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Cost of Reconstruction

Original estimates placed the cost of Iraqi reconstruction from 2004-2007 at $56 billion. This figure is separate from the $320 billion allocated through FY2006 to support US military operations in Iraq. This figure was drawn from estimates by the UN, World Bank, and the Coalition Provisional Authority (CPA). The UN/World Bank estimated that Iraq would require $36 billion for immediate and medium-term reconstruction in 14 priority areas including health, education, electricity, and human rights. Additionally, the CPA estimated that an additional $20 billion would be required to rebuild security and oil services. As of April 2006, the GAO recommended that $56 billion would be insufficient to complete Iraqi reconstruction. As of June 2006, no reliable figure for the eventual costs of Iraqi reconstruction existed. That said, as of April 2006, the United States has made available about $30 billion for Iraqi reconstruction, of which $23 billion has been obligated and $16 billion disbursed. International donors have pledged $13.6 billion, of which $2.7 billion has been provided, $900 million has been obligated, and $400 million has been disbursed, as of December 2005.

US reconstruction efforts have focused on restoring basic services in Iraq and specifically on rebuilding and refurbishing oil facilities, increasing the country's capacity to generate electricity, and rebuilding and refurbishing water treatment facilities. As of March 2006, oil production was below pre-war levels. Before the war, Iraq produced 2.6 million barrels of oil per day (mbd) and in 2005 it averaged 2.1mbd. DOD reported in April 2006 that over 500 oil, electricity, and water projects were either complete or underway in Iraq.

As of March 2006, US reconstruction efforts had not yet met planned "end-state" goals in the areas of electricity, oil, or water. The end goal for oil production capacity in Iraq is 3.0mbd but as of March 2006, oil production was at 2.0mbd. The end goal for peak electricity production is 6,000 MW but in March 2006, Iraq produced 4,092 MW (down from a peak of 5387 in July 2005). The end goal for water treatment capacity is 2.5 million cubic meters of water per day but capacity as of March 2006 was at 1.1 million cubic meters per day. Security concerns, management challenges, and sustainability problems all hinder the achievement of these goals and increase the potential for higher costs.

Initial cost estimates assumed a higher level of private sector investment and support from the Iraqi government than was realized by early 2006. Cost estimates assumed that oil production would surpass pre-war levels soon after the invasion was finished and that revenues from increased production would help to offset reconstruction costs. Since as of March 2006, oil production is lower than pre-war levels, government revenues have not been able to keep pace with original estimates.

Corruption and fraud are both problems that increase the cost of reconstruction in Iraq. According to the World Bank and UN, rules regarding public tendering and the competitive bidding process are not strictly followed and contracts are sometimes awarded on an ad hoc, non-transparent basis.

However, the major factor limiting reconstruction in Iraq remains security. Sectarian violence, concerns about civil war, terrorist bombinbs, a newly formed government, and outlawed militias all hinder reconstruction efforts. These security problems hinder the development of independent Iraqi forces and the ability of the US to decrease its military presence in Iraq and lower costs.

The major source of money for reconstruction in Iraq has come from Congressional supplemental appropriations. A supplemental spending bill passed by the House and Senate in June includes $56 billion for operations in Iraq, a portion of which will be set aside for reconstruction efforts. Similar supplementals were passed in FY2004 and FY2005. The majority of these supplementals are slated to fund military operations.

Additionally Iraqi assets frozen in the US since the first gulf war and bulk cash found in Iraq by coalition forces has been used for reconstruction. There is approximately $1.7 billion in frozen state assets in the United States that has been made available for reconstruction activities in Iraq.

Page last modified: 05-07-2011 02:29:42 ZULU