-1 2-4 Appendices APPENDIX A: A .. 1 APPENDIX 8: Reports and Articles A·2 iii lcaq 2003: The Economy 3120/00 1. INTRODUCTION Iraq is a nation of 24 million, and importantly, 41 % are under 14 years old. The population growth rate is 2.82%. The nation had a GDP, in purchasing power parity, of$ 59 billion In 2001 . The real growth rate in that year was 5.7%, and Inflation reported to be between 50%- 60% (down from 100% five years ago). Imports are at approximately $ 11 billion, mainly comprised of food, medicine, and manufactured goods. Leading import partners are France, Australia, China, and Russia. Exports are at $ 15.8 billion, mainly In the crude oil and oil products sectors. Nearly half of all exports (46.2%) go to the United States, far less (12%) to Italy, then France and Spain. (CIA. The Wor:l.d Factbook. 2002) The economy of Iraq is dominated by the oil sector. In the 1980s, problems stemming from massive expenditures in the eight-year war with Iran led Iraq to austerity measures, then rescheduling of foreign debt payments currently estimated at $ 140 billion (including debts to Gulf states and Russia). After that war ended In 1988, a war in which Iraq lost about $ 100 billion, oil exports gradually increased until 1990, when Saddam Hussein decided that Kuwait was "stealing" oil and invaded that country in August. The Gulf War was highly destructive to the Iraqi economy and despite growing trade In recent years, Iraq's people have depended on the United Nations' Oil for Food program (which essentially was halted in mid-March, although billions of dollars in contracts are outstanding) for medicine, food, and some infrastructure spare parts. In the recent past, Iraq has been attempting to create economic ties with various Arab (and non-Arab) countries. In January 2001 , Iraq signed free-trade deals with Egypt and Syria. Egypt became Iraq's fifth largest trade partner with over $ 2 billion in trade. In March 2002, at an Arab summit In Beirut, Iraq pledged "non-interterence" in Kuwait's internal affairs and recognition of Kuwait's borders. In all, Iraq has ten free trade agreements (which can have varying provisions and actual implementation) with Arab states: Algeria, Egypt, Lebanon, Qatar, Oman, Sudan, the United Arab Emirates, Syria, Tunisia, and Yemen. Generally these are agreements to phase out customs duties and ease the flow of goods. These agreements often were outside the oil·for- food program and therefore, began well-used structures for evading sanctions. Unfortunately, information on a diversity of sectors, other than oil, gas, and agriculture, is scant and unreliable. In that the oll and gas sectors will have numerous waiting suitors after the War, it is the technology, food, medical, and other industries that will have the greatest need for creative programs for development. The Oil Industry Iraq Is estimated to have 112 billion barrels of proven oil reserves, the second largest in the world, but this may be a low estimate due to years of sanctions, war, and an unreliable and corrupt resource policy. Iraq's oil production costs are among the lowest in the world, making it highly attractive as an investment prospect. The oil industry has not had access to the state-of-the-art oil industry technology, spare pans, and investment in general. Many believe that Iraq has been utilizing questionable engineering techniques (over pumping, flooding) and outdated technology. This has probably caused Iraq 2003: The Economy 3/20/03 1. Introduction ... damage to some oil reservoirs over time. In ear1y 2002. Iraq's Oil Minister stated that only 24 of 73 oil fields were producing. Proven oil reserves are not distributed evenly throughout the country. Before Iraq's invasion of Kuwait in 1990, about two-thirds of Iraq's production was coming out of the southern fields, home to Shi'ite Muslims who compose the majority of Iraq's population but have little 1 power (Hussein is a Sunni Muslim from Tlkrit). As of October 2002, Iraq had signed several multi-billion dollar deals with foreign oil companies generally from China, France, and Russia. The Deutsche Bank estimates these contracts represented about $ 38 billion for new or "greenfield" development. Iraq has become increasingly frustrated at the failure of these projects to begin. In recent months, Iraq has signed a flurry of deals with companies from Italy (Eni), Spain (Aepsol YPF), Russia (Tatneft), France (TotalFlnaElf), China, India, and Tur1<ey. The Economist estimates that Iraq has signed over 30 deals offering up to 20% rates of return. France's oil giant, TotalFlnaElf, has much to lose in the current war, Iraq Freedom. For 30 years, French businesses have been up close with Iraq, when several French state-owned companies went to Iraq (In the early 1970s) and there are a web of French-Iraqi trade associations. Beyond oil, these relationships can be seen In Baghdad with a French phone system, French cars, and numerous French oil officials. "The fact that In postwar Kuwait, U.S. companies got most contracts, doesn't bode well for the presence of French companies In Iraq.• stated Pierre Girard Hautbout, an adviser at OFOIC, a French "liaison" company. France takes the design of the reconstruction very seriously, seeing a threat that Its special relationship may end. 'We're the chips in a poker game,• one French corporate official was quoted In a recent lnves, tment newswire. The Natural Gas Industry Iraq has approximately 11 O trillion cubic feet of proven natural gas reserves. About 7' 0° /o of the gas reserves are produced In conjunction with oil. Development of these two sectors will be closely associated. Natural gas Is both produced with oil and Is also used for re-lnj.ection for enhanced oil recovery efforts. Currently, Iraq has awarded gas and oll concessions to companies from countries supporting the easing or lifting of U.N. sanctions (France, China, Russia are examples). The Agriculture Sector Iraq has historically haol a burgeoning agricultural sector with rich soil, rain fed forests, and extensive pastures. Before the 1970s, close to one third of the population was in the agricultural sector. Beforn sanctions were Imposed In 1990, Iraq spent $ 600 million annually on the sector, which has steadily declined to under$ 200 million. When the oil boom erupted in the 1970s, the diverse Iraqi economy became an oil dependency. Through war In the 1980s, agriculture declined greatly. Today, it Is estimated that less than half of Iraq's arable land Is being farmed. Mechanization and technology In agriculture are behind and there has been a massive migration from farms to cities. 1·2 Iraq 2003: The Economy 3120/03 1. Introduction ... The Government of Iraq has taken the oil-purchases-all attitude over the past two decades, investing little in the agriculture sector and instead, increasingly purchasing agricultural products. So that although the population has grown 2.8 percent, food crops have moved In the opposition direction. Further push has been given under the oll·for-food program in that the Iraqi government and the United Nations have provided inexpensive foreign grains at prices that Iraqi farmers can not compete with. Industry and Manuf4'Cturing The construction industry has remained active throughout the sanctions regime, rebuilding the civil and military infrastructure. In July 1999, Iraq announced plans to produce spare parts for the oil industry and a national manufacturing department Is supposedly producing parts for pipelines and reservoirs. Iraq is known to have approached Airbus about restarting its. own national airline, but Iraq did reopen its international airport and flights from Russia have gone into Baghdad. 1-3 Iraq 2003: The Economy 3120/03 2. Thinkiing About Trade and Investment Development ... 2. THINK/ING ABOUT TRADE AND INVESTMENT DEVELOPMENT As stated above, initial thinking about rebuilding industries, developing business partnerships, and the development of a commercial infrastructure should begin with a plan. This would be an initiative for trade and Investment and would begin with a Strategic Plan. The Plan would document an economic recovery plan, plans for changing regulatory and legal frameworks, existing industries and business associations, and steps for revitalizing trade and investment. The following are Initial thoughts about such a plan, which can be expanded at any time. Certainly, the first considerations in developing economic stability will be domestic, feeding and housing those Iraqi people who have these critical needs. However, this is a nation With a long and deep history of commerce and trade, an existing albeit Inadequate trade infrastructure, both private and public, and a proud tradition of entrepreneurship. Critical to establishing the foundation for trade will be an overall economic reform and recovery package. User-friendly policies and practices must prevail. Often in the Middle East and North Africa, trade laws and policies are ambiguous, protectionist. ambivalent, and ever changing. With the opportunity to establish some new structures, one must ensure that adequate technical support is provided for a strong and transparent regulatory and legal system, fair and accessible trade policies and laws, pro-active investment authorities and bureaus, an agile, knowledgeable intematlonal commercial service, and utilization of current assets. in the Iraqi business community as well as in communities throughout the region. Once such programs are established, there must be an educational/ training component. The people of Iraq have had a patchwork of peculiar and dictator-centered policies, and introduction of open market policies must happen with knowledge and at a reasonable speed. As a goal, Iraq can be organized to join the World Trade Organization. This would invo,ve a balanced budget, far lower inflation, and reasonable tall'iffs. Activating bilateral and regional trade agreements that are currently in place would be an important step for the Iraqi economy. Privatization efforts in other countries, if done correctly,, demonstrate that infrastructure, oil, and oil service companies generate greater efficiency, production, and higher revenues. This is true In numerous pri1 vatized industries. In Iraq, particularly in the oil and gas sector, privatization mechanisms should be developed; oil sales taxed, and proceeds well distributed. 2-4 Iraq 2003: The Economy 3120/03 D' Consulting ..171 Group 1750 Pennsylvania Avenue, NW Suite 1000 Washington, D.C. 20006 Tel: +1 202·442-2233 Fax: +1 202·442-2671 www.paco11$ulllng.com JUDITH BARNETT Judith Barnett is a Managing Consultant for the PA Consulting Group (PA), joining PA after an acquisition of her original firm, Georgetown Global Investments Corporation in 2000. Ms. Barnett continues in PA to provide a one- stop shop for U.S. 1 companies Interested in creating or expanding trade and investment, particularly in the Middle EasV North Africa (MENA) and in China. Before consulting, Ms. Barnett served in the Clinton Administration, practiced as a corporate lawyer and litigator. was a law professor, a public affairs specialist, and a writer. At PA, Ms. Barnett has developed a practice, trav1 eling between Washington, the MENA, and China, which Includes a wide and varied caseload of trade actlvltles. Most recent client work has Included: •:• '.• •:• •:• Representing the third largest city in China to conduct investment and trade promotional activities in order to increase bilateral partnerships between U.S. and Chinese entitles; (• Representing international firms that seek market entry into China; •!- Speaking before the China Textile Association, the China International Clothing and Accessories trade conference (March 2002), and the Womens' Enterprise Conference (March 2002) to discuss access to the U.S. market and bilateral partnerships. •:• Creating a major Initiative to increase trade and Investment for a large country which involves a dynamic trade website, relnventing the worldwide commercial service, training commercial officers, and a series of national briefings; •:• Working with a multinational food company in five countries to thwart trade barriers, bulld an in-country public affairs network, and to Increase market share; Providing a 0-5 year strategic plan for an international telecommunications company, including an analysis of the telecomm Industry In the Middle EasV North Africa and a focus on eight priority markets; Negotiating a joint venture agreement for a large international high tech fund and a U.S. telecomm company; and Becoming a contractor for the Trade and Development Agency and winning a contract to conduct an Aviation Conference in China and to introduce Egyptian telecomrn officials to U.S. technologies. Ms. Barnett came to the firm from the Clinton Administration in December 1998 where she served as the Deputy Assistant Secretary (OAS) for Africa and the Near East, U.S. Department of Commerce. As the DAS, she was responsible for activities and programs In 68 countries, including bilateral trade matters, regional projects and programs, and project advocacy for US companies. Ms. Barnett implemented and cooperated on numerous multinational conferences in the Middle East, the United States, and Europe including the 70 country MENA Economic Summits in Morocco, Jordan, Egypt, and Qatar. At the Department of Commerce, Ms. Barnett assisted numerous US companies in fostering trade and investment throughout the world. She joined the Department as Principal Deputy Assistant Secretary for Trade Development, International Trade Association in October 1993, and was responsible for the management of an Office of 400 persons, and a budget of $ 49 million. During her tenure at Trade Development, she oversaw the only US government agency that represents industry sectors, managed 22 private sector advisory committees, and established the Advocacy Center which has tracked and advocated for billions of dollars of successful tenders for US companies throughout the world. In 1996, Ms. Barnett became the Deputy Assistant Secretary and championed programs to develop open and competitive markets throughout the Middle East, North Africa, and Sub-Sahara Africa. She was responsible for numerous programs Including the Gore- Mbeki and Gore-Mubarak Partnerships for Economic Growth and Development, the Taba Trade Ministers program (trade ministers of the Middle East), the Middle East North Africa Economic Summits with the World Economic Forum, and the Administration's Africa Initiative. In law practice, Ms. Barnett worked in various aspects of corporate law and litigation. She developed corporate specialties in the areas of high tech joint ventures and automotive law, as well as trial work in Intellectual property rights and contract law. Ms. Barnett served for seven years as an adjunct professor of law at Georgetown University Law Center, teaching in the areas of legislative advocacy and legal ethics. Before entering the law profession, Ms. Barnett served in the Carter and Reagan Administrations in public aftalrs and speechwritlng at the Federal Trade Commission and the US Department of Education. She has written articles for Vogue magazine, the Washington Post, and other publications. Ms. Barnett lives in Washington and has one daughter, a former White House staffer and now practicing law in Los Angeles. A: Resumes ... PA ATTACHMENT B: REPORTS AND ARTICLES A-2 Iraq 2003: The Economy 3120/03 IRAQ Fact Sheet General information: Capital: Baghdad Surface area: 438.32 thousand sq km Officlal langu1g1: Arabic Population: 23.6 milllon (2001) Exchange rate: A$1=0.11;1 Dinars (Jun 2002) Recent economic indicators: Head of Sblte and HHd of Government: H.E. President Mr Saddam Hussein 1997 GOP (US$bn): 15.4 GDP per caplbl (USS): 725 Real GOP growth (~ •change YOY): 40.0 Current account balance (US$m): 819 Current account balance (% GOP): 5.3 Goods & services exports(% GDP): 33.1 Inflation ('.4 change YOY): 100.0 Unemployment rate (~•) : n.a. Auat..ile'• lnde wllh lnq 1998 18.1 832 35.0 1,168 6.5 41 .0 90.0 n.a. Reel GOP' gtVWlll 1999 2000 2001(•) 2002(b ) 23.7 31 .8 27.9 25.5 1,062 1.385 1,184 1,054 ~8 . 0 4.0 ·6.0 ·2.0 2,018 3,269 1,031 2,203 8.5 10.3 3.7 8.6 53.7 64.8 57.0 49.8 80.0 70.0 60.0 70.0 n.a. n.a. n.a. n.a. Mllftll9'1 •lfPO'I• 1 0 ti.q - "' 50 1,000 too too ... IOO ....... .... '~· .. fY t? fYH N H FY OO NOi fY02 40 )0 IO 10 . 10 1111 . ... 11111 IOOO - OFYt7 1.000 e FYOZ too too 400 100 .... 1001 2001 ~ s .... t- °"'"' Australia's trade relationship with Iraq: Major Australian exports, 2001·2002 (ASm): Confidential items of A$839m, estimated to be wheat. Australian merchandlH trade with Iraq, 2001-2002: Exports to Iraq (A$m): Imports from Iraq (A$m): Total trade (exports + imports) (A$m): Merchandise trade surplus with Iraq (A$m): Australia'• trade In 1ervlces with Iraq, 2001: Exports of sel'Vices to Iraq (ASm): Imports of services from Iraq (ASm): Services trade balance with Iraq (A$m): Iraq's global trade relationships: Major Australian imports, 2001·2002 (A$m): No import trade was recorded. Toral ,,,,,.: Renll: Growth (l!!t ~ : 840 0 840 840 n.a. n.a. n.a. 0.7% 0.0% 0.3% ToUll , ,,.,..: n.a. n.a. 25th n.m. 34th 14.6% n.nn. 1.3% Iraq'• principal export dH tinationa, 2001: 1 United Stales 2 France 3 Netherlands 4 Italy 5 Canada 23 Australis 60.6% 8.5% 7.4% 5.8% 5.5o/o 0.0% tr• q'a prlncip• l Import sources, 2001: 1 France 2 Australia 3 Italy 4 Germany 5 China 19.4% 14.4% 10.7% 9.9% 6.4% (•t. ti ·--1- n ,1 , 01\1 nol I Ytilable . t ubjtCI IO re-lllon; (b): E U,..._ • . Iraq Counrry Analysis Brief Page 1 or 1) Home > Country An11lysis Briefs > Iraq Country Analysis Brief ,, .• ,.. ••• 11 .. \ ,., .•• ,."" ••• ., .. PDF version I POB version October 2002 B.a.tkg[filllld I OJI I Natural Gas I Electricill'. I &.o.Cik. I Links Iraq Iraq holds more than 112 billion barrels of oil - the world's second largest proven reserves. Iraq I also contains 110 trillion cubic feet of natural gas, and is a focal point for regional security issues. Note: The information contained in this report is the best available as of October 2002 and can change. Also. please click here.for a complete chronology of events pertaining to Iraq from 1980 through mid-October 2002. 100 200kno 100 200 mi GENERAL BACKGROUND DY.rlngJh.cU.280.umtlm . • Iraq experienced two major wars (Iran-Iraq and c he Kuwait war), plus more than a decade of economic sanctions. As a result, the country's economy, infrastructure, and society have deteriorated significantly. Iraq's gross domestic product {GDP) has fallen sharply since before the Iraqi invasion of Kuwait, with per-capita income and Jiving standards far below pre-war levels. On the other hand, increased oil production since 1996 and higher oil prices since 1998 resulted in estimated Iraqi real GDP growth {accurate statistics are hard to come by) of 12% in 1999 and 11 o/o in 2000. For 2001, with net oil exports relatively flat and oil prices down from 2000, Iraq's. real GOP growth was estimated to have .._ ______________ ..--...__. fallen to only 3.2%. For 2002, with higher oil prices but sharpl1 y lower oil ex.ports, Iraq's real GDP growth is expected to grow by only 1.5%. Iraqi inflation currently is estimated at around 25% (down slightly from 28% in 2001), with unemployment {and underemployment) high as well. Iraq's merchandise trade surplus is about $4.8 billion, although much of this is under United Nations {U.N.) control. Iraq/ has a heavy debt burden, possibly as high as $140 billion if debts to Gulf states and Russia are included. Iraq also has no meaningful tax.ation system, plus erratic fiscal and monetary policies. On May 14, 2002, the U.N. Security Council approved an overhaul of the "Oil-for-Food" program for Iraq that makes use of an extensive list of "dual-use" goods (goods that could have a military as well as civilian use). Under the modification, Iraq is able to use its oil revenues, which go into a U.N. escrow account out of which suppliers exporting products to Baghdad are paid, in order to purchase items not on the list. The resolution renews the U.N. program until SAUDI ARABIA Iraq Country Analysis Brief Page 2 ot I:> November 25, 2002. Over the past few years, Iraq has been attempting to improve relations with various Arab (and non-Arab) countries. In March 2002, for instance, at an Arab summit meeting in Beirut, Iraq pledged"non-interference" in Kuwait's internal affairs and recognition of Kuwait's borders. Iraqi Foreign Minister Naji Sabri stated, "We are for the prosperity and independence of the state of Kuwait and also for the norm~lization of ties, d~plomat .ic , economic, po l iti~a! ." I~ Janua . ~ 2001, j Iraq signed free-trade deals with Egypt and Syna, and in August 2001 , Syn as Prime Mm1ster visited Baghdad. In April 2001, Iraqi Vice President Taha Hussein Ramadan met Russian President Vladimir Putin, the highest-level Iraqi-Russian contact in several years. In June 2001, however, in an apparent blow to Iraqi-Saudi relations, Saudi Arabia announced that it had seized ownership of the l.6-million-barrel-per-day IPSA pipeline that had carried Iraqi crude oil to the Saudi Red Sea port of Yanbu (Mu~iz) prior to Iraq's invasion of Kuwait. The seizure included pumping stations, storage tanks, and the maritime tenninal. Saudi Arabia claimed that the pipeline was confiscated as a result of aggressive Iraqi actions. Iraq insisted that it still owned the pipeline. and in May 2002, stated that the line was "ready for export." Since the end of the Gulf War in 1991, the United States and the United Kingdom have maintained ).io.:..fly...ZQMS.:. over Iraq, and also have carried out occasional bombing of various targets, primarily in reaction to pen:eived threats to allied aircraft. U.N. weapons inspectors left Iraq in December 1998, and the United States responded at the time with a several-day bombing campaign of Iraq, called "Operation Desert Fox." On October 16, President Bush signed a resolution by the U.S. Congress authorizing him to use force against Iraq if necessary. OIL Iraq contains 112 billion barrels of proven oil reserves, the second largest in the world (behind Saudi Arabia) along with roughly 220 billion barrels of probable and possible resources. Iraq's J . true resource potential ma. y be far greater than this, however, as the country is relatively unexplored due to years of war and sanctions. Deep oil-bearing fonnations located mainly in the vast Western Desert region, for instance, could yield large additional oil resources (possibly another 100 billion barrels), but have not been explored. Iraq's oil production costs are amongst the lowest in the world, making it a highly attractive oil prospect. It is important to note that Iraq generally has not had access to the latest, state-of-the-art oil J industry technology (i.e .• 30 seismic), sufficient spare parts, and investment in general throughout most of the 1990s, but has instead reportedly been utilizing questionable engineering techniques (i.e., overpumping. water injection/"flooding") and old technology to maintain production. There is also some evidence that Iraq may have damaged its oil reservoirs through use of such techniques and through lack of sufficient investment over a lengthy period of time. Iraq's Oil Minister, Amir Rashid, indicated in early 2002 that only 24 of 73 Iraqi oil fields were producing. Recently, oil consulting finn Saybolt International pointed out the risk of a 5%-15% annual decline in production capacity at (possibly) damaged Iraqi oil fields. Iraqi oil reserves vary widely in quality, with API gravities in the 24° to 42° range. Iraq's main export crudes come from the country's two largest active fields: Rumaila and Kirkuk. The southern Rumaila field produces three streams: Basra Regular (normally 34° API, 2.1 % sulfur, but apparently deteriorating); Basra Medium (30° API, 2.6% sulfur); and Basra Heavy (22°-24° AP!, 3.4% sulfur). The northern Kirkuk field, first discovered in 1927, normally produces 37° API. 2% sulfur crude, although the API gravity reportedly has fallen in recent years. An additional export crude, known as "Fao Blend," is heavier and more sour, with a 27° API and 2.9% sulfur. Iraq Country Analysis Brief Page 3 of 15 Iraq's proven oil reserves are not distributed evenly throughout the country. In fact, prior to Iraq's invasion of Kuwait in 1990, about two-thirds of Iraq's production was coming out of the southern fields of Rumaila, Zubair, and Nahr Umr. Other potentially huge fields such as Majnoon and West Quma (see below for more details) are also located in the southern part of the country. Notably, southern Iraq is populated overwhelmingly by Shi'ite Muslims, who make up the majority of Iraq's population but have little power -- Saddam Hussein is a Sunni Muslim from the central Iraqi town of Tikrit -- and who rebelled against Saddam Hussein following the 1991 Gulf War. Although much of Iraq's southern oil infrastructure -- fields, refineries, storage facilities, tnmsportation infrastructure -- was damaged during the Gulf war, the oil potential of this region alone is huge. Iraq's Oil Production and Consumption, 1980-2002E 3.0 -.---- - - --.,,- - - - --- - -, 1 >- 2.5 .. Q t 2.0 • ! 1.5 m c 1.0 ~ i 0.6 1980 1984 1988 1992 1996 2000 Note: Production includes crude oil, lease condensate, natuml f11t$ llqulds, etlwmol, end tetlnel'f fJBln. In September 1999, more than 50 foreign companies attended an oil and natural gas technology exhibition in Baghdad, the first such gathering in IO years. Most of the firms were from Canada, France • Italy, and the United Kingdom. No U.S. firms attended, although a high-level Iraqi oil official has stated that Iraq is ready to deal with U.S. oil companies. To help attract foreign investment to the country's energy sector, Iraq's oil ministry has introduced amendments 10 existing development and production contracts (DPCs). Among other things, the duration of DPCs has been reduced from 23 to 12 years. In addition, Iraq has added a clause referring to "an explicit commitment 10 achieve target production within a set period." Production Following Iraq's invasion of Kuwait and the embargo on Iraqi oil exports, Iraqi oil production fell to around 300,000 barrels per day (bbl/d) (from 3.5 million bbl/din July 1990). For 2001, Iraqi crude oil production averaged 2.45 million bbVd, down from about 2.59 million bbl/d in 2000, with large weekly and monthly fluctuations. Iraqi oil output was lowest in June 200 l, at 1.13 million bbVd, and highest in April 2001, at 2.95 million bbl/d. Iraqi officials had hoped to increase the country's oil production capacity lo 3.5 million bbl/d by the end of 2000, but did not accomplish this given technical problems with Iraqi oil fields, pipelines, and other oil infrastructure. Iraq also claims that oil production capacity expansion has been constrained by refusal of the United Nations to provide Iraq with all the oil industry equipment it has requested. Oil industry experts generally assess Iraq's sustainable production capacity at no higher than 2.8-3.0 million bbVd, with net export potential of around 2.3-2.5 million bbVd (including smuggled oil). In July 2002, Iraqi Oil Minister Amer Rashid said that Iraq's current sustainable capacity was 3.2-3.3 million bbVd, and that I.he country hoped to increase that 1 0 3.5 million bbVd -- even without help from foreign oil companies.-- by the end of 2003 (Iraq last produced 3.5 million bbVd in July 1990. According to the Middle East Economic Survey, Iraq also aims to limit crude oil exports under the U.N. "Oil-for-Food" program to around 2.2 million bbl/d, with the remaining 800,000-900,000 bbl/d going for domestic consumption, exports 10 neighboring Jordan (at preferential rates), and smuggling (to Syria, Turkey, etc.). Iraq Country Analysis Brief Page 4 of 15 Among other challenges in maintaining, let alone increasing, oil production capacity, is Iraq's battle with "water cut" (damaging intrusion of water into oil reservoirs) especially in the south. Saybolt International has reported that Iraq has been able to increase its oil production through use of short-term techniques not generally considered acceptable in the oil industry (i.e .. "water flooding," injection of refined oil products into crude reservoirs). A U.N. report in June 2001 said that Iraqi oil production capacity would fall sharply unless technical and infrastructure problems were addressed. The report estimated, for instance, that production in the Kirkuk region could fall by 50% over 12 months, to 500,000 bbl/d, and that output at South Rumaila also could be reduced sharply unless immediate actions were taken. Iraq hopes to counter this by a large-scale program to drill new wells (4 17 are planned, most of which are to be carried out by Russian, Chinese, Iraqi, and Romanian companies). Exports · ( U.N. Resolution 986 (April 1995) allows Iraq to sell specified dollar amounts of crude oil over six-month periods, in part for the purchase of humanitarian supplies ("Oil-for-Food") for distribution in Iraq under U.N. supervision. In December 1999, with Iraq steadily increasing its oil export revenues. the Security Council voted to remove any limits on the amount of oil Iraq could export. The current phase (Phase Xll) began May 30, 2002 and is scheduled to end on November 25. Under the Phase XII renewal, the U.N. Security Council makes use of an extensive list of "dual-use" items (goods that could have military as well as civilian use). Iraq is allowed to make use of "Oil-for-Food" revenues to purchase items not on the list. Overall, about three-fourths of the proceeds from "Oil-for-Food" sales are used to purchase humanitarian goods for Iraq, while 25% are eannarkcd for reparations to Gulf War victims. pipeline transit fees for Turkey (which claims that the embargo on Iraq has cost Turkey more than $35 billion since 1990), and funding for U.N. weapons monitoring activities. On September 26, 2002, the head of the U.N. Iraq Program, Benon Sevan, reported r o the U.N. Security Council that rhe "Oil-for- Food" program was running a large shortfall (around $10 billion total, including $2 billion in the current phase), making it "impossible to implement the humanitarian program effectively." According to Scvan, over 1,200 contracts worth more than $2 billion that had been approved by the U.N. could not be carried out due to a lack of funds. 28,2003 During 2001. Iraq averaged officiaJ (i.e .. U.N. monitored) 3.5 weeken net oil exports of around 2 ,.,,. l 2.5 I 2.1 ... J 1.5 lu 1.5 million bbVd. although this number fluctuated greatly through the year, and fell sharply during 2002 (to only 1.5 million bbl/d during the first 1 months of the year, and even further during August and September) (sec graph). The reduced volume of Iraqi 1 · 1 exports in 2002 appears to Ui n H ii r1 t~ iii n U iU t~ iii ~:~:~~n ~:~~:~i ~~~o 11.. x o 11.. ~o ._.11111.. f z c:i ~ z c::11 of oil exports in April 2002 s011c.:1.Homc.oft11t~ Pr .nmtlEIA ostensibly in support of the --------------- "'--09'----..._.JPalestinians; and 2) pressure by the United States and other countries to clamp down on Iraq's practice of charging an illegal "surcharge" on their U.N. -authorized oil exports (sec below for more on this subject). As a result, Iraq's exports dropped sharply in the second and third quarters of 2002 before increasing sharply in recent weeks (to over 2 million bbVd in the week ending September 20. for instance). Iraq Country Analysis Brief Page:> ot 1:> Besides the 90,000 bbl/d or so going to Jordan legally (i.e., with tacit U.N. permission, and under a protocol between Iraq and Jordan), and-the 460,000 bbVd or so consumed domestically, the rest (not counting illegally smuggled oil and oil products) was exported either through the lraq-Turkey pipeline or the Persian Gulf port of Mina al-Bakr. Although U.N. Resolution 986 mandates that at least half of the "Oil-for-Food" exports must transit through Turkey, it appears that in recent months more Iraqi oil (close to three-quarters) has been exported via Mina al-Bakr rather than via Ceyhan, in part due to a shift in oil exports away from Europe and the United States and towards Asia due in part to the U.N. 's "retroactive pricing" plan (see below for more details). In general, Mina al-Bakr is used for Iraqi oil exports to Asia, while Ceyhan is used for Europe. An estimated 30% of Iraqi oil is sold initially to Russian firms (i.e., Emerkom, Kalymneftegas, Machinoimport, Rosneftelmpex, Sidanco, Slavneft, Soyuweftegaz, Tatneft, and Zarubzhneft). The remaining 70% of Iraq's oil is first purchased by companies from many countries, including Cyprus, Sudan, Pakistan, China, Vietnam, Egypt, Italy, Ukraine, and others. Iraqi oil is nonnally then resold to a variety of · Oil companies and middlemen before being purchased by end users. During 2001, for instance, nearly 80% of Basra Light Jiftings, and over 30% of Kirkuk oil, went to the United States, with large importers including ExxonMobil, Chevron, Citgo, BP, Marathon, Coastal, Valero, Koch, and Premcor. During the first seven months of 2002, the United States imported an average of 566,000 bbVd from lraq. In addition to U.N.-sanctioned oil exports to Jordan, which are currently carried by truck (plans for a 150,000-bbl/d, $250-$350 million, 120-mile pipeline to Jordan's Zarqa oil refinery were approved by Jordan's cabinet in December 2001, and Jordan reportedly has received more than 30 offers from firms interested in building the line -- with possible completion in late 2004), there have been persistent reports that Iraq has smuggled 200,000-400,000 bbl/d of crude oil and products via a number of routes. These include: I) to Turkey (as high as 100,000-150,000 bbl/d, mainly of fuel oil) by truck through the Habur border point (reportedly, this smuggling was stopped from September 18, 2001 through January 7, 2002); 2) to Jordan (possibly 10,000- 30,000 bbVd above domestic needs) by truck; 3) to Syria (150,000-200,000 bbl/d or more; see below for details), mainly via the Kirkuk-Banias pipeline, with smaller volumes possibly moving via a railway line from Mosul to Aleppo; 4) to Iran along the Gulf coast and via Qais Island; and 5) to Dubai with the use of small tankers sailing from Umm Qasr. Press reports have estimated that these illegal shipments may be providing Iraq with as much as $600 million-$2 billion per year in illegal revenues, while a U.S. General Accounting Office study released in May 2002 estimated that Iraq had earned $6.6 billion from oil smuggling and illegal surcharges from 1997 through 2001. In November 2000, numerous press reports indicated that Syria and Iraq had reopened the 552- mile-Jong, Kirkuk-Banias pipeline, with the Middle East Economic Digest (MEED) reporting initial deliveries of Iraqi crude oil through the line (and also possibly by rail) at around 140,000- 150,000 bbVd (capacity prior to 1982 was 300,000 bbl/d). The oil, most likely Basra Light, reportedly is being used in Syrian domestic refineries, thus freeing up more Syrian oil for export to world markets, earning Syria extra hard currency oil export revenues (and also earning Saddam Hussein significant revenues outside the U.N. "Oil-for-Food" program). Since Iraqi oil exports arc allowed only via approved export routes, use of the Kirkuk-Banias line would represent a potentially serious breach of U.N. sanctions against Iraq. On January 23, 2001, the Bush administration offered to allow Iraqi oil exports through Syria as J ong as they were regulated by the U.N. "Oil-for-Food" program. In January 2002, the United Kingdom directly accused Syria of violating U.N. sanctions on Iraq by shipping over 100,000 bbl/d of Iraqi oil to Syria without U.N. permission. An estimated $100 million or so per month of Iraq's illegal oil export revenues are estimated to be coming from the Syria pipeline alone, with oil sold to Syria at a significant price discount off of Kirkuk published prices. Iraq Country Analysis Brief Page 6 of 15 In April 2000, the U.S. Navy stopped a Russian tanker, the Akademik Pustovoit, which it suspected might be smuggling Iraqi oil. The United Nations later determined that around 20% of the vessel's gasoil cargo (which Shell said it owned) was of Iraqi origin. In April 2001, an Iraqi- owned vessel - the Zainab -- sunk off the Dubai coast, leaking over 1,000 tons of smuggled diesel oil and polluting Gulf waters and UAE beaches. At leas1 1wo other ships smuggling Iraqi oil sunk during 2001 -- one off the Kuwaiti coast in October, and one in November. During 2001, lraqi oil smuggling through Iranian waters rcponedly was reduced significantly (possibly 50%), as Iran increased its efforts at stopping suspect vessels. In October 2001, the United Nations discovered that two oil shipments on the "Essex" had been "topped off' after U.N. inspectors had signed off, adding some 500,000 barrels of crude oil to the ship. The Essex was chartered by trader Trafigura, run by fonner employees of Marc Rich. In late October 2001, the U.N. Sanctions Committee begam imposing a so-called "retroactive pricing" mechanism (proposed by the UK and supported by the United States) to alter the way in which Iraqi oil prices are set. The United States and the UK were concerned that Iraq was using oil price fluctuations to impose a de facto surcharge on oil purchasers, and that this money was going directly to the Iraqi government outside of U.N. control. This wa.: also part of a continuing effort by the United States, the UK, and others to stop Iraq from fo~ing buyers to pay a $0.30-$0.60 per barrel surcharge, paid directly to the Iraqi government. Under "retroactive pricing," Iraqi oil exports to the United States and Europe (but not Asia) arc priced based on oil market developments through the end of the period covered by a particular oil delivery contract. Thus, "official selling prices" for Iraqi crudes (Kirkuk and Basrah Light) are not known until after the oil has been loaded and sold. At this point, prices arc set at a level high enough to assure that lifters have no room to pay Iraq the illegal surcharge and still make a profit. By many accounts, this effort appears to have been at least partly successful in reducing illegal surcharges, and may also have had the side effect of reducing overall Iraqi oil exports as 2002 has gone on. Iraqi oil (!Grkuk and Basra Blend) bound for the United States is priced off West Texas lntcnnediatc, while for Europe, Iraqi oil is priced off of dated Brent. On October 31, 2000, the U.N. Sanctions Committee approved an Iraqi request to be paid i,n Euros, rather than U.S. dol'lars, for oil cxponcd under the "oil for food" program. On November 1 6, Iraq's State Oil Marketing Organization (SOMO) demanded that companies lifting cargoes of Iraqi crude oil begin paying a fifty cent per barrel surcharge directly to the Iraqi government (in violation of U.N. sanctions) starting on December 1, 2000. Oil Field Development, War, and Current Status Iraq's southern oil industry was decimated in the Gulf War. with production capacity falling to 75,000 bbUd in mid-1991. The largest producing oil field in this region is Rumaila. The war resulted in destruction of gathering centers and compression/degassing stations at Rumaila. storage facilities, the 1.6-million bbUd (pre-war capacity) Mina aJ-Bakr export tenninal, and pumping stations along the 1.4-million bbVd (pre-war capacity) Iraqi Strategic (North-South) Pipeline. Seven other sizable fields remain damaged or partially mothballed. These include Zubair, Luhais, Suba, Buzurgan, Abu Ohirab, and Fauqi. GcncralJy speaking, oilfield development plans have been on hold since Iraq's invasion of Kuwait, with Iraqi efforts focused on maintaining production at existing fields. The Kirkuk field, with over 10 billion barrels in remaining proven oil reserves, forms the basis for northern Iraqi oil production. Bai Hassan, Jambur, Khabbaz, Saddam, and Ain Zalah- Butmah-Safaia arc the other currently-producing oil fields in northern Iraq. An estimated 60% of Northern Oil Company's (NOC) facilities in northern and central Iraq were damaged during the Gulf War. In 2001, output from all northern fields (!Grkuk, Bai Hassan, Jambar, Khabbaz, Saddam, Safiya, and 'Ain Zalah/Butnah) was around I million bbVd. In December 2001, the Turkish Petroleum International Corporation won a U.N.-approved contract to drill for oil in northern Iraq, specifically at the Khunnala field near Kirkuik. Two Russian companies -- Tatneft Iraq Country Analysis Brief Page 7 of 15 and Zarubezhneft -- have won U.N. -approved upstream contracts at the Bai Hassan, Kirkuk, and Saddam fields. Tatneft is to drill 78 new wells in Iraq. marking the largest foreign company oil involvement in Iraq since 1990. In early December I999, Russian energy company Zarubezhneft said that it was drilling multiple wells at Kirkuk, and that this did not violate U.N. sanctions (Russian officials have denied that any work wa:s being done). Zarubezhneft hopes 10 boost K.irkuk production capacity from its current 900,000 bbVd to around I. I million bblld. Iraq's southern fields -- mainly North and South Rumaila, plus al-Zubair, the Missan fields, West Quma, Luhais, and Bin Umar -- produced around 1.5 million bbVd in 2001. Zarubezhneft also has a contract to drill approximately 100 wells in the North Rumaila field. In January 2002, Tunisia signed a deal with Iraq to develop an oilfield near the southern province of Najaf. Another major Iraqi oil field is the 11-billion barrel East Baghdad field, which came online in April 1989. This centrally-located field currently produces 50,000 bbl/d of heavy, 23° API oil as well as 30 million cubic feet per day (Mmcf/d) of associated natural gas. In March 2000, U.N. Security Council agreed to double the spending cap for oil sector spare parts and equipment (under Resolution 1175 of June 20, I 998), allowing Iraq to spend up to $600 million every 6 months repairing oil facilities. U.N. Secretary General Kofi Annan had warned of a possible "major breakdown" in Iraq's oil industry if spare parts and equipment were not forthcoming. In August 2000, a senior Iraqi oil official stated that delays by the United Nations in approving contncts to upgrade Iraq's oil sector were threatening production levels. The United States has said that the $300 million should be used only for short-tenn improvements to Lhe Iraqi oil industry, and not to make long-tenn repairs. Iraq's oil sector distribution plan for the "Oil-for-Food" program's 12th phase reportedly includes $350 million for upstream contracts, including development work on the Hamrin, Suba, and West Qurna fields. As of early January 2002, the head of the U.N. Iraq Program, Benon Sevan, expressed "grave concern" at the volume of "holds" put on contracts for oilfield equipment, and stated that the entire program was threatened with paralysis. According to Sevan, these holds amounted to nearly 2,000 contracts worth about $5 billion, about 80% of which reportedly were "held" by the United States. Overall, Iraq has imported about Sl.2 billion worth of equipment to upgrade oil facilities over the past three years under the "Oil-for-Food" program. Sevan also said that retroactive pricing was resulting in lower Iraqi oil exports, and therefore revenues, under the "Oil-for-Food" program. Post-U.N. Sanctions Development Plans ~ As of October 2002, Iraq reportedly had signed several multi-billion dollar deals with foreign oil P companies mainly from China, France, and Russia. Deutsche Bank estimates $38 billion total on new fields -- "greenfield" development -- with potential production capacity of 4.7 million bbVd if all the deals come to fruition (which Deutsche Bank believes is highly unlikely). Iraq reportedly has become increasingly frustrated at the failure of these companies actually to begin work on the ground, and has threatened to no longer sign deals unless finns agreed to do so without delay. Iraqi upstream oil contracts generally require that companies start work immediately, but U.N. sanctions overwhelmingly have dissuaded companies from doing so. Following the lifting of U.N. sanctions, Iraq hopes to increase its oil production capacity to over 6 million bbVd or higher. In recent weeks and months, Iraq reportedly has signed a flurry of deals wilh companies from Italy (Eni), Spain (Repsol YPF), Russia (Tatneft), France (fotalFinaEJf), China, India, Turkey, and olhers. According to a report in The Economist, Iraq has signed over 30 deals with various oil companies, offering generous rates of return ("on the order of 20%") as part of its "Development and Production Contract" (DPC) model. Iraq introduced the DPC in 2000 to Iraq Country Analysis Brief Page lS or D replace the previous "Production Sharing Contract" (PSC) arrangement. Russia, which is owed several billions of dollars by Iraq for past arms deliveries, has a strong interest in Iraqi oil development, including a $3.5-billion, 23-year deal to rehabilitate Iraqi oilfields, particularly the I 1-15 billion barrel West Quma field (located west of Basra near the Rumaila field). Since the agreement was signed in March 1997, Russia's Lukoil (the operator, with a 68% share, heading a Russian consortium plus an Iraqi company to be selected by the Iraqi government) has prepared a plan to install equipmenl with capacity to produce 100,000 bbVd from West Qurna's Mishrif fonnation. Meanwhile, in August 2000, Iraqi engineers reportedly completed work on two degassing stations at West Quma, with two more planned. potentially raising production at the field (one of the world's largest) significantly, from around 140,000 bbl/d currently. West Quma is believed to have potential production capacity of up to I million bbVd. In October 1999, Russian officials reportedly said that Iraq had accepted a Russian request to delay work on West Quma given the continuation of U.N. sanctions. This followed an Iraqi warning that Lukoil could lose its contra.ct (and possibly be replaced by another Russian company) at West Quma if it did not begi, n work immediately (Lukoil has been restrained from doing so by U.N. sanctions). As of October 2002, however, Lukoil had not begun work on West Quma. Jn October 2002, Lukoil's Chief Executive (Vagit Alekperov) said his belief that the West Quma contract would "be upheld no matter what happens" in Iraq, and that he had received "guarantees" on this matter from Russian President Vladimir Putin. In Ocrober 2000, the Iraqi Oil Ministry expressed frustration with the slow pace of progress by Russian and Chinese finns, and in January 2001, Shell announced that it had held talks wilh the Iraqi Oil Ministry regarding "potential opportunities" at the 1-billion-bam:I Ratawi oilfield. In March 2001, the Deputy Oil Minister announced that Iraq might terminate contracts with tlhe Chinese and Russian companies. In October 2001, a joint Russian-Belarus oil company, Slavneft, signed a $52 million service contract with Iraq on the 2. -billion-barrel, Suba-Luhais field in southern Iraq, and expecting to sign a service contract to begin drilling later this year. full development of Suba-Luhais could result in production of J 00,000 bbVd at a cost of $300 mill ion over three years. As of March 2002, Slavneft reportedly was awaiting approval from the United Nations 10 drill 25 wells as Luhais. The Saddam field contains 3 billion barrels of oil and 5 trillion cubic feet (Tcf) of associated gas. Iraq is seeking foreign assistance for a second-phase Saddam development, which would raise oil productjon capacity to 50,000 bbl/d, as well as 300 Mmcf/d of gas. In early April 2001, Russia's Tatneft and Zarubezhneft reportedly received U.N. approval to drill 45 wells in the Saddam field, plus Kirkuk and Bai Hassan, as part of an effort to reduce water incursion into the fields. As of October 2002, however, work on these fields had yet to begin. The largest of Iraq's oilfields slated for post-sanctions development is Majnoon, with reserves of 12-20 billion barrels of 28°-35° API oil, and located 30 miles north of Basra on the Iranian border. French company TotalFinaElf reportedly has signed a deal with Iraq on development rights for Majnoon. Majnoon was reportedly brought onstream (under a "national effort" program begun in 1999) in May 2002 at 50,000 bbl/d, with output possibly reaching 100,000 bbl/d by the end of 2002 (according to Oil Minister Rashid). Future development on Majnoon ultimately could lead to product.ion of up co 600,000 bbl/d at an estimated (according to Deutsche Bank) cost of $4 billion. In July 2001, angered by France's perceived support for the U.S. "smart sanctions" plan, lraq announced that it would no longer give French companies priority in awarding oil contracts, and would reconsider existing contracts as well. Iraq also announced that it was inclined to favor Russia, which has been supporting Iraq at the U.N. Security Council, on awarding rights co Majnoon and another large southern oil field, Nahr Umar. Iraq Country Analysis Brief Page ~ 0 1 D TotalFinaElf apparently has all but agreed with Iraq on development of the Nahr Umar field. Initial output from Nahr Umar is expected to be around 440,000 bbVd of 42° API crude, but may reach 500,000 bbl/d with more extensive development. The 2.5-4.6 billion-barrel Halfaya project is the final large field development in southern Iraq. Several companies (BHP, CNPC, Agip) reportedly have shown interest in the field, which ultimately could yield 200,000-300,000 bbl/d in output at a possible cost of $2 billion. Smaller fields with under 2 billion barrels in reserves also are receiving interest from fore•gn oil companies. These fields include Nasiriya (Eni, Repsol), Tuba (ONGC, Sonatrach, Pertami,na), Ratawi (Shell, Petronas, CanOxy), Gharaf (Japex, TPAO), Amara (Petro Vietnam), Noor (Syria), and more. Italy's Eni and Spain's Repsol appear to be strong possibilities to develop Nassiriya. In addition to the 25 new field projects, Iraq plans to offer foreign oil companies service . contracts to apply technology to eight already-producing fields. Meanwhile, Iraq has authorized "risk contracts" to promote exploration in the nine remote Western Desert blocs. Iraq has identified at least 110 prospects from previous seismic work in this region near the Jordanian and Saudi borders. In late 2000, India's ONGC was awarded Block 8 in the Western Desert region, and in April 2002, Indonesia's Pertamina signed an exploration contract for Block 3. Other companies reportedly interested in the Western Desert region include: Repsol, Lundin, Sonatrach, MOL, Petronas, Ranger, and TPAO. In total, Deutsche Bank estimates that international oil companies in Iraq may have signed deals on new or old fields amounting to nearly 50 billion barrels of reserves, 4 million bbl/d of potential production, and investment potential of more than $20 billion. Development of southern fields may be complicated by infrastructure damage, the presence of land mines (from the Iran-Iraq war), and marshy conditions. Major companies with deals in Iraq include TotalFinaElf (with estimated reserves of 12.5-27 billion barrels, according to the Woll Street Journal), several Russian companies (Lukoil, Zarubezneft, Mashinoimport, with combined reserves of 7.5-15 billion barrels), China's National Petroleum Company (CNPC -- 2 billion barrels or so); and Eni (under 2 billion barrels). 011 Export Pipelines/Terminals Iraq's oil export infrastructure (pipelines, ports, pumping slations, etc.) were damaged in both the Iran-Iraq War as well as Operation Desert Storm (1991). Currently, the 600-mile, 40-inch Kirkuk-Ceyhan pipeline is Iraq's largest operable crude export pipeline. This Iraq-Turkey link consists has a fully-operational capacity of 1.1 million bblld, but reportedly can handle only around 900,000 bbl/d. A second, parallel, 46-inch line has an optimal capacity of 500,000 bbl/d and was designed to carry Basra Regular exports, but at last report was inoperable. Combined, the two parallel lines have an optimal capacity of 1.5-1.6 million bbl/d. Expanding capacity to this level, however, will depend on Iraq's ability to rehabilitate the IT-1 and IT-IA pumping stations, as well as the Zakho metering station near the Iraq-Turkey border and other ongoing pipeline repairs (including so-called "intelligent pigging") on the 46-inch line. This work appears to be well behind schedule, and reportedly will not be completed anytime soon (although there was at Jeas1 one report in late May 2002 that the line would be fixed by July). The 40-inch line has additional pumping stations and fewer bottlenecks than the 46-inch line, which allows for greater throughput than that of the larger line. Currently, Iraq is bypassing the crucial but damaged IT-2 pumping station, located about 93 miles south of the Turkish border, making it more difficult to reach the 1.6 million bbl/d dual-line capacity. To make IT-2 operational, Iraqi officials have said that they need controls and associated valves costing around $50 million. The IT-I pumping station near Kirkuk received lighter damage and is presently functional. On August 20, 1998, Iraq and Syria (which reopened their border in June 1997 -- after a 17-year closure -- for trade and official visits) signed a memorandum of understanding for the possible Iraq Country Analysis Brief Page lU 01 J :> reopening of the 50-year-old, rusting Banias oil pipeline from Iraq's northern Kirkuk oil fields 10 Syria's Mediterranean port of Banias (and Tripeli, Lebanon). As of October 2002. the pipeline reportedly was being used (see above), and there also was talk of building a new, parallel pipeline as a replacement. In order to optimize export capabilities (i.e., to allow oil shipments to the north or south), Iraq constructed a reversible, 1.4-million bbVd "Strategic Pipeline" in 1975. This pipeline consists of two parallel 700,000-bbVd lines. The North-South system allows for export of northern Kirkuk crude from the Persian Gulf and for southern Rumaila crudes to be shipped through Turkey. During the Gulf War, the Strategic Pipeline was disabled after the K-3 pumping station at Haditha as well as four additional southern pumping stations were destroyed. In early 2001, Iraqi oil ministry officials claimed that the pipeline had been rehabilitated, providing Iraq with increased export flexibility. However, a U.N. assessment team which visited Iraq in March 2001 concluded that the country's downstream sector "had declined seriously in many respects" over the past 18 months, including increased leakage from pipelines, particularly the North-South "Strategic'' line. In the Persian Gulf, Iraq has three tanker terminals: at Mina al-Bakr, Khor al-Amaya, and Khor al-Zubair (which mainly handles dry goods and mjnimal oil volumes). Iraq also has additional dry goods ports at Basra and at Umm Qasr, which is being outfitted to accommodate crude tankers. Mina al-Bakr is Iraq's largest oil terminal, with four 400,000-bbVd capacity berths capable of handling very large crude carriers (VLCCs). Gulf War damage to Mina al-Bakr appears to have been repaired in large part and the tenninal currently can handle up to 1.2-1.3 million bbl/d. A full return to Mina al-Bakr's nameplate capacity apparently would require extensive infrastructure repairs. Mina al-Bakr also is constrained by a shortage of storage and oil processing facilities, most of which were destroyed in the Gulf War. Iraq's Khor al-Amaya tenninal was heavily damaged during the Iran-Iraq War (and completely destroyed during Operation Desert Storm in 1991) and has been out of commission since then. As of March 2001, reports indicated that Iraq had largely completed repairing two berths at Khor al-Amaya. According to the Iraqi Oil Ministry, the terminal, with export capacity of 500,000-700,000 bbl/d, would "soon be ready to receive oil tankers." Upon full completion of repairs, Iraq projects Khor al-Amaya's capacity will rise to 1.2 million bbl/d, and will help prevent delays at Mina al-Bakr while repairs are conducted there. In March 2002, Platt's Oilgram News reported that a Russian company was "awaiting the green light from the U.N ..... to help restore Iraq's Mina al-Bakr and Khor al-Amaya crude loading platforms." Iraq will need U.N. Security Council approval to export from Khor al-Amaya, since it is not part of the approved export outlet of Mina al-Bakr. · Refining Iraq's refining capacity as of January 2002 was believed to be over 400,000 bbVd (although the Iraqis claim 700,000 bbl/d), compared to a pre-Gulf War, nameplate capacity of 700,000 bbVd. Iraq has 10 refineries and topping units. The largest are the 150,000-bbVd Baiji North, 140,000- bbVd {or higher) Basra, and 100,000-bbVd Daura plants. During the Gulf War, both Baiji in northern Iraq as well as the refineries at Basra, Daura, and Nasiriyah were severely damaged. Today, a lack of light-end products, low quality gasoline, and rising pollution levels because of a Jack of water treatment facilities are some problems faced by Iraq's refining sector. Post· sanction plans include attracting foreign investment to perfonn refinery upgrades (Iraq has identified dozens of such projects) and to build a new $I-billion, 290,000-bbVd "Central" refinery near Babylon. NATURAL GAS Iraq contains 110 trillion cubic feet (ref) of proven natural gas reserves, along with roughly 150 Tcf in probable reserves. About 70% of Iraq's natural gas reserves are associated (i.e., natural Iraq Country Analysis Brief Page 11 ol !.) gas produced in conjunction with oil), with the rest made up of non-associated gas (20%) and dome gas (10%). Until 1990, all of Iraq's natural gas production was from associated fields. In 2000, Iraq produced 111 billion cubic feet (Bcf) of natural gas, down drastically from peak output levels of 700 Bcf in 1979. Within two years after the lifting of U.N. sanctions, lraq hopes to produce 550 Bcf., and within a decade, Iraq aims to be producing about 4.2 Tcf of natural gas annually. Since most of Iraq's natural gas is associated with oil, progress on increasing the country's oil output will directly affect the gas sector as well. Natural gas is both produced with oil and also used for reinjection for enhanced oil recovery efforts. Generally, Iraq's policy is to ( award gas and oil concessions to companies from countries supporting the easing or lifting of U.N. sanctions (i.e., France, China, Russia). Russian companies reportedly are hoping to develop a number of natural gas production and processing facilities in Iraq, including a group of fields in the Misan region of southern Iraq. Main sources of associated natural gas are the Kirkuk, Ain Zalah, Butma, and Bai Hassan oil fields in northern Iraq, as well as the North and South Rumaila and Zubair fields in the south. The Southern Area Gas Project was completed in 1985, but was not brought online until February 1990. It has nine gathering stations and a larger processing capacity of 1.5 billion cubic feet per day. Natural gas gathered from the North and South Rumaila and Zubair fields is canied via pipeline to a 575-Mmcf/d natural gas liquids (NGL) fractionation plant in Zubair and a 100-Mmcf/d processing plant in Basra. At Khor al-Zubair, a 17 .5-million-cubic-foot LPG storage tank farm and loading tenninals were added to the southern gas system in I990. Iraq's only non-associated natural gas production is from the al-Anfal field (200 Mmcf/d of output) in northern Iraq. Al-Anfal production is piped to the Jambur gas processing station near the Kirkuk field, which is 20 miles away. Al-Anfal's gas resources are estimated at 4.5 Tcf, of which 1.8 Tcf is proven. In December 2001, Russia's Gazprom reportedly was negotiating possible development of al-Anfal. In November 2001, a large non-associated natural gas field reportedly was discovered in the Akas region of western Iraq, near the border with Syria, and containing an estimated 2. 1 Tcf of natural gas reserves. It is not clear whether or not the field is associated or non-associated. In August 2001, Iraqi oil minister Rashid announced that Iraq had reached an agreement with Turkey to build a $2.5 billion gas pipeline to Turkey, and possibly on to Europe. Iraq aims to increase its natural gas exports to Europe, and Turkey could be a key transit center. Iraq also would like to export natural gas to Syria, Lebanon, and Jordan. ELECTRIC POWER Around 85%-90% of Iraq's national power grid (and 20 power stations) was damaged or destroyed in the Gulf War. Existing generating capacity of 9,000 megawatts (MW) in December 1990 was reduced to only 340 MW by March 1991. In early 1991, transmjssion and distribution infrastructure also was destroyed, including the 10 substations serving Baghdad and about 30% of the country's 400-kilovolt (kV) transmission network. In early 1992, Iraq stated that it had restarted 75% of the national grid, including the 1,320-MW Baiji and Mosul thermal plants as well as the Saddam Dam. [n 1998, Iraq's maximum available electric generation capacity was estimated (by Iraq) at around 4,000 MW, with a report in November 1999 'indicating that this figure may have increased even further, to 6,000 MW. Despite this increase, power continues to be rationed throughout lhe country. According 10 a report by U.N. Secretary General Kofi Annan, Iraq's power deficit stood at 1,800 MW as of August 2000, with blackouts a common occurrence. Iraq reportedly has signed contracts for renovating two generation units at the Harithah power plant, and another to rebuild the Yusufiyah plant, which stopped operating in 1990. Iraq's Electricity Authority reportedly also has signed several other contracts with Chinese, Swiss, French, and Russian companies, 10 build 3,000 MW of additional power generating capacity. These contracts require U.N. Iraq Country Analysis Brief Page J2 ot IS approval, and Iraq has claimed that the United States and Britain are blocking $1.5 billion wonh of electrical equipment it has requested. In December 2000, it was reponed that a Chinese company had completed work on the Abdullah power plant nonh of Baghdad. In October 2001, it was reponed that Russia's Mosenergomontazh was working to modernize Iraq's Southern Heat and Power Plant in Najibia, Basra province. The project aims to add 200 MW of generating capacity to Iraq's grid. In August 2002, the Najaf govemate in southern Iraq announced that two new power plants, with a combined capacity of 20 MW, had come online. Sources for rhis report include: Agence France Presse; Associared Press; BBC Summary of World Broadcasrs; Business Week; Chicago Tribune; CIA World Facrbook 2002,· Deutsche Bank; Dow Jones; DRl/WEFA; The Economisr; Economisr lnrelligence Unir; Energy Compass; Financial Times; Gulf News; Harr's Africa Oil and Gas; Inter/ax News Agency; Janet Matthews Inf ormation Services (Quest Economic Database); Los Angeles Times; Middle Easr Economic Survey; New York Times; Oil & Gas Journal,· Oil Daily; Petroleum Economisr,· Perroleum l111el/igence Weekly; Platt's Oilgram News,· Reuters News Wire; Russian Oil and Gas Report; U.N. Office of the Iraq Programme; U.S. Energy Information Administration; U.S. Department of State,· Wall Street Journal Europe,· Washington Post; Weekly Petroleum Argus,· World Markets Energy. COUNTRY OVERVIEW Head of Government: Saddam Hussein al-Takriti Deputy Prime Mlnlster: Tariq 'Aziz lndependence:October 3, 1932 Population (7/0IE): 23.3 million Location/Size: Middle East/168,709 square miles, slightly more than twice the size of Idaho. Major Cities: Baghdad (capital), Basra, Mosul, Karbala, Kirkuk Languages: Arabic, Kurdish Ethnic Groups: Arab 75-80%, Kurdish 15-20%, Turkmen, Assyrian, or other 5% Religions: 97% Muslim (Shi'a 60-65%, Sunni 32-37%), Christian or other (3%) Defense (2001E): Army (375,000); Air Force (30,000); Navy (2,000). Iraq is believed to have 2,200 main battle tanks and over 300 combat aircraft (of which as few as 100 may be serviceable); Paramilitary Forces (42,000-44,000, including Security Troops, Border Guards, and "Saddam's Fedayeen") ECONOMIC OVERVIEW Currency: Iraqi Dinar (ID) Unofficial Exchange Rate (9/02E): US$1 = IDl,990 (note: the officiaJ rate is US$1=ID0.3) Gross Domestic Product (at market exchange rates) (2002E): $28.6 billion Gross Domestic Product (at purchasing power parity rates) (2002E): $15.5 billion (around one-third of I 989's economic output) Real GDP Growth Rate (2001E): 3.2% (2002E): (-3%)-1.5% (2003F): 1.9%-6% lnOation Rate (consumer prices) (200IE): 28.1% (2002E): 24.6% (2003F): 17.6% Major Export Products (2002): Crude oil and oil products (regulated by the United Nations)/ Major Import Products (2002): Food, medicine, consumer goods (regulated by the United Nations) Merchandise Exports (2001E): $15.8 billion Merchandise Imports (2001E): $11.0 billion Merchandise Trade Balance (2001E): $4.8 billion Current Account Balance (2001E): $0.9 billion 011 Export Revenues (2002E): $13.J billion (includes $3 billion or so in smuggling) OH Export Revenues/Total Export Revenues (2002E): 95% or more Total External Debt (2001E): $62.2 billion Iraq Country Analysis Brief Page lJ ot l :> ENERGY OVERVIEW Minister of Oil: Amir Muhammad Rashid al-Ubaydi Proven Oil Reserves (l/1/02E): 112.5 billion barrels (around 75 billion barrels of which has not yet been developed; potential reserves are as high as 200 billion barrels Oil Production (January-July 2002E): 1.99 million barrels per day (bbl/d). of which 1.97 million bbl/dis crude oil (note: Iraqi oil production was 2.45 million bbl/din 2001) 011 Production Capacity, Maximum Sustainable (10/02E): 2.8-3.0 million bbVd Oil Export Routes: Kirkuk-Ceyhan pipeline; Mina al-Bakr port; to Jordan and Turkey via truck; reportedly to Syria via the Kirkuk-Banias pipeline; smuggling by boat along the Gulf coast Oil Consumption (2002E): 460,000 barrels per day (bbl/d) Net 011 Exports (January-July 2002E): 1.5 million bbl/d U.S. Oil Imports from Iraq (January - July 2002E): 566,000 bbl/d (down from 795,000 bbl/d during 2001) Crude Oil Refining Capacity (1/1/02E): 417,500 bbl/d (a. ccording to the Oil and Gas Jou.ma/) Natural Gas Reserves (1/l/02E): 109.8 trillion cubic feet (Tcf) Natural Gas Productlon/Consumptlon (2000E): 111 billion cubic feet (Bcf) Electricity Generation Capacity (2000E): 9.5 gigawatts (90% thermal) Electricity Production (2000E): 27 .3 billion kilowatthours ENVIRONMENTAL OVE RVIEW Total Energy Consumptkm (2000E): 1.09 quadrillion Btu• (0.3% of world total energy consumption) Energy-Related Carbon Emissions (2000E): 20.2 million metric tons of carbon (0.3% of world total carbon emissions) Per Capita Energy Consumption (1999E): 51.7 million Btu (vs U.S. value of 355.8 mHlion Btu) Per Capita Carbon Emissions (2000E): 0.88 metric tons of carbon (vs U.S. value of 5.6 metric tons of carbon) Energy Intensity (1999E): 14.895 Btu/ $1995 (vs U.S. vam ue of 11.138 Btu/ $1995) .. Carbon Intensity (1999E): 0.28 metric tons of carbon/thousand $1995 (vs U.S. value of 0.18 metric tons/thousand $1995) .. Sectoral Share ot Energy Consumption (l998E): Transportation (56.9%), Industrial (33.9%), Residential (9.2%), Commercial (0.0%) Sectoral Share of Carbon Emissions (1998E): Transponation (61.l %), Industrial (28.9%), Residential (9.9%), Commercial (0.0%) Fuel Share of Energy Consumption (2000E): Oil (88.6%), Natural Gas (10.6%) Fuel Share of Carbon Emiss•ons (2000E): Oil (90.4%), Natural Gas (10.6%) Renewable Energy Consumption (1998E): 7 trillion Btu• (0% increase from 1997) Number of People per Motor Vehicle (1998): 17.8 (vs U.S. value of 1.3) Status in Climate Change Negotiations: Iraq is not a signatory to the United Nations Framework Convention on Climate Change or to the Kyoto Protocol. Major Environmental Issues: Government water control projects have drained most of the inhabited marsh areas east of An Nasiriyah by drying up or diverting the feeder streams and rivers; a once sizable population of Shi'a Muslims, who have inhabited these areas for thousands of years, has been displaced; f unhermore, the destruction of the natural habitat poses serious threats to the area's wildlife populations; inadequate supplies of potable water; development of Tigris-Euphrates Rivers system contingent upon agreements with upstream riparian Turkey; air and water pollution; soil degradation (salination) and erosion; desertification. Major International Environmental Agreements: A party to the Law of the Sea and the Nuclear Test Ban. Has signed, but not ratified, Environmental Modjficatfon. •The total energy consumption statistic includes petroleum. dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes Iraq Country Analysis Brief Page 14 ot lS hydropower, solar, wind, tide, geothennal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data. **GDP based on EIA International Energy Annual 2000 OIL AND GAS INDUSTRY Major Companies: The Oil Ministry oversees the nationalized oil industry through the Iraq National Oil Company (TNOC). Autonomous companies under INOC include the Stare Company for Oil Projects (SCOP) - design and engineering of upstream and downstream projects; Oil Exploration Company (OEC) - exploration; Northern Oil Company (NOC) and Southern Oil Company (SOC) - upstream activities in northern/central and southern Iraq, respectively; Stare Orga11izationfor Oil Marketing (SOMO) - crude oil sales and OPEC relations; Iraqi Oil Tankers Company (IOTC); and various departments within the Ministry of Oil which nm Iraq's internal pipeline systems, distribute oil products, operate downstream natural gas/LPG projects and gas bottling plants. In August 200 l, Iraqi oil minister Rashid announced that a new state oil company ("Oil Projects Company") would be created to oversee development of new Iraqi discoveries. Major 011 Fields (proven reserves. billion barrels, 2001E): Majnoon (12. 1-20.0), West Quma (11.3-15.0), East Baghdad (11+), Kfrkuk (10+ ), Rumaila (10+), Nahr bin Umar (6+), Rattawi (3.1 ), Halfaya (2.5-4.6), Nassiriya (2-2.6), Suba-Luhais (2.2), Tuba ( 1.5), Khurmala ( 1.0), Gharaf ( 1.0-1. l ), Rafidain (0.7), Amara (0.5) OU Renneries (crude refining capac. ity bbJ/d, 2001E): Baiji (150,000), Basra (140,000). Daura (100,000), Khanaldn (12,000), Haditha (7,000), Muftiah (4,500), Qayarah (2,000) (Note: Iraq reportedly is constructing several 10,000-bbVd mobil refineries). Major Ports: Mina al-Bakr (l.2 million bbl/d current capacity), Khor al-Amaya, Khor al- Zubair, Umm Qasr Major Pipelines (current capacity): Kirkuk-Ceyhan (Donyo/) Pipeline - 0.9 million bbl/d (optimal capacity on the two lines to Ceyhan is potentially around l.5-1.6 million bbVd); Jraq- Saudi Arabia Pipeline (IPSAl. 2)- possibly 1.65 million bbl/d (closed by Saudi Arabia in 1990); Baniasnripoli Pipeline - possibly 0.3 million bbl/di (closed by Syria in 1982); Iraq Strategic Pipeline - less than 1.4 million bbl/d (reversible. internal transportation only) LINKS For more information on Iraq, see these other sources on the EIA web site: .Ir11q_ Cb10.no.J.Qgy.;-1.2fil}:l002 EIA - Countr:y I~ Links to other U.S. government sites: 2002 CIA World Factbook - Iraq U.S. Office of Foreiiro Assests Control (for jnfoanatjon on lr.iqi Sanlliom) !LS._.S!g~~nt's Consular lnfo!JJlaJion Sheet - Iraq l..ihau:y _ oLCon~l.olq .. CQ .. u n.tr.Y..SMl>'. The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy lnfonnation Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites. UN Office of the Iraq Program U.N. Security Council Resolutions Relating tfilrnq Permanent Mission of Iraq to ~itcd Nations MENA Petroleum Bulletio. Uni versit)'. of Texas at Aus'lin -- Iraq Page Iraq Country Analysis Brief Page 15or 15 Harvard Uni v~~ -- Iraq Page University of Pennsyl vania -- Middle East Cemer f lime.LA.m bi ~ _ &o rn AME Info Middle East Business lnform<Ui.Qn If you liked this Country Analysis Brief or any of our many other Country Analysis Briefs. you can be automatically notified via e-mail of updates. You can also join any of our several mailing lists by selecting the listserv to which you would like to be subscribed. The main URL for listserv signup is Jll~ww&iMl~ovL.li.s t ~ILSi.glll!P . hJ.ml. Please follow the directions given. You will then be notified within an hour of any updates to Country Analysis Briefs in your area of interest. Return to Country Analysis Briefs home page File last modified: Octobell' 18, 2002 Contact: Lowell Feld lf ~d @cja. ®e. iID'. 1::-~"'°' 1n'io. \\ \>ulo\a<:. Phone: (202)586-9502 Fax: (202)586-9753 EJA Home Contact U1 On~ ~8;~ URL: http://w-.ela.doe.gov/emeu/cabs/ lri fJ er Executive Summary No. 1633 March 5, 2003 THE ROAD TO ECONOMIC PROSPERITY FOR A POST-SADDAM IRAQ ARIEL COHEN , PH.D., AND GERALD P. O 'D R ISCOLL, JR ., PH.D. As the Bush Administration and ltaqi opposition groups plan the future of a post-Saddam Hussein Iraq without Its weapons of mass destrucuon (WMD). economic Issues loom large. Iraq's econ- omy has been grossly mismanaged, and its people largely repressed, for 40 years. Iraq desperately needs an alternative to the failed policies of its dictator. Sound economics are needed to help the Iraqi people rebuild their lives and their country after two decades of wars and four decades of repression under the current regime. The U.S. government, the oil industry, and international financial Institutions should provide technical expenise to the future government of Iraq 10 divest, privatize, and modernize its national economy. Saddam's Devastation of Iraq's Economy. Sad- dam's regime has succeeded in bankrupting the country even though lraq boasts the world's second largest oil reserves after Saudi Arabia, estimated at 112 billion barrels of oil and potentially even higher. The oil sector provides more than 60 per- cent of the country's gross domestic product (GDP) and 95 percent of its hard currency earnings. Y et GDP for 2001, at the market exchange rate, is esti- mated to be only about one-third its level In 1989. Iraq also is hobbled by its $140 billion foreign debl. This devastation was wrought by such policies as Produced by the Kathryn and Shelby C ullom Davis Institute for lntemattonal S tudies Publlshed b'f The H eritage Foundation 214 Massachusetts Ave, NE Washington, DC 20002-4999 (202) 546·4400 http://www.herltage.org the nationalization of the country's chief export commodity, oil, extensive central planning of Industry and trade; the 1982-1988 war against Iran; and the invasion of K uwait, which precipi- tated the 1991 Gulf Wat. According to the U.S. General Accounting Office, oil smuggling and illegal surcharges of 25 cents to 50 cents on a bar- rel of legal oil are provid- ing the funds to bolster Saddam's regime. Sad- dam's unaccounted reve- nues are at least $6.6 billion-money that he has been free to spend to develop WMD and sup- • This paper, In lls enUrety, can be pon terrorism in spite of found at: www.herltage.org/ economic sanctions reseorchlmlddleeast/bg 1 633.cftn imposed by the United Nations after the Persian Gulr War to force him to give up his WMD. And Saddam still stubbornly refuses to meet the terms for lifting the economic sanctions that the United Nations has imposed on his regime. March 5, 2003 N -o-.1- 63 -3------------~---Bali11:m11~~;-- The road to economic prosperity in lraq will not be easy, but the Bush Administration can help the new government achieve fundamental structural refonn with massive, orderly. and transparent priva- tization of various sectors of the economy, including the oil industry. Building a Post-Saddam Iraq. The new govern- ment established by the people of Iraq should rep- resent all the major sub-national groups-the Shiite Arabs. the Sunni Arabs, and the Kurds. The best model is a federal system that includes the various factions. Iraqi opposition leaders wiU need a com- mitment, from the United States and international financial institutions, that they will furnish neces- sary expertise and technical assistance. To gain that commitment, Iraq will need to abandon its statist policies and become fully commiued to the princi- ples of a market economy. Promoling Privatization. Privatization effons in other countries show that privately held Infrastruc- ture, oil, and oil service companies generate greater efficiencies, improved production, and higher reve- nues than do centrally planned and state-owned industries. The same can be achieved in Iraq, whose oil industry cannot thrive without access to global capital markets. The Administration should work with lraqs future federal government to develop mechanisms for privatizing these industries. taxing oil sales. and sharing the proceeds equitably with the three major ethnic regions-.the Shiite Arabs In the South, the Kurds in the North, and the Sunni Arabs In the central region. As the end of Saddams regime will mean the end of the U.N. sanctions, the rationale for the U.N. - admfnlstered oil-for-food program will be removed. Absent the threat of an Iraqi program to develop weapons of mass destruction, the Bush Administra- tion should not support leaving the oil-for-food program in place, let alone expanding It. The tem- porary U.S. administration and the future govern- ment of Iraq should also remove Ba'ath cadres loyal to Saddam and his clan in the national oil ministry and the Iraqi National Oil Company. During the 1990s, Saddam attempted to disman- tle the U.N. Security Council san. ctions or "encour- age• permanent members to veto the use of force against Iraq by allocating lucrative contracts for the development of giant Iraqi oil fields to companies from Russia, France, and China. The power of Sad· dam's regime to allocate these contracts in view of their corrupt nature is questionable, and the cir· cumstances surrounding the granting of these con- tracts need to be re-examined. Needed: Comprehensive Economic Reform. The Bush Administration, its allies. and interna- tional organizations should prepare, encourage, and support the: future leaders of a post-Saddam Iraqi government to develop a comprehensive econ.omic reform package. Specifically, in addition to the reforms oullined above, a new federal Iraqi govern- ment must lake steps to create a modem legal envi- ronment Lhat recognizes property rights and is conducive to privatization; educate and prepare the people of Iraq for structural economic refonn and privatization through a public inf ormailon cam- paign; deregulate prices internally, including in the utilities and energy sector; prepare state assets, including industries, utilities, transportation, pons and airports, pipelines, and the energy sector, for privatization: keep the budget balanced and Infla- tion, 1axes, and tariffs low; and liberalize and expand trade, and launch an effort for Iraq to join the World Trade Organization. Conclusion. Economic growth will be an impor- tant contrlbu1lon to the stabilization of Iraq, allow- ing the Uni1ed States and 01her forces stationed there to depan after assuring that Iraq's WMD threat and repressive regime have ended. S tructural refonn and comprehensive privatization is a win· ning strategy for the people of Iraq, Its future gov- ernment, the region, and the United States. -Arid Cohen, Ph.D., is Research fellow In Russian and Eurasian Studies in the Kathryn and Shelby Cullom Davis Institute for International Studies, and Gerald P. O'Drlscoll, Jr., Ph.D .• Is former Director of the Center for Inttmatlonal Tradt and Economics, at The Heritage Foundation. This paper Is updated from Backgrounder No. 1594, published on September 24, 2002. NOTE: Nothing written here is to bt con.st rued as necessarily reflecting the views of The Heritage Foundation or as an attempt to aid or hinder the passage of any bill btf ore Congress. No. 1633 March s. 2003 THE ROAD TO ECONOMIC PROSPERITY FOR A POST-SADDAM IRAQ ARIEL COHEN, PH.D ., AND GERALD P. O 'D RISCOU, )R., PH.D. As the Bush Administration and Iraqi opposition groups plan the future of a post-Saddam Hussein Iraq without its menacing arsenal of weapons of mass destruction (WMD), economic issues loom large. Iraq's economy has been g. rossly mismanaged for 40 years. and its people desperately need an alternative strategy to supplant the failed policies of Its dictator. Sound economics arc needed lo help them rebuild their lives and their country after two decades or wars and four decades of repression under the current regime. Saddam Hussein's regime has succeeded In bank- rupting the country even though it boasts 112 bil- lion barrels of of! in reserves-the world's second largest after Saudi Arabia's. 1 According to some expcns. Iraqi reserves can be as large as 220 billion barrels-equal 10 those of Saudi Arabia.2 Gross domestic product (GDP) for 2001, at the market exchange rate, however, is estimated co be only about one-third the level in 1989. 3 Iraq also is hob- bled by its $140 billion foreign debt. 4 Produced by the Kathryn and Shelby Cullom Davis Institute for International Studies Published by 1he Heritage Foundation 214 Massachusetts Ave., NE Washington, DC 20002-4999 (202) 546-4400 http://www.herltage.org This devastation was wrought by such policies as the nationalization of the country's chief expon commodity, oil; extensive central planning of indus- try and trade; the 1982- 1 988 war against Iran; and che invasion of Kuwait, which precipitated the 1991 Gulf War. And Sad- dam still stubbornly refuses to meet the terms for lifting the economic sanctions that the United Nalions has imposed on his regime. Saddam also has suc- ceeded in diverting ac least $6.6 billion-primarily in • Thls paper, I n Its entirety, can be revenues from smuggled found at: www.het1tage.org/ 011 and kickbacks-to his m«Jrdllmlddlttastl:bg 1 633.cfm program 10 develop nuclear, chemical, and biological weapons and plat- I. ~rola Hoyos, "Baghdad Re-entry 10 Market 'Could Have B ig Impact'," Finanoal Timts, February 21. 2003, p. 6. 2. John Donnelly, 'Planning Is Underway to Manage Iraqi Oil," Boston Globc,JanW1ry 26, 2003, quoungjames A. Placke of Cambridge Energy Research Associates. 3. U.S. Depanment of Energy , Energy lnfoONt!on Administration, "ln1q Country Overview." at http://www .tia.dot.govlcmcul cabsliraq.html. 4. Ibid. March 5, 2003 N_o_ . 1_6-33 ________________ _.Ba.__~~-- forms for their delivery. He continues to suppon terrorist organizations, such as Hamas and the Pop- ular Front for the Liberation of Palestine (PFLP), which the U.S. Department of State includes on its list of state sponsors of terrorism. 5 Presumably, a post-war U.S. military presence in Iraq and Iraq's future security forces will ensure that the new Iraqi government does not continue to develop WMD and support terrorism. The future of Iraq depends not only on the ouster of the country's repressive regime, but also on the ability of the new Iraqi leaders to reverse the dam- age through policies that will spur real economic growth. The sooner the threat from Saddam's WMD programs ends and the Iraqi economy recovers, the sooner the United States and the: other security forces will be able to depan. A double strategy of ensuring security and enabling economic growth will need international support. The Bush Administration should help Iraqi opposition leaders to develop an economic reform package for their country. The new post- Saddam federal government should develop a mod- em legal system that recognizes property rights and is conducive to privatization; create a public infor- mation campaign that prepares the people for struc- tural reforms and privatization; hire expatriates and Western-educated Arabic speakers with financial. legal. and business expertise for key economic posi- tions; deregulate prices. including prices in the util- ity and energy sectors; prepare state assets in the utility, transportation, pipeline, energy, and other sectors for privatization; keep the budget balanced and inflation, taxes, and tariffs low; liberalize and expand trade; and launch an effort to join the World Trade Organization (WTO). THE TOUGH ECONOMIC ROAD AHEAD Iraq's Lifeblood: Oil. As Chart l and Chan 2 show, the Iraqi economy is dominated by the oil sector, which provides more than 60 percent of Iraq's GDP and 95 percent of Its hard currency earn- ings.6 The economic sanctions imposed by the U.N. in the past decade In an effort to force Saddam to give up his weapons of mass destruction not only have not worked, but also have helped to depress foreign trade. According to the U.S. General Accounting Office, however, oil smuggling and illegal surcharges of 25 cents to 50 cents a barrel on legal oil purchases under the U.N. oil-for-food program bolster Sad- dam's regime. These illegal activities from 1996- 2002 have provided unaccounted revenues of at least $6.6 billion, 7 which Saddam has been free to spend to develop WMD and support terrorism.8 How much Saddam is actually spending on his deadly arsenal is hard to telL The lack of informa- tion is so pervasive that the international financial institutions {IFls). foreign government agencies, and private businesses that provide country eco- nomic analysis and data do not publish any official economic statistics or estimates for Iraq.9 This means that no recent data on Iraqi govern- ment consumption of GDP are available. In 1993, the most recent year for which data are avaflable, governmenl consumption amounted to 13.9 per- cent of GDP. According to the Economist Intelli- gence Unit, Oil revenue has been the mainstay of government income since the 1950s. In 1968 the oil-based nature of the economy was reinforced by the introduction of a centralized socialist system, with the 5. U.S. Dcpanmcnt of State, O!Tlcc of the Coordinator for Countenc1T9rism, •Appendix B : Background lnfonnatlon on Terrorist Groups," in Pa11uns of Gfobal Ttrrorism-2000, April 30, 2001. at hcrp:/lwww.stau.gov/s/cllrlslpgrrpt/2000/2'150.hrm. 6. Energy ln£onnation Administration, •1raq: Country Overview." 7. U.S. General Accounting Office, U.S. Confronts Significant Challtngcs in /mplcmcnfingSanctions Against Jraq, GAC>-02-625. May 2002, at http:llwwwgao. govlatt..xcld02625.lxt. 8. Al.ix Freedman and Steve Steck low, ·secret Pi~Une: How Iraq Reaps lllegal Oil Profits." Tht Wall Srrccr ]o!'mal. May 2. 2002. 9. Genld P. O'Driscoll, jr., Edwin]. Feulner, and Mary Anastasia O'Grady, "Iraq." In 2003 Index of Economic Freedom (Washing- ton, D.C.: The Heritage Foundation and Dow Jones & Company. Inc., 2003). NOTE: Nothing writlen here is to be construed as necessarily reflecting the views of The Heritage F oundation or as an attempt to aid or hinder the passage of any bill before Congress. March 5, 2003 N_o_._1 6 - 33 -------------------~--~~ - er s o-• Iraq's Oil Production and Consumption (1980-2000) 3• SOO Thouw1d borrels per dq 3.000 2,SOO 2,000 1,500 1,000 500 1980 1985 1990 1995 2000 Noce: Proruaion inct\Jdes C/\Jde oil. "aiunl I" plinl liquids. o~ liquid~ an:! mnery ~;,. &Lin So.Jru: ~tem.tional ~ tnlonNrion. U .S. E""'I)' Wonmdon M>linistnl10I\ dau ~vaitable at hnp:/1-ejo , doe.pleme~VOINhcmlllln!M'rocliclion and hnp/!www .m.doe.,.,..,mit~emo1JOnOVpellt>lell.hf/TV#tniK:oi>wmplion. ,,, .. World Oil Production in 2001 S1udl Arobia 11.3% Toul OPEC: 39.2% U.S. 11.7% Source: U .S . Energy lnform11loni Admi""1ntoon. IYiNble al fi!rp./;..,.,..cio.doe.p/tma:Vcob•monopccJ1tmlhool and hap;l;..,.,...,.p1~JIOO.html 3 No. 1633 March 5, 2003 government regulating all aspects of economic life other than peripheral agriculture, personal services and trade .... Meanwhile, the states centrality to the economy has increased because the vast majority of !mpons and foreign exchange have been controlled by the government. 10 The socialist Ba'ath government has demon- strated gross mismanagement of the oil sector. Dur- ing the 1960s, exploration stopped and the sector was nationalized, which bred corruption and mis- management. Oil production has barely increased since 1980. In 2001, oil production stood at approximately 2.8 million barrels a day. Today, Sad- dam's regime controls oil exploration, extraction, refining, pipelines, pons, and all utilities, but oil export prices are set by the U.N. sanctions regime. Taxing Impons, But Not Smugglers. The Econ- omist Intelligence Unit notes that dlrea taxation has never been a preferred means of raising revenue in lraq.11 As 1he lntematlonal Monetary Fund (IMF) reports, "impons are restricted by [U.N.) sanctions. All lmpons sub;ect to impon duty are also subject to a customs surcharge .... Im pons of commodities are normally handled by the pubhc sector."12 Although the government of Iraq inspects and regulates all impons. a small private sector Is Involved In considerable smuggling and black mar- ket currency exchange activities. Tough Investment Environment. Even though lraq has penn!ttcd some foreign investment in Its oil industry and private sector, mainly to help it rebuild from the damage of the Gulf War, It dis- courages most capital inflows. The legal system does not guarantee contracts. lnflauon in Iraq remains high. From 1994 to 2001, lraqs weighted average annual rate of inflation was 80.4 percent; for 2001-2002, the rate ranged from 60 percent to 70 percent.13 The government controls almost all prices, and rationing is the norm for items like food. The . regime continues to dlstnbute imponed goods m what is essentially a highly centralized command economy structure, although it docs retain the abil- ity to skew the distribuuon of food and other items as a way to favor cronies. There is no application of modern property rights protected by legislation and enforced through the couns. The Revolutionary Command Council (R CC) of Iraq holds all executive, legislative, and judicial authority. The RCCs chairman, Saddam Hussein. appoints a council of ministers who are theoretically vested with executive authority, but in fact they arc able only to rubber-stamp the deci- sions of the RCC and its chairman. The judiciary is not independent: consequently, there is no check on Saddam's power to override any coun decision. AFTER SADDAM: THE ounooK FOR IRAQ AND WORLD ENERGY MARKETS One thing Is clear: Saddam's regime, obsessed with control and coercion, is destroying the wealth of the Iraqi people. After liberation from this regime, ll will be lmponant for the Iraqi people to rebuild their economy (especially the oil sea or), Increase GDP and improve the standard of living, attract foreign investment, and Improve govern- ment services through privatization. The Cost of Rebuilding. The cost of rebuilding the country will be high. If Operation Desert Storm reconstruction costs are used as the basis for esti- mation, the cost of rebuilding Iraq after Saddams regime falls will be in the $50 billion to $100 bil· lion range. Ii Together with repaying the Iraqi for- eign debt (<estimated at from S60 billion-SI 40 billion) and compensation costs to Kuwait and other countries (over S20 billion), the more realistic figure Is S200 billion. 15 However, as long as struc- tural economic refonns are undenaken, lraqs vast oil reserves and rebuilt economy, including the 10. Ibid. 11. EconomlSl Intelligence Unit, "Country ~port , July 2002." 12 O'Driscoll ti al., "Iraq." in 200J Inda of Econarruc F~cdom. 13 Ibid. l't. Bill Genz, "Tab to ~build Iraq, Kuwait Estimated al SIOO Billion," Tht Washington Timn, March 1, 1991. Mon: n:ccnt est1· mates confirm dus range 4 No. 1633 March 5, 2003 revamped oil sector, are likely lo provide the funds needed to rebuild and boost economic growth. Thus, the United States and the people of Iraq have the same Interest at hean: maximize Iraq!; eco- nomic perfonnance. Without private ownership, however, oil will remain politicized and misman- aged. A group of Iraqi-born oil expens stated in December 2002, after a conference on the future of the Iraqi oil sector sponsored by the U.S. State Depanment, that The aspiration of the group is a rehabilitated, globally connected oil and gas sector .... Oil will remain the primary source of revenue and will play a pivotal role in the countrys economic reconstruction. The group recognized the need lo establish a favorable Investment climate and attract international and Inward capital In the reconstruction and growth of the Industry. It saw the importance of Introducing modem technology, know-how and management skills. 16 Thus, the exiles fell shon of calling for post-Sad- dam privatization of the Iraqi economy. Secretary of State Colin Powell has said that "The oil of Iraq belongs to the lraql people .... lilt will be held for and used for the people of Iraq. It will not be exploited for the United States' own purpose .... " But this does not preclude the United States from offering Its guidance lo the future government of Iraq on establishing sound economic and trade pol- icies to stimulate growth and recovery. 17 It would be counterproductive to empower either U.N. bureaucrats or Iraqi officials loyal to the Ba'ath party and Saddam to run the Iraqi oil industry. The Bush Administration, through its executive directors at such IFls as the IMF and World B ank, as well as other international governmental and non-governmental organizations, should begin to advise the future leaders of lraqs next government to establish policies that will lead to a thriving mod· em economy. These policies should be based on "best pracuices" developed around the world in the 1990s, when the largest government privatizations in history occurred. During the lran-lraq War and the post-Gulf War sanctions period, Iraqi petroleum production declined significantly . Saudi Arabia filled the void, generating a net profit of $100 billion. The funds It generated represent monies that should have bene· fited the Iraqi people. 1 8 (See Chan 3.) Following the demise of Saddam Hussein, it Is unlikely that the Saudi kingdom would transfer a £ractlon of its production quota under the Organi· zation of Petroleum Exporting Countries (OPEC) regime to Iraq to compensate for those lost profits and facilitate its rebuilding. Iraq will need to ensure cash O ow for reconstruction regardless of OPEC supply limitations. Combined with the potential privatization of the oil industry, such measures could provide incentives for Iraq to leave the OPEC cane! down the road, which would have long-tenn, positive implications for global oil supply. Potential Benefits of Leaving the OPEC Regime. An Iraq outside of OPEC would find avail- able from its oil trade an ample cash O ow for the countrys rehabilitatton. Its reserves currently stand at 112 billion barrels, but according to the U.S. Energy Information Administration, it may have as much as 200 billion barrels in reserve. 19 Estimates by Iraqi oil officials are even higher: According to OH Minister Amir Muhammad Rashad20 and Senior Deputy Oil Minister Taha Hmud, the reserves could 15 Julian Borger, "Post-Saddam Iraq Will Cost Y~u, U.S. Warned," The Gu Qrr/ia.n, August 2, 2002, at h11p:l/www.guardian.co.11W bush!story!0,7369,767755,00.html. uwre.nce Lindsey . Din:ctor of the National Economic Council, is quoted as estimating a ~ost for the Iraq w~r of between SlOO billion and S200 billion. It is unclear what is included In that figure. Sec Bob Davis, Bush Economic Aide Says Cost of Iraq War May T op SlOO Billion," The Wail! S1mtjo11rnal, September 16, 2002, p. }. 16. Vicki Silverman, "Iraqi Profuslonals Discuss the Future of Local Government and Oil." U.S. Department of State, Office of International Information Programs. December 31, 2002, at h11p:l/usinfo.sLotc.govlrtgionaVncaliraql1txlll 231 prof .him. 17. D onnelly. ·Planning ls Underway to Manage Iraqi Oil." 18. "Round Table on Declining Oil Prl.cC$ and Its Politic.ti Consequences in the Middle East," Middle E ast Studies, Vol. 6, No. 1 (Spnng l 999), pp. :>-36, at hllp: llww..ineUrQll.c.om/Htdoa!Oippings/Econorny/990322XXFE01.html. 19. Energy Information Admmlstratlon, ·1raq: Country Overview," p. \<t. 5 No. 1633 March 5, 2003 . .,.... ., ... Selected OPEC Member Crude Oil Production, 1990-Present 8.000 7,f#J 6.000 S,000 ~.000 ),f#J 2.000 lndorlesio 1.000 I~ 1990 1991 1992 199) 199 ~ 1995 1996 1997 1998 1999 2000 2001 • 2002 NotB: •2002 O.tt.a &om~ to H.y. Sour<r. U.S. &>erJY lnJorrnotlon M-ni<linr1tio<I, av>i1'ble It hrtp;l,._,.,eoa.doc.,....em<U1p11ll I I a.IA ....... IHll Iraqi Major Oil Fiefds EUI S.Jlldod r------ ------...,..__.11 K lri<uk1-- -----~-------' 10 Rumoh NlhrUm.ir Half•r• 10 Blll H .... 8'au'lan Klubboz Naslrlya Khormala Abu Chlrab Noto:~"' E ut ~ Kirt..lc. R..malL IN! NW Um&r "'' ""'111\ed to be mor.. ~o: l'lact> Global &w.v. a.ailK>le • hrtp;l"-w ,piortlCO'l"Yft<r~oir1eM1.11llt!\ 6 March 5, 2003 N _ o _ . ,_63-3----------~----Barlfi---~'fter be as high as 270 billion to 300 billion barrels, 21 making them equal to Saudi Arabias. Iraq's 1990 output prior to the beginning of the Gulf War stood at 3.5 million barrels a day, while oil discovery rates on a few new projects in the 1990s were among the highest in the world: between 50 percent and 75 percent. Given Iraq's own output projections, it may be capable of pumping as much as 6 million barrels (by 2010) to 7 million barrels (by 2020) a dali more than dou- bling current production levels. (See Chan 4.) Such a surge in production may be opposed by OPEC ·countries. which would like to keep its quota around the current 2.8 million barrels per day, while historic market share is taken by the Kingdom of Saudi Arabia, which currently is 23 pumping close to 8 million barrels per day. Depending on the dynamics of global economic growth and world oil output, Iraq's increase in oil production capacity could bring lower oil prices in the long term. An unencumbered flow of Iraqi oil would be likely to provide a more constant supply of oil to the global market, which would dampen price fluc- tuations, ensuring stable oil prices In the world market in a price range lower than the current $25 to $30 a barrel. Eventually, this will be a win-win game: Iraq will emerge with a more viable oil industry, while the world will !benefit from a more stable and abundant oil supply. PRIVATIZATION: LEARN INC FROM THE PAST Boosting oil exports and oil industry prlvatiza· tion by itself still may not be sufficient for growth over the long haul. To rehabilitate and modernize its economy, a post-Saddam government will need to move simultaneously on a number of economic policy fronts, utilizing the experience of privatiza- tion campaigns and structural reforms in other countries to develop a comprehensive policy pack- age. Several lessons from other countries' privatiza- tion experiences are particularly relev~m to Iraq's situation. Specifically: LESSON #l: Privatization works everywhere. Between 1988 and 1993, 2,700 state-owned businesses in 95 countries were sold to private investors. H In 1991 alone, $48 billion in state assets were privatized worldwtde. 25 Privatiza- tions led to higher productivity, faster growth, increased capacity, and cheaper services for consumers. In one study, the World Bank reviewed 41 finns privatized by public offerings in 15 countries. This review demonstrates that privatization will increase the return on sales, assets, and equily. As privatized finns grow, they often increase their workforces. In another study, the World Bank reviewed 12 privatization efforts In four countries, and its findings again demonstrate why privatization is good for the economy as a whole, no matter where it is implemented. 26 LESSON #2: Privatization works best when it is part of a larger structural reform program. Privatization needs to be accompanied by reforms to open markets, removal of price and exchange rate distortions, reductions in barriers to entry, and elimination of monopoly powers. In addition to these policies, governments should enact legislation that protects consumer 20. "lraqs OU Resuvcs Bigger than Saudi Arabia, Minister Says," BBC Monhor!ng. August 6. 2001, Al-Jumhuriyah Web site In Arabic, August 4, 2001 . 21. "Iraq's OH Industry: An Overview," Platts, a l htrp:llwww.plarts.com!fta1uresllraqloilovtrvitw.shtml. 22. "Iraq Building E&D Project Lisi for Post-U.N. Sanctions Period," Tht Oil and Gas journal, Vol. 9:5, No. 15 (April I+, 1997). 23. Hoyos, "Baghdad Re-entry 10 Market 'Could Have Big Impact'." H . Energy Information Administration, "Prtva1iza1ion and the Globalization or Energy Markets," Energy Plug. at http:// www.cici.govlemc ulpl11gslplpgcm.html. 25. Madsen Pirie, "Privatization," Concise Encyclopedia of Economics, at hltp:llwww .econlib.orgllibrarylencl!privatitailon.html. 26. World Bank, "Prtvatlzatloh: Etgh1 ussons or Experience," Policy Views from the Country Economics Oepanment,Jt1ly 1992, at ht1p:llwww.worldbanh.org lh1mllprddrlou1dtacltlorJ.htm. For the latest annual update on global privatlzallons, see Reason Public Policy lnstl1u1e, "Privatization 2002: Putting the Pieces Together," al www .rppi.org/apr2002.pdf. 7 No. 1633 March 5, 2003 welfare.27 Such successful structural refonn and privatization programs were implemented in the 1990s in Poland, Hungary, the Czech Republic, and the three Baltic States, panicu- larly Estonia. LESSON #3: Privatization of large enterprises requires preparation. Successful privatiza- tions of large enterprises may necessitate such advance actions as breaking them into smaller competitive units, recruiting experienced pri· vate-sector managers, adopting Generally A ccepted Accounting Principles (GAAPs), set- tling past liabilities, and shedding excess labor::28 LESSON #4: Transparency and the rule of law are critical. Opaque privatization and allega- tions of corruption and cronyism provide politi- cal ammunition to the opponents of market- based policies. To eliminate these problems and be successful in its privatization efforts, the gov- ernment must adopt competitive bidding pro- cedures, objective criteria for selecting bids, and protocols for hiring independent privatization management finns, and establish a privatization authority with minimal bureaucracy to monitor the overall program. 29 LESSON #5: A minimal safety net is necessary to support laid-off workers and prevent social unrest. Buyouts of the state-owned enterprise's management and labor force, as well as distribution of some of the privatized firm's shares to its management and labor force, can go a long way toward alleviating social ten- sions that might undermine public suppon for privatization. LESSON #6: Privatization is taking place in the Middle East. Privatization is no longer limited to affiuent or middle-income countries. From Margaret Thatcher's Great Britain, privatizations of state-owned assets and structural reform pol- icies spread to many countries in Africa, Asia, and Latin America, including the Philippines, Malaysia, Jamaica, and Sri Lanka. An internal study of World Bank managers in the Middle East and North African depanment found that many were enthusiastic in sttpporting privatiza- tion efforts In their reglons. 3 A number of Mid- dle Eastern states, including Iraq's neighbors Turkey31 and Kuwait,32 are pursuing privatiza- tion of their telecommunications, transporta- tion, utilities, and oil sectors and services, while other:s, such as Iran and Saudi Arabia, have declared their intentions to privatize assets and are in the policy discussion stage. 33 LESSONS FROM OIL AND GAS PRIVATIZATIONS Oil privatization remains a politically painful issue in many countries. Economic nationalists claim oil is a "national patrimony, "34 whereas socialists and radical Islamists call private and for- eign ownership of natural resources "imperialist" and other such pejoratives. Such rhetoric has one goal: to keep a precious and profitable resource in the hands of the ruling elite, be it a communist party politburo, a dictator, or a group of mullahs. In fact, oil is a commodity and should be man- aged according to the laws of economics and best business practices. Even a country as fiercely 27. World Bank, "Privatization: Eight Lessons of Experience." 28. Ibid. 29. Ibid. 30. Ibid. 31. See Republic of Turkey, Office of 1he Prime M inister, M lnisuy of Privatization Admlnis1ra1 ion. at http://www .oib.gov .trl. 32. Dr. Shafiq Ghabra, "The View from Kuwal1," Middle Eas1 Forum, March 18, 2000. For more on l<uwail, see U.S. Oe·panmem of Commerce, "Commercial Overview," at hup:ll www.arabc ham~r.cornlarab-cou tnrits/ KuwaiUcommt rcial_ overv lew.htm . See also International Monetary Fund, "IMF Concludes Anicle IV Consuhation Wi1h l<uwai1." Public ln£orma1ion Notice No. 00/ 27, April 4, 2000, al hup:llwww .im f.org/cxttmaVnpluclpn/2000/pn0027.htm. 33. See Energy Information Admlnfsira1ion. "Saudi Arabia," January 2002. at hup: llwww.tici.dot.gov/emtulcabslsaudi.html. On Iran, see "Round Table." M iddle East Studies, at hrtp:llwww.nttiran.com/Htdocs/C lpppings/F tconomyl990322XXFE01 .hlml. 34. Mary Jordan, "Drilling Stakes al Mexico~ Hean," Tht Wa.shlngton Post, January 25, 2002. 8 Marcti 5, 2003 N_o _ . _ 16 _ 3 _ 3 ~~~~~~~~__.Bar.fiiiil ... _..~lf nationalist as Russia recognizes this and is under- taking the largest oil-sector privatization in history. The lessons from past experience in oil privatiza- tions are also positive. Specifically: ENERGY SECTOR LESSON #l: First "entitize," then privatize. The Conservative government of Margaret Thatcher successfully privanzed some British oil assets in the 1980s. In the early 1990s. Russia carved up its state-run oil minis- try into regional monopolies. It created joint stock companies, later selling stock to the Rus- sians, first, and then to foreigners. The Ministry of Privatization distributed some stocks to man- agers and workers In order to smooth the path to privatization. Since privatization, many of these stocks, such as in LUKoil, 'fyumen Oil Co. (TNK), and Yukos, have risen in price consider- ably. The Russian government did not go all the way, however. For example, it did not privatize Tran- sneft, a company that controls its pipeline infra- structure, or fully privatize some oil companies, such as Slavneft and Zarubezhnef t and GAZ- PROM, the giant natural gas monopoly that boasts the worlds largest natural gas reserves and controls a 90,000 km pipeline network. 35 The partial privatization effort has led to friction between state-controlled entitles and the priva- tized- publicly held companies over pipeline access. ENERGY SECTOR LESSON #2: Oil privatiza- tion generates high economic efficiency and market capitalization. The results of R ussian oil privatization are fascinaLlng: While the privatized Russian oil companies significantly expanded their production and expons and sig- nificantly increased market capitalization, GAZ- PROM did not. The government-controlled pipeline operator also has had difficulty provid- ing adequate pipeline capacity to the quickly developing oil sector. Meanwhile, privatized Russian companies not only have attracted Western ponfolio invest- ment, but also have been more successful than GAZPROM in attracting capital for foreign direct investment. Several leading Russian pub- licly traded oil companies also transformed their antiquated, Soviet-era accounting prac- tices to the GAAP standard, hired Western man- agers, and became centers for dissemination of Western management and accounting skills across Russia's industrial sectors. Moreover, Russia's largest oil companies. such as LUKoll and Yukos, are fast becoming major global oil players. LUKoil recently purchased 1,300 Getty gas stations In the United States, and LUKoil and Yukos are selling American Depository Receipts (ADRs) on the New York Stock Exchange. ENERGY SECTOR LESSON #3: Keep it clean, and keep it profitable.The major problem with the Russian oil privatization effort has been lls relative opacity, especially In the early 1990s. Scandals included the oil-for-shares debacle in which Boris Yeltsin's government took loans from banks in exchange for shares of the oil companies. The government never repaid the loans, and the companies became the property of politically connected banks. 36 The insider dealing provoked a political row that discred- ited privatization In the public's eyes. Other problems in Russia have been privatiza- tion through vouchers and the denial of access to foreigners in early privatization stages in order to assuage nationalists in the parliament. These policies resulted in much lower revenues (by as much as a factor or 10) than the govern- ment could have received for the privatized assets. AN ECONOMIC REFORM PLAN FOR POST-SADDAM IRAQ The Bush Administration should provide leader- ship and guidance for the future Iraqi government to undertake fundamental structural economic reform. This process should include a massive, orderly, and transparent privatization of state- owned enterprises, especially the restructuring and 35. The Russian government retained 38 percent of GAZPROM shares. 36. Energy Information Administration. "R\is.sta," at hllp:l lwww.eia.dot.gov!antulpgtmlcMa.l11ml. 9 No. 1 633 March 5, 2003 privaLization of the oil sector. These steps would greatly enhance needed access to global capital markets. U.S. political commilment will be needed to molivale international organizations to provide appropriale experlise and technical assistance. Inter alia, these organizations could include lfls such as the International Monetary fund and the World Bank, and would likely encompass such diverse non-governmental organizations. (NGOs) as the National Endowment for Democracy, the Center for International Private Enterprise, the American Bar Association, and the AFL-CIO. ln particular, the Bush Administration should convince the future federal government of Iraq to come to an agreement on how oil revenues are taxed and proceeds are distribu1ed to the country's three distinct ethnic regions-the Shiite Arabs, the Kurds, and the Sunni Arabs. Successfully privatiz- ing the country's oil fields, refining capacity, and plpeline infrastructure will mean higher efficiencies and higher tax revenues in the oil sector. Absent massive post-war damage, it is likely that Iraq will increase its production capacity from the current 2.5 million-2.8 million barrels per day to 3.5 million-4 million barrels per day in one year and reach 5 million barrels per day by 2005. According to a Deutsche Bank story, Iraq may be able to double production given sufficient invest- ment and technology.37 What a New Iraqi Government Must Do. The Administration, the Ifls, and other economic deci- sion-makers should prepare and provide supporl for a future federal Iraqi government to: • Terminate within a reasonable period of time (no longer than six months) the U.N.-run oil- for-food program.38 The national oil ministry and the Iraqi National Oil company must be purged of political appointees loyal to the Ba'ath Party. to Saddam Hussein, and his Tikrit clan. The rationale for the U.N.-adrninistered oil-for- food program was to deny Saddam a cash flow from his oil trade. The U.N. partially failed to accomplish that objective as Saddam demanded 37. "Majors Eye Iraqi Oil and Gas Reserves as War L ooms," Lloyd~ List ln1crna1ional, October 2'*, 2002. 38. Donnelly, "Planning ls Underway to Manage Iraqi Oil." 39. "Post-War Iraq May Offer Unexpected Challenges for Oil Companies," The Oil Daily, October 16. 2002. kickbacks from oil companies that traded in Iraqi oil. After the war is over, there will no longer be any need to administer the oil indus- try through an international bureaucracy. Moreover, when Saddam nationalized the Iraqi oil industry, he appointed numerous political loyalists and members of his clan to run the oil Industry. With his regime gone, there will be no need for those individuals, who are likely to oppose the new democratic regime and lack professional qualities. to remain in positions of power. Re-examine contracts allocated to companies from the U.N. Security Council permanent memben during the 1990s. During the period ofU.N. sanctions, Saddam attempted to dis- mantle the U.N. Security Council sanctions regime, or "encourage" pennanent members to use their veto against "punishment" of Iraq by the United States. He did this by allocating lucrative contracts for the development of giant Iraqi oil fields to companies from Russia, France and China, such as TotalfinaElf, LUKoil, and others. 39 • Develop a modern legal environment that recognizes property rights and is conducive to privatization. Protection and enforcement of property rights and access to successful alterna- tive dispute resolution mechanisms are vital policies for fostering economic growth andi for- eign investment. Iraq also will need to build modem and well-functioning regulatory and supervis· ory frameworks and institutions in the oil and gas, banking, securities, and financial services areas. Such a legal and business envi- ronment should be equitable and non-discrimi- natory, and should not distinguish between Iraqi-Arab nationals and foreigners. The U.S .. government, its allies, and interna- tional organizations should be ready to provide technical assistance in the legal, economic pol- icy, and public administration areas. Working cooperatively with the United States, the Euro- 10 No. 1633 March 5, 2003 pean Union, and the IFls, the post-Saddam gov- ernment of Iraq will need lo encourage the court system and the rule of law. It will need to provide legislation to allow the use of broad alternative dispute resolution mechanisms out- side of Iraq, as the local laws may change too quickly (and the local court system too slowly) for local judges to be able to follow and apply new legislation. Education for judges about the latest legal developments in the economic area will also be important. The courts will have to improve the enforcement of coun rulings inde- pendent of the executive branch. The central government will need to pay judges and court employees adequate salaries to keep corruption in check. • Educate and prepare the Iraqi population for structural reform and privatization through a public information campaign. Only when the public, including key stakeholders, elites, and the population at large, understand the goals of economic reform will they become more recep- tive to change and less likely to succumb to the anti-Western demagoguery that undoubtedly will emanate from the remnants of the discred- ited Ba'ath establishment and Islamic f unda- mentalists. The new Iraqi government will need to use the media and the educational system to explain the benefits of privatization and the changes to come in order to ensure broad pub- lic suppon. • Hire Iraqi expatriates, a. s well as other West- ern-educated Arabic speakers with financial, legal, and business backgrounds, for key positions in government. Examples of this approach in Eastern Europe demonstrate that Western-educated experts can implement eco- nomic reforms better than a former socialist bureaucracy can. Younger, well-educated tech- nocrats have an advantage in their ability to communicate effectively with both locals and Westerners, including international providers of technical assistance. In implementing structural reform. the best results are achieved by teams or local and Western experts working toge!her. • Deregulate prices in Iraq, including prices in the utilities and energy sector. Quick price deregulation will be key to ensuring an ade- quate supply of goods for consumers and end- ing . rationing. It will contribute to increased exports of oil and gas, which in tum will pro- vide additional earnings and tax revenues for the central government to share among the regional and local governments. 40 • Prepare to privatize assets in the industrial, utility, telecommunications, banking, trans- portation, port and airport, and pipeline and energy sectors. The post-Saddam Iraqi govern- ment should prepare to privatize government assets by creating government-held companies instead of ministries, issuing stock for these companies, and implementing guidelines that allow for the introduction of modem manage- ment practices and GMP standards. The cen- tral government should hire consulting firms to execute comprehensive assessments of compa- nies it wishes to privatize in order to itemize inventory, to take stock of assets and liabilities. and possibly to settle some of their debts in preparation for privatization. In particular, the Oil Ministry and regional oil companies should be restructured 10 transform them into attractive government-owned oil companies as an intermediary stage before ini- tial public offering (!PO). For example, one company may focus its work in the southern portion of the country, another in the central region (around Baghdad) and the Western desert,. and the third around Kirkuk in 1he North. Three more companies may be created: one to operate the pipelines, the second to operate the refineries, and the third to develop natural gas. 40. John C. Hulsman, Ph.D .. and James Phillips, "Forging a Durable Pos1-War Political Swlement in Iraq." Heritage Foundation Bachgroundtr No. 1632, March 5, 2003. 11 No. 1633 March s. 2003 The stages of preparation for privatization could include: 1. Taking inventory of assets and liabilities; 2. Exercising necessary efficiency-improve- ment steps, such as retraining and layoffs (with compensation); 3. Introducing GMP and other modem financial and management practices; 4. Signing international conventions against nationalization of foreign investments. such as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the Washington Convention), the World Bank's Convention on the Multilateral Investment Guarantee Agency (MIGA), and the New Y ork Conven- tion on Recognition and Enforcement of Foreign Arbitral Awards (1958); 5. Issuing company stock; 6. Running the companies under new, trans- parent. and efficient management for at least two years; and 7. Taking companies on road shows and com- pleting IPOs In major financial centers such as New Y ork and London, and floating stock In international markets. Given adequate implementation of each of these stages, the time frame for this privatization eff on could be fou r to five years after the new government Is installed by lhe people or Iraq. During this time, the U.S. government and the IFis would have to ensure that the political will for priva1ization remains imacc. Management and accounting consultants hired by the new Iraqi government would have to ascenain that the program is transparent and on track. Moreover, after privatization, Iraq must demon- strate that it is not losing tax revenue and that the government's oil revenue is distributed among the regions equitably and efficiently, allocated to worthy causes, and not wasted, looted. or abused, which could undennine the entire economic refonn program. • Keep the budget balanced and inflation, taxes. and tariffs low. International experience demonstrates that lower and flatter taxes (in the range of 20 percent or less), applied uniformly and in a non-discriminatory fashion, are an imponant investment magnet, especially for a country like Iraq that is rich in natural resources. Moreover. oil revenues will allow Iraq to keep the budget balanced and import tariffs low. Such a stable macroeconomic policy is likely to attract massive investment from a variety of sources. including the Middle East and Asia, not just the West, and boost Income and employmenl. • Liberalize and expand trade, and laun~h an effort to join the World Trade Organization. A study by the Council on Foreign Relations has demonstrated that a majority of Middle Eastern countries suffer from high Import tar- iffs. red tape, and corruption-problems that depress GDP growth.-. 1 Elimination of import taxes and tariffs and implementation of trade liberalization would provide an additional eco- nomic development engine for Iraq. The Bush Administration should provide technicaJ assis- tance for trade liberalization and support lraqs eventual membership in the WTO. CONCLUSION For the Iraqi people, structural economic reform and comprehensive privatization or government assets are necessary to slimulate recovery and pro- vide stability arter years of disastrous economic pol- icies under Saddam Hussein. The winning strategy of structural refonn and privatization also would benefit the industrial world, the United States and its allies. countries of the Middle East, and lhe developing world. Iraq's return to global markets would allow for a more abundant and stable energy supply, a higher cash flow for the Iraqi people, and numerous busi- ness opponunilies for the region and the world. Iraq's restructuring and privatization of Its oil and gas sector 1 could be.come a model for oil industry <t l. &m:ird Hockman and Patrick Messerlin, "Hames.sing Trade for Development and Growth in the M iddle East." Council on Foreign Relat!ons, 2002. 12 Mareh 5, 2003 N o _ _ ._, 6 -33 __________________ Bar.gma=liuiii~~er privatizations in other OPEC states as well, weak- ening the canel's influence over global energy mar- kets. -Ariel Cohen, Ph.D., is Research Fellow in Russian and Eurasian Studies in the Kathryn and Shelby Cullom Davis Insctcute for Incema.cional Studies, and Gerald P. O'Driscoll,]r., Ph.D .• is former Director of the Center for Jncemationa/ Trade and Economics, ac The Heritage Foundallon. This paper Is updated from Back- grounder No. 1594, published on .Xptember 24, 2002. 13 t J~\: I Vl - MIC~t. c ..... NCN tH AHUC.. • F~ Nt.IWCHK OCI Financial Senk•• User: Pusword: I r Save password oo4 New Uter • , .. .. - · . . •"'· ·4' ..... ~ 4 QUCTC~ . . . . . . . Select the Region: Ii US r MENA r Name Ii Symbol jauotes/News iJ 004 - = P\ H=* I 004 Advanced Search Jx. "'."'.'.· ....... .. , Taou:; ........ lnvettment Game J P•IHT STD• YAI G UN Halts Oil-for-Food Program MENAFN Mobile My Stock Portfolio MyNewa M y Stock Alerts Financial Calculatort Weather Bookstore Arab News - 19/03/2003 CAIRO, 19 March 2003 - Foreign oil companies have slopped buying Iraqi crude after the Unilec Vmb}J. suspended Its 'oll·lor·food' program, oil traders said yesterday. .. Traders contacted in London said companies were not buying Iraqi oil because the contracts couh financed through the UN-supervised humanitarian program. A shipping source in the region also said that lifting of Iraqi oil already stopped from Iraq's termina Bakr on the Gulf last weekend. 'Insurance doesn't cover war," he said. Mina Al-Bakr and the Turkish port of Ceyhan are the two points of exports of Iraqi oil under the hu program launched In 1996 to ease the impact on Iraq's civilians of the embargo slapped on Iraq in invading Kuwait. ' After the last tanker loaded and left Mina Al-Bakr, two others were supposed to lift this week but i companies decided they won't have the time to load and sail out in time before the military offensi• canceled them,' the shipping source said. 'lrs continuing tor the moment at Ceyhan, because of past contracts and Iraqi oil already stored ti also expected to stop the moment the offensive starts,' he added. Traders said however that Iraq' road to Jordan and through a pipeline to Syria, which are not supervised by the United Nations, wo continuing. An oil expert said the United States would be the first to suffer from the halt In lraql exports becau: biggest buyer, taking abOut two·thirdS of Iraq's sales last month. However, the market is well supp sources, he said. Iraqi Trade Minister Mohammad Mahdi Saleh said Monday that Baghdad has not yel decided to h production. although UN Secretary General Kofi Annan said the humanitarian program had to be 1 because the UN s1aff tasked lo oversee it had to pull out of the country because of the looming U~ The last UN staff lefl in Iraq were being pulled out yesterday. Iraq currently has an output capacity of some 2.8 million barrels per day (bpd), of which some two can be exported. But Iraqi sales have been dwindling over the past few months with companies tu to war fears. http://www.menafn.com/qn_news_story _s.asp?Storyld= 16035 311912003 Iraq Economy Overview Page I of 3 - Iraq Economy Iraq's economy is characterized by a heavy dependence on oil exports and emphasis on development through central planning. Prior to the outbreak ( with Iran in September 1980, Iraq's economic prospects were bright. Oil p had reached a level of3.5 million barrels per day, and oil revenues were$: in 1979 and $27 billion in 1980. At the outbreak of the war, Iraq had amas estimated $35 billion in foreign exchange reserves. The Iran-Iraq War depleted Iraq's foreign exchange reserves, devastated it: and left the country saddled with a foreign debt of more than $40 billion. / I hostilities ceased, oil exports gradually increased with the construction of pipelines and the restoration of damaged facilities. Iraq's invasion of Kuwait in August 1990, subsequent international sanctic damage from military action by an international coalition beginning in Jan drastically reduced economic activity. Government policies of diverting in key supporters of the regime while sustaining a large military and internal force further impaired finances, leaving the average Iraqi citizen facing de hardships. Implementation of a UN oil-for-food program in December 195 improved conditions for the average Iraqi citizen. Since 1999, Iraq was au export unlimited quantities of oil to finance humanitarian needs including medicine, and infrastructure repair parts. Oil exports fluctuate as the regirr alternately starts and stops exports, but, in general, oil exports have now r< three-quarters of their pre-Gulf War levels. Per capita output and living slI remain well below pre-Gulf War levels. Economy - overview: Iraq's economy is dominated by the oil sector, which I / traditionally provided about 95% of foreign exchange earnings. In the 1 980~ problems caused by massive expenditures in the eight-year war with Iran an oil export facilities by Iran led the govenunent to implement austerity measl heavily, and later reschedule foreign debt payments; Iraq suffer, ed economic the war of at least $100 billion. After hostilities ended in 1988, oil exports g increased with the construction of new pipelines and restoration of damaged Iraq's seizure of Kuwait in August 1990, subsequent international economic and damage from military action by an international coalition begiMing in J drastically reduced economic activity. Alt.hough government policies suppo1 military and internal security forces and allocating resources to key support< regime have hurt the economy, implementation of the UN's oil-for-food pro: December 1996 has helped improve conditions for the average Iraqi citizen. six, six-month phases of the program, Iraq was allowed to export limited am exchange for food, medicine, and some infrastructure spare parts. In Decem! UN Security Council authorized Iraq to export under the program as much o to meet humanitarian needs. Oil exports are now more than three-quarters p1 However, 28% of Iraq's export revenues under the program are deducted to : http://www.iraqrescarch.com/html/economy.html 3/19/2003 Iraq Economy Overview Page 2 of3 Compensation Fund and UN administrative expenses. The drop in GDP in 2 largely the result of the global economic slowdown and lower oil prices. Per imports have increased significantly, while medical supplies and health care steadily improving. Per capita output and living standards are still well belo· level, but any estimates have a wide range of error. \GDP: purchasing power pariry - $59 billion (2001 est.) GDP - real gro\\1h rme: -5. 7% (200 I est.) GDP - per capita: purchasing power parity - $2,500 (200 I est.) ) GDP - composition by sector: agriculture: 6% · industry: 13% services: 81 % ( 1993 est.) Population below poverty line: NA% Household income or consumption by percentage share: lowest 10%: NA% highest 10%: NA% f Inflation rate (consumer prices): 60% (2001 est.) Labor force: 4.4 million ( 1989) Labor force - by occupation: agriculture NA%, industry NA%, services NA' Unemployment rate: NA% Budget: revenues: $NA Expenditures: $NA, including capital expenditures of $NA Industries: petroleum, chemicals, textiles, construction materials, food proce Industrial production growth rate: NA% Electricity - production: 27.3 billion kWh (2000) Electricity - production by sourcie: fossil fuel: 98. 1 7% hydro: 1.83% other: 0% (2000) nuclear: 0% Electricity - consumption: 25.389 billion kWh (2000) Electricity - exports: 0 kWh (2000) Electricity - imports: 0 kWh (2000) Agriculture - products: wheat, barley, rice, vegetables, dates, cotton; cattle,: Exports: $15.8 billion (f.o.b., 2001 est.) Expo1 1s - commodities: crude oil Exports - partners: US 46.2%, Italy 12.2%, France 9.6%, Spain 8.6% (2000) Imports: $1 1 billion (f.o.b., 200 I est.) Imports - commodities: food, medicine, manufactures Imports - partners: France 22.5%, Australia 22%, China 5.8%, Russia 5.8% I Debt - external: $62.2 billion (2001 est.) Economic aid - recipient: $327.5 million (1995) Currency: Iraqi dinar (IQD) Currency code: IQD Exchange rates: Iraqi dinars per US dollar - 0.3109 (fixed official rate since market rate - Iraqi dinars per US dollar - 2,000 (December 200 I), 1,910 (De 1999), 1,815 (December 1998), 1,530 (December 1997), 910 (December 19~ subject to wide fluctuations Fiscal year: calendar year Source: CIA The World Factbook 2002 & Department of State Background http://www.iraqresearch.com/html/economy.html 3/1 9/2003 IRAQ GOVERNMENT STRUCTURE Pagel of2 IRAQ GOVERNMENT The Ba'ath Party rules Iraq through a nine-member RCC, which enacts leg decree. The RCC's president (chief of state and supreme commander or tht forces) is elected by a two-thirds majority of the RCC. A Council of Minis appointed by the RCC, has administrative and some legislative responsibil A 250-member National Assembly consisting of 220 elected by popular v1 a 4- year term, and 30 appointed by the president to represent the three no1 provinces, was last elected in March 2000. Iraq is divided into 18 province headed by a governor with extensive administrative powers. Iraq's judicial system is based on the French model introduced during Otto has three types of lower couns--civil, religious, and special. Special couns defined national security cases. An appellate coun system and the coun of (court of last recourse) complete the judicial structure. Country name: conventional J ong fonn: Republic of Iraq Conventional short f om1: Iraq Local short fom1: Al Iraq Local long form: Al Jumhuriyah al Iraqiyah Government type: republic Capital: Baghdad Administrative divisions: 18 provinces (muhafazat, singular - muhafazah); Basrah, Al Muthanna, Al Qadisiyah, An Najaf, Arbil, As Sulaymaniyah, A Babil, Baghdad, Dahuk, Dhi Qar, Diyala, Karbala', Maysan, Ninawa, Sala! Was it Independence: 3 October I 932 (from League of Nations mandate under Br administration) National holiday: Revolution Day, 17 July {I 968) Constitution: 22 September 1 %8, effective 16 July 1970 (provisional cons constitution drafted in 1990 but not adopted ) Legal system: based on Islamic law in special religious couns, civil law sy elsewhere; has not accepted compulsory ICJ jurisdiction Suffrage: 18 years of age; universal Executive branch: chief of state; President SADDAM Husayn (since 16 Ju Presidents Taha Muhyi al-Din MARUF (since 21 April I 974) and Taha Y< RAMADAN (since 23 March 1991) Elections: president and vice presidents elected by a two-thirds majority of Revolutionary Command Council; election last held 17 October 1995 (nex NA 2002) election results: SADDAM Husayn reelected president; percent of vote - 9 Muhyi al-Din MARUF and Taha Yasin RAMADAN elected vice presiden vote - NA% cabinet: Council of Ministers; note - there is also a Revolutionary Commat RCC with eight members as of 2001 (Chainnan SADDAM Husayn, Vice < http://www.iraqresearch.com/html/govemment.html 3/19/2003 IRAQ GOVERNMENT STRUCTURE Page:! of 2 lzzat IBRAHIM al-Duri) which controls the ruling Ba'th Party; the RCC is executive and legislative body and the most powerful political entity in the RCC members must come from the Regional Command Leadership of the Head of government: Prime Minister SADDAM Husayn (since 29 May I 9 Prime Ministers Tariq Mikhail AZIZ (since NA 1979), Hikmat Mizban Ibr AZZAWI (since 30 July 1999), Ahmad Husayn al-KHUDAYIR (since NA and Abd al-Tawab Mullah al-HUWAYSH (since NA July 2001) Legislative branch: unicameral National Assembly or Majlis al-Watani (25 appointed by the president to represent the three northern provinces of Dal: As Sulaymaniyah; 220 elected by popular vote; members serve four-year ti elections: last held 27 March 2000 (next to be held NA March 2004) elecrion results: percent of vote by party • NA%; seats by party • NA Judicial branch: Court of Cassation Political parties and leaders: Ba'th Party [SADDAM Husayn, central party Political pressure groups and leaders: any fonnal political activity must be the government; opposition to regime from Kurdish groups and southern S International organi111tion participation: ABEDA, ACC, AFESD, AL, AM CCC, EAPC, ESCWA, FAO, G-19, G-77, IAEA, JBRD, ICAO, ICRM, ID IFAD, IFC, JFRCS, ILO, IMF, IMO, Interpol, IOC, ISO, ITU, NAM, OAF OPEC, PCA, UN, UNCTAD, UNESCO, UNIDO, UPU, WFTU, WHO, W WToO Diplomatic representation in the US: none; note - Iraq has an Interest Secti Algerian Embassy headed by Akram AL DOURl; address: Iraqi Intere s ts~ Algerian Embassy, 1801 P Street NW, Washington, DC 20036; telephone: 483-7500; FAX: [I] (202) 462-5066 Diplomatic representation from the US: none; note - the US has an Interest the Polish Embassy in Baghdad; address: P. 0 . Box 2051 Hay Babel, Bagt telephone: [964) (I) 718-9267; FAX: [964) (I) 718-9297 Flng description: three equal horizontal bands of red (top), white, and blacl green five-pointed stars in a horizontal line centered in the white band; the ALLAHU AKBAR (God is Great) in green Arabic script - Allahu to the ri1 middle star and Akbar to the left of the middle star - was added in January the Persian Gulf crisis; similar to the flag of Syria which has two stars but : the flag of Yemen which has a plain white band; also similar to the flag of has a symbolic eagle centered in the white band Source: CIA The World Factbook 2002 & State Department Background 1' 12101 (1.JQmc] [ CRS..B.l~Ci] [About CRS] [Basic lnt~J ... Fm:!Ji] [lru. ~L.Mru2ii] [links] (Search) [1nK!@ · Stale D~nl. File ~] Copyright 2002-2003 Iraq Research - iraqresearch@iraqresearch.com http://www.iraqresearcb.com/html/govemment.html 3119/2003 Economy and Infrastructure/Public Finance Working Group Third Session Briefing Book Revised II Washington, DC January 24-25, 2003 TABLE OF CONTENTS I. ELECTRICITY II. OIL FOR FOOD REFORM 111. CONVERSION OF MILITARY INDUSTRY MINISTRY IV. COMMUNICATION INFRASTRUCTURE V. JOB CREATION AND TRAINING, OPPORTUNITIES FOR WOMEN VI. IRAQ DEVELOPMENT AND RECONSTRUCTION COUNCIL VII. OTHER INFRASTRUCTURE VIII. ECONOMIC POLICY AND PRIORITIES A. NEW CURRENCY, FISCAL· , MONETARY B. BANKING SECTOR C. TAXPOUCY D. REPAYMENT OF DEBT/REPARATIONS E. INVESTMENT/PRIVATIZATION IX. OTHER Electri. city Future of Iraq Project Economy and Infrastructure Development Workgroup Subcommittee on Electricity Recommendations to the Post..Saddam transitional government of Iraq In preparation for a free society under a constitutional democracy Prepared by Ms. Nasreen Sldeek Mr. Baha Al..Shlblb Mr. Sadi Aburkaibeh Mr. Rubar Sandi Dr. Asaad Ali Mr. John Kanno Faclllator: Dr. Alham Alsammarae DRAFT· Recommendations January 25, 2003 1.0 Purpose The purpose of this plan is to establish an outline of restoring the electricity supply to the Iraqi provinces to the normal capacity levels after the departure of Saddam's regime. 2.0 Background Aiound 85%-90% of Iraq's national power grid (and 20 power stations) was damaged or destroyed in the Gulf War. Existing generating capacity of 9,000 (or 9600) megawatts (MW) in December I 990 was reduced to only 340 MW by March 1991. In early 1991, transmission and distribution infrastructure also was destroyed, including the 10 substations serving Baghdad and about 30% of the country's 400-kilovolt (kV) transmission network. In early 1992, Iraq stated that it had restarted 75% of the national grid, including the 1,320-MW Baiji and Mosul thennal plants as well as the Saddam Dam. In 1998, Iraq's maximum avaihtble electric generation capacity was estimated (by Iraq) at around 4,000 MW, with a report in November 1999 indicating that this figure may have increased even further, to 6,000 MW. Despite this increase, power continues to be rationed throughout the country. According to a report by U.N. Secretary General Kofi Alman, Iraq's power deficit stood at 1 ,800 MW as of August 2000, with blackouts a common occurrence. Iraq reportedly has signed contracts for renovating two generation units at the Harithah power plant, and another to rebuild the Yusufiyah plant, which stopped operating in 1990. Iraq's Electricity Authority reportedly also has signed several other contracts with Chinese, Swiss, French, and Russian companies, to build 3,000 MW of additional power genemting capacity. These contracts require U.N. approval, and Iraq has claimed that the United States and Britain are blocking $1 .5 billion worth of electrical equipment it has requested. In December 2000, it was reported that a Chinese company had completed work on the Abdullah power plant north of Baghdad. Jn October 200 I , it was reported that Russia's Mosenergomontazh was working to modernize Iraq's Southern Heat and Power Plant in Najibia, Basra province. The project aims to add 200 MW of generating capa. city to Iraq's grid. In August 2002, the Najaf govemate in southern Iraq announced that two new power plants, with a combined capacity of 20 MW, had come online. The above data was obtained from US DOE. This data , can be vle1tled at wlt•11· .eia.doe.g'1v/crmeulcab.flirag.html. 3.0 Current Situation Cu"ently within theframeworlc of Security Council Resolution 986 (1995), the United Nations Development Program (UNDP) through the UN Department of Economic and Social Affairs (UNDESA) ls responsible for the observation in the 15 governorates In the Centre and South of Iraq, of electricity equipment, proc.ured and installed by the Government of lra9. UNDESA is also assisting In the implementation of the SCR 986 also known as the Oil-for-Food Program, part of which pemtits the Government of Iraq to reluzbililate the electricity systems in the central and southern regions of the country. An estimated USSIO billion is to be required/or the repair of the electricity uctor to ratore ii to pre-Gulf War level of generating 9,600 MW. Howe11er, only a total of USS 4. 7 billion has been allocated for the electricity sector since the beginning of the Oil-for-Food 2 Program In 1996. Only US$1.67 blJlion worth of mater:W has arrived in Iraq, but only 60% has been implnnented. At the onset (Phase I-JI), the a/location focused on meeting the emergency requirements of the power stations and distribution system. From Phase. Y onwards, equipments to r,ehabUitate the facilities were being procured. The program iJ cu"en'f/y covering some 11 power planlJ and distribution sites in Centre/South Iraq, which have an available generating capacity of 3, 700 MW. Not all the delllJls are OW1i/able for the actillities in all parts of the country. However, iJ was made possible to include detaUs of activilies in lf'Ol/l Kurdistan courtesy draft report by Ms. Nasreen Sideelc. For more details of the status of lnqi Kurdistan electricity restructuring refer to Attachment 1 of this report. Jn the three northem Kurdish gowrnorotes of Dohuk, Erbil and Sulaymaniyah, UNDP h directly implementing the Electricity Network Rehabilitation Program (ENRP) In cooperation with the Local Kurdish Elecl"fklty Authorltia, which aims at rehabilitating the electricity network across the four main sectors of generation, transmission, substations, and distribution. Capacity building is addressed as across cutting theme. As of 19 March 1001, electrical equipment valued at owr US$1U million (out of the US$871 mil/Ion budget) had a"/ved In the area, of which 81% had been distributed to installation sites. In 1999, UNDP was re11uested to expand ENRP's mandate lo address the generation shortfall In the region .resulting from the onset of drought In late 1998 and to ensure a minimum humanitarian level of electricity to tlte population in Iraqi Kurdistan. The severity of the drought and /Is continuation for over thr:ee years has rendered the hydro generation resources in the north incapable of supplying the most basic electricity requirements of the population. In response to the need arising from this shortfall and within the premises of Its added mandate, UNDP in 1999 was able to procure 1,150 small diesel generators, which has a total installed capacity of over 100 MW, for Installation across the three Kurdish governorates. These generators are supplying electricity to all mQ}or hospitals and health centres In Iraqi Kurdistan and has directly benefaed a population of over 1 million (consumers have now continuous access to water and are receiving a limited supply of electricity for eight hours per day). In 1001, UNDP was able to commission three 19 MW diesel power stations, which have improved the overall generating capacity for the Kurdish region. Water levels have Increased during the past winter (1001-1001), which have contributed to the optimisation of the Dokan and Darhandlkhan dams and hydro power stations in Sulaymaniyah. The dams will generate 100 MW from the previous 50 MW and will supply both Erbil and Sulaymaniyah. Dohuk ls already connected to the national electricity grid. Major rehabilitation tt10rk of the remaining networks and the distribution transformers and limited expansion are plonned under several stages witlr the allocated funds from Phases X and XI. Due to the na/Jlre of the works, the distribution sector is very much dependent on the human resources of the Local Electricity Authorities. Jn this context, the project has been heavily involved in capacity building and training in addition to the planning and design works that the sector requires. 3 4.0 Scope of this Plan The scope of this plan is to meet tire following objectives: 1. To restore the availability of the electricity of lra9 to an acceptable level by rehabilitating and strengthening the generation, transmission system, substations, and distribution sysums. 1. To install mfficient additional generalion capacity to address the normal, emergency, and industrial re9uirements in Iraq. 3. To restore tJre capability of the local Electrkity Authorities in the country to a sufficient level whereby thq can sustain the operation and maintenance of the overall po~r system. Tire specifics of the plan for tire overall power system are outlined as follows. Generation To increase the generation capacity of the IUllional grid by rehabilitating existing power stations and instaUing additional generation facilities. A feasibility study should be performed to evaluate the alternati'lleS of generation types and inllestlrrent lnvollled. As a minimum It must address that the minimum emergency and humanitarian electricity re9uirements are met. Substations To provide safe, reliable and efficient 13213311 llcV and 3311 lkV s11bstatlon Installations, to accommodate the rehabilitated transmission and distribution systems and to allow for future system expansion resulting from Increased generation capacity. Other transmission line voltages may need to be reviewed to justify economics. Transmission To rehabilitate, re-establish and/or install new owrhead lines (or underground lines) to restore the transmission network and if possible augment the reliability of the system. Distribution To rehabilitate, reinforce and dew/op the power distrib11tion network in order to meet the consumer, emerge':'cy and Industrial demaN/s with acceptable efficiency and reliability. Sustainability To protect tire Integrity of the assets by operating and maintaining them In accordance to prudent working practices. This may re9uire attracting expelVnced and trained resources from local and lntern11tional market at the beginning stages of restoration. Local skills will have to be developed through on the job /earning 11ntil conjlllence is established to operate efliclendy 11nd economically. An execution plan for thu task will have to be in place during the transitional period. S.O Execution Piao lra9 's current state of Electricity re9uires a complete restructuring in terms of adding new generation capacity, adding new transmission line capacity, adding modern substations,. and adding new communication syskm. Wlrlle the addition of power capacity Infrastructure is being planned, the existing infrastructure will have to be refurbished and reinstated to meet the immediate power demand. The straugy to optimiu the investlffent in the new and refurbishment infrastructure needs be evalllated. A strategy plan will have to be in place before the structuring of investment plan is discussed. 4 The focus of this plan is limiled to tire scopes Identified in Section 4. O. Therefore, a plan for the scopes identified in Section 4.0 is included in this section. Generation Capacity Me~t the power demand of today. Our objective is to meet the additional capacity within the first two years of post Saddam regime. In order to accomplish this scope, an assessment of tire existing generation capacily ls required. Based on Information available, It is estbnated that tire current capacity (as of 2001) stands al 5375 MW (we need further verljication ofthls data). Accortflnt to Ms. Nasreen. tire 1990 capacity was 8967 MW. Based on the USDOE report, If tire 3000 MW new capacity contract ls already in place, this brings tire existing capacity to about tire original capacily of 1990 (5375+300f>+20f>+2o-8595). This however does not Include all tire demand growth over tire yean as weU as industrial load growth for tire post Saddam economic plan. If it is estimated to have a load growth of 1.05% over a year (based on /oqd growth of Sulavmanyalr, published in tire document sent by Nasreen>. an additional capacity of approxi,,.ately 13% should be added to tire 1990 capacity. This results to an estimated 2002 capacity to approximately 10,170 MW. A deficit of approximately 15 75 MW will stUI /rave to be addressed as new capacity to meet tire demands of electricity of 2002. Tire actual num1 berwiJJ have to be verified by a thorough survey.of the existing capacity and ongoing project developments. Tire challenge is to reach a capacily of over 10,000-10,100 MW (rounded from 10,170 MW). Tire addiJional capacity Is a resultant of the sun>ey that will be needed at a given point in tire implementl#lon phase. It is my estimate that the additional capacity building for the first two years may range from 2000-3000 MW if status of above data is true, whereas it may range 3000-4000 MW If the data shown above is inaccurate and the stallls of plants in operation are not in the best of their Ir ea/th to continue service for the next five years. We need to verify the following information in order to successfully estimate the additional generation capacity needed to nonnalize the consumer demands for electricity: • The actual data so that the new capacity to meet the 2002-2004 power demands can be assessed. • The verification of the status of the power plants currently in operation. Their absolute health and life expectancy will help in assessing the real capacity available by 2004. • Verify the status of the 3000 MW contracts as stated above. Wbat are the deadline (operation date), cost, and technology. • Review contracts and progress of UNDP projects for the Electricity Network Rehabilitation Program in Northern Iraq. • Review contracts if necessary to expedite commissioning dates or revive contract currently under UNDP or entered by Saddam regime. Substations All oft/re substations wUI be reviewed to evaluate the situation to deliver power to the customers. The equipment conditions of the substations in operation will be evaluated. s Based on the conditions of equipment and Its interface requirements, the upgrade will be recommended. Special effort will also be made to /mpro11e the reliability of the power delivery. To accommodate expansion of load demands as well of completely demolished substations, effort will be made to install state oftlte art substation technology. All Investments for the substations will be reviewed to justify economics and reliability. Transmission System All of the transmission lines will be rniiewed to e11aluate the silllation to deliver power to the load centers. The equipment conditions of the transmission lines In operation will be naluated. Based on the conditions of equipment and iJs interface requiremena, the upgrade will be recommended. Special effort will also . be made to improve the rellabilily of the power delivery. To accommodate apansion of load demands as weU of completely demolished transmission lines, effort will be made to re-naluate the transmission 11oltage levels and efficiency of transmission. All Investments for the transmission lines will be rniiewed to justify economics and reliabOlty. Distribution System The existing 11 kV and 0.4 kV network are generally consisted of overhead lines and are determined to be in worst condition due to numerous reasons (such as failures, damages, lack of spares, inadequate resources to repairs, etc.). Distribution transformers are extensively 011er loaded and operated with inadequate protection. Extensive upgrade will be needed to improve electrical protection. The effort will be placed to replace 011erloaded transformers with higher ratings and also minimite loads by re-distributing the loads through other transformers. Also, plan to overhaul over- stressed transformers will be needed to sal110ge old transformers. Sustainability Local skills will be developed through on the job learning until confulence is established to operate efficiently and economically. An execution plan for this task will dnieloped to train aU local resources within a period of 2-3 years. All investments for tire training wllJ be reviewed to justify economics. 6.0 Investment Plan The objecti11e of this section is to recognize that a review of tire overall system status will be needed to assess tire state of the cu"ent power system grids and generation capacity and identify the future need until 2010 in the electricity sector in Iraq. Once these data are available, an effective and economic investment plan shall be recommended in a report at a later stage. UNDP and Local Electricity Authorities are carrying o. ut a program of various rehabilitation and maintenance activities to develop and enhance the electricity system in their respective areas. A survey report will be needed to Identify tire state of these activities in various parts of the country. Based on this survey recommendations will be made Jo. address the problems. This report does not identify or recommend the type of generation capaclly whether thermal or gas will be installed/or new generation capacity. Every indication of the physical limits and the popularity, it seems highly likely that the Gas Turbines will be the candidate for the newly installed generation capacity. Also, combined cycle generation wUI also be a candidate for capacity expansion for the thermal generating units. It seems tllat hydro generation will not be a practical option for the fnitial new capaclly installations. 6 Investment plans for the electricity sector shall be driven by funds from the state and will be regulated. Future planning should include privatization of the electricity sector. Jn this respect, our planning/or investment should include the capacity building that restores the demand for 100'. We should also establish plan for meeting energy demand refuirements of year 2010. It is expected to see a rapid rise in demands once industrial growth begins Jo shape up after the Saddam regime. This report ls not projecting any figures for investment since all data and resources are not available at this time. With further developments and int1olvements we should be able to gather overall naliona/' dala and estimate a budgeted figure for the total Investment. These will be dneloped thro11gh actit1e involvement of local authorities and experts at a git1en point In time In the near future. 7.0 Conclusion and Recommendations The restoration of capacity and infrllSITucture should be accomplished within two years of post Saddam regime. This restoration of capacity wU/ include the new lost capacity that would result from the widely anticipated and inevitable war in the immediate future. It also expected to restore all emergency load demand in the least amount of time. The emergency load demands may be addressed based on priority scheduling. The ongoing projects and other list of projects thal were generaled by the local authorities will be used to establish the projects necessary to restore the electricity infrastructure. Additional survey and independent naluations wU/ be performed to finalize the scope and investment of the projects. Emphasis to technical and economical justification will be given to all short-term (less than two years) and /ong-te,.,,. (over 5 years) project planning. Investment plans for the electricity sector shall be driven by funds from the state and will be regulated. Howet1er,future planning should include privatir.ation of the electricity sector. In this respect, our planning/or Investment should include the capacity building thal restores the demand for 100' with limited projections to the load growth that are expected to increase due to rapid expansions in the industrial sectors (such as Oil, irrigations, processes, etc). It is expected to see a rapid rise in demands once industrial growth begins to shape up after the Saddam regime. The planning should also focus on the additional energy rebuilding that would result from the Inevitable war in the Immediate future. It is estimaled that an addiliona/ rebuilding may range from 10 to JO percent of the total capacity as a result of the anticipated war. We should also establish plan/or meeting energy demand requirements of the year 1010. The det1elopments in the electricity sector of Iraqi Kurdistan are detailed in the draft report by Ms. Nasreen Sideek : . This draft report ls made part of this report as Attachment 1. 7 ATTACHMENT 1 (Ms. Nasreen's Draft) 8 DRAFAT Investment Plan Rehabilitation of Electricity sector in Iraq Case Study Iraqi Kurdistan Prepared by Nasretn Sldetk With Inputs from the Ministry of Industry and Energy of Iraqi Kurdistan Regional Government Ert>ll, Northern Iraq November 2002 9 CONTENT Situation report . • Electricity in Iraq Today • The electricity network rehabilitation program (ENRP) in Iraqi Kurdistan Program Objectives Case Study- Iraqi Kurdistan • Executive Summary · • Problems to be addressed • Planned activities • Implementation Methods Detailed Investment Plan for Iraqi Kurdistan • Introduction • Current situation • Options for additional generation capacity • Short term plan for expansion • Medium and long term plan for expansion 1 0 SITUATION REPORT ELECTRICTY IN IRAQ TODAY Today and within the frame'Mlr1< of Security Council Resokltion 986 (1995), the United Nations Development Program (UNDP) through the UN Department of Economic and Social Affairs (UNDESA) Is responsible for the obselvation In the 15 govemorates ln the Centre and South of Iraq, of electricity equipment, procured and installed by the Government of Iraq. UNDESA Is also assisting In the Implementation of the SCR 986 also known as the OU-for-Food Program, part of which permits the Government of Iraq to rehabilitate the electricity systems In the central and southern regions of the country. An estimated US$10 bllllon Is required for the repair of the electricity sector to restore It to pre-Gulf War level of generating 9,600 MW. However, only a total of US$ 4.7 billion has been allocated for the electricity sector since the beginning of the O il-for-Food Program in 1996. Thus far, half of this has been available and utilized. To dale, US$4.7 bllflon worth of applications has been reoeived, out of which US$2.5 blnion has been approved. US$1.67 billion has arrived In Iraq, but only 60% of that has been implemented. At the onset (Phase I· V). the allocation focused on meeting the emergency requirements of the power stations and distribution system. From Phase V onwards, equipments t> rehabllHate the facllltles were being procured. The program is currently covering some 21 power plants and distribution sites In Centre/South Iraq, which have an available generating capacity of 3,700 ~. In the three northern Kurdish govemorates of Dohuk, Erbil and Sulaymaniyah, UNOP Is directly implementing the Electricity Networit Rehabilitation Program (ENRP) in cooperation with the Local Kurdish Electricity Authorities, which aims at rehabUltating the electricity network across the four main sectors of gentrltion, br1n1mia1ion, 1ubatltion1, and distribution. Capacity building Is addressed as across cutting theme. As of 29 March 2002, elecirical equipment valued at over USS224 mKlion (out of the US$871 million budget) had arrived In the area, of which 82% had been distrllboted to lnstallatlon sites. In 1999, U NDP was req111esled to expand ENRP's mandate to, address the generation shortfaU In the region resulUng from the onset of drought In late 1998 and to ensure a minimum humanitarian level of electricity to the population in Iraqi Kurdistan. The severity of the drought and its continuation for over three years has rendered the hydro generation resources in the north incapable of supplying the most basic electricity requirements of the population. In response to the need arising from this shortfaH and within the premises of its added mandate, UNDP in 1999 was able to procure 1 , 150 small diesel generators, which has a total instaled capacity of owr 100 MW, for installation across the three Kurdish govemorates. When operated, these generators supply a daily average of 18MW or 14,000kW hrs of electricity. These generators are supplying electricHy to all major hospitals and health centres in Iraqi Kurdistan and has directly benefited a population of over 1 miUion (consumers have now continuous access to water and are receiving a limited supply of electricity for eight hours per day). 11 In 2001, UNDP was able to commission three 29 MW d'tesel power stations, which have Improved the overall generating capacity for the K urdish region. Water levels have Increased during the past winter (2001-2002), which have contributed to the optim isation of the Dokan and Darbandikhan dams and hydro power stations in Sulaymanlyah. The dams wiU generate 200 WY from the previous 50 MW and will supply both Erbil and Sulaymaniyah. Dohuk is already connected to the national electricity grid. Major rehabilitation work of the remaining networks and the distribution 1ransformers and llmlted expansion are planned under several stages with the allocated funds from Phases X and X I . Due to the nature of the works, the dlstributlon sector is very rooch dependent on the human resources of the Local Electricity Authorities. In this context, the project has been heavtf involved in capacity building and training in addition to the planning and design worX5 that the sector requires. PROGRAM OBJECTIVES 4. To bring the levels of rellabllity and avaUability of the electricity network in Iraq to a cceptable international levels by rehabl1tating and strengthening the generation, transmission lines, substations and distribution systems. 5. To install sufficient additional generation capacity 10 · address the emergency humanitarian requirements in Iraq. 6. To develop the capacity of the local Electricity Authorities in the country to a sufficient level whereby they can sustain the operation and maintenance requirements of the electricity network. Program Support Objective 1 (Gener1tion) To Increase the generation capacity of the network by rehabllltating existing h ydro power stations and installing additional generation facilities {of a pennanent or temporary basis) as required and ensuring that the mirnlmum emergency and humanitarian electricity requirements are met. Program Support Objective 2 {Substitutions) To provide safe, reliable and efficient 132/33111kVand 3 311 1kV substation Installations, to accommodate the rehabilitated transmission and dlstri>ution systems and to allow for future system expansion, with increased generation capacity. ProgrlmS~portO~~w•3~ransmlsJion) To rehabilitate, re-establish and/or Install new overhead lines as requred to restore the network to a safe operational level, by taking Into account emergency and humanitarian as well as future requirements. Progflm Support ObjKtive 4 (D/$ttlbution) To rehabilitate, reinforce and develop the electricity distribution network in order to make it capable of meeting the electricity demand of public utilities, domestic consumers and other consumers In a safe, reliable and eff icient manner whHe at the same lime ensuring sustainable development. Program Support Objective 5 {Sustllniblllty of the program) Through good stewardship of the 1sstts ind CIPIC#ty building To protect the integrity of the assets by operating and maintaining them as required in accordance with prudent 1 intemational practice, until such lime as they can be handed over. Also to enhance the capacity of local electricity authorities to a level whereby they can sustain the operation and maintenance requirements of the network. Emphasis would be on: (a) skills Improvement a nd (b) management. 12 CASE STUDY - IRAQI KURDISTAN I. THE ELECTRICITY SITUATION IN IRAQI KURDISTAN Prior to the imposition of sanctions on Iraq, the three northern Kurdish govemorates of Oohuk, Erbil and Sulaymanlyah were supplied with electricity from the Iraq national grid. Two hydropower stations were constructed in the Sulaymaniyah Governorate to serve as peaking stations during periods of high demand; the Ookan dam was bultt In 1975 and the Darbandlkhan dam In 1987. The maximum combined total generation capacity of these two power stations is 649 MW. The three northern KtKdlsh governorates were supplied with power from several high voltage 132 kV transmission lines from the govemorates of Mosul and Kirkuk. These lines fed Into 132·33 kV transmission substations from where the energy was then distributed. As the electricity system of IK was part of the Iraq national grid, technical support was centralized and provided from Baghdad. T earns located at either Mosul or Kirku k provided maintenance of the system In the north and the northern staff carried out system operation and fault repar. In 1991, the electricity supply system in IK suffered severe damage. Several distribution and transmission lines were put out of commission, many substations were destroyed, and the control panels at the Darbandlkhan power station were ruined by explosives. By early 1998, the electrlclty generation, substations and transmission and distribution systems became very weak and power cuts of up to five hours were a regular practice. In certain areas, supply was limited to three to five hours daily, further reduced to one hour per day or no supply in some areas. The govemorates of Erbll and Sulaymaniyah had been cut off from the national grid and had to rely on the hydropower stations of Dakan and Darbandlkhan for their power supply. The generation capacity of these dams, however, was insufficient to meet the demand. The govemorate of Oohuk was still linked to the national grid but received very little supply. The result was a combined shortfall in electricity supply for the three northern govemorates of about 350 MW. The impact of the shortfall In supply in the north was further exacerbated by heavy losses of electricity resulting from the state of the 1ransmission and diStribution networks: smashed towers, kilometers of cables and conductors stolen, shattered insulators, several substations vandalized while others totaMy or partially destroyed and burnt out distribution transformers. To add to the fragility of the system the drought that affected the region from 1998 to 2001 had severely affected water levels in the reservoirs serving the tv.o-hydropower stations Dokan·and Darbandikhan. Wllh increased rainfall In late 2001 and beginning of 2002, lnftows lo the t'M> dams have Increased considerably, allowing for electricity generation. However, the system is not ready to absorb the increased supply. As a result, although there Is more electricity available it may not necessarily reach the consumers. 13 2. PROBLEMS TO BE ADDRESSED a) Dam and Hydro Power Stations Following the disconnection from the Iraqi national grid, the govemorates of Erbll and Sulaymaniyah were solely supplied by the twcrhydropower stations of the Dokan and Darbandlkhan dams. The structural Integrity of these two dams was the first priority to be addressed under the ENRP. Both dams and associated power stations sustained considerable damage and suffer from lack of spare parts and funds to ensure proper maintenance. They are in need of major and urgent rehabRltatlon. b) Transmission network The electricity supply system is configured to recelye supply through 132 kV and 33 kV overhead lines. After the disconnection from the national grid, to access the power generated at the Dokan and Darbandlkhan hydro power stations, the Local Electricity Authorities had to construct major new line circuits out of salvaged material. Unfortunately these works were affected with minimal regard to englneerilg design. The emergency nature of this construction had two important consequences· (i) some outlying areas were left without supply, and (Ii) the quality of power supply is well below acceptable norms. In their present state, these 132 kV and 33 kV networks constitute a hazard to the public and electricity workers, an<l place severe operating conditions on all electrical plants and equipment The system may collapse at any time and is presently only just operable due to limited generation outputs. Therefore, a comprehensive program of rehabilitation needs to be implemented to upgrade the condition of the 132 kV and the 33 kV systems, and to build new 132 kV and 33 kV Mnes. These are required to feed new substations already in progress and to enable the return of power supp'ly to those regions that had electricity before the hostilities. c) Substation The power inf,ectlon to the medium voltage network is provided from a large number of substations, originally planned and designed geographically to cover most of the load centers in the area. Many substations were badly vandalized and in some cases totally looted or destroyed during and after the disturbances. This had a direct Impact on the network design and stabNlty. Some of the substations are In general good condition and only need partial refurbishment. However, most will have to be rebuilt in either their present location or on sites which are more suitably located to th& load centers. · d) Distribution The main problem facing the distribution network is the deteriorated state of Its existing infrastructures. Lack of investment in improving the networt, considerable load growth and poor maintenance work during the last 10 years have resulted In overloading of the system and increasing the frequency of failures and outage duration. The present power system operates with · ·comparatively high system losses of about 23%. It is estimated that about 17% of these-are in the disbibutlon system. As a result, the excessive system voltage drops are keeping the efficiency of the operation of consumer appliances very low. Another important issue facing the distribution network is the need to build new 11 kV and 33 kV lines in order to restore proper connections to existing substations (transmission and distribution ·lines using their design voltage levels) as well as to connect newly built substations to the network. 14 The distribution network needs to be expanded to Include: households localed close to the existing distributions networks, but not connected to the networks so far due to either limlted capacity of the existing plant or due to shortage of materials to Implement the electrification schemes. Another challenge is to connect the households located in areas. which had electricity before,' but lost It when the distribution facffities were destroyed during the hostilities; and, households located in remote areas that are not electrified so far. e) Generation Over and above the needs of the network and its infrastructures, the most obvious problem of the electricity system in the northern Kurdish govemorates Is the lack of sufficient generation. The estimated base load requirement above the combined realistic sustainable output of the existing power plants is 350 MW. At an estimated $800,000 per MW, this would enta~ an expenditure of about $280 million, although the options actually available could reach beyond this figure. 3. PLANNED ACTIVITIES (subject to fund availability) To address the above.mentioned problems, the following activities need to be undertaken: a) Build 1 ,675 km of 132 kV and 33 kV transmission lines. b) Rehabilitate 1,179kmof132 kV and 33 kV transmission lines, and restore 140 km of 132 kV lines to their origilal design voltage. · c) Rehabilitate and build 70 substations (the ENRP Intends to commission a first tranche of 8 substations by October 2002, 19 additional substation s by February 2003, 18 additional ones by June 2003 and the remaining 25 substations by June 2004). d) Rehabilitate 16,095km of distribution lines (33kV, 11kV, Dist Trans and LV). e) Build 1,720 km of new distribution lines (33kV and 11kV). Q Rehabilltate two dams and their hydro power stations. g) Install diesel power plants (3x29 MW for each of two stages). h} Install 256 diesel generators (38 ~for water pumping, 172 (17 MW) for health utilities, and around (8-10 MW) for domestic consumption. i) Establish one system conlrol center a nd one network communication system j} Procure large quantities of parts and spares k) Develop the· capacities of the local electricity authorities in the region to sustain the efficiency being visualized under the rehabilitation and strengthening projects by skills development to install, operate and maintain the systems scientlficaly. IS 4. IMPLMENTATION METHODS Currently, as per the Memorandum of Understanding l>et-Neen the United Nations and the GOI that codifies the practical arrangements for the implementation of the Qi.for-Food Program, UNDP is responsible for the entire procurement, installation and commissioning of electrical equipmenl along with sk>rage of spare parts, necessary for the rehabilitation of 1he electricity networtc in the three . Kurdish northern govemorates. There are currenUy twenty seven ongoing projects with several International large-scale tenders to be Issued this year. A large number of these projects are/will be Implemented throU{,tl turnkey contracts with International engineering companies. Other smaller projects arelwift be implemented directly by the ENRP In cooperation with the Local Electriclty Authorities. For the future IDRC should oversee the operations of the New Government Departments. a) Procurement procedures Procurement of Goods, Wor1cs and SefVices will be carried out by IDRC lhrough lntematlonal Competitive Bidding modaities as appllcable under International Financial Regulations and Rules, FIDIC is what Is used In Iraq. The ftrs step In the procurement process In nonnally represented by the publication on the either a Invitation for Expressions of Interest (EOI), for services, or an Invitation to apply for pre- qualification (Request for P~ualificatlon) In the case of provision of goods, works and supply & Installation services. Short-listed or pnHIUalfled companles/supplers are then Invited k> submit a formal bid for the supply of goods, WOOis and supply & Installation services, as applicable. Fonnal solicitations k> submit bids/proposats are normally issued to pre-qualified/short-listed flrms as: Request for Proposal (RFP), br the provision of services and/or works, Including supply & Installation of equipment; and Invitation k> Bid (rTB), for the supply of goods, works, materials and/or plant. b) Contract executJon Briefly, the main modalities followed In Iraq for contracts execution are the follov.;ng: Turnkey contracts for the engineering design, supply and installation of electromechanical eq~nl and/or plant Supply conlrads for equlpmenl materials, plant and vehicles; Supply and lnstaftatlon contracts for electromechanical equipment and plant; Consultants' Services contracts for employment of consultants' firms; and Special Service Agreements for appointment of freelance speciarests or Reimbursable Loan Agreement with companies for appointment of ther professionals. 1 6 DETAILED INVESTMENT PLAN FOR IRAQI KURDISTAN 1. INTRODUCTION The objective of this report Is to review and summarize the state of the various sectors of the current electrical networt, and identify weaknesses with the view of proposing necessary plans to meet current and future need until 2010 in the electricity sector In Iraqi Kurdistan. UNDP and Local Electricity Authority are carrying out a program of various rehabilitation and maintenance activities to develop and enhance the electricity system in the area. For the future, projects plaMed under cunent cooperetion program between the UN and KRG should continue. Most Information at this report Is based Qn a study conducted bv the Australian Consultant Company (SMEC). in 1998, SMEC completed a major survey of the networt in the three Kurdish Govemorates. The survey aims at ~ntifying the state of the various sectors of the electrical network, and make recommendation to address the problem, the recommendation of this study were shared with the Local Electricity Authorities and are currently used as a general guideline for the planning of future activities. 2. CURRENT SETUATION RELIABILITY: The reliability of p lants and equipment in the Iraqi Kurdistan is weak due to the following: - Shortage and lack in power generation. Lack of protection. Excessive over load Lack of maintenance & spare parts Communication problems Shortage of tools and vehicles Shortage of transmitions lines and transforming capacities LOAD: As a result of natural load growth of 1 .05% per year the load on Sulaymaniyah-Erbil was estimated to rise from 480 MW (In year 1998) to about 500 MW in 2003 and 530 MW in year 2008 these figures should be increased by about 400 MW for load shedding to gibe an unsuppressed {no load shedding) maximum demand requirement at generation level of 940MW. The maximum demand on the Dohuk system was 90MW (in year 1998), If Dohuk load are included then the unsuppressed maximum demand requirement at generation level in the long tenn became, 1140MW. TARIFFS: 1 7 The low price of electricity has resulted in extravagant usage of elecbicity in northern Govemorates, the amount and reliability of electricity supply available to people will reduce substantially until new generation becomes available. 3. GENERATION & SOURSES ·Electricity power resources in Iraqi Kurdistan currenUy are limited to: 1. There are two hydro station located In Sulaymaniyah Govemorate, Dokan (5X80MW) and Oarbandlkhan (3X83MW), the maxlroom power supplied by these IV«> stations (with full storage) Is 566 MW and due to deteriorated state of the power station the available power becomes less than 480 MW. 2. Three station of 29 MW diesel generation plant (one station for each Govemorate). The availability of power from the National grid via Mosul is supplied only to Dohuk Govemorate and the availability of power Is polltlcally controlled, however there ls regular load shedding in Dohuk. The only options for increasing the power generation In lraql Kurdistan are: - Hydro Generation plant provided. - Thermal Generation plant provided. - Re-connection with the National grid. For reconnecting Sulaymanlyah-Ert:>il 132 kV netV«>rk with the National grid, studies have been made· concerning the over all cost of the items and supplies needed to this reconnection as a tum-key proj&ct Implemented by foreign companies, and the preliminary estimates as follows: Reconnection through two line 11 a first step at a total cost of $15 million as follows: - Taamem Govemorate-Taslujah, at a cost of$ 8 million - Dlbs-Erbil, at a cost of$ 7 million Reconnection through three lines It a total cost of$ 23.5 million that is k> say the Taamem- Taslujah and Dibls-Ert:>il Liiles at the same cost as above, with lhe addition of a Qaraqush-Ert:>il line at a further cost of $8.5 million. 4. TRANSMISSION LINES In any electricity supply program the transmission netM>rk Is lhe key to the transmission of electrical energy from the generating source to the load centers and they are designed for high re6ability. Generally there are few numbers of 132 kV & 33kV transmission lines, in the area, some of33 kV even 11kV feeders are supported on the 132 kV towers until these towers are required for the 132 kV system. Some section of the 132 kV and 33 kV transmission system have beeo extensively damaged, the forms of damages are: 1 . Steel towers destroyed or damaged 2. Steel work missing on towers. 3. Conductors and earth - wire missing. 4. lnsulak>rs broken 18 Because of a shortage of materials and !!QUipment, temporary repair have been made which are substandard and v.ttlch leave the system in an unreliable state. Bellow ' f d ta'ls is review o e I d' th 'sti 132kV& 33kV tra ' . I' reaar 1ng e exi ng OSllllSSIOn 1nes Govemorate 132kVT.L No. Length (km) 33kVT.L No. Lenath (km) Erbil 7 434 20 233 Sulaymaniyah 13 577 22 303 Dohuk 6 315 9 265 Total 26 1326 51 801 5. SUBSTATIONS Substations form the power Injection point to the distribution network. A l the substations In the area are in deteriorated condition requiring immediate rehabilitation and in many cases, augmentation too; loads in most of them have exceeded the fim1 capacity. Some of them are mobile substations. The existing 33 kV and 11 kV clrcutt breakers are in poor condition and require replacement as a matter of urgency, these equipment were purchased in 1970 and has exceeded its normal life cycle, most are operated manually and they are severely at risk due to the inability to isolate faults. The 132 kV circutt breakers at north Erbil SIS and old Dohuk SIS are very old and the company has now been taken over several times and it Is extremely unlikely that a supplier will be able to provide, the necessary spare parts. F llo . o wma are the details reaardina the exisUna 132 33 & kV su stations: b . Govemorale No of 132 kV SIS No. of 33kV SIS Erbil 4 14 Sulavmanivah 9 22 Dohuk 3 13 Total 16 59 6. DISTRIBUTION The L. V network is the most important part of the distribution system It is important that it is designed to meet the po'9ntial customer load and the quality and standard of supply is adequate as regards reliability and voltage limits. Generafty the existing 11 kV & 0.4 .kV network in tt:ie ~rea are overhead lines and they are In bad condition due to past damage and lock of materials necessary for appropriate repairs or preventative maintenance. Distribution transfonners are extensively over loaded and most of them with out protection, they urgently need an upgrade of their electrical protection. Poor voltage levels below the allowable limits affect various section of the distribution network. 19 This has caused poor supply voltages to consumers In these areas, causing various problems in the use of electrical equipment. 7. COMMUNICATION Communication is poor, In many cases reliant on the sul>-standard local phone network, power line carries (PLC) &(VHF) systems covers sul>-station but only few are working, parts are missing on most eq1,1ipment and an u. rgent survey Is required to determine the parts that are needed to restore tlhe system to operation. · Remote control Is impossible and there Is no control system for transmission or distribution although the scheduling of generation and load shedding is earned out from Ookan hydro power station. Generally, Communication Is poor - needs new equipment and· specialist review & a control dispatch center would help reduce system outage time. 20 - Options for Additional Generation Capacity In Iraqi Kurdistan INTRODUCTION This report gives immediate generation options whilst Including a great deal of information on the medium and long tenn options for additions to generation capacity. In lhis study, Immediate Term means completion in less than 2 years from now, Medium term means completion within in 2-4 years, and Long Term means completion In more than 4 years from now. CONCLUSIONS AND RECOMMENDATIONS 1. .bQAQ The 1999 total maximum demand and energy requirement for the Sutaymaniyah, Erbil and the Dohuk systems at generation level to be about 580 MW and 1900GW/hlyear respectively. Given a resumption of normal hydro catchments lnftows and a gradual Increase in generation to supply loads shed prior to the drought, previously unelectrlfied villages and collective villages, the total maximum demand and energy requirement for the Sulaymaniyah, Erbll and the Dohuk systems at generation level has been estimated to rise to about 600MW and 2000GWh/year in 2001(the short term), 630MW and 2100GWh/year in year 2003 (the medium term) and 1140MW and 3700GWh/year In year 2010 (the long term) The above figures assume that the maxiroom demand on the Dohuk system in year 1999 is about 100MW (Summer) and 170MW(Winter) and the energy requirement 3BOGWh/yaer. 2. GENERATION It Is unlikely that the maximum-recorded generation out put for S ulaymaniyah hydro (480MW) will be exceeded prior to rehabWitation. The only options for increasing the power generation in Iraqi Kurdistan are: 1 . 2. 3. 4. Thermal generation, tt the plant Is provided under SCR 986 or another program and if the authorities are able to arrange and cover the cost of the necessary fuel. Hydro generation tt the plant was provided under SCR 986 or another program. Re-connection with the Iraqi grid. Re-connection with the Turkey grid. Implementation of any option will requre allocation of funds from National Budget, since consumer tariffs do not generate sufficient funds to cover fuel and operation and maintenance (O&M) expenses. 21 3. THERMAL GENERATION RESOURCES In assessing thermal resources It Is assumed that all resources will have to be contained in the three Kurdish Govemorates. The constrain on development of thermal generation In Iraqi Kurdistan Is the size of the exploitab!e thermal resources that exists in each of the Govemorates namely Sulaymaniyah. Erbll and Oohuk. The resources will have to be quantified to alk>w correct genera00n planning to be completed .The resources would have to be classlfted as proven reserves before commitment to a project ts made. The definition of proven reserves being that there is a 90% probability of exploiting the reserve to the extent estimated. Since no official records of reserves were available, then It m ust be assumed that the following activities would have to precede the convnencement of thermal plant design and would be carried out In series I.e. the total time would be 2 years. • Exploration • Production drilNng ol wells 1 year 1 year Following successful production drilling three types of plant could be considered. The times shown are from start of Implementation planning to commission: • Large dlesel genets • Gas turbines • Steam turbines (oiVgas fired) up to 2 years 2.5 years 3 years 4. HYDRO GENERATION RESOURCES Hydro recourses also need some thorough investigation to achieve an acceptable degree of certainly. Typically the period from planning to commission Is not less than 5years, however there are two schemes In Iraqi Kurdistan for which a lesser tine may be allowed. These are the Bekhma (1500MW) and the Bakurman schemes. Only the Bakurman would qualify for a medium term because of the size and polltlcat and contractual problems likely with Bekhma. Some ITWll·hydro schemes may also qualify as medium term. Typical Implementation times for hydro are: 1. Site Identification 2. Site Investigation and survey 3. Detailed design 4. F inancing 5. Tendering 6. Construction 7. Commissioning 3 months 2 years 10 months 12 llllOllthS 6 montt\S 4 -5 years 12 months (large station) The hydro potential of a site depends basically on two things; the flow of water and the available head. The head can be measured in a short time with almost any survey equipment The water avallabl ~ty can only be determined by careful measurements over a prolonged period Survey and geotechnical data is needed to improve the estimation of project costs and viabillty. 22 5. HYDRO POWER OPTIONS Hydropower is the best renewable generation sources available In lraql Kurdistan. There are a number of large rivers and an abundance of narrow gorges suitable for the construction of dams and power stations. Typical cost of hydro power stltlon ii 1000--3000 US$ /KW, A number of potential dams can be contracted in the future Including the following: • Bekhma A 230m high multipurpose rock fill dam under construction on the Greater Zab River, designed to provide llood control, as wen as peaking hydro power for the Iraqi grid, The 1 SOOMW power station would have produced an average of 4776GWh/a While Bekhma dam has already been designed and partially constructed the power station itself is too large for the northern govemorates grid. Without Interconnection 'Mth the southern Iraqi grid. It is technically possible lo construct a 90m high relnbrced concrete cavity (RCC) dam In place of the proposed Integrated cofferdam gMng a lake level of EL 450m. This could suppty water to temporary low head power station of about 150MW Capacity connected to the low level out let tunnel; it will produce an average of 960 GWh/a. This project would set up relatively quickly because the dam high ls less than the level of 476 for sediment storage for the main dam. • Lower Bekhma, a 25m high dam with 100MW power station down stream from Bekhma capable of re-regulalilg the peak power releases Into less damaging constant discharges with an annual 343GWh of energy. • Bakurman, a 100m high concrete arch dam associated with a 66MW hydropower project on the Khzir River estimated 70 GWh of energy. This site has been Investigated and studied and the data should be avallable from Baghdad for design and early construction. • Qaladza was proposed as an 85m.hlgh dam upstream from Ookan on the lesser Zab. The flows are about three quarters of the Ookan flows. In principle this project should be about 180MW • Taq Taq has been proposed, as a dam down stream from Ookan This River Is wide at this location and Is expected k> require a significant dam structure founded on alluvium, It wlll produce about 7 1 0f..m based on the release from Ookan and the ava~able head. • Similarly, a dam at Buanur is expected to produce 90MW from the 45m high dam based on the dally releases from Darbandikhan. • Deralok, on the Greater Zab ~ar of the maximum flood of the Bekhma Dam • Buanur dam has been proposed as a re-regulating dam for Oarbandikhan mini-hydro power option. 2J 6. WIND POWER OPTIONS Records for Dokan and Oarbandikhan show that the average wined speeds at these locations are quite low; lhey are only of the order of 2·3 mis. A wind generator of worth while proportion for a village, say 600Kw (about 1000 customers at 4A per customer), would deliver about 219MWh/a to the viUage .The corresponding capacity factor is only 4% Although lhis is the equivalent lhe of about one hour per day in fact the customers would not want to share usage according to ttle current wind speed. Hence battery back up would be required plus probably a dieseklriven g , enerator. If diesel driven generator back up is required and fuel is cheap and avaHable, it would be flnanclally advantageous to Install only the diese\.driven generator. SmaU diesel generator cost about 100-200 USS per KW and wind generators about ten times this unit cost. SHORT TERM EXPANSION The immediate term plan to be commissioned within two years is as follows: 1. Presently, three 29MWdiesel power stations are installed in the ttlree northern govemorates, also there are about 1150 small diesel generators wilh a total Installed capacity of 106 MV A across the area, To ensure continuity operation for these units, supply of fuel, oil & necessary spare parts should be secure, the estimated amount of fuel and costs of spare parts is as shown bellow: For three 29 MW diesel stations Fuel amount for one-year operation-173 million liter $4.Smillion For 1150 small diesel generators Fuel amount for one-year operation-40 million liter (9 H per DAY) Spare parts for one year $1.Smllllon $2 million 2. lnstaHation of additional generation supply by installing 12 units of Gas Turbine of 20MVA capacity each with its necessary equipments & components for connection with the grid (33 KV side), These units should be dislributed as follows: Sulaymaniyah 2X20MVA Erbll 4X20MVA Soran 2X20MVA Dohuk 3X20MVA Aqra 1X20MVA The estimated costs of these units and amount of fuel for operation are as follows: 12X20 MVA gas turbine ulllit compfete with necessary connectirng equipments is Amount of fuel br operation per year 360 mHlion liters $190 million $1 O million 3. Re- inter connection with ttle Iraqi grid, however there should be indication that GOI would guarantee the amount of transfer power. The inter connection of Sulaymaniyah/Erbil grid with lraql grid would be via two 132Kv circuit. (Dibes-Azade) are (Kirtcuk- Taslujah). 24 The estimated cost is about $ 25 million 4. The interconnection has already been made prior to 1990 and network components are in place. Connect Dohuk grid with S ulaymanlyah-Erbll grid after improving source of generation, It is concluded that the Inter connection via new Harrir , Aqra & Bakurman and Ssrslnk Is technlcalty satisfactory. The estimated costs for this connection is about $20 million Notes • Current UNDP-ENRP activities Regarding maintenance of existing generation plants, Transmiss'ion lines, Substations, Communications & Oisbibution net\wrk, should be continued according to the applying plan. But by the Kurdish Local Electricity Authorities - Transmission Lines and substations plan are sl\own in the attached tables which shows details of work to be done and the required funds - Funds required for communication and SCADA system is about $55 million, fund need to be secured. - For disbibution sector, $216 million have been allocated to rehabilitate 4430 kM and construct 550kM of new networks in IK via ENRP activities, but distribution sector stHI needs to a Hocate additional funds of $60 minion to the sector for the short term to under take new activities MEDIUM &LONG TERM EXPANSION Tables No. 1 & 2 shows the most Important options & plans that should be taken under implementation for medium and tong tenn consideration for Increasing the power generation In northern Iraq and improving reliability for electricity system In the region. 25 Oil for Food Reform DRAFT PAPER ON THE FUTURE OF THE OIL·FOR·FOOD PROGRAM, December 2002 Future of Iraq Project Economy and Infrastructure Working Group Subcommittee on The Future of the Oil For Food Program (Security Council Resolution 986) Recommendations to the Post-Saddam transitional government of Iraq Prepared by Ms. Nasreen M. Sideek Dr. Sinan AL-Sbablbi Mr. Emad Dbia Facllltator: Ms. Nasree111 M. Sideek Executive summary and a draft document December 12, 2002 Page 1 of2 From: :,(6)(6) I Sent: { Tuesday, November 05, 2002 6:34 PM ~:: : ~c@;;;:::~ ==::::;--__ ___,I·\ . u Subject: Oil For Food Transition, subgroup Dear Colleagues, I am coordinating the above mentioned subgroup and would like to start some brainstonning here. My idea of dealing with the Oit-For-Food program issue will basically cover the following: 1. Provide some basic information and background of the resolution. curtent status. And for that I have attached some baSIC data Information. We can expand more, I could reflect oo IK expenence which I am directly involved wrth. 2. Analysis· • OPPORTUNITIES (positive aspects of the resolution what could be enhanced. enforced and considered for continuation in the future). and • RISKS (the negative aspects of the resolution in its current form. and highlighting issues for change and development for the future). 3. Proposal for Transitional penod. how long and what form. There were some thoughts expressed dunng the discussions about a proposal for a joint management system. ~ Kak Salah expressed the idea of considering drafting a new resolution. Should we in this subgroup wof'I( on a new draft? For the sake of meeting deadlines, and since we are small subgroup. may be we only need fewer number of drafts to wOfit on. 1 and 2 draft be1ore a final draft. could be enough. If you agree. then let's circulate the f1rs1 draft by 15 November. and the 2nd draft by 25 November I will have then until the end of the month to work on a final draft To start the process of brainstorming. I am sending below some initial thoughts. kindly read and react so we move the thinking forward. also you can make use of the attached files and the following link ~~ lra!lf!99!L"1me Oil for FOOd · Future of Oit-For-FOod The UN-mandated Iraq oil-for-food program is the largest humanitarian program ln the world. December 2002 will mark SIX years of program implementation. This is a massive. complex program with both positive and ne91bve features. It 1s time to review these features and examine performance with a view toward determining what the expenence offers toward guiding us in the future. Very brielty: The main feature of the program centers on substantial funds bemg generated from Iraq's oil wealth that are dedicated/restricted solely to humanitarian purposes. As currently structured. the program allows for major ref0tm/ovemaul of Iraq's health. education. water & sanitation. housing. telecommunication. road. and electricity sectors. However, thlS is not happening to the extent funds allow because polltical factors have been used to obstruct implementation. We Iraqis are strong, excellent implementers. But we are weak in analysis and planning that would result in more effective and efficient applicallon of the country's resources. Part of 'this is explained by the tact that in the past planning has been solely top-down. extremely centralized - forced, with power and funds thrown at whatever the 11/22/02 Page 2of2 power·that·be deigned to have done. Since 1he program began near1y six years ago, $58 b~ lion has been eamed with $40 billion made available for t\umanrtanan goods/services throughout the country. In most any country in the wond, this is a sub8tantial amount' In addltlOn, we must add the value of the hundreds of thousands of civil service personnel, and oe>eration5 & mamtenance costs. covered, however inadequately, by both the GOI for the center-south (CS), and by the KRG for the Kurdistan region of northern Iraq • Iraqi Kurdistan (IK). In total, the amount available for health, eoucation willer and sanitation etc. averages more than $7 biUion per annum. In addition, $1.3 billion has been provided 10 the UN. repeat UN. to cover their program management costs. Ounn9 tnese 1111 yHl'I. neither the UN nor the GOI (nor the KRG) has produced a comprehensive strategic plan fOf 1peno1ng ~O bllhon based on , professional. detailed analysis. In effect. program planning amounts 10 little more lt\an coming up with shopping lists" of items for procijrement Regrettably, program objectives wi1h meuuraoie 1ndleators focusing on impact are not a regular feature. Obviously, this is a negative feature that nft-05 to ~ correcteo Keeping "' mind that Ill essenbal publie services in Iraq have been provided solely by govemment. we must go ~rough a l!ansrtion penod where the oil·for·food program will continue to direc:t resources toward humanitarian nft05 'M'latever the ~ment governing structure may be, given past experience me "new" structure will riave to pro~ ltMff m terms of responsibility and responsiveness. II *Ol.lld $Hm that 1 phased transfer of re50urces from the current oil-for-food type program with some degree of e11t~a1 1nv01~ment. to one in which intemal involvement is inc:ntased over time. would be preferred. Currently. tne °';.for.food program is implemented in 6-month phases. each phase authonzed by a Security Council rHolutt0n PemaP5 percentages could shift from to less extemal control every six months based on preoetermrned measurable criteria. · unoer ttle program. humanitarian needs/services receive 72.2% of the sale proceeds of legally expon&d oil. suPPOs.edly •much higher percentage than before the events of 1990-1991. The funds actually available wiH increase as more 011 is exported. though we have to keep in mind that oil prices could very weh fall. Incidentally, cM•ng t~ pa51 six years Baghdad has reached daily export levels nearty as high as the levels reached before , 990 l n1s nas occurred under conditions of supposed devastation and detenoration of the oil industry. Anacneo are 5 f1 tes or introductory information on the oil·for·f09d program. Later. I will offer more infoonabon ba~ on our first-hand. specafic experience with the UN and GOl 1n adm1nistenng the 13% account with funds allocated tor traQ1 Kurdistan ~st regards. Nasreen I 1 1:?:?!0:? Conversion of Military Industry Ministry Briefing paper still to be submitted. Communication Infrastructure 12/17 /2002 Executive Summary Under the "Future of lraq" project sponsored by the US State Department an advisory subcommittee on Information and Telecommunication Infrastructure under the Economy and Infrastructure working group was formed to • Assess the current state of lnfonnation and Telecommunication Infrastructure in Iraq. • Identify Infrastructure initiatives needed, the day after Saddam, to maintain and support essential services; distribution of food and drinking water, medical services, sanitation, transportation and security. • Recommend Infrastructure goals to meet in the first 180 days and within the first two years following the liberation of Iraq and beyond. • Specify, at a high level, the requirements to meet these Infrastructure goals. • Initiate the process for setting guidelines for a Freedom of Information Act for Iraq To conduct its business, the subcommittee divided the Segments of Information and Telecommunication Infrastructure into the following: • Terminal Appliances, such as radio sets, television sets, computers, telephones and mobile phones. • Distribution Networks, such as telephone network, radio spectrum including satellite, and Internet and data networks, and • Content Production Facilities, such as radio stations, television stations, newspaper and magazine publishers, book publishers and Iraq's portion of the world wide web The subcommittee collected information on Iraq's economy and compared it to some selected neighboring countries. Iraq's per capita GDP in 1991 was $3,483. Jn 2002, it is $2,500. The following is a table of economic statistics by country for 2()()()2. Iran Jordan Lebanon Turkey USA $6,300 $3,500 $5,000 $6,800 $36,200 Definitions: Gross domestic product (GOP): The value ot all OOods and services produced domestically. Purchasing pawer parity (PPP): The PPP method involves the use of standardized International dollar price weights, which are applied to the GOP produced In a given ecooomy. 2 http://www.infoplease.comi ipa/A0874911.html ii IFI Fl 12/17/2002 The sulx:onunittee reviewed the state of Information and Teleconununication Infrastructure in Iraq based on publicly available records. According to the May 2002 UN Oil for Food program report: The telecommunications infrastructure in Iraq is extremely poor, which has resulted into negative consequences on the efficient procurement and distribution of humanitarian supplies, poor communications between warelwuses and Jwspitals, and hindered the timely passing on, of accurate information on requirements. An ITU mission in 1998 concluded that the rehabillitation and modernization of the telecommunication network in Iraq would require an investment of over $1 billion and its implementation could take between 7 and 10 years. The number of telephones per 100 people in Iraq was 5.6in1985, which deteriorated to 3.1 in 1998 and today it is below 3 per 100. The world average is 10. The telephone infrastructure in Iraq is mainly analog and requires massive upgrade to a digital infrastructure. It consists of two analog networks (Coaxial and Microwave) making a figure 8 shape covering lraq from Mosul to Basrah intersecting in Baghdad. International connections are through 3 old satellite stations, and Coaxial cable and microwave radio relays to Jordan, Syria, Turkey and Kuwait. Internet and data networks are almost non-existent. The estimated number of users is 12,500 (2001) outside Kurdistan and 10,000 in Kurdistan. There is no civilian backbone data network, but it is speculated that a military one exists. Some interesting reference statistics include 6.7 percent of world population has access to the Internet. Turkey has around 1.5 million users. United Arab Emirates has around 500,000 users. The current state of content production facilities in Iraq excluding Kurdistan is is summarized in the following. There were 19 AM (Sare inactive), 51 FM,4 shortwave radio broadcast stations as of 1998. There were 13 television broadcast station as of 1997. In 1996, there were 20 daily newspapers. In 2000, there was one Internet Service Provider, with no web sites other than a few government web sites. In Iraqi Kurdistan there are 151V broadcast stations, 20 radio broadcast stations, which broadcast in SW and FM, 167 daily, weekly, bi-weekly and monthly newspapers and magazines and 2 Kurdish satellite TV broadcasts. iii 112 F ?Jf'T 12/17/2002 The following table present statistics on Iraq vs. other countries of similar economies, plus the US as a reference: Sources: Except as noted, newspapers, radio, and television-United Nations Educational, Scientific, and Cultural Organization, Paris, France, Statistic;,/ Yearbook {copyright); telephones, cellular phones, and personal computers- Jnte.rnatlonal Telecommunlcatlons Union, Geneva, Switzertand, World Telecommunication Indicators (copyright). The subcommittee identified the following major challenges facing Iraq during the post Saddam transition period: • Gathering facts in a timely manner about current infrastructure • Introducing new infrastructure into major population areas • Shortage of skilled labor as well as training local labor • Establishing a regulatory framework to enable contributions from private sector • Introducing free press ·and free media in an orderly fashion, which we propose to be introduce under a comprehensive Freedom of Information Act for Iraq The subcommittee established the following guidelines for setting up its recommendations, Le initiatives should take into consideration t. he following: o Geographic distribution of population around Iraq. o The infrastructure in neighboring countries and countries with similar per capita GDP. o First, Fix what is there, then build new infrastructure. o Leverage existing military and security infrastructure such as the coaxial cable network to the western desert. o The infrastructure developed in Iraqi-Kurdistan over the past decade 3 http://www.infoplease" com/ ipa I A0883::l96. html iv IS TR' '$ 12/17 /2002 • Telecommunications Ministry replaced Analog exchanges in Dohuk, Erbil and Suliemaniyah with new Digital exchanges. • More than 100,000 new lines were made available for the public. Telephone density in IK is now 2.8 telephones per 100 inhabitants • Private companies using the V-SAT system introduced 20,000 mobile phones to the market. • There are 10,000 Internet users in Kurdistan through WEB-SAT, a low cost-high speed - two.way Internet via satellite • There is no political censorship in Iraqi Kqrdistan. • Media outlets belong to political parties. No outlets are commercial! Subcommittee Recommendations We recommend three stages of recovery and development after the liberation of Iraq 1. Recovery Stage, which deals with the restoration or establishment of essential communication services. 2 Basic Services Stage, which deals with the introduction of information and telecommunication infrastructure services that meet basic daily needs of the society 3. Advance Services Stage, which deals with the introduction of services that enable Iraq to grow unhindered and match countries of similar per capita GDP that have advanced services. Recovery Stage - First 180 days The transition goverrunent should create taskforces a. To gather accurate information on the state of the infrastructure and complete it within the first 90 days. b. To identify and specify communication infrastructure needed to maintain and support essential services, and c. To identify the skills required by the workforce responsible for building, maintaining and operating the telecommunication infrastructure in Iraq. During the recovery stage the existing recommendations made by the UN Oil for Food Program should be implemented immediately. These are: 1. Replace the analog Baghdad Junction Network (BJN) with a digital network at a cost of about $15 million. It is estimated that the replacement of the transmission lines could be made operational within six to eight months. 2. Replace the international communication facilities (Earth station, international exchange and the analogue microwave link between them). v II Fii ii •i L 12/17/2002 3. Replace four old crossbar exchanges (I<arbala, Diwaniya, Nasiriyah and Basrah) and of the obsolete analogue microwave link between Baghdad and Basrah with a digital link and extend it to the port of Um Qasr, the entry point of the main portion of humanitarian commodities. This microwave linlc will pass seven govemorates whose total population is more than (7) million and considered as the most populated region in Iraq. 4. Replace three exchanges in Baghdad that were completely damaged during the GuU war. The cost of the above projects is estimated at $130 million 5. We also recommend the introduction of a small mobile telecommunication network for (25000) subscribers in Baghdad, and a (2000) subscribers network in the center each of the govemorates in Iraq at an estimated cost of about $30 million. 6. We also recommend the introduction of mobile telephony in an aggressive way into Iraq by allowing several vendors to compete in entering the Iraqi market on condition that they bear the cost of initial deployment of infrastructure and subsidize heavily hands.ets and monthly charges. The cost of infrastructure for 1 cell phone per 100 people in Iraq is estimated at about $125 million. To give each family one cell-phone, assuming an average family consists of 5 members, will cost up to $25 billion for infrastructure. Basic Services Stage In the first two years, we recommend: 1. Introduction of data network to allow connection of computers in all warehouses and Ministries and other parties involved in the humanitarian distribution pr<>grams. 2. Enable the private sector to be involved in providing some of the communication services in the country such as ISPs and mobile telephony. 3. Utilize the military network built by the Saddam regime for civilian use. 4. Develop a standard and simple " government bid proposal" to encourage small businesses and entrepreneurs to import required hardware and software and establish information and communication services vi Ill 953'57 12/17/2002 5. Collaborate with neighboring countries that have modem infrastructure such as Iran, Turkey, UAE, and Kuwait to benefit from their experiences, cost allocation, time and resources required, management risks and preparations. Total cost is estimated at o $2 billion for telephony o $1.2 billion for cellular telephony o $1 billion for computers Advanced Services Stage Beyond first two years, we recommend to match or exceed the highest service levels of countries with similar per capita GDP and similar economies, particularly oil producing countries. 1. Introduce a modern digital infrastructure for telephony 2. Introduce a high-speed IP-based infrastructure to support voice and da. ta services and cover major population areas in Iraq. This backbone should consist of a. An optical backbone and metropolitan area networks b .. A distribution (last-mile network) that consists of a hybrid infrastructure of wire-line and wireless (including satellite) The subcommittee established the following guidelines for goal setting in the Advance Services Stage ~ Service levels should be proportional to the country's per capita GDP Q f countries with similar economies. )Ii> Regulate the airwaves and information distribution channels to enable the private sector to contribute to the building of infrastructure )Ii> Coordinate activities by a government agency· (or IDRC) to oversee projects and treat them as public works projects and for job creation at the same time. )Ii> Establish strong enforcement body to prev· ent abuse and maintain transparency in all projects. )Ii> Establish publishing houses and encourage the writing of books vii ?27775?T''' 12/17/2002 > &tablish centers for translating works produced in other countries of the world. We recommend the following target level of services in 5 years (per 100): Total cost is estimated at o $.3.75 billion for telephony o $.3.6 billion for cellular telephony o $1.5 billion for computers viii 111 rrrn m,, Draft 12/ 2/ 2002 Future of Iraq Project Economy and Infrastructure Workgroup Subcommittee on Information and Telecommunication Infrastructurel RecoIIUllendationstothe post-Saddam transition government of Iraq in preparation for a free society under a constitutional demoaacy Prepared by Mohamed Alhakim, D.Sc. Francis Dinha Mudhar Shawkat, Ph.D. Nasreen Sideeq Facilitator: Hasan S. Alkhatib, Ph.D. IATI Recommendations -v2.0 'November 28, 2002 i Dtacwmeis: The Information and Telecommunkation Infrastructure subcommittee is a non- political, non:.goverrunental group of Iraqi technoaats gathered under the auspices of the US State Department "Future of Iraq• pro;ect. 1 Ill I I.I T7 I Draft 12/2/2002 Table of Content Preface ............................................................................................................................................ 3 Introduction .............................................................................................. " .................................... 4 Elements of lnfonnation and Telecommunications Infrastructure ...................... 5 Tenninals ................................................................................................................... 5 Networks ................................................................................................................... 5 Content ...................................................................................................................... 5 Facts About Iraq ............................................................................................................ 6 General Info!'Ination ................................................................................... : ............. 6 Location and Geography ..................................................................................... : .. 6 Demography ............................................................................................................. 6 F.conomy .................................................................................................................... 7 Economic Statistics by Country, 2000 ............................................................... 8 Current State of Information and Telecommunication InfrastTUcture in Iraq ............ " ... 9 Information and Telecommunication Infrastructure: Terminals : ....................... 10 Information and Telecommunication Infrastructure: Networks ........................ 10 The Internet in Iraq ................................................................................................ 11 Information and Telecommunication Infrastructure: Content ............................ 12 Iraq vs. Other Countries in Region .......................................................................... 12 Newspapers, Radio, Television, Telephonesr and Computers by Country .. 12 Geographic Distribution of Telecommunications lnfrutructure .................................... 13 Govemorate Population ................................................................ ' ....................... 13 Challenges and Target Focus ................................................................................................... 16 Build a quick Awareness & Focus ........................................................................... 16 Investigate Infrastructure and Access ..................................................................... 16 Resolve the human capacity and skills ................................................................... 17 Simplify legal and regulatory framework .............................................................. 17 Case-study from Iraqi Kurdistan (IK) ......................... - ........................................................ 18 Backgrotll'\d ............................................ : ..................................................................... 18 Telecommunication in Kurdistan since 1991 ......................................................... 18 Internet Access in liaqi-Kurdistan. .......................................................................... 19 Other Media in Iraqi-Kurdistan ................................................................ ' ............... 21 Prospects for the Future-. ..................................................................................................... ,, ... 22 Action Plan for First 180 Days ........................ : ................. , ...................................................... 22 Short-term Goals for the Telecommui1ication Sector ............................................ 22· Recommendations for Action: .................................................................................. 23 Freedom of lnforination Act ......................................................... ~ ........................... 25 Regulating The Airwaves ......................................................................................... 26 Enforcement of Regulation ................................................. .,.. ............................... 26 Action.Plan for the Next Five Yeara ........................................................................................ 26 Guidelines for Goal Setting ...................................................................................... 27 Network Infrastructure Recommendations ........................................................... 27 Conclusions ·····················································································-···· ... ············ .. ··" ···················29 2 Ill •••• Draft 12/2/2002 Notes to members of the Telecommunication Infrastructure Subcommittee I decided to leave material that was submitted l1y Dr. Mohamed Alhakim (in red) and material that was submitted by Ms. Nasreen Sideeq (in blue). I did integra~ the input from all members in this draft. This includes both Mohamed and Nasreen input This will allow us to maintain the original intended text as a basts for discussion to generate the final draft of , our report Preface Iraq, the a:adle of civilization, the people that introduced the first law and civil society in history is at last preparing to join the free world, after over 30 years of draconian oppression and tyrannical rule. Saddam's mafia-style government has caused massive damage to Iraq's infrastructure during the past 20 years since the first Gulf War, as a result of gross miscalculations and self-centered adventures. Repairs of the infrastructure will take billions of dollars and tens of years let alone bringing it to 21st century standards modem societies. Ironically, the same tyrant himself has created the necessary environment for his own demise. The free world, led by the United State5 of America, has reached the conclusion that without removing this dictator from power, the whole region will continue to be in turmoil and the new phenomenon of extremism that has led to unthinkable terrorism against innocent civilians will continue unabated. At last, the people of Iraq can hope to restore their lost freedoms with the help of the free world. Acknowledgement .1- The Communication subcommittee acknowledges that this draft consists of input from members of the communication subcommittee and in agreement that the draft document will only become a final document after ALL members have read it and made their comments 2- The Communication subcommittee is a non-political government organization dev~ted to the development and reconstruction of all communications and telecommunication .infrastructUre in Iraq; Its advisOry role may extend to advise the transitional government on communication media development and establishment, telecommunication recommendations, and the insurrection of a 3 Ill ··- • Draft 12/2/2002 new Iraqi freedom Act that govern all types of media such as Televisions, Radio, Newspapers, magazines, Internet access, Internet content, and others. This subcommittee will advise the office of the prime minister and relevant cabinet members on issues of national interest such as regulations, and de-regulations, technology import/ export, education and training, communication policies, and identification of new telecommunication projects. 3- The Communication subcoounitt.ee' s decisions and its board members must be independent from any political conflicts that may occur between government political parties, senior government officials, part line ideologies or ethnic interests as part of the normal democratic _ pr~. 4- The Commu.nkation subcommittee is composed of undetermined number of expert board members. 5- The content of this communication document with all of its definitions, recommendations, and organizational structure is considered a "non-biding" document to the new Iraqi collation government. Introduction The Future of Iraq Project, its workgroup on Economy and Infrastructure, and this subcorrunittee on Information and Telecommunication Infrastructure aim at preparing a set of recommendations for post-Saddam Iraq, both short term. 'i.e. urgent, and long term, i.e. strategic. The Information and Telecommunication Infrastructure subcommittee is chartered to: a. Assess the current state of Information and Telecommunication Infrastructure in Iraq. b.· Identify the Information and Telecommunications Infrastructure initiatives needed, the day after Saddam, to maintain and support essential services; distribution of food and drinking water, medical services, sanitation, transportation and security. c. Recommend and prioritize Information and Teleconμnunication Infrastructure goals to meet in the first 180 days and within the first five years following the liberation of Iraq. 4 1111 IRM Draft 12/2/2002 d. Specify, at a high level, the requirements to meet these Infonnation and Telecommunication Infrastructure goals. e. Initiate the process of drafting a new Iraqi Information Act that dictate how and in what form information is to be disseminated to the Iraqi people: a. Freely b. Regulated c. Semi-Regulated d. Controlled Elements of In.formation and Telecommunications ln.frutrudure During the final two decades of the 20lh century, the world embarked on a new information and telecommunication revolution. Infonnation and telecommunication infrastructure has become the backbone of the modern societies. In this section, we identify all the elements of this in&astructure to eitablish a scope for our investigation and recommendations. · We shall classify infrastructure into; first: Terminals (i.e. access devices), second: Networks (i.e. networks that facilitate access), and third: Content (i.e. infrastructure to deliver and provide access to information content), hence the following classification: Elements of In.formation and Telecommunications Infrastructure: Terminals a. Radio sets b. Television sets c. Computers and Personal Digital Assistants d. Telephones e. Fax machines f. Mobile phones Networks a. Analog telephone network b. Radio spectrum inclucilng satellite and HF/ UHF c. Internet and data n~tworks Content a. Radio stations b. Television stations c. Newspaper and magazine publishers d. Book publishers e. Ir~q' s portion of world wide web 5 ma sn-,, Draft 12/2/2002 Facts About Iraq2 The following are fa.cts about Iraq for reference: General Information I Total Land Area: I Land boundaries: I Coastline: I sskm I Capital: I 437 ,370 ku\2 1 3,631 bn - I Baghdad, populatio~: 4~,~ (estimated 2002) Other large cities Mosul: 664,221; lrbil: 485,968; I<arkuk: 418,624; Basra: 406,296 . l<arbala: 400,000 estimated Najaf: 400,000 estimated - - - --- ·-· - ..... Location and Geography Iraq is in Asia at the north~ast of the Arabian Peninsula. It has borders with Turkey in the north, Iran in the east, Kuwait in the south, Saudi Arabia and Jordan in the south-west, and Syria in the north-west. The Arabian Gulf lies in the south of the country. The terrain is made up mostly ofbroad plains and reedy marshes in the south-eastern parts of the country. About one fifth o~ the land is arable and there are a few permanent crops. The climate is mostly desert with mild to cool winters and dry, hot, cloudless sununers. The northerrunost regions along the mountainous Iranian and Turkish borders experience cold winters with heavy snow. Demography 1999 I 20023 (estimated) J I Population: 1122. 99 million \! 24.00 million I I Crude Birth Rate: 1132/1000 11 34.2/1000 I I Crude Death Rate: 1 10/ 1000 , 6.02/10004 I Infant Morality Rate: I 101/ 1000 57.6/1000 i 2 The entire section (except where indicated otherwise) is based on information posted on the web site for the Statistical, F.conomic and Social Resource and Training Cenrer for Islamic Countries: www.i;esrtdc.org 3 www.into.please.com •Source: CIA web page on Iraq: www.tja.gov I cia/publications/a£tbook 6 rm•maw ·z Draft 12/2/2002 Life Expectancy: Male: 58 years, Female: (j() years I Urban Population: ll 76.0 percent I [_ Adult Literacy: 1158.00 pett:ent (1998) 160. ()(_I pezcent (1991) I GDP at Cunent Economy Iraq has remarkable resources of oil, natural gas, phosphates and sulfur with an economy heavily dependent on exports of crude oil and petrochemicals. It has the second largest oil reserves and had become the second largest exporter of hydrocarbons in the world prior to the Gulf War. Manufacturing plays a relatively smaller role in the economy. All large-scale industry is currently publicly owned and includes iron, steel, cement, pharmaceutical, and fertilizer productions. Small private industrial companies are engaged in food processing and textiles. Iraq has a skilled work force. Most of the fertile irrigated land is available for agricultural purposes and 30 percent of the work force is employed in agriculture. -· .... -- ------·-·--1 JI II 1991 20025 64,116 million USS (1991) I ~7 billion USS I Market Prices: Per Capita Gt)P: 3,483 USS (1991) lzsoouss I Share of Sectors in 6.0'l Agriculture, 13.0'l GDP: lnduatry, 81.0'9 Services, (1998) I Total Exports: j s,738 million US$ (1999) \ 21.8 billion USS (2000 est.) I Total Imports: 1,513 million USS (1999) 13.8 billion USS (2000 est) 5 SoW'Ce: CIA web page on Iraq: www.cia.m / cia/ publications/ actb9ok 7 Ill Ila I Draft 12/2/2002 Definitions: Gross domestic product (GDP): The value of all goods and services produced domestic.ally. Purchasing power parity (PPP): The PPP method Involves the use of standardized International dollar price weights, which are applied to the GDP produced In a given economy. The datll dertved from the 1998 method provide a better comparison of economic well·belng between countries than conversions at offlclal currency exchange rates. n.a. • not available. source: U.S. Census Bureau, Jntematlornil Database and The Worl<J Factbook, 2001 . •http: 11 www.infoplea§e.com lipa/AQ874911.html 8 Draft 12/2/2002 Current State of Information and Telecommunication Infrastructure in Iraq We will describe the state of the infrastructure based on the classification presented in the section 1. We shall also draw references from comparable nations in the region. The information presented in this section come from data obtained from United Natio~ and US government web.sites that are generally available statistics. Some of this information is outdated, since the infrastructure has been under a continuous state of deterioration. Furthermore, the liberation of Iraq may result into additional damage to the infrastructure. This group certainly hopes that the rules of engagement given to the lfberation forces would include sparing infrastructure from any unnecessary additional destruction. Recommendation: NThe transition government should create a taskforce to gather accurate information on the state of the infrastructure and complete it within the first 90 days." According to the UN Oil for Food program report (May 2002)7: "The present state of telecommunication system throughout Iraq is extremely poor. Apart from the wider social considerations, there are negative consequences for the efficient procurement and distribution of humanitarian supplies." Furthermore, "In the health sector, poor communications between warehouses and hospitals have contributed to delays in the collection of supplies by health facilities. The absence of adequate data links has also hindered the timely passing on of accurate information on requirements. " The report continues: "At present, the transfer of computer files (data transfer) is almost impossible via the public telephone network and affects directly UN observation activities and reporting. The mission, further, concluded that the rehabilitation and modernization of the telecommunication network is a huge development project. It would require an investment of US$ 1 billion or more and its implementation could take between 7 and 10 years." 7 http://www.vn.org/ Depts/oip/dp/dpll/exegummary.pdf 9 111 ••m I Draft 12/ 2/ 2002 Information and Telecommunication Infrastructure: Terminals The following tableS summarizes the number of terminal units per 100 for each respective year. as 96 87 88 89 90 91 92 93 9' 95 96 '¥1 98 - Radio Z2' lV 5.7 6.1 - 6.8 6.8 6.9 7.2 7.3 7.5 7.5 8.0 8.2 8.3 8.3 - Telephone 5.6 - u • . o 3.9 3.7 3.6 3.5 3.4 3.• 3.3 3.3 3.2 3.1 - Computer MobUephone Fax machines Note: Today, the world average number of phone sets per 100personsis10. Information and Telecommunication Infrastructure: Networks The distribution and communication infrastructure suffered severe destruction during the Gulf war and the embargo during the past ten years. The following data is based on information published on the CIA web site on Iraq. 02 Telephones · main llne1 In UH: 675,000 (1997) Telephon• • moblle cellular. NA; service available in northern Iraq (2001} Telephone system: domestic: coaxial cables and microwave radio relay links internalional: satellite earth stations - 2 Intelsat {l Atlantic Ocean and 1 Indian Ocean), 1 lntersputnik (Atlantic Ocean region), and 1 Arabsat (inoperative}; plus coaxial cable and microwave radio relay to Jordan, Kuwait, Syria, and Turkey;° Kuwait line is probably nonoperational Radio Spectrum Highly regulated satellite earth stations 2 lntelsat (1 Atlantic Ocean and I Indian Ocean}, 1 lntersputnilc (Atlantic Ocean region), and 1 Arabsat (inoperative) Internet Users 12,500 (2001) Backbone Unknown • Source: Statistical Economic and Social Research and Training Centu for Js!amjc Countries web site: www.mrtcic.org 'Source: www-infoP1ease.com 10 1111••• I Draft 12/ 2/ 2002 The Internet in Iraq In most of Middle Eastern countries, governments control the communication and information media and freedom of press has never been guaranteed. In most of these countries the main role of the local media is transmitting official government statements. They are not allowed to criticize government actions. People realize that the local press cannot be relied upon in delivering information on important issues and hence they usually turn to foreign media. With the spread of the Internet in the region, people have access to media information of almost every foreign country. Internet connectivity in Iraq is very low; in fact it is one of the least connected regions in the world. There are a number of reasons for this among them the lack of the current government will to introduce Internet for fear of losing control over information, poor communication infrastructure and affordability of people. Despite this, there is limited Internet access in Iraq. In Iraq, the Ministry of Infonnation has Internet access along with a few other selected locations controlled and monitored by the ministry. Considering that even satellite dishes are prohibited in the country, it is not surprising that there is very little Internet access in Iraq. It is very difficult to find an accurate estimate for the number of users of the Internet in Iraq. In fact it is a near-impossible task given the problems involved. First, the Internet, as a network, is expanding all the time in most regions. Second, in many cases a single Internet account is used by multiple users. The number of Internet users worldwide was around 410 million as of 2001, which is 6.7 percent of world population. Of this, the Middle East accounts for a share of only 4.5 million users. The top three countries of the Middle F.ast in terms of Internet users are respectively, Turkey with around 1.5 million users, Israel with just over one million users, and United Arab Emirates with around 500,000 users. 11 Ill ••27 Draft 12/2/2002 Information and Telecommunication Infrastructure: Content Radio broadcast stations: AM 19 (5 are inactive), FM 51, shortwave 4 (1998) Television broadcast stations: 13 (1997) Newspapers (dally) 20 (1996) Publtshera Unknown Internet Service Providers: Web sites 1 (2000) Limited to government institutions Iraq vs. Other Cou.ntrlet in Region New1papm, Radio, Televi1ion, Telephone1, and Computers by Countrytt rl,000 ~.. " .. . .. .. ' ·'•· 'Radio eceiven eleviaion ~~pb<>Jie . '. cm~.r .,; · .. . main ·phone Penonal lines, subscrib~rs, c:om : p\lten,• 2000 2000 : . ~ 2000 . Sources: except as noted, newspapers, radio, and television-United Nations fducatlonal, Sdentlnc, and Cultuntl Organization, Pllr1s, France, Statistical Yeartook (copynght); telephones, cellular phones, and personal computers-Jntemetlonal Telecommunications Union, Genevit. Swltzer1and, World Te/ecommunk:.ation lncllcatDrs (copyright). 10 http;// www .iofopleue.com/ipa/ A0883396.btml 12 111 am• r Draft 12/ 2/ 2002 Geographic Disb'ibution of Telecommunications Infrastructure Govemorate Population NlDevall 2486466 Tameem 869246 Ba&bdad '408160 Salab Al-Dia '6157"7 Dlala 1254391 Anbar 1254241 Babyloa 1390695 Kerbala 733121 Najar 940966 Qadlltya 9044!15 Mutbau 549159 Bur ah 1954698 M1y11a 836639 Thl-Qar 151'490 Wult 927166 Dabuk 80700!! Erbll 1316162 Sulaymaalyab 1584683 Total 26698420 The following two maps outline the demographic distribution as well as the layout of existing teleconununication infrastructure relative to the demographic distribution. 13 111•1•• L Draft 12/ 2/ 2002 llWI --- --- . - - ...,_ I..., ·w I ' -...,,... .f. a J <•w 1--.1 ~ . . . ... .~J==--=· ...... ==1::=::::z:~ •• 14 327 •11• L Draft 12/ 2/ 2002 ll'r .:·1 . 1 ;.: l<' •• ll ~ !ll'l .. .,. J : ,. --. - ~ '··:-~1 :- .1 : ' '! Sy1 : a ! r an Sa:-w.r.caj , iamnaar: i I • /\I ~~a· :n~ ,.\11 1ar.11·ir:·i• Arabia i-t'-!'~ r ri· 6 i:l'."1 .... . ,,. · ;; · . -_ , · .~.-. _.: - .;.' .. '' :-. ~ - -·· - ., · · · · - ,, I · · -·· t • • f. t:- • _; ,,. ... _-~ i\0 1nt• .~.::~!J.;!.L.~ · ! J.~!.\~ • . !C~ t'!',., ~ , • ' ,•1_\ _· -· .\!.,! - ~, •~ ...... _~··· _ ~r_ I" q .. ~ , . 1. " , ·11 ~; :" .,., ~' t ~i·- ''-! u· : .~.- :• j~~ ~~~ ~ ~ '~ ? .• 1 • ,:, ... H. ~_! . .. t~. :.:. .. : ... '' ' ;,..._1•. It • • , :-·· ~ Si1 -· !· · ~: •( (~ '~--~::-:~~ -!~:_· \ •.': I, 'to \, t ·~I.} .• ~;•, . ~· 15 117 EP!E 7 Draft 12/ 2/ 2002 Challenges and Target Focus The potential benefits of developing a sound technology strategy for Iraq are immense. Success in executing even a small "planned" steps have an immediate impact not only on productivity and profits for the Iraqi people, but also generate new jobs, employment and livelihoods. Although conditions and costs for entry can be controlled but obstacles still exist. This section will focus on some of the challeng: es and constraints. Build a quick Awareness & Focus There is currently a lack of awareness and knowledge in inside Iraq (Iraqi people and businesses) about the new technological age, · the vast capabilities of the Internet.and even the ways and benefits of conducting business on the Internet (i.e. e-commerce) nus lack of awareness is spread among the goverrunent and private sector in particular. However , Iraqis who lived and worked in industrial countries such as Western Europe, USA, Australia, and even in the Gulf region have different awareness, experiences and knowledge. It is also important to note that a large number of Iraqis in exile have certain expertise in computer and technology that can be utilized to generate immediate results. Investigate Infrastructure and Access One of the major bottlenecks we will face in developing a computerized society after Saddam is the lack of telecommurucations and Internet connectivity and access to the necessary hardware and software. Indeed, the gap between Iraq (excluding Kurdistan) and the industrialized, some Asian and Arab Gulf nations in tenns of infrastructure and access is huge and growing. The reach and geographic coverage of telephone services, its available bandwidth and capacity, its associated cost, the current regime strict national policies governing the telecommunications usage and the number of computers in use are major determining factors to what extent Iraqi private sectors, its educational institutions, and the· people in general can take part in participating the current technology revolution in the immediate future. Our goal in the short term is to utilize the impending satellite revolution that may facilitate and provide a cos·t effective access and connectivity although it is not yet dear whether the pricing structure for these satellite links will be affordable to the Iraqi businesses and people unless a special "deal" is struck with · Some of the US telecommunication providers as part of re-building Iraq and its society pr0gram. · 16 127 ...... . Draft 12/ 2/ 2002 Resolve the human capacity and skills 11 The shortage of skilled people is one of tlie biggest problems developing countries face in joining the digital revolution,• said Bruce McConnell, president of McConnell lntenwtional LLC The new Iraqi technology initiative requires a different mix of capacities and skills, which is another major constraint in Iraq today. It should become one.of the priorities for the new Iraqi coalition government (after Saddam) to promote computer literacy and Internet-related skills among the workforce at large from the government sector, small businesses, schools and universities, and most educated Iraqis. The new Iraqi technology task force should present at the start a simple program to train and retain skilled professionals inside Iraq and encourage experienced professionals who Jive outside Iraq to actively contribute to this program. The Education conunittee task force combined with the technical task force should drive a new just-in-time skill based training programs. (fBD) Simplify legal and regulatory framework A new and proper telecommunication legal and regulatory framework must be established very quickly even if it is in rough draft. Existing laws and regulations may need to be reversed to encourage a quick jump-start for people and businesses. For example, India changed its telecommunication constrained operating environment by granting licenses to private Internet service providers. 17 111 •••a. Draft 12/2/2002 Case-study from. Iraqi Kurdistan (IK) Background Under the Oil-For-Food program, Iraq has allocated more than $2.5 billion for the telecommunication sector. Out of which only $873 million has arrived the country. The Security Council has approved contracts with value $1.7 million. Still contracts values $450 million are still on hold. Details of supplies and equipment to be procured under this program can be found in the armexes of the program distribution plans from phase 1 to 12 This is a fact that we need to consider when planning for the future. All activities by 986 programs in Iraqi Kurdistan are compatible with the national telecommunications network However the region has done a lot by itself using its own funding. Under 986-telecommunication program, some international companies are contracted to implement projects. For IK SIEMINF.S company (Germany) is contracted for implementation. And for the center and south, ALCA TEL company (French) is contracted for implementation. Both companies have representative office in Iraq and Kurdistan. Telecommunication in Kurdistan since 1991 Since 1991, the telecommunication network was disconnected from the Iraqi national network. Which forced the local authorities in lK to find ways of making use of the structure, which already existed, and attempts were made to maintain and extend the old systems. Most telecommunication systems were installed in IK during the 1970s and 1980s. It not possible and, often not economical to maintain or extend those old systems to accommodate the current needs in the region. I<RG decided to replace it with a new Digital system. Due to the Sanctions Regime, options were limited to those available in the Turkish and Iranian markets. Local Telecommunications Ministry and Departmellts worked on replacing the old Analog exchanges in Dohuk, Erbil and Suliemaniyah with new Digital type. More than 100,000 lines made available for the public. Telephone density in IK is 2.8 telephones per 100 inhabitants. Whlch means 28% of the population has telephone lines. There are more than 500,000 families live in Iraqi "Kurdistan today. The goal of the local telecommunication authorities is to make available 500,000 lines, for every fami,ly to have a telephone line. The above-mentioned extension was funded by the Kurdistan regional government. However, more work is being planned under 986 program (details below). 18 HI II• l Draft 12/2/2002 Currently new fixed home phone line could be installed upon request. A Base installation fee of 5,000 old Iraqi dinar ($400) is charged, with monthly fee based on use. (Rate????? ID per minute) International calls, can not be made directly from home lines, but can be made using private communication centers using V-SA T systems with a fee of 30cents a minute. Mobile phones were introduced to the market by private companies using the V- SA t system. A cellular phone with a line can be purchased for $400. Charges later based on usage, 30 cents per minute. There are more than 20,000 cell phone holder in IK You can make and receive international calls with those phones. International calls can be received by dialing the following number: For Erbil: 0044 7028601000 (followed by the home phone number) For Duhok: 0044 7028601000 062 (followed by the home phone number) Summary of telecommunication investment plan from Oil·For-Food program Funding sources 986 phases Project description Dohuk ($M) Erbll ($M) Sul.lem. ($Ml Allocated and contracts are underway 5,6, 7 Replacement of switching centers in the three main cities 3.10 5 .20 5.30 Microwave links connecting the three main cities 3.30 3.70 4.60 Allocated but not yet implemented 8,9, 10 Outside Plant Network 13.50 19.00 21.50 Exoansion of outside olant 2.15 2.60 3.25 GSM Mobile Network 2.10 10.40 11.50 District Network 3.50 5.00 8.50 Allocated but not yet implemented 11, 12 District telecommunication, group II and Ill 4.20 5.70 7.60 Outside plant network for districts, group II and Ill 4.70 6.50 8.50 TOT AL Funds available from 986 program 40.15 58.10 70.75 Addltlon· a1 Funds nlteded to meet all the rest of needs 25.00 35.00 40.00 Internet AccelS in Iraqi-Kurdistan In Kurdistan Region there is Internet connectivity, thanks to pro-Internet people within governments, business, academic and research communities, who un~erstood the advantages of Internet connectivity for their public. This is despite the fact that the state of telecommunication infrastructure has been very poor in the region, although i~ is being rehabilitated slowly.-Most I<RG ministries in Erbil and most of the colleges of Salahaddin and Ouhok universities have 19 TIP llV 1 Total (SM) 14.20 11 .60 54.00 8.00 27.00 17.00 17.50 19.70 169.00 100.00 Draft 12/2/2002 Internet access; students and staff use the service to obtain latest information on scientific developments in their disciplines. Plans are underway to further expand Internet connectivity into all university colleges and technical institutes. There are probably around 10,000 Internet users in Kurdistan Region. To learn more about the system being used in Iraqi Kurdistan region look into the following link: www.web-sat.com . WEB.SAT is a low cost-high speed- two ways Internet via satellite I I ' ' ..., . .. . • • . . ., The above pictures show the Transmit card, 84cm Dish with electronics and. a · typical receive card. Both cards are fitted into your PC or Server The Web-Sat service is independent of telephone lines or any local ISP connection. It is a low-cost, high-tech solution to Internet access in areas where local telecommunications are not up to today's hlgh-speed requirements. The system comprises of two interface cards (2 PO cards which fit in your PC/Server) with an 84cm Receive/Transmit dish and installation software CD. Most KRG Ministries, universities, Internet cafes are using the WEB-SAT system .. Other private and business usage via telephone dial-up is also available through KURDISTAN-NET ISP. The company offers unlimited or by-the-hour Internet access. (See this link: http://www.kurdistan-net.com). · • Registration fee: $50 or its equivalent in local currency to be paid once. • ·Monthly subscription fees: 1. Unlimited subscription: $50 or its equivalent in local currency 2. Limited subscription by hours: is according to 15 hours a month 125 dinar 30 hours a month 250 dinar 45 hours a month 375 dinar+ 2 free hours 60 hours a month 500 dinar+ 5 free hours I 20 llllfll•••. Draft 12/ 2/ 2002 Other Media in Iraqi-Kurdistan After 1991 upraising, and the establishment of the Kurdistan Regional Government on 1992, the Iraqi Kurdistan National Assembly issued many laws and drafted new legislations allowing parties and associations to be fonned, allowing free press and publication of newspapers and magazines, and permitting radio and 1V broadcasting. There is no political sensorship in Iraqi Kurdistan. More than 15 lV stations were established in the three Kurdish governorates, in addition to more than 20 radio stations, which broadcast at SW and FM. Today in 11<, there are more than 167 daily, weekly, bi-weekly and monthly newspapers and magazines being published. On 1999 Kurdistan satellite channel start broadcasting from Erbil, and ~ter KURDSAT Satellite channel broadcasted from Suliemaniyah. There are more than 35 different political parties that are active in 11<. They follow different ideologies (nationalistic, democratic, conservative, communist, and Islamic) and follow different national affiliation (Kurdish, turkman, Caledonian, Assyrian). The number of media channels available in lK today reflects the ethnic, religious diversity that exist in IK today. However, most those channels are either mouthpieces of political parties or are sponsored b y political parties. And normally have their own political agendas. In addition to the political parties' media channels, the Regional Government has its own radio, TV and publications. Moreover, different government ministries, unions, and the different cultural associations publish different publications. Because of the political instability prevailing on IK, free, private and independent media movement could not materialize. Even the existing civil society institutions that function in the region, are still maturing and have affiliations to some political parties, or are shadows to government institutions. So we can say that there are free media opportunities, but the media itself did not develop to be free a.nd independent. Lack of private interest on the media sector is also one reason it could not be free in a western sense and to become a profitable sector. Overall, there is clear cultural movement advancement in Kurdistan, and relative free expression. Criticism and reveling facts and corruption are being experienced. It could advance more but the owner of those establishments 21 Draft 12/2/2002 decline from doing it fearing upsetting the political power. They don't do it because it is against the law. It is their decision not to practice free and independent thinking. No one will stop them or hurt them if they did it. There are only two widely read daily newspapers in II<, Birayeti in Erbil and Kurdistane Newi in Suliemaniyah. Lately, Birayeti tried to fill the gap of the absence of private free newspaper, by allowing the public to address their complains against the government institutions and practices. It also made pages available for free discussions and exchanges of views. Many other publications and media channels are following this path also. This process was accepted in the society and had a positive influence in preparing all relevant parties (the media people, the readers, and the people in positions of power) for the rules and principles of democratic society and the role tha~ the media plays in the democratic process. Prospects for the Future We can consider the Kurdish experience, as a successful example to be contemplated for the period after Saddam. oUring more than 10 years, all sectors and affiliations were given the chance and opportunity to express themselves. However the special circumstances which IK live under has delayed the process of establishment of private media foundations or associations (media channels that does not fall under the influence of political parties). - Action Plan for First 180 Days The replacemrnt of damaged or obsolete equipment and introduction of some new equipment that will improve communications in areas of activities of the humanitarian program in majar metropolitan areas is of utmost pricrity. This will directly have ·positive impact on the improvement of the procurement and distn"bution system of humanitarian supplies. We propose adopting the recommendations of the UN Oil for Food program report for the urgent restoration of the communications infrastructure to enable basic services for the distribution of food and drinking water, for the support of medicnl :iervices, for sup. porting sanitation services and for the facilitation of basic governance. Short-term Goals for the Telecommunication Sector a. Providing the necessary spare parts and other hardware needed to repair and maintain certain existing telecommunication systems. b. Replacement of damaged equipment in order to restore services to the areas that have severely limited telecommunication services. 22 111 •••• Draft 12/2/2{)02 c. A mobile and wireless telephone systems to fulfill the urgent needs of the health and other humanitarian services, and to act as a stop gap measure in some areas that have a very poor and severely damaged paper insulated copper subscriber networks or no networks at all. Recommendations for Action: First, replacement of the analog Baghdad Junction Network (BJN) with digital network. The BJN is an inter-exchange transmission link (both cable & microwave) which was seriously damaged during the war. This damage resul~ed in the reduction of 68% of operational channels between exchanges, making those remaining connections insufficient to maintain the minimum proper perfonnance. BJN connects the 22 switching centers in Baghdad through old transmission sy· stems. These systems are the main causes of bad quality servic, es in Baghdad. By replacing all analogue transmission lines by digital ones, one would guarantee an immedi~te improvement in the quality of services for all sectors benefiting from telecommunications. This, would not be particularly expensive and woulld be in the range of $15 million. It is estimated that the replacement of the transmission lines could be made operational within six to eight months. Second, replacement of the international communication facilities (Earth station, international exchange and the analogue microwave link between them). Due to unreliable international c<;>n\munications, Iraq will continue to experience difficulties in establishing and maintaining external contacts with potential producers and suppliers of humanitarian goods. Third, replacement of four old crossbar exchanges (Karbala, Diwaniya, Nasiriyah and Basrah) and of the obsolete analogue microwave link between Baghdad and Basrah with a digital link and extend it to the port of Um Qasr, the entry point of the main portion of humanitarian commodities. This microwave link will pass seven governorates whose total population ls more than (7) million and considered as the most populated region in Iraq. Reliable and easy communications between Baghdad and the concerned governorates and Um Qasr is extremely important for efficient coordination and management in the process of the supply and distribution of food and medicine. Fourth, replacement of three exc:hnnges in Baghdad that were completely damaged during the war. One of these exchanges, Bab Al Muadham, is a key exchange for the implementation of the necessary humanitarian programs because it is an exchange through which the Ministry of Health communicate with the rest of the country. MedicaJ items are distributed from the main warehouses in Baghdad to warehouses in the govemorates, and thereafter 23 ?SJ ., •• Draft 12/2/2002 supplied to the 132 Hospitals, 1500 primary Health Care Centers, 52 Private Hospitals and all the pharmacies. Fifth, Introduction of small mobile telecommunication network for (25(0)) subscribers in Baghdad, and a (2000) subscribers network in the center each of the government in Iraq. The aim for such networks is to provide quick and reliable telecommunication services throughout the city of Baghdad, large cities and nearby areas along the main roads. Such project will largely bypass the saturation enco¥Jltered in most exchanges and the lack or very poor network conditions in many areas of Baghdad and other cities. The project will solve the communication problem faced by every essential and important location related to hwnanitarian distribution Services in Iraq. Sixth, Introduction of data network to allow connection of computers in all warehouses and Ministries and other parties involved in the humanitarian distribution programs. Then expanding these networks in the future to connect all government and service sectors. Seventh, Introduction of five sets of 25 mobiles UHF units with a capability to relay communication to a central unit either by satellite or HF. These unites can be used by security personal to accompany officials in traveling to remote areas of the country. Etghth, As a strategic project for the next five years transform the networks in five above to be cellular network technology that covers the main cities and highways Ninth, Encourage the private sector to be involved in providing some of the communication services in the country such as ISPs and mobile telephony. Tenth: Utilize the " latest stat of the art military network" built by the Saddam regime to be used for commercial business - such as the Internet expansion phase Eleventh: Develop a standard and simple " government bid proposal" to encourage small businesses and entrepreneurs to import required hardware end software from the US local computer and telecommunication companies Twelfth: Study and analyze carefully some the " development" nations experiences in modernizing and computerizing their societies such as Jordan, UAE, Qatar, Kuwait, and other to benefit from th~ir experiences, cost allocation, time and resources required, management risks and preparations. For example in UAE today there is a very advanced Internet networks and applications built in the past 3 years under the development of "Dubai Internet City OTC". Also seek 24 1111 •nzu Draft 12/2/2002 advise from experts from Asian nations such as the Gulf region, Iran, India, Pakistan, Singapore, Japan, and Malaysia TIJirteenth: Allocate a small percentage from the annual Iraqi budget (only for the first 2 years) to develop this project as part of Iraq Telecommunication Act Fourteenth: Identify ''a quick hit" projects that bring fast benefits and shows tangible results; such as the utilization of the wireless and advance telecommunication infrastructure (voice and data) already in place with a large access capacity in Kuwait, Iran and UAE Fifteenth: Design and implement a high-speed JP-based infrastructure voice and data telecommunication network to cover initially 80% of Iraqi population. 'This backbone can be: 1. A pPtical network that may includes several smaller backbone regional networks, tied into several Network Operation Centered (NOC) managed by experts from the regions 2. A hybrid infrastructure of wirelan and wireless (satellite) b~sed for voice and data 3. A full wireless satellite IP- based infrastructure to start with and gradually migrate to a wirelan optical based IP-networks as the infrastructure is built region by region. Freedom of Information Act A5 we all know, there are no genuine Ovil Society Institutions (CSI) in Iraq. Those who existed have been overtaken by the regime. Even today in II<, CSI affiliated with the political parties are the strongest and most influential. We can't ignore this fact, at the transitional period when we put a new plan for the media. We should consider this fact and prepare for reducing the influence of the political parties on the media and encourage private and independent establislunents to lead the media sector. Encourage the transformation of party's media establishment into private ones, and calling upon the political parties to fund and promote such changes. Political parties can keep some form of bulletin publication and privatize all the radio/ TV stations and newspapers. So we can use the same skilled people who worked on those establishments. We should be careful when we try to fund establishing free and independent media Without prior analysis. A5 we mentioned earlier, most skills in the media sector are now concentrated and available only on the current party's' establishment. We should try to attract staffs from the establishment that exist now instead of funding new comers or new people with no or less experience. 25 am rans m, z Draft 12/2/2002 Regulating The Airwaves Drafting new administrative laws and regulations for the operation of TV stations, provided that there would be no restriction imposed on free expression and independent thinking. Those regulation should focus on the technical aspect like the use of transmission waves, how far will the broadcast reach, the percentage of locally produced materials (what percentage of external broadca5ting is integrated to the local broadcasting), honesty and objectivity when dealing with the political issues, preventing using the media for political purposes or to promote fundamental and restrictive thinking, or to promote hatred or terror. Conducting professional training for leading staff at the media establishment. and supporting with equipment and programs. This entire capacity building · program should be conducted with clear vision on moving toward free and private media. Encourage local initiatives on translating and spreading democratic thinking, as there is a need to increase the sources and documentation of such thoughts in local languages. Let's make our goals and objectives clear: a. There should 'not be any radionv stations and publications that belong to the government or political parties or non-civil organization. b. Issuing laws and establishing the process that will Insure transparency and accountability in the WOf'k of government. c. THE CITIZENS HAVE THE RIGHT TO KNOW Enforcement of Regulation With freedoms comes responsibility. To prevent the deterioration of the media outlets into forums to initiate personal attacks on political opponents, strict enforcement of slander laws needs to be in place. An independent com.mission, representing a coalition of political parties should oversee the enforcement of such regulation enforcement. Action Plan for the Next Five Years Iraq is a vibrant country with a people that is industrious and entrepreneurial. A key strategy to accelerate the introduction of change and prpgress to this vital sector is to enable the private sector to contribute as much as possible through the institution of free market economy. Nonetheless, it is important to recognize that the bulk of telecommunication infrastructure will require a public-works 26 Ill II m !Zlfa Draft 12/2/2002 commitment from the government. A large part though can be left to the private sector. Guidelines for Goal Setting A good rule of thumb that is valid in most parts of the world is to establish information and telecommunication service level& that is proportional to the country's per capita GDP. It is important to get Iraq to match oth~ countries in the region and the world that have similar per capita GDP in all areas of infonnation and telecommunication services. The following table sets a partial set of goals based on this guideline. !Rgw!I~ .20.' ··II 229 11 · ' 83 I :w· I· 1· " I - ' ·-· " .. 12@! ! . 50 _ _JI 250 II 100 I 50 I 50 JI . 20 ' . 1 ][ ',••(2D()··· J I ,' . • I I ... ~ !2004 !1 70 . II 300 120 I I. 350 ' 11 .. 't- 200 II ~150 I I ",' 200 _, ILJ.1,oo. ~ I I~ 150 I I 100 II 100 ' ' I I: .'so I -~-- ~~i llt' 160 . . .. ·II . .. ~ 11 .1~ 25o. II I 200 .. -.11- : : : ~: 350 I,''\ '' ll ~ .;.:l&1ll" I 12oQ7'1L ) 200 _ _:JI·· - 5oo I I • 300 ··1 250 . ' j . : · .· :,;soo.~:"~ Network Infrastructure Recommendations The following map identifies areas where new digital infrastructure is needed to cover major population areas and extend basic telephone services beyond the capitol Baghdad. 12~~ . 11 . -~-- 27 err •••u t Draft , ~ )1·~:~;t t.i; ,! ' t I 1 · -'< . P. ~r / 1 . t·,· :·! <:tSa ~ .:I~ .~1 :: Sy r a i: .... ,. , , , _,..,, I / ./ • " 1···1.,."1 11 - ,II' • • \ .... .. '.\ ,... -• t-11 111.:: ! ' 1i.;" \' ~.., • ' . u~l 1 :J :;:i . "'· .. ..: .... Sau d i ; :~· :. ~ I !~: 1!1'·11 \ i/~, .. ~r t f-,i\ c , : :: ·"::J· a:;~t:x :: ·· :CJ. ~ q lj(S ; ~ :~ .,;_: ~· · ·~ '1 ' 4' 1 ·\'.' :" .. '(.l ~~ '; ~.;c.:· - 1 28 12/2/ 2002 l. :i· (' l.~ 1 t: 1t · ' T ·:. h.w1 ~ l ' i I Arabia TT ms11m 7 Draft 12/ 2/ 2002 Conclusions The installation of telecommunication projects requires high level of expertise. Before 1991, the local staff of ITPC used to carry out all the installation of telecomm equipment with minor supervision from the suppliers. The same staff was able to put the majority of the remaining systems immediately after the war into operation. We recommend the use of local resources for the installation and commissioning of the projects, to minimize expenditures. It goes without saying that the new equipment to be purchased is of new technical generation. This will require training in the manufacturer premises. $126 million will be required to meet the necessary urgent needs and requirements. Out of this total $18.7 million should be allocated for the three northern govemora tes. 29 11 wsmm ·z Job Creation and Training, Opportunities for Women 2 Any new war or military confrontation in Iraq could cause further damage to the Iraqi infrastructure and existing weak economy. Furthennore, this would exasperate the high unemployment rates already existing in Iraq. The post Saddam government has to inunediately consider economic initiatives to create new jobs through labor intensive projects to serve as an economic stimulus and address the low employment rate. This will be extremely important in that many of the unemployed want to experience an immediate improved difference in their financial status shortly after the collapse of Saddam's regime. Many of the currently unemployed are completely dependent on the food rations granted to them on a monthly basis by the government. Besides these food rations, every Iraqi seeks new job opportunities that wilJ enable them to provide their households' with incomes and provide more food, better clothing, and improved health care for their families. It is rather unfortunate that no accurate statistics are available about the labor force in Iraq or the unemployment rate amongst Iraqi men and women who are able to work. The United Nations Development Program's latest estimates claim that "at least 50% of the able-bodied labor force in Iraq is unemployed or underemployed."1 The Iraqi Ministry of Labor and Social Affairs estimates the unemployment rate to be approximately between 30-40%. In addition to this, the number of the disabled in Iraq increased substantiaJJy after the two wars that Iraq has been through during the last twenty years. The UNDP estimates 1He!oin& them Help themselves. UNDP Program Story, www.iq.undp.org/Programme/undp- programmePro%20 I Stor.y.hlm 2 3 that the number of handicapped and disabled ranges from between one to two million, while unofficial estimates show that figure to be substantially higher. The present government contributes the low employment rate on the current sanctions imposed on Iraq in the aftennath of the Gulf War. Other factors contributing to Iraq's weak economy and high unemployment rate include: 1- Most of the privately owned manufacturing facilities are closed due to lack of raw material and spare parts. It is estimated that eighty percent of private businesses closed down following the Gulf War.2 2- Large government industries that employed thousand of people have been damaged during the Iranian and Gulf Wars. Examples include: the petrol chemical complex, the phosphates and fertilizer industry, the sulfur industry, mechanical, electrical and some of the construction industry. 3- The drastic reduction in government spending on services to the public. 4- Government spending on construction has been reduced to a minimum and the only exemption is Saddam's personal projects and some repair work to roads and bridges. The issue of finding jobs for the disabled people was addressed by the UNDP and the Ministry of Labor and Social Affairs in Iraq, and in cooperation with the International Labor Organization. This was accomplished by establishing a community based rehabilitation program funded by the United Nations. This project offered the disabled the technical advice and the training to enable them to start their own private businesses such as tailoring, shoe repair, food processing, and offering computer services. These businesses were funded 2 Statistics provided by UNDP 3 4 through interest free loans averaging $300-$600. Though this program was rather limited, it is considered a great success. This program's work could be used as a foundation or model by any post Saddam administration in order to create immediate jobs for the disabled and the unemployed in general. Job Opportunities within Iraq Due to the wars and lack of infrastructure investment, there are many labor intensive projects that may be undertaken in order to greatly improve upon and make Iraq a modern day twenty first century country. River Cleaning A major priority from an environmental and safety perspective is the cleaning and clearing of the Iraqi rivers. The rivers have become extremely polluted and pose a great health risk to the Iraqi people. This pollution is due to the lack of a functioning sewage system. The sewage systems were crippled and shut down during the Gulf War. They were never repaired due to a lack of materials. Therefore, raw sewage was simple let out into the Iraqi rivers .. The c1earing of the rivers will involve various tasks. Besides clearing physical objects that are obstructing the rivers, an effective sewage system must be established. This can be done by repairing the sewage facilities that have been shut down or have been running at minimal usage over the past years, and by also building new facilities so that there are sewage treatment facilities available throughout the country. The clearing of the rivers will provide greater opportunities in Iraq. Cleaner major rivers will gre~tly increase the rivers' palatable water, which is badly needed in aU Iraqi cities. Furthermore, clean unobstructed rivers will increase capacity to transport goods up and down the rivers and increase business, particularly between Baghdad and Basra. In addition, clearing 4 5 the small rivers will help bring irngation to the valuable agricultural grounds throughout the country. Construction There will be tremendous amount of construction work needed in the post-Saddam era. This work will provide an abundance of work in Iraq immediately following the regime change. It will provide a great opportunity for men and women to begin earning a decent living and providing for their families. This will be essential in illustrating to Iraqis a fundamental shift immediately following the regime change which will strengthen support for any new government. If the Gulf War provided any indication as to the magnitude of damage that will be caused in Iraq during an attack to remove Saddam, then immediate work will be needed on a majority of the roads and bridges. Many roads and bridges will be destroyed during allied bombiing and will need to be repaired or replaced in order to get the Iraq's infrastructure in place. In addition to repairing the roads and bridges, the railways will need to be repaired in order to aid transportation throughout the country. The railways need new parts and the soil needs to be stabilized in numerous locations in order to have an efficient rail system. Low-income housing will also need to be constructed throughout the country. There will be a large influx of refugees returning to Iraq and there will have to. be affordable housing for them. Also, many people had housing confiscated during Saddam's regime. They will be looking to the new government to either return their homes to them or provide them with alternate housing. Hosoitals and Schools "Iraqis, like us (Americans], do not want to live on welfare. They are a country rich in Intellectual resources, yet many must find employment driving taxis"3 J f as;jng the Traecdv in !rag. Campaign of Conscience , http://www.afsc.orglconscicnce/ncws/sevems.htm 5 6 Many of these resources can be put to great use in Iraq's hospitals and schools. However, the hospitals and schools have been neglected over the past years. Many schools are in a horrid state with shattered windows and stolen doors. They must be repaired and modernized before they can begin running on a full scale basis. Modernizing the schools, such as computer labs, will provide Iraq's youth the new opportunities and show them a change in the country's direction. School repairs will provide many job opportunities in that every aspect of the schools need to be renovated. The work will utilize bricklayers, painters, carpenters, electricians, plumbers, landscapers, etc. Hospital modernization and restructuring will also affort new employment opportunities to Iraqi's. Firstly, it will provide jobs during the reconstruction of hospitals and then employ new doctors and hospital staff to run these now functional medical facilities. These initiatives will result in generating new employment opportunities andthe average Iraqi will benefit from an improved healthcare system, something that was greatly lacking under Saddam's rule. Electricity and Water Treatment Excluding Baghdad and a few other major cities, electricity has been a major problem. The typical household barely receives ten hours of electricity a day outside of the major cities. The whole electrical grid will need to be redone or replaced, as it is already in poor condition and will probably suffer more damage during an attack on Iraq. Effective water treatment is also needed everywhere throughout Iraq. People still boil water in many places and in some locations there is not running water. In major cities such as Basra, the port city in Southern Iraq, the water treatment facilities have been ruined and bombarded several times over past ten years. 4 This left the raw sewage running throughout the streets, and treated water became such an expensive commodity that most families cannot afford with their meager salaries. 4Campaign of Conscience 6 7 General Appliances Manufacturing Saddam poured billions of dollars into the production of military equipment. This involved the construction of numerous facilities to build the equipment. A cost efficient way to manufacture general appliances for the Iraqi public and create many jobs would be to convert a number of these pre-existing facilities into manufacturing plants for the appliances, such as refrigerators, microwaves, dishwashers, washers, dryers, etc. This will boost Iraq's economy and employ many people. It will also provide appliances that are affordable for a majority of the public. Opportunities for Women Iraq has historically had one of the highest female literacy and high school graduation rates in the Middle East. There is a large base of highly skilled and educated female labor force that can be crucial to Iraq's restructuring efforts. Today, most female College and High School Graduates are employed by the government and to a certain extent the private businesses. Any new government should seriously consider creating programs promoting financing and grants for women owned businesses to promote the entrepreneurial expansion of this sector. a Professional business expansion in fields such as Medicine, Law, Engineering, and Computer Science. c Service Industry: Private Education, childcare, Catering, Travel, and Consulting. In addition, to create a fundamental shift of the position of women from the Saddam regime to a democratic post-Saddam regime, new, high position opportunities must be created for women within the new government. This will serve as both a utilization of a highly skilled sector of the population that has been both ignored and under utilized and well as role model for new role of women in the future Iraq. 7 8 . Infrastructure proiects The need for investment for the infrastructure projects on order to provide new work opportunities is apparent. Therefore, Labor-intensive criterion should be considered in identifying these projects at least for the first two years. Family Farmine. The new government must immediately encourage the development of family farming and a diversified agricultural sector. By encouraging people to emigrate from the cities back to the countryside, through long term, low interest loans and proper training on the introduction of modem agricultural technology. This will definitely increase Iraq food production and make it less dependent on food import that will require scarce hard currency. The emigration from the cities to the fann land will reduce the severity of the housing problems and congested services a phenomenon shard by all major Iraqi cities. Credit Guarantee For Entrepreneurs Create a credit guarantee fund or agency to guarantee about 75% of new loans banks make to expand their markets dramatica11y by financing new ventures of previously discouraged entrepreneurs and talented minorities excluded from the economic mainstream under the guidance of mentortechnicians with financial incentives to motivate and guide them in preparing workable business plans and adopting optimal technologies and business practices. New Services 8 9 The emergence of new type of services into the Iraqi communities such as internet service providers, content providers for software or programming in local languages, Educational services-distance learning and others. The abilities to introduce new product in the new free open Iraqi market will expand the demand for goods and services and those generate new employment opportunities to many people and businesses. Foreif!ll Workers The government must act urgently to impose restrictions on foreign workers. This would create new job opportunities for Iraqis as well as to reduce the demand (consumption of foodstuffs and other goods and services) pressure. In order to implement the above-mentioned tasks, new government departments must be established with the help of Iraqi experts now residing outside Iraq. This would be in addition to the local expertise available. To finance these projects the new Iraqi administration should be assisted in getting immediate loans from the International Monetary Fund, and other institutions and friendly governments. 9 Nasrccn Sideclc 24 January 2003 Analysis of Employment situation in Iraqi Kurdistan In the absence of comprehensive estimates of employment, a survey in Erbn Govemorate found that the Government departments, agricultural and transportation sectors continue to provide most of the employment in the north. Total employment in the entire economy of the Govemorate showed 240,013 persons in 1999 and 259,985 in 2000, representing 89.64 percent and 92.38 percent of the labor force, respectively. The unemployment rate was estimated to be 10.36 percent in 1999 and 7. 62 percent in 2000. Such figures are being distorted by the fact that a large number of employees woli1c with ffiOfe than one employer. Furthermore, a slzable number of others have been attracted by the U.N. agencies at more than going marl<et wage rate. Besides, a great number of people have left the country. This situation has created an 'apparently" tight labor market. T1ble 1 EMPLOYMENT IN ERBll FOR THE YEARS 1M-2000 Numbtr Effectlvllv Emplo •Id In Etbll for 1999 ind 2000 IMAJOR ECONOMIC SECTORS 199!l 200( 1999 : pert.rt ofNCh cltegoryto totll 2000 : ptt'Cent of11ch Cltegoryto tot1I 14GRICULTURE 5'37~ 57373 22.6 5 22.07 INDUSTRIAL 13178 135e1 5.49 5.22 !SERVICES "487 45791 18.5 • 17.61 !TRANSPORTATION 51161 61847 21.3 2 23.79 CONSTRUCTION 1U9 199~ 0.78 o .n S:UELS 844 869 0.35 0.33 ~OVERHMENT 735e3 77858 30.6 5 29.95 PHYStCIANS, HEALTH·RELATEO EMPLOYEES M«>LAWYERS 541 691 0.23 0.27 TOT AL EMPLOYMENT" 240013 29W 100 100.00 NET LABOR FORCE • TOTAL LF · PERSONS ON TRANSFER PAYMENT 2e774CI 281441 - - !*Cent OF EMPLOYED TO TOTAL LABOR FORCE" 89.6440e 92.37637729 - - UNEMPLOYMENT RATE 10.35594 7.523822713 - - • This f$ure Is bei-9 dislol1ed by lhe fld !hit a lalge nunar al~ -': wifl lllOl9 flan one emp~. a slzeable oombw ol ohl1 lllYe been riced by Unltld Nltions mgencies 81 mon1 hn pig llWllet wage IMls, belides e • numbet al people hlwe left Ille IXMltry. This lltuafion hat ~ en epperenlly light 11bor nwt.e1. Sourct: Or. Chlwlheen Ei::on<ri: pror.le of Ert>i Go'l9mor ate, T Ible 1 The four major sectors that employ most of the labor force are the following: Government, by far the largest with 73,563 and 77, 858 persons employed in 1999 and 2000 representing about 30 percent. This sector is followed by Agriculture with total employment in this sector 54,370 and 57,373 persons employed- representing 22 percent of total labor force employed. Then followed by the transport sector, w ith 51,161 and 61,847 persons employed in 1999 and 2000 representing 21 percent and 23.8 percent of total number of persons employed in the economy. This is reflected in the disproportional number of taxis and buses operating in major cities and towns. This has a negative implication and represents a false image of the real employment figures and has thus distorted unemployment, in addition to creating excessive demand on petrol. The Services sector constituted 18.5 and 17.6 percent of employment with 44,487 and 45,791 employees in 1999 and 2000. Looking into the figures in the Industrial sector, they are pathetic w ith about just 5 percent of total employment; 13, 178 and 13,561 persons for 1 999 and 2000, respectively. Wages paid to the local UN staff have exerted an upward pressure on wages in the rest of the economy. This is the case in the three main cities more than the rural areas. UN staff wages, where the minimum wage for the lowest category of workers is almost four to five times higher than that of the local authorities per month, have contributed to the distortions in the labor market, and have made it difficult for local authorities to retain local staff, given the huge wage differentials. In an internal survey conducted by the ministry of reconstruction and development in Erbil revealed that about 25 percent of the staff earn about 251-300 O IDs per month (base plus allowance); another 30 percent of the staff earned less than that level. When this is compared to how much has been spent on the food basket for a family of five, (793 OIDs), in each month, it shows how the food policies have contiooed to exacerbate the social conditions of the wlnerable groups. This issue will require special attention, especially as we consider making changes to the existing oil for food program. Supporting Iraqi Women Even from ancient times, Iraq has been a leader in the field of women's rights. King Hammurabi, ruler of Babylon from 1792-50 B.C., created the world's oldest known set of laws, and his code endeavours to provide justice for al1 people, including women. Today, Iraq is still considered to be at the forefront of women's rights In the region, wltll legislation and regulations that promote the status of women and the principle of equality and equity between the sexes. However, as Is often the case in times of crisis, women are bearing the brunt of years of war and sanctions in Iraq. The past decade had seen a decline in educational opportunities for women, a jump in female illiteracy ancil rising poverty. Despite these difficulties, Iraqi women are using their powers of creativity to face the challenges confronting their country. They are assuming additional responsibilities at work and at home in order to provkte and care for their famllies. UNDP Is an active and committed partner in the advancement of Iraqi women as they take on new and diverse roles In national development, in areas such as politics, the economy, the legal system and the health sector. UNDP is working with Iraqi women to overcome obstacles to their full empowennent, and build on gains already made. Key Statistics: • The labour force participation rate In formal economic activities Is 10.3 percent for women and 43.4 percent for men. • Women hold eight percent of seats In the National Assembly. • Female adult Illiteracy is 56.2 percent (36.W. for males). • r.,ore than 50 percent of pregnant women are anemic. • Women make up 34.4 percent of university and polytechnic students. • Thlrty .. lght percent of doctors are women. Current UNDP Projects In the Field of Gender The National Committee for the Advancement of Iraqi Women UNDP Is building the capacity of the NCAIW to achieve its goal of mainstreaming gender-related Issues Into the socio-political life of Iraq. The $70,000 project includes training In gender an:alysls and gender sensitive policies, as well as the creation of a strategy to incorporate gender Indicators in data conectlon. Improvement of Nur. slng Services This project provides training for 100 percent of nurses working in coronary, respiratory and Intensive care urnits at general hospitals and cardiac surgery centers. The $50,000 project also Includes the "training of trainers" in these critical fields. Rehabilitation of Cancer Care and Control Services UNDP ls working to reduce cancer related deaths In Iraq, particularly from breast and cervical cancer. With funding of $268,000, UNDP is providing educational and advocacy materials, diagnostic equipment and training for health care professionals. Support for Disadvantaged Women This $561,000 project is providing disadvantaged women with vocational training in sewing, knitting, needlework and computing skills. UNDP also offers micro-credit loans for women to set up their own small businesses. So far 54 women have taken out two- year loans of about $400. The pilot project In Baghdad, Basrah and Diyala govemorates includes the rehabHltation of training and production centers " the General Federation of Iraqi Women, so that this Important partner can continue to support and empower disadvantaged women. Vocational Training and Micro-Credit for Women Prisoners This $164,000 project includes 1he renovation of a work area, equipment and training for Inmates at the Iraqi Women's Prison In Baghdad. Participants eam between 40-150,000 ($22-83) Iraqi dinars per month from the sale of their products. UNDP also renovated the health center and a crkhe for children living with their mothers at the jail. UNDP provides small interest free loans for freed Inmates to set up their own businesses. The women are given help to create a sound business plan and counseling to ensure they reintegrate into the community with dignity. Supporting lraql Women Even from ancient times, Iraq has been a leader in the field of women's rights. King Hammurabi, ruler of Babylon from 1792-50 B.C., created the wor1d's oldest known set of laws, and his code endeavours to provide Justice for all people, includlng women. Today, Iraq Is still considered to be at the forefront of women's rights in the region, with legislation and regulations that promote the status of women and the principle of equality and equity between the sexes. However, as is often the case in times of crisis, women are bearing the brunt of years of war and sanctions in Iraq. The past decade had seen a decline In educational opportunities for women, a jump in female Illiteracy and rising poverty. Despite these difficulties, Iraqi women are using their powers of creativity to face the challenges confronting their country. They are assuming additional responslbflities at wo~ and at home in order to provide and care for their families. UNDP Is an active and committed partner In the advancement of Iraqi women as they take on new and diverse roles in national development, in areas such as politics, the economy, the legal system and the health sector. UNDP ls working with Iraqi women to overcome obstacles to their full empowerment, and build on gains already made. Key Statistics: • The labour force participation rate In formal economic activities is 10.3 percent for women and 43.4 percent for men. • Women hold eight percent of seats In the National Assembly. • Female adult Illiteracy Is 56.2 percent (36.1°1. for males). • More than 50 percent of pregnant women are anemic. • Women make up 34.4 percent of university and polytechnic students. • Thlrty~ fght percent of doctors are women. Current UNDP Projects in the Field of Gender The National Committee for the Advancement of Iraqi Women UNDP is building the capacity of the NCAIW to achieve its goal of mainstreaming gender-related issues into the socio-political life of Iraq. The $70,000 project Includes training In gender analysis and gender sensitive policies, as well as the creation of a strategy to incorporate gender Indicators In data collectlon. Improvement of Nursing Services This project provides training for 100 percent of nurses working in coronary, respiratory and intensive care units at general hospitals and cardiac surgery centers. The $50,000 project also includes. the "training of trainers• in these critical fields. Rehabilltatlon of Cancer Care and Control Services UNDP is working to reduce cancer related deaths In Iraq, particularly from breast and cervical cancer. With funding of $268,000, UNDP is providing educational and advocacy materials, diagnostic equipment and training for health care professlonals. Support for Disadvantaged Women This $561,000 project Is providing disadvantaged women with vocational training In sewing, knitting, needlework and computing skHls. UNDP also offers micro-credit loans for women to set up their own small businesses. So far 54 women have taken out two- year loans of about $400. The pilot project in Baghdad,, Basrah and Olyala govemorates Includes the rehabilitation of training and production centers of the General Federation of Iraqi Women, so that !his Important partner can continue to support and empower disadvantaged women. Vocational Training and Micro-Credit for Women Prisoners This $164,000 project includes the renovation of a WOf'ik area, equipment and training for Inmates at the Iraqi Women's Prison in Baghdad. Participants eam between 40-150,00QI ($22-83) lraql dinars per month from the sale of their products. UNDP also renovated the health center and a cr6che for children living with their mothers at the jall. UNDP provides small Interest free loans for freed Inmates to set up their own businesses. The women are given help to create a sound business plan and counseling to ensure they reintegrate Into the community with dignity. Iraqi Development & Reconstruction Council 1/23/2003 Future of Iraq Project Economy and Infrastructure Development Workgroup, Subcommittee on Iraq Development and Reconstruction Council IDRC Recommendations to the Post-Saddam transitional government of Iraq In preparation for a free society under a constltutlonaf democracy Prepared by Ms. Nasreen B. Sldeek Dr. Sabrt Saadl Mr. Shafiq All Dr. Slnan AL-Shablbl Mr. Rubar Sandi Or. Aiham Alsammarae Mr. Emad Dhla Facilitators: Dr. Mohamed Alhaklm and Mr. Sadl Aburkalbeh IDRC Recommendations - v3.0 December11, 2002 1 E Pg 9 5' l' I 1/23/2003 TABLE OF CONTENT Introduction,.,,,.,.,,,,,,, .. ,,,,,,,,,,,,,,,,,.,,.,,,, ..... ,,,, - ,, .. ,, ............ ,,,,, .. ,,,,,, ... ,, .. , ...... ,,., ... ,, .. 3 IDRC Principal Purpose ....... ,, ..... ,, ...... ,,,, ...... ,, ........ ,, .... ,,.,,.,, ... ,,,, ...... ,, ............. ,,,. 3 IDRC Mission ,, ,, ........ ,,,,, ,,. ,,., .. ,, ... ,,,,, ......... ,, ... ,, ..... ,, ... ,. ,, ... ,,,, .. ,, ........ ,,,,,,,,,,.,, .... , 3 IDRC Goals & Objectives,,,,,.,, ....... ,, ............................... ,, .... ,, ... ,, .. ,,, ...... ,,.,, .. ,,,,., 4 IDRC Structure .. , ..... ,, ...... ,,.,,.,,,,,,,, ..................... ,, ... ,, ........ ,,.,,,,, .... , ...... ,,.,,,, ..... ,,., 5 IDRC Structural Diagram .... ,, ... ,,,, ........ ,, .. ,, ...... ,,.,,.,,,,,,,,, ... ,, ..... ,, .. ,,,, ..... ,,.,, ... , .. , 6 IDRC Duration ..... ,,,,,,,,, .......... , ......... , .... ,, ... ,,, ................................ ,, ...... ,,,, ...... ,, ... 8 IDRC Activities ...... ,, .... ,,,,,, .... ,, ,, ......... ,, .... ,, ... ,,,,,,,.,, ........... ,, ..................... ,, ... ,, ,,., 8 1· Initiate a Policy & Strategy study ........ ,,,,,,.,, .. ,,,, .... ,,,.,,,,,, .. ,,, .. , ....... , ........... ,. 9 2- Identification and select.Ion of public Infrastructure projects,, ........................ 9 3- Preparation of public investment guidelines ........ , ......... , ......... ,, ........... ,, .. ,, 10 4- Mobilization and aPocatlon of financial and human resources .... , .. ,, ........... 10 5- Preparation of indicative plans ............ ,, ....... , ........ ,, .. , ...... , ....... , ........ ,,,, .... ,, 11 6- Implementation of certain economic structural reform programs,,,,.,,,, .... ,,. 11 Resources ,,,,. .. ,.,., .. ,, ...... ,, ..... ,..,, .. ,,.,,,. .......... , ............... ,, .................. ,, .. ,.,,., ....... 11 Decision making process ....... ,,,, ................. ,, ...... ,,.,, ... ,,,, ...... ,, ....... , .. ,,,.,, .. ,,,,,,,,,, 12 Short Term Plans .................... ,, .. ,, ....... ,, ................. ,, .... , ....... ,, ............................ 12 Conclusions ............. , .. ,. ................................ ,, ................... ,, ...... ,, ........... ,, .......... 13 2 Fall; I s::fids::liel 1/23/2003 Introduction The work of the Iraq Development and Reconstruction Council (IDRC) has spanned a period of turbulent changes in the circumstances surrounding the existence of Saddam's regime in the past thirty.four years. The Iraq Economy and Infrastructure Development working group dated October 26, 2002 commissioned this study. The IDRC council was asked to examine all aspects of the Iraqi national economic development, infrastructure, reconstruction, important political conditions such as stability, political and social freedom, revitalization of private sector, and individual's economic freedom as part of free market economy. The IDRC council has addressed the most important economic development and reconstruction problems considering the future of Iraq after a regime change. We expect most of the anticipated changes arc required, rapid, and challenging. Moreover, our conclusions and reconunendations must fit into a future of Iraq that will continue to change in directions to benefit all of the Iraqi people. The IDRC council is mandated to identify and recommend development and reconstruction projects that are very specific and appropriate for the immediate circumstances for Iraq after Saddam and during the transitional period to meet future development needs that are politically feasible both domestically and internationally. IDRC Principal Purpose The IDRC is an independent council, its principal purpose is to set the development of sound public policies and promote public Wlderstanding of issues of national and international importance to the Iraqi people and to the transitional government to drive policies, programs, and structure. The IDRC must engage actively in the process of the development and supervision of the economic, social, and environmental infrastructure projects and determine specifically the types, resources and total cost of these projects. […display truncated here — the full text is in the download file]