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Oil-for-Food Programme
Background Note and Answers to Recent Questions
(25 April 2003)
A
Unique Humanitarian Venture
The United Nations Security Council established the
Oil-for-Food Programme when it became painfully clear that sanctions
imposed on Iraq to contain Saddam Hussein’s regime were taking a
terrible toll on the health and nutrition of millions of innocent
people. With the door to exports and imports closed, essential
services, from electricity to hospital care, were severely degraded.
The Programme was established under resolution 986 in 1995 and
implemented as of December 1996.
How
it works
Under resolution 986, and close scrutiny by the Security
Council, the Programme is mandated to channel revenues from oil
exported through two authorized outlets to an Iraq Escrow Account
administered by the United Nations. Oil revenues are used to pay for
humanitarian imports (72 per cent), compensation for damages from
the Gulf war (25 per cent), administrative and operational costs for
the UN, including nine UN agencies and organizations (2.2 per cent);
and weapons inspections by UNMOVIC and the IAEA (0.8 per cent).
Oil pipeline fees are also paid to Turkey for oil flowing
through the Kirkuk-Yumurtalik pipeline to the port of Ceyhan on the
Turkish Mediterranean coast.
Scale
of the Programme
The sheer scale of the Programme and its ability to underpin
a wide range of civilian needs makes Oil-for-Food unique among UN
operations. It has literally affected the lives of every household
in the country. From the initial list of authorized imports, the
Council expanded the role of the Oil-for-Food Programme to include
the rehabilitation of essential infrastructure, electricity
generation, water supply and sanitation, telecommunications,
transportation, education, school and housing construction, and
other needs across a total of 24 sectors.
Programme
Finances
The Programme currently has $3.2 billion in Escrow
(uncommitted funds), and almost $10 billion in the production and
delivery pipeline for Iraq (committed). It also has fully processed
contracts, pending funding, worth $7 billion. In addition, there are
registered contracts with a total value of over $7 billion, which
remain unprocessed due to the shortfall in funding.
Some
Programme Achievements
Before the current war, some 560,000 metric tons of food
items were imported under Oil-for-Food every month and distributed
nationwide through some 44,000 private food agents. Every resident
received a food ration basket and 60 per cent of the population were
totally dependent on it. Under Oil-for-Food, the nutritional value
of the Iraqi ration basket doubled between 1996 and 2002 and
malnutrition among children under five years of age was halved.
There have been other notable achievements in the health, water and
sanitation, education, agriculture, housing, electricity, transport
and telecommunications sectors, as well as assistance with de-mining
and to internally displaced persons in the north.
War-Related
Developments
On 17 March 2003, the
United Nations Secretary-General announced that in view of warnings
received from the Governments of the United Kingdom and the United
States, regarding the continued safety and security of UN personnel
present in the territory of Iraq, he had decided that he was no
longer in a position to guarantee their safety and security. As a
result, he was obliged to withdraw temporarily all remaining
humanitarian personnel from Iraq.
On 18 March, the President
of the Security Council asked the Secretary-General to submit
proposals to adjust the mandate of the Oil-for-Food Programme so
that it would have the necessary flexibility to meet new
humanitarian challenges presented by the prospect of war.
On 28 March, the Council gave the Secretary-General
authority under resolution 1472 (2003) to accelerate the delivery of
emergency items from the humanitarian pipeline and called for the
maintenance of the national food network as the backbone of post war
food distribution. Under the resolution, this authority expired on
12 May.
On 24 April, the Secretary-General’s authority
under resolution 1472 was extended under resolution 1476 until 3
June when the mandate of the Oil-for-Food Programme in its current
phase XIII is to expire. The extension under resolution 1476, gives
the Office of the Iraq Programme and UN agencies, valuable time to
identify and ship additional goods and supplies.
Recent Criticism of Oil-for-Food
The Oil-for-Food Programme has existed in a highly
politicized environment from day one. But despite its size, it went
about its work with relatively little media attention, or fanfare
for its achievements. With the war, has come a much more intense
focus on the future of Iraq, its people and the disposition of its
resources. Over the past six years the Programme’s command of
Iraqi oil exports ($64 billion since December 1996), the processing
of over 36,000 import contracts, the delivery of almost $29 billion
in humanitarian goods and supplies, with another $10 billion on the
way, have made Oil-for-Food unique among UN operations. The scale of
these operations has also made it a rather large target.
Is it true that the programme operates in secrecy?
The Oil-for-Food Programme is one of the most audited
operations in the United Nations system.
During the past five years, there have been a total of almost
100 external and internal audits.
The United Nations Board of Auditors, composed of independent
external public auditors appointed by the UN General Assembly,
audits the UN/Iraq Account every six months. Board members are
high-ranking specialists designated by UN Member States. External
audits are shared with all UN Member States, including, of course,
the United States. Internal audits are carried out by the UN Office
of Oversight Services which, until last month, had resident auditors
in Baghdad and in Erbil in the north of Iraq.
Furthermore,
the Security Council and its Sanctions Committee receive regular
briefings and comprehensive reports on all aspects of the Programme
every 90 days. Most written reports are posted on a website
maintained by the Office of the Iraq Programme (www.un.org/Depts/oip).
Oil-for-Food contracts are screened and processed through
layered review procedures involving, the Office of the Iraq
Programme, UNMOVIC and the IAEA. All processed contracts are shared
with each member of the Sanctions Committee. The attention of the
Committee is drawn in particular to all contracts which have items
included in the Goods Review List, which could have a possible
‘dual’ military use.
How do you respond to the charge that the UN creams off 2.2% of OFFP
money ?
It doesn’t. It gets 2.2 per cent to cover its operational
costs.
Members of the Security Council decided how Iraqi oil revenues
should be apportioned when they adopted resolution 986 establishing
the Programme. They decided that the actual cost of monitoring the
Government of Iraq under sanctions would require 2.2 per cent and
would include:
- operations of the UN,
including nine UN agencies and programmes. The UN implemented the
programme in the north on behalf of the government of Iraq. The main
responsibility of the UN system in the centre/south was observation
and monitoring in order to give the necessary assurances to the
Security Council that the supplies and equipment provided under the
programme were being utilized for authorized purposes and the
distribution of supplies was adequate and done on an equitable
basis.
- monitoring 24/7 at the two
authorized oil export terminals and five border entry crossings;
- salaries for 900
international and 3,400 Iraqi national staff.
Any private corporation able to run a multi-billion dollar
humanitarian operation of the size and complexity of Oil-for-Food
with 2.2 per cent for overheads, would boast to its shareholders.
The Oil-for-Food Programme is extraordinarily lean, and it never
“kept” a penny it didn’t actually need. Over six years the
Office of the Iraq Programme gave back a total of $272 million of
its operational budget for the purchase of additional humanitarian
goods and supplies.
Has the programme “morphed into big business”?
The Oil-for-Food Programme has expanded under successive
Security Council resolutions to cover the needs of 27 million people
across 24 sectors of need in a country the size of California. The
scale of civilian needs in Iraq persuaded the Security Council to
remove the ceiling on the volume of oil that could be sold under the
programme. Revenues since 1996 total some $64 billion – clearly
not a small business. One could describe the purchase and
distribution of 560,000 metric tonnes of food rations through 44,000
food agents nationwide each month as ‘big business’. Iraq is not
a small country.
Has the programme generated a “bonanza of jobs and commercial
clout”?
Under normal pre-war operations, Oil-for-Food had some 900
international staff. More than half were assigned to the north where
the UN implements the Programme through nine UN agencies on behalf
of the government. The Programme also employs some 3,400 Iraqi
nationals, many of whom continued to report for work during the war
at significant personal risk. Contrary to some claims, UN
observations and monitoring were carried out by UN international
staff, and not by Iraqi nationals.
Is it true that deals have been “tilted heavily towards
Saddam Hussein’s preferred trading partners”?
The Security Council in all its resolutions has recognized
the sovereignty and territorial integrity of Iraq. Resolution 986
gave the Government of Iraq the right to decide who it sells its oil
to and who it purchases its supplies from – subject to close
scrutiny of the volume and price of oil sold, as approved by the
Sanctions Committee which includes the United States. The choice and
use of imported goods and supplies are also subject to close
scrutiny and approval by the Committee, or by the Secretariat on its
behalf. Oversight and observation are maintained by the Sanctions
Committee.
What about purchases from countries that don’t manufacture the
goods being bought, such as Syrians supplying Toyotas and Libyans
supplying soap?
How many Americans or Europeans buy their Toyotas direct
from the shop floor in Japan? Some
critics ask why Syria, Lebanon, Libya, Algeria, Yemen, Sudan are
listed as suppliers of detergents and soap. Why not? It is not
unusual that Iraq would favour regional manufacturers, car dealers,
or suppliers of detergents and powdered milk who also happen to be
within relatively easy shipping distance. The UN, in any case,
played no role in the choice of suppliers. All resolutions passed by
the Security Council in relation to Iraq, recognize its national
sovereignty and territorial integrity. Under those resolutions the
government was allowed to choose its own suppliers and to decide who
it wanted to sell its oil to, subject to close UN observation and
reporting and the establishment of fair market prices for oil, as
approved by the Sanctions Committee.
What about
the purchase of goods such as boats and sporting goods?
These items were not prohibited by the Security Council
resolutions and the Council Sanctions Committee got copies of all
contracts. Had they objected the goods would not have been approved.
It’s also worth noting that Baghdad lies between two major rivers
– the Tigris and the Euphrates, and sports are as much a part of
its youth activities as they are of other nations, with the same
benefits to its young people.
Charges that the Programme is responsible for favouritism in
the awarding of contracts to particular nations or that it has
ignored the import of frivolous items under oil-for-food, is also to
suggest that the individual Security Council members
who were so intimately and publicly involved in efforts to
contain the regime of Saddam Hussein, had somehow been asleep at the
wheel for the past seven years. To anyone who has observed the
contentious oversight of the Council, with its built in checks and
balances, this is nonsense.
Why is it that almost all contract information on the website of
the Oil-for-Food Programme is generic and details of pricing on
individual contracts are secret?
In all its business practices the UN follows standard
commercial procedures, which respect the confidentiality of
transactions between buyers and sellers. Members of the Security
Council, however, receive copies of all contract applications. At
national level, all trade ministries also have knowledge of
contracts and bidding procedures. They are in fact the first
checkpoint on the types of items that their national enterprises
might bid for. Furthermore, all suppliers submit their contract
applications to the Office of the Iraq Programme through their
respective permanent missions to the United Nations.
Why does a
French bank handle letters of credit for the Programme?
BNP Paribas was selected, as are all banks serving the UN for
the Oil-for-Food Programme, on a competitive basis. The first
competitive bidding was completed before the BNP merger with Banque
Paribas, before the commencement of oil exports pursuant to
resolution 986 (1995) establishing the Oil-for-Food Programme. Since
then, there have been four rounds of competitive bidding and the UN
is currently considering a further round, to further diversify the
portfolio.
It is a longstanding policy of the United Nations not to
disclose the names of banks where funds are deposited or invested,
or to allow vendors to advertise that they are suppliers to the UN.
Banks receive no management fees under the programme as investment
decisions are made by the United Nations Treasury. Interest rates
are competitively determined when funds are invested in the market,
and all interest earned is returned to the Programme.
Is it true that the Kurds have been unable to find out how
much interest is “owed” them on the 13 per cent account ?
The Security Council recognized only one
government in Iraq. The Office of the Iraq Programme, the UN
Humanitarian Coordinator in Iraq, and the UN’s nine agencies and
programmes in the North, do however have close working relations
with the local Kurdish authorities in the North, fully consulting
with them on their needs, goals and development priorities. While
the UN fully consults with local authorities, it is the UN which is
fully responsible and accountable for the Programme. The Programme
has delivered across the broad spectrum of needs in the region,
including food and medicines, education, agriculture, electricity
supply, water and sanitation services, assistance to the internally
displaced and most vulnerable groups, and de-mining activities. All
interest paid on the 13 per cent account for the three northern
governorates is paid back into the 13 per cent account. All
financial information is shared throughout all phases of the
Programme with members of the Security Council and with the
Government of Iraq.
How
has resolution 1472 changed the OFFP operation ?
Under the authority given to the
Secretary-General by resolution 1472 the Oil-for-Food Programme
gained flexibility to:
- establish alternative locations inside and
outside Iraq for the delivery, inspection and authentication of
supplies and equipment and to redirect shipments to those locations
as necessary. The new locations are: the Mediterranean ports of
Iskenderun in Turkey and Latakia in Syria, the Jordanian port of
Aqaba on the Red Sea, the Gulf port in Kuwait and a location, yet to
be named, in Iran. Each offers the advantages of bulk-handling
facilities, warehousing and good road links with Iraq.
- urgently review approved funded and
non-funded contracts to determine priorities for the shipment of
food, medicines, health supplies, water and sanitation supplies and
equipment.
The Council’s initiative also extended the UN’s
authority to implement operations to include the 15 central and
southern governorates. Under the original terms of the Oil-for-Food
Programme, the Government of Iraq was responsible for
implementation, under close UN observation, in the centre/south
while the UN implemented the programme in the three northern
governorates.
The Council reaffirmed the sovereignty of Iraq
and the right of its people to control their own natural resources.
It also stressed the need to sustain the national food distribution
network.
Under the new authority granted to the Secretary-General
through 3 June 2003, uncommitted, or unencumbered, funds in the Iraq
Escrow account can be used to compensate shippers and suppliers for
any diversion or trans-shipment to alternative delivery locations;
the purchase of locally produced goods; and to meet local costs,
such as milling or transportation, essential to the delivery of
humanitarian supplies. The Escrow can also be used to pay for
priority contracts that are approved but not funded, and to fund new
contracts for essential medical items. UNICEF and WHO are reviewing
their requirements for medical items.
What is the scale of resources that can be made be available ?
The value of priority goods and supplies that can be shipped
to Iraq from the Oil-for-Food pipeline within the 12 May timeline
offered by Security Council resolution 1472 (2003) reached $454.6
million this week (18 April). Most of these supplies, covered by 160
contracts, are in the food ($236.4 million), electricity ($119.3
million) and health ($53.1 million) sectors and are already in
transit to Iraq. The
Office of the Iraq Programme is continuing to identify the most
easily accessible priority items in the pipeline and negotiate with
suppliers to speed the shipment of supplies under already approved
contracts. Six UN agencies -- UNDP, WFP, FAO, WHO, UNHCR and
UNICEF -- have ‘adopted’ those items that fit their specialized
needs. Priority goods include wheat, milk powder, rice and vegetable
oil, as well as
drugs,
medical supplies and equipment, irrigation sprinklers for
agriculture, gas turbine generators, water pumps, vehicles and spare
parts.
In
a briefing to the Security Council on 22 April, the Executive
Director of the Programme, Mr. Benon Sevan indicated that with the
extension of the 45-day period ending 12 May under resolution 1472
(2003), it would be possible to ship an additional $139 million
worth of food as well as other important items, bringing the total
of “shippable” items within the range of $600-$700 million by 3
June.
How
does this relate to the $2.2 billion UN Flash Appeal for Iraq ?
Only a portion of the $10.3 billion in the humanitarian
pipeline consists of items that can be used for humanitarian relief.
Items such as water purification tablets, potable water equipment,
etc., are not available under the Programme and need to be purchased
urgently. There are also insufficient commodities in the pipeline to
address malnutrition through supplemental feeding, in particular
high protein biscuits and therapeutic milk. Secondly, of the portion
of goods that are usable for humanitarian purposes only a part will
be deliverable in time to meet even the extended deadline. And
finally, a proportion of the food commodities under the flash appeal
are of a perishable nature and require a staggered delivery
schedule, putting them outside the parameters of the modified
Oil-for-Food arrangements.
UN agencies and organizations will
therefore require substantial additional funds immediately to meet
total expected needs over the next six months.
WFP,
for example, requires a total of $1.3 billion to meet food needs
over the six months from May. Any humanitarian supplies that are
identified under the Oil-for-Food Programme and can reach Iraq in
time will be deducted from the total requested funds now being
sought from donors. As of 24 April, donors had pledged some $421
million to the flash appeal.
What
is the current capacity for distribution in Iraq ?
Before
the onset of war, the Government of Iraq advanced its distribution
of monthly food rations. However, most poor families barter or sell
part of their monthly rations to pay for other necessities and it is
estimated that foodstocks for the great majority of households will
be running very low by the end of April.
A post-war picture of the state of the Oil-for-Food
distribution network is beginning to emerge in the south of Iraq,
where agents have been contacted and limited secure warehousing has
been identified. Information on the situation in the centre is more
patchy. In all areas of the centre/south, however, there has been
widespread looting, including of UN premises, supplies, equipment
and vehicles. In the northern governorates, distribution has been
on-going with the help of national staff.
When
and how will aid be distributed ?
The UN will use all possible means, depending
upon the situation, humanitarian needs and security in the area
affected.
To get food supplies in, WFP is using four trucking routes,
through Turkey, Kuwait, Jordan and Syria, with supplies now going in
on an almost daily basis. UNICEF, WHO and other agencies have also
been arranging for deliveries of water, medical, health and other
emergency supplies, for distribution by national UN staff and
others.
The first UN international staff returned to full time
duties in northern Iraq on 23 April, and more will follow as ongoing
security assessments designate additional areas as being safe. UN
international staff, who have been commuting to work stations in the
south, only during daylight hours, are also expected to relocate in
the region full time from tomorrow – 26 April.
Compensation
Commission
In some criticisms, the UN Compensation Commission has been
erroneously placed under the Oil-for-Food Programme and criticized
for not publishing the identities of claimants. The United
Nations Compensation Commission is a subsidiary organ of the United
Nations Security Council. It was established by the Council in 1991
to process claims and pay compensation for losses resulting from
Iraq's invasion and occupation of Kuwait. Compensation is payable to
successful claimants from a special fund that receives a percentage (25 per cent) of the proceeds from sales of Iraqi oil.
The
Security Council established Iraq's legal responsibility for such
losses in its resolution 687 of 3 April 1991: "Iraq...is liable
under international law for any direct loss, damage, including
environmental damage and the depletion of natural resources, or
injury to foreign Governments, nationals and corporations, as a
result of Iraq's unlawful invasion and occupation of Kuwait".
The
Commission functions under the authority of the Security Council and
has a Governing Council, panels of Commissioners and a secretariat.
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