31 March 2000
Security Council Authorizes Increased Spending for Iraqi Oil Industry
(Accepts U.S. proposal to spend $600 million in 6 months) (820) By Judy Aita Washington File United Nations Correspondent United Nations -- The Security Council agreed to a U.S. proposal March 31 that will allow Iraq to spend a total of $600 million for oil spare parts and equipment under U.N. supervision to upgrade its oil industry. The United States proposed the resolution after Secretary General Kofi Annan reported on the condition of Iraq's oil industry and recommended that the amount of money Iraq is allowed to spend on repairing its oil industry be increased. He also recommended that the Iraq Sanctions Committee make an effort to expeditiously approve applications for oil spare parts and equipment. A group of oil industry experts appointed by the secretary general visited Iraq in January to analyze production, investment levels, refining, transportation, storage, spare parts and equipment. It said that the previously reported "lamentable state" of the Iraqi oil industry had not improved; in fact, the decline continued and was accelerating. "The ability of the Iraqi oil industry to sustain the current ... production levels will be seriously compromised unless effective action is taken immediately to reverse the situation" the experts said. They noted that without access to the majority of contracted spare parts and equipment, the crude oil production at the levels achieved in November 1999 is no longer sustainable and production had already decreased by 300,000 barrels per day or 10 percent. As a result, Annan recommended that the council increase the $300 million allocated to purchase oil spare parts and equipment in a six-month period be increased to $600 million. Over the past three years the list of items Iraq is allowed to import under the oil-for-food program has been expanded considerably and in late 1999 the ceiling on oil exports was completely eliminated. The rise in oil prices has also greatly increased the value of the exports and therefore increased the amount of money available to purchase humanitarian supplies. Under the first six phases of the program, which began three years ago, Iraq has exported 1,488 million barrels of crude oil with a value of $20,736 million. The total quantity of oil approved for export under the current phase amounts to about 2.548 million barrels a day for 180 days with an estimated revenue of $6,500 million. But Annan also reported that Iraq's oil industry is seriously hampered by lack of spare parts and equipment, a situation which threatens to undermine the oil-for-food program's income. Annan also warned the council that it needs to keep the effectiveness and the impact of the program under constant review and be ready to take further steps to improve it should that prove necessary. During a Security Council meeting on the humanitarian situation in Iraq March 24, U.S. Ambassador James Cunningham complained that the Iraqi regime is responsible for many of the problems its civilians and oil industry face, not the sanctions imposed at the end of the Gulf War in 1991. "No one denies that Iraq's poor oilfield management practices and lack of spare parts have resulted in critical circumstances for its oil production capacity," Cunningham said. "Yet at the same time, Iraq has converted container ports into oil depots and has brought on line new facilities to export petroleum products in order to steal money via smuggling -- money that otherwise would have been destined to the escrow account and the Iraqi people." Cunningham pointed out that under a Saybolt plan for Iraq to make the needed revenues, the then $5,200 million cap was exceeded in the last phase of the oil-for-food program. Iraqi oil exports are at about the pre-war level, a tremendous increase from the previous year, he said. On March 24, the United States also lifted 69 so-called "holds" it had placed on oil-for-food contracts totaling $111.2 million because it needed further clarification. Of the contracts released, 26 were for the oil sector worth $15.6 million and involved heavy machinery such as cranes, excavators, forklifts, lift trucks, and cesspit trucks as well as spare parts for such equipment. Other contracts were for tires, tubes, welding generators, and cluster station equipment. In the case of 11 of the contracts, the United States asked that Saybolt, the company which provides the U.N. with a range of services in the oil sector, monitor the goods to ensure that the highly mobile equipment is used for the purposes indicated and not diverted to military use for example. U.S. officials have pointed out that a number of the holds are caused by the failure of the companies to provide the information needed to determine whether the items are going to be used for activities allowed under the oil-for-food program. (The Washington File is a product of the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)
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