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Sat 28 Oct 2006 12:00 AM

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Counting the cost of reconstruction failures in Iraq

The reconstruction of Iraq is forecast to have consumed some US $18.4 billion by next June, when US funding is expected to run out. But more than three years on from the ousting of Saddam Hussein, Christopher Sell asks: Where has all that money been spent?

It has been over three years since US President George W Bush announced the ‘end of major combat operations’ in Iraq, ushering in a new era of reconstruction that was supposed to restore the country’s battered infrastructure.

In that time, almost US $18.4 billion has been spent on reconstruction projects across the country.

But the much vaunted reconstruction programme has increasingly made the headlines for the wrong reasons.

US involvement has been tarnished by abundant allegations of sub-standard construction, and general mismanagement.

In its report published last month, the Special Inspector General for Iraq Reconstruction (SIGIR) catalogued a host of failings that had resulted in the structural integrity of the $75 million Baghdad Police College being compromised by leaking effluent.

And there is a growing list of failure by US-run companies.

In 2004, Halliburton subsidiary Kellogg, Brown and Root was discovered to have spent the $76 million allocated for running a pipeline under the Tigris river, having completed only 28% of the drilling.

Despite warnings of failure, it had gone ahead.

A new contractor has switched to a more feasible route.

Earlier this month, an Iraqi police headquarters in the ethnically divided and volatile city of Mosul, was discovered to be rife with shoddy construction and is exposing security forces to unnecessary risk, according to the SIGIR.

On this occasion, the US Army Corps of Engineers attempted to eliminate problems previously encountered by contracting directly to a local Iraqi company.

Unfortunately, despite being a much smaller ($988,000) contract, the work encountered similar troubles to the Baghdad College.

One part of the contract called for the construction of 10 showers, 12 toilets, 10 urinals, 10 sinks and a changing room.

Instead, one shower and one toilet had been built and there was no changing room.

Last March, US auditors found that Parsons Corporation had spent $186 million over two years, 77% of its budget, but had completed only six of 150 primary health care clinics planned for Iraq.

Army engineers said Parsons had failed to supervise subcontractors’ work and the contract has been terminated by mutual agreement.

According to Nader Habibi, head of the Middle East Country Intelligence Group for the economic and risk assessment service, Global Insight, the root causes of the reconstruction problems can be split into two main categories: the unavoidable factors arising from violence and insurgency and avoidable factors arising from mismanagement and poor governance.

“Providing security for private contracts adds 10 to 25% to the cost of reconstruction,” he said.

“Insurgency causes additional damage to the infrastructure and oil industry.

Lack of basic services is also a major burden on the construction effort.”

But this was compounded, he added, by mismanagement during the coalition provisional authority period (CPA), when there was inadequate protection against waste.

“Normal accounting procedures of US government were neglected in some cases.

Many cases of fraud went undetected.

“The management of reconstruction programmes was allocated on the basis of political loyalty rather than technical expertise.

Many projects were awarded on the basis of no-bid contracts, which resulted in overcharge and abuse of funds,” he said.

In fact, of those companies contracted in Iraq, nearly 60% had employees or board members who had either served in or had close ties to the executive branch for Republican and Democratic administrations, or at the highest levels of the military, according to a study conducted by the Centre for Public Integrity, which is tackling corruption.

Kellogg, Brown and Root, formerly headed by Dick Cheney, before he took office as US vice president, was top recipient of federal contracts, with more than $2.3 billion awarded to the company.

Bechtel Group, a major government contractor with similarly high-ranking ties was second with $1.03 billion.

Of the $20 billion raised through oil revenues over the last three years, $8.8 billion is still unaccounted for.

So poor was the management of these funds that the CPA maintained one fund of almost $600m cash, for which there is no paperwork; $200m of which was kept in a room of one of Saddam’s former palaces with the key kept in a soldiers backpack.

On one occasion, $1.4 billion had to be transported to a bank via three helicopters as it weighed 14 tonnes, but no deposit slip was obtained.

One Iraqi ministry claimed to be paying 8,206 guards but only 602 could be found.

Currently the SIGIR is investigating 72 cases of alleged fraud and corruption.

But to focus purely on the financial issues and the failings of US engineers misses the point.

It may have been unrealistic to expect a country dogged by political fragmentation and lack of co-operation amongst sectarian factions to be a conducive platform for construction.

“Preoccupation with sectarian violence and competition over division of power has diverted the Iraqi government’s attention away from the construction programme.

The judiciary and police forces that must create a safe environment for reconstruction efforts are paralysed by sectarian fragmentation and political chaos.

The government does not have the unity and internal cohesiveness to successfully supervise the reconstruction effort,” said Habibi.

So should Iraq look to itself to carry out the work?

“In more recent times the Iraqi authorities have taken charge of reconstruction, but fraud and corruption is still a major problem,” said Habibi.

“Large amounts of oil products are smuggled out of Iraq while it has to spend more than $4 billion per year on the import of oil products.”

“The success of construction work varies from region to region.

In the Kurdish region, construction activity has moved forward without much interruption and has been supported by the Kurdish regional government.

In Baghdad and central regions of Iraq, the political and security impediments to reconstruction are worse than other regions and reconstruction has been slow.”

Despite the increased funds directed towards security during the reconstruction process (an estimated $2.5 billion earmarked for electricity was redirected to build up a security force), Bush announced at the beginning of the year that he would not be pursuing further funds for reconstruction.

Therefore the allocation of $18.4 billion is expected to run out by June 2007.

Whether Iraq’s infrastructure will be in a substantially improved state than before the invasion, is still a question open to debate.

“The management of reconstruction programmes was allocated on the basis of political loyalty rather than technical expertise.”

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