Program Review Board (PRB) Minutes – May 15, 2004
Attendees:
* George Wolfe Chairman/Director Office of Management and Budget
* Hazim Al Said Iraq Ministry of Finance
* Behnam Puttrus Iraq Ministry of Planning and Development Cooperation
* Fred Smith Deputy Senior Advisor for the Office of Security Affairs
* Teddy Bryan USAID
* Col Frank Boynton Director, Office of Operations & Infrastructure
* Dean Pittman Governance
* COL William Ford Coalition Joint Task Force – 7, Comptroller
* Yusaf Samiullah Representative of the United Kingdom Government
* Neil Mules Representative of the Australian Government
* Chris Soares Economic and Development Policy
* Neil Hawkins Council for International Cooperation
COL Eric Engelbrektsson Program Coordinator
Brendan Wheeler Program Review Board - Regional Programs Manager
COL Rafael Lara CPA – General Counsel
Col Don Davis CPA Comptroller
BG Steve Seay CPA – HCA
Nigel Aylwin-Foster DCG-CMATT
Chris McMahon CPA General Counsel
Sarah Horrigan CPA Ministry of Finance
Josh McCallum CPA Ministry of Finance
LTC Alan Farrier CPA Ministry of Finance
Craig Lund CPA Ministry of Finance
Arda Herbert CPA Ministry of Finance
Taif Sami Iraqi Ministry of Finance
Jerry Martin PMO Oil
Alan Khatib PMO Oil
Norm Szydlowski CPA Ministry of Oil
Joel Berwick CPA Ministry of Oil
T.A. Ghadhbaer Iraq Ministry of Oil
Nabeil N. Lammoza Iraq Ministry of Oil
Ali A. Allawi Iraqi Minister of Defense
James Warlick CPA Ministry of Trade
Peter Babb CPA Ministry of Trade
Marty Lyman Iraqi Forum
George Murray Iraqi Forum
Gene Morrison USACE-RIE
Chris Prinslow USACE-RIE
Jim Hicks CPA Ministry of Electricity
Carla Clemons CPA Ministry of Electricity
Aiham Alsammarae Iraqi Ministry of Electricity
Bernard Carreau CPA Private Sector Development
Brad Swanson CPA Private Sector Development
Brian Ericksen CPA Private Sector Development
Duncan Gilchrist CPA IPCC
Michael Ratney CPA Governance
Craig Davis CPA Ministry of Labor and Social Affairs
Peter King CPA Ministry of Agriculture
COL Neil Jagger CMATT
Kuni Miyake CPA Governance
MAJ Michael Nahas OSC
MAJ Michael Barkett OSC
1LT Josh Kuper OSC
LTJG Popovich CJTF-7 C-7
LT Robert McCellan CJTF-7 C-7
LT Greg Garnett CJTF-7 C-7
Anthony Forte CJTF-7 Engineers
Lt Col Kevin King CPA Chief Operating Office
*Voting Members
PROCEEDINGS FROM 15 MAY 04 PRB
The Representative of the United Kingdom (UK) asked the Chairman and the Representative from the Iraqi Ministry of Finance (MoF) whether, if given the opportunity to revise the 2004 budget again, they would revise along the lines presented in these proposals or would include other areas such as health and education. Chairman responded that the package of proposals represents the consensus view of Ambassador Bremer and the Ministries of Finance and Planning of the best way to put the funds to use for the Iraqi people. The Representative from the Iraqi MoF responded that he was satisfied with the proposal and had nothing further to add.
#691—IPCC--$180,000,000. IPCC/Duncan Gilchrist. The objective of the IPCC is to resolve real property issues resulting from the previous regime’s unjust expropriation of land and other real property. The role this funding plays is that it supplies the first tranche of compensation funding which will allow the process of settling claims to get underway. Getting the IPCC process up and running is increasingly urgent. In the Kirkuk area, Kurds are already reclaiming land expropriated from them during the tenure of the previous regime. They are illegally evicting the current occupants, who are being forced into Internally Displaced Persons (IDPs) camps. It is estimated there are now 100,000 Arab IDPs in Diyala, Salah-Adin and Kirkuk provinces. This has led to a growing humanitarian problem. There has been little obvious violence as yet, but significant coercion has been used, and serious ethnic clashes are likely to occur if the current situation is not tackled soon. The compensation bill is likely to reach around $3 billion.
Chairman asked if consultation had occurred with the relevant ministries including the Ministries of Finance and Planning, and CPA/IPCC said consultation had occurred with the Iraqi Ministries of Finance and Planning. Chairman asked if other sources of funding were explored, and CPA/IPCC responded that other funding was in fact necessary but that immediate funds were also needed. Chairman asked about recurring expenditures and the contracting process, and CPA/IPCC said they didn’t expect any recurring expenses or contracting. The Representative of Australia asked how much of the funding was expected to be disbursed before June 30, 2004, and CPA/IPCC said they expected very little disbursement. The Representative of Australia asked who was expected to oversee the commission post June 30, 2004, and the CPA/IPCC said the interim-government of Iraq would and assured the Board it would be an Iraqi process. The Representative from the Council for International Cooperation (CIC) asked if there were any relevant models for comparison, and CPA/IPCC responded there were some, including Bosnia, but that the Iraqi situation was quite unique. The Representative from CIC questioned the process and stated the task seemed extremely complicated and there was minimal response from international donors. The Representative from the UK stated that clear, detailed mechanisms for the process were not yet in place, and that costs of adjudication could be expected to increase.
The Representative from the UK put forth a motion proposing funding to establish a property claims mechanism and fund administrative costs, but to not actually pay claims, but the motion was not seconded. The Representative from CJTF-7 put forth a motion to approve which was seconded by the Representative from Australia. The Representative from the Iraqi Ministry of Planning (MoP) said he had discussed the proposal with his technical committee and they were in favor of it. The Representative from the Iraqi MoF said the proposal was important right now to ease the suffering of the Iraqi people. The Representative from the UK put forth a motion to amend the proposal to prohibit the disbursement of compensation to victims by the IPCC before July 1, 2004. The motion was seconded and passed. A motion to approve the amended proposal was then brought forth, seconded and passed unanimously.
APPROVED AS AMENDED: DFI $180,000,000
#692—Revenue Stabilization Account--$125,000,000. Ministry of Finance (MoF)/Josh McCallum. The purpose of the account is to protect the Iraqi budget from oil revenue volatility in the 2005 Iraqi budget. Future Iraq budgets (FY 2005 and outyears) will be dependent at a level of greater than 95 percent on oil revenues. Such dependence on a single commodity is worrisome. This revenue reserve will help fund budgeted operating costs in the event of an interruption of oil revenue, and will help the new Iraqi government maintain stability. In accordance with sound and sustainable fiscal principles, the Revenue Stabilization Account is necessitated by the new Iraqi government’s inability for further borrowing to cover expenditures. Currently, Iraq is restricted in its ability to borrow funds as debt restructuring negotiations are proceeding. Thus, the account will assist in smoothing fluctuations in monthly revenues resulting from variation in the price and production of petroleum products.
A motion to approve was made and seconded. Chairman asked if consultation had occurred with the relevant ministries including the Ministries of Finance and Planning, and CPA/MoF said consultation had occurred with the Iraqi Ministries of Finance and Planning. Chairman asked if other sources of funding were explored, and CPA/MoF responded no because it had to be on-budget. The Representative from the UK asked if the proposal was consistent with the proposed Financial Management Law and if it was supported by the International Monetary Fund (IMF). CPA/MoF responded that a sub-account was not required but would add transparency, and that the IMF, although not favoring savings accounts, do favor establishment of such a reserve for single-commodity economy nations as a responsible cash management tool. The motion to approve passed unanimously.
APPROVED: DFI $125,000,000
#693—Victim’s Compensation Fund--$25,000,000. Governance/Michael Ratney. Countless Iraqi families suffered under the regime of Saddam Hussein. No government or any other institution can erase these past abuses. However, compensation can provide an element of justice to those who suffered them. Many Iraqis lost jobs, were imprisoned, or were executed because they opposed the regime, refused to join the Ba’ath party, or simply were related to someone considered by the previous regime as an opponent. The problems are complex and involve many thousands of people. The responsibility for judgments about how justice is to be done should be taken by Iraqis. However, the Coalition will help by establishing a Task Force and setting aside initial funding to begin the process of correcting these injustices of the past. Ultimately, the compensation mechanism for injustices of the former Iraqi regime to Iraqi citizens should be decided and compensated by the Iraqi Government. But to help the process to begin quickly the Coalition is seeking $25 million for initial compensation payments as well as the operating costs of the Task Force. It was noted that Ambassador Bremer identified the initiative in a previous speech to Iraqis.
Motion to approve made by the Representative from CPA/Governance and seconded by the Representative from CJTF-7. Chairman asked if consultation had occurred with the relevant ministries including the Ministries of Finance and Planning, and CPA/Governance said consultation had occurred with the Iraqi Ministries of Finance and Planning. Chairman asked about recurring expenditures and CPA/Governance said it depended on decisions made by the Iraqi government who will control it. CPA/Governance emphasized that control and decisions on the fund would be left to the Iraqis. The Representative from the UK stated that it was premature to allocate funding to something so embryonic but that it would be reasonable to set up a task force. The Representatives from the Iraqi MoP and MoF both stated they supported the proposal with the same limitations as the Iraqi Property Claims Commission, particularly in light of how property issues were intertwined with victims compensation. The Representative from Australia asked if the Governing Council had been consulted on this proposal and CPA/Governance stated it had been and that they supported it. The Representative from the UK put forth a motion to amend the proposal to provide for administrative and organizational costs, but to prohibit the disbursement of compensation to victims by the IPCC before July 1, 2004. The motion was seconded and approved by a vote of 10 to 1. The motion to approve the amended proposal passed.
APPROVED AS AMENDED: DFI $25,000,000
#694—Public Distribution System--$200,000,000. Ministry of Trade (MoT)/James Warlick. The purpose of the system is to secure additional funding to maintain current levels of food procurement through 2004. The current funding level is inadequate to fund the food procurements necessary to maintain current food distribution levels. $2.7B is required to fully fund the purchase and distribution of the food ration provided to the Iraqi people. Current and planned food procurement levels provide for the maintaining of a buffer stock of the staple commodities that make up the food ration. Sufficient buffer stocks are essential, especially in an environment where security concerns are prevalent. The composition of the food basket has been scrutinized by Iraqi officials. Reprioritizing the current budget would jeopardize the ability to continue providing the minimum dietary requirements necessary. Eliminating buffer stocks would drastically increase the likelihood of shortages of staple commodities.
A motion to approve was made by the Representative from Governance and seconded by the Representative from CJTF-7. The Representative from the UK stated he had “hearsay evidence” that the food basket included inappropriate items and he had some concerns with the appropriateness of this as well as concern for proper evaluation of the nutritional content of the food which should come from the Ministry of Health, not Trade. CPA/MoT stated that he did not know the nutritional information but the MoT had discussed such matters with relevant ministries and professionals and came to this decision. The Representative from CIC mentioned that other countries were considering donating food and that the MoT should coordinate. Representative from the UK asked about confidence in the estimation of funding needs, and CPA/MoT stated that estimates were scrutinized. The Iraqi Minister of Trade stated his support for the proposal, as did the Representatives from the Iraqi Ministries of Finance and Planning. The motion to approve passed unanimously.
APPROVED: DFI $200,000,000
#695—Stand-up Iraqi Security Forces--$500,000,000. OSC/Brig. General Nigel Aylwin-Foster. The purpose of this request is to provide the Iraqi security forces with sufficient resources to ensure an orderly transition to sovereignty on June 30, 2004, and to ensure the future security of a sovereign Iraq. The evolving security needs are based on the events of recent months, which threaten the transition to Iraqi sovereignty as well as the long-term security of the Nation. The approach outlined in this proposal is to complement that of identifying and implementing security-related reconstruction efforts, based primarily at the local and governorate level, which was recently endorsed by the Program Review Board. The Iraqi people have expressed a desire for improved security. The people want the coalition presence to be less obvious and for Iraqi security forces to assume greater presence and responsibilities. To ensure success of the Iraqi efforts, the Iraqi budget must provide the Iraqi Security Forces with the equipment and facilities that allow them the capability to do their job. Failure to fund these initiatives will delay the time that Iraqi Security Forces will be a viable and instrumental security element. This will prolong presence of coalition forces, particularly in the urban areas, in large numbers.
Motion to approve was made by the Representative from CJTF-7 and seconded by the Representative from Economic Policy. The Representative from Australia stated he had concerns about the level of discretion for spending and the lack of specificity of the proposal. The Representative from Australia asked about whether U.S. Supplemental funds for security had all been spent. CPA/OSC stated that there was no limit to the amount one could spend on security, and that these funds were necessary to limit risk and were the top priorities. The Deputy Senior Advisor for the OSC stated the entire amount of U.S. Supplemental funds is dedicated to specific projects. The Representative from the UK asked if any of the projects in the proposal were in the 2207 report send to the U.S. Congress and the Deputy Senior Advisor for the OSC responded that there was no duplication. The Representative from CPA/HCA stated that nothing in the proposal duplicated anything in the U.S. Supplemental and that all contracts are competitively bid and not sole-sourced contracts.
The Representative from the Iraqi MoF stated security was a top priority and money needed to be allocated as soon as possible and the Representative from the Iraqi Ministry of Interior (MOI) agreed. The Iraqi Minster of Defense also spoke out in support the proposal. The Representative from the UK proposed an amendment to the proposal to prohibit the disbursement of DFI funds as an add-on to any existing contract if the existing contract had not been competitively bid. The Representative from Australia seconded the motion and the motion to amend the proposal passed. The Representative from the UK noted there was insufficient detail on some of the requests and there was no reference to recurring costs for operations and maintenance. CPA/OSC responded that the proposed projects had been thoroughly discussed with relevant Iraqi ministries, including a discussion of contracts, and it would be up to the Iraqi ministries to identify costs and fund them. CPA/OSC offered to provide additional detail on the proposed projects. The offer was accepted and additional detail will be provided. The Representative from the Iraqi MoF stated that the program had been discussed with him and other relevant ministries and delaying implementation would cause problems. The Representative from the Iraqi MoP stated that because these projects were essential, funding of recurring costs would be dealt with accordingly in the future. The Representative from Australia noted that despite his view of the inadequacy of the proposal he would take the word of the Iraqi ministries. The Representative from CIC requested feedback on PRB#685 (status of the previous $500 million recommended by the PRB on April 23, 2004) and CPA/OSC responded that information will be provided. The Representative from the UK questioned if alternative solutions were evaluated and stated that there was no real option analysis or evaluative tolls to determine effectiveness of requested security funding. CPA/OSC responded that security issues were not simply a matter of value for money and that the exigent circumstances also had to be considered. The motion to approve the amended proposal was passed.
APPROVED AS AMENDED: DFI $500,000,000
#696—Electricity Sector--$315,000,000. Ministry of Electricity (MoE)/Jimmy Hicks. The availability of electricity is directly tied to economic growth and community well being. In the past regime, the investment in the reliability and availability of electricity was minimal. While there has been significant investment in electric assets since the end of the war, the current system cannot keep up with the increasing demand. The funds requested in this proposal are an important part of the plan to grow the assets to meet customer’s needs. The requested funding can be divided into six areas of need and briefly described below under justification. The total effect of this funding request will be to increase reliability and availability of electricity for Iraq while at the same time lowering the per unit operating cost of the assets.
A motion to approve was put forth and seconded by the Representative from Economic Policy. Chairman asked if there had been consultation with relevant Iraqi ministries and CPA/MoE said there had been. Chairman asked about recurring expenses and CPA/MoE stated that recurring expenses were expected to be minimal. Chairman asked if other funding sources were considered, including international donors. CPA/MoE responded that other sources were explored but nothing was available. The Representative from Australia asked if any of the proposed projects were covered by the U.S. Supplemental and CPA/MoE answered that none of the projects were funded in the U.S. Supplemental. The Representative from Australia asked if the contracting process would all be done on a competitive basis and CPA/MoE responded affirmatively. The Representative from the UK cited a discrepancy in the proposal and asked how the electricity demand was expected to be met by 2007. The Representative from the UK also asked about potential revenue sources such as regulatory pricing and potential reductions in demand due to the collection of revenues or the introduction of conservation measures. CPA/MoE responded that currently there is insufficient fund collection but there was consideration for a regulatory pricing mechanism starting with commercial and other large users. The Representative from the UK asked about an energy efficiency program and CPA/MoE responded there is such a program and an information campaign on conservation. The Representatives from the Iraqi Ministries of Finance and Planning stated they had been consulted about the program, and studied and supported it.
The Representative from the UK noted that the costs of all electricity projects have exceeded target projections although some costs had been reduced. The Representative from the UK requested assurance that revised costs estimates were accurate, and CPA/MoE stated that estimations reflected a higher degree of clarity than past estimates because a more extensive survey of equipment and requirements had been conducted and refined. The Representative from the UK asked about the contracting process after June 30, 2004. CPA/MoE responded that the Iraqi MoE had obtained the services of the Army Corps. of Engineers to assist in the contracting process. The Representative from General Counsel stated that all sub-contractors were openly bid for and that Army Corps. Engineer salaries and overhead were funded by the U.S. Government. The motion to approve passed unanimously.
APPROVED: DFI $315,000,000
#697—Oil Infrastructure Rebuilding--$460,000,000. Ministry of Oil (MoO)/Norm Szydlowski. Additional investment funding in the oil infrastructure is badly needed for Iraq to maintain 2004 target levels of production and provide petroleum products to meet domestic demand. Failure to meet this demand may contribute to civil unrest throughout Iraq which will be detrimental to the transition to Iraqi sovereignty. To address these infrastructure needs, $460 million of investment funding is requested. The projects include $201 million for downstream, $255 million for upstream, and $5 million for metering.
CPA/MoO stated the Iraqi MoO had looked within its budget for additional funds and could not find any. CPA/MoO stated that consultation with the relevant ministries including Finance and Planning had occurred and that recurring expenses for the proposed projects would be minimal. The Representative from the Iraqi MoO stated that because oil generated a majority of the revenue for the government the projects were imperative and could not be delayed. A motion to approve was brought forth by the Representative from Economic Policy and seconded by the Representative from CJTF-7. The Representative from the UK asked if any of the projects were funded by the U.S. Supplemental and CPA/MoO responded that there was no duplication of projects. The Representative from the UK asked about the contracting process and the Representative from the Iraqi MoO stated that all contracts were conducted on a competitive basis. The motion to approve passed unanimously.
APPROVED: DFI $460,000,000
#698—Agriculture Reconstruction and Development for Iraq--$65,000,000. Ministry of Agriculture(MoA)/Peter King. This request to the PRB is for funds for the Ministry of Agriculture to reconstruct critical agricultural infrastructure in Iraq. It will be used to rehabilitate research centers for both animals and crops, veterinary clinics and hospitals, seed certification and production facilities; fish hatcheries, livestock vaccine production facilities, farmer extension and applied research training centers, village level grain storage facilities, etc. The economy of Iraq has suffered twenty years of neglect and degradation of the country’s infrastructure, environment, and social services. Since the mid-1980s the ruling regime neglected public infrastructure and investment, and conflicts further damaged infrastructure, transport links, and investment confidence.
Objective: This agricultural development and food security program is designed to support private sector development and assure food security for the Iraqi population by:
CPA/MoA stated that most of the proposals were new, and that the Ministry of Agriculture had transitioned to Iraqi control and were getting in place a contracting process. CPA/MoA stated that recurring expenditures from the projects would be minimal and will be offset by expected revenue from the projects. CPA/MoA also stated that consultation had occurred with the Iraqi Ministries of Finance and Planning. A motion to approve was made by the Representative from CIC and seconded by the Representative from Australia. The Representative from the UK stated his support for the level of detail in the proposal and requested the data from the project be made publicly available. The Representative from the UK put forth a motion to amend the proposal to limit re-allocation of the approved funds to no more than 25% for any one of the twelve projects detailed in the proposal and the motion was seconded and passed. The motion to approve the amended proposal passed unanimously.
APPROVED AS AMENDED: DFI $65,000,000
#699—SOE Rehabilitation--$65,000,000. Private Sector Development (PSD)/Bernie Carreau. The purpose of this program is to provide capital to critical State-Owned Enterprises (SOEs) to support reconstruction efforts and social stability. This request covers the cement, fertilizer, and petrochemical industries. Many SOEs of the Ministry of Industry & Minerals are operating below pre-war capacity (or not operating at all). This request provides key SOEs with the minimal funds necessary to get the factories operating and people back to work. In addition, a small portion of the request is to provide short- and long-term capital to small and medium private sector companies in Iraq. This is intended especially to help Iraqi firms competing for reconstruction contracts.
A motion to approve was made by the Representative from Economic Policy and seconded. Chairman asked how the contracting for the loan program was planned, and CPA/PSD responded that they would contract out to a Non-governmental Organization (NGO). Chairman asked if there had been consultation with relevant Iraqi ministries, including finance and planning, and CPA/PSD answered affirmatively. The Representative from the Iraqi MoF requested that the $15,000,000 included in the proposal for loans to small and medium enterprises be taken out. The Representative from CIC remarked that the Ministry of Planning already had a fund dedicated to private sector lending. The Representative from the Iraqi MoP requested further discussion on the money dedicated for private sector loans. A motion to amend the proposal to exclude the $15,000,000 requested to provide short- and long-term capital to small and medium private sector companies in Iraq was brought forth, seconded and passed. The motion to approve the amended proposal passed.
APPROVED AS AMENDED: DFI $50,000,000
#700—Vocational Training--$65,000,000. MOLSA/Craig Davis. In post-war period, the Ministry of Labor and Social Affairs (MOLSA) operated six traditional vocational training centers in the 15 southern governorates: Mosul, Kirkuk, Najaf, Basrah, and two in Baghdad. In addition, one center in Irbil was operated by the Ministry of Health and Social Affairs (MOHSA), a Kurdish counterpart to MOLSA. All the centers functioned with outdated curricula, training methodology, and equipment. After the war, the Arab centers were looted, destroyed, and fell into disuse. Funding to rehabilitate and upgrade Voc Ed centers was not forthcoming. No funding for equipment, staff, or programs was allocated in the 2004 Iraqi Budget. As late as December 2003, the only functioning center in the country was Irbil.
Motion to approve made by the Representative from Governance and seconded. The Representative from the UK asked if the program was operationally practical. MOLSA stated that is was practical, and international consultants would be responsible for their own security. Chairman stated his view that despite the risks inherent in the proposal, the potential benefits, particularly concerning security, outweighed those risks. Representative from the UK asked for confirmation that the program was in fact countrywide and for all religious and ethnic groups. MOLSA confirmed that the programs were in fact countrywide and designated for all religious and ethnic groups. The Deputy Senior Advisor for the OSC stated the importance of the proposal, as did The Representatives from the Iraqi Ministries of Finance and Planning. The motion to approve passed unanimously.
APPROVED: DFI $65,000,000