Executive summary……………………………………….. … 

I. Introduction ……………………………………………...................1-4 1-2

1472 (2003), 1476 (2003) and 1483 (2003)……………......... 5-13 2-3

III. Unencumbered funds in the escrow account…………...... 14-19 3-4

resolution 1483 (2003)……………………………….. .....................20-27 4-6

resolution 1483 (2003)………………………………… .....................28-36 6-8

VI. Programme activities in the three northern governorates… 37-62 8-13

A. Tripartite Working Groups………………………………....................41-44 9-10

B. Budgetary Framework…………………………………….....................45-56 10-12

C. The preparatory process undertaken by the United Nations........ 57-61 12-13

D. Outstanding Issues………………………………………….................    62 13

VII. UN staff reduction and its impact…………………………… 63-66 14-15

VIII. A comprehensive exit strategy……………………………… 67-69 15

IX. Conclusions and recommendations…………………………... 70-77 15-17

The present report describes actions taken by the United Nations with regard to the phasing down and termination of the Oil-for-Food Programme and the transfer of financial resources, assets, operations and documentation to the Coalition Provisional Authority (CPA) by 21 November, as required under Security Council resolution 1483 (2003) of 22 May 2003. It provides information on the status of unencumbered funds ($2.6 billion) and the prioritization of contracts with a total value of $7 billion out of a delivery pipeline valued at $10 billion, pursuant to resolutions 1472 (2003), 1476 (2003) and 1483 (2003). With less than 10 weeks to the Programme’s termination, the report includes an assessment of handover processes underway in the three northern governorates, in consultation with the CPA, the local authorities and the UN agencies and programmes. It also presents outstanding issues that are essential for the orderly termination of the Programme in the three northern governorates.

The report notes that handover preparations and best-case scenarios have been undermined by chronic insecurity and the tragic terrorist attack of 19 August on UN headquarters in Baghdad. Among new realities addressed by the report are:

- The immediate and longer-term impact of UN international staff reductions in Iraq on the handover timetable;

- Major constraints on the delivery of humanitarian supplies essential for the current needs of the Iraqi people and an effective time-bound handover. The absence of secure locations for authentication of incoming goods has severely handicapped the timely delivery of supplies and equipment. The report also outlines initiatives taken by the Office of the Iraq Programme (OIP) to overcome the obstacles.

The report draws attention to the very slow start by the CPA in its engagement with the United Nations in the transfer process in the three northern governorates due to an insufficient number of CPA counterparts to work with the United Nations staff. In that regard it notes the delayed appointment of the CPA Senior Advisor for the Oil-for-Food Programme, who arrived in Erbil on 9 August. Also awaiting timely CPA actions are: a schedule and modalities for handing over the administration and management of projects, programmes and activities; and legal agreement on the transfer of Programme assets.

In anticipation of resolution 1483 (2003), the Office of the Iraq Programme shared a checklist with all parties concerned to guide a timely and orderly phasing down and handover of its activities. The report outlines agreements reached during the visit to Iraq (6 to 25 August) of the Executive Director of the Iraq Programme, following consultations with the CPA Senior Advisor and representatives of the local authorities.

The report concludes that while the Steering Group on Iraq has authorized the minimum number of 115 UN international staff required for the orderly termination of the Programme in the three northern governorates, unless the CPA increases most expeditiously the number of its personnel in the transfer process, the difficulties currently faced may become insurmountable irrespective of the number of UN personnel in place.

1. In paragraph 16 of its resolution 1483 (2003) of 22 May 2003, the Security Council, inter alia, requested the Secretary-General, in coordination with the Authority - the Coalition Provisional Authority (CPA) - to “continue the exercise of his responsibilities under resolutions 1472 (2003) of 28 March 2003 and 1476 (2003) of 24 April 2003, for a period of six months following the adoption of the resolution, and terminate within this time period [by 21 November 2003], in the most cost effective manner, the ongoing operations of the ‘Oil-for-Food’ Programme (the ‘Programme”), both at headquarters level and in the field, transferring responsibility for the administration of any remaining activity under the Programme to the Authority.”

2. The Programme covered 24 sectors, and $65 billion worth of oil was exported since its start in December 1996. More than $46 billion of that amount was allocated to the Programme, after deductions for other accounts pursuant to relevant resolutions. A total of $38 billion was apportioned to the 15 governorates in the centre/south of Iraq, under the ESB (59 per cent) account, and $8.1 billion to the three northern governorates, under the ESC (13 per cent) account. The total value of contracts received (37,515) and approved (30,298) was, respectively, $53.8 billion and $45.8 billion - with $39.19 billion worth of contracts (26,867) approved and fully funded, $6.66 billion worth of contracts (3,431) unfunded. As of 14 April 2003, with no additional funding expected, $7.5 billion worth of contracts (1,951) were simply registered by the Office of the Iraq Programme (OIP), without any further action.

3. Under the Programme, more than $30 billion worth of goods have been delivered to Iraq as a whole, including: foodstuffs ($12 billion); food handling ($2.2 billion); agriculture ($2.4 billion); medicines ($2.3 billion); water and sanitation ($1.3 billion); electricity ($2.2 billion); housing ($1.7 billion); and for the oil sector ($1.9 billion). In addition, before the start of the war in March 2003, the delivery pipeline contained goods to the value of some $10 billion, fully funded. As at 12 September 2003, over $7 billion worth of goods in the pipeline had been prioritized pursuant to resolutions 1472 (2003), 1476 (2003) and 1483 (2003).

[1] With the adoption of resolution 1472 (2003) the Council authorized the Secretary-General for a period of 45 days to facilitate the delivery and receipt of goods contracted by the Government of Iraq for the humanitarian needs of its people. That mandate was subsequently extended to 3 June by resolution 1476 (2003), which coincided with the end of phase XIII of the Programme. 

[2] Food, food handling, health, nutrition, electricity, agriculture and irrigation, education, transport and telecommunications, water and sanitation, housing, settlement rehabilitation (Internally Displaced Persons – IDPs), mine action, special allocation for especially vulnerable groups, oil industry spare parts and equipment, construction, industry, labour and social affairs, Board of Youth and Sports, information, culture, religious affairs, justice, finance, and the Central Bank of Iraq. 

[3] ESD (2.2 per cent) account for UN administrative and operational costs ($1.114 billion); ESE (UNSCOM/UNMOVIC) account ($470 million); CWA (Compensation Fund) ($17.994 billion); RWA (escrow account established by resolution 778 (1992) ($209.5 million); and pipeline fee to Turkey ($1.290 billion).

4. The present report provides a brief account of the measures taken by the United Nations to implement the relevant provisions of Security Council resolutions 1472 (2003), 1476 (2003) and 1483 (2003) concerning the Programme, in particular with regard to the prioritization of contracts, as well as the phasing down and termination of the Programme by 21 November 2003. The report also describes the serious difficulties encountered, particularly due to the prevailing security situation in the country, in ensuring an orderly and timely transfer of Programme activities, projects and assets to the CPA, and makes a number of recommendations thereon.

5. Pursuant to resolutions 1472 (2003) and 1476 (2003), a total of $1.4 billion worth of items were prioritized from the Programme’s humanitarian delivery pipeline of over $10 billion under the ESB (59 per cent) account that could be shipped to Iraq for emergency needs, concerning the following sectors: food ($748 million), electricity ($297 million), agriculture ($184 million), health ($126 million) and water and sanitation ($40 million).

6. Pursuant to paragraph 17 of resolution 1483 (2003), on 28 May 2003 the Controller transferred $1 billion to the Development Fund for Iraq, from unencumbered funds in the ESB (59 per cent) and ESC (13 per cent) accounts.

7. Pursuant to paragraph 16 (c) of resolution 1483 (2003), the Secretary-General submitted to the Council, on 11 June 2003, a report on the estimated operating budget based on funds set aside in the ESD (2.2 per cent) account for the United Nations administrative and operational costs for the period ending 21 November 2003 (S/2003/640). The estimated budget identified, inter alia, “all known and projected costs to the United Nations required to ensure the continued functioning of the activities associated with the implementation of the present resolution” and “all known and projected costs associated with the termination of the Programme.” As stated in paragraph 16 of the above report, the balance at the end of May 2003 in the ESD (2.2 percent) account was estimated at $400 million. After deducting the estimated operating budget ($106.6 million) and the contingency reserve ($16 million), the surplus available amounted to $277.4 million.

8. At the informal consultations held on 16 June 2003, the Council made a preliminary review of the report of the Secretary-General and referred it to the Security Council Committee established by resolution 661(1990) for further consideration. The Committee has taken no further action on the report.

Consolidation of accounts

9. Pursuant to paragraph 16 (d) of resolution 1483 (2003), the ESB (59 per cent) and ESC (13 per cent) accounts have been consolidated.

10. Pursuant to paragraph 18 of resolution 1483 (2003), monitoring of the export of petroleum and petroleum products, including monitoring of the utilization of oil spare parts and equipment purchased under the Programme was terminated, effective 22 May 2003. Accordingly, the Office of the Iraq Programme (OIP) terminated the contract with Saybolt for the provision of oil inspection agents and monitoring of oil spare parts and equipment.

11. OIP, in consultation with representatives of the CPA and the relevant Iraqi officials at the Ministry of Oil, is preparing the necessary documentation, including copies of contracts and other relevant data, for transfer to the CPA and the ministry of oil. (CD-ROMs for phases XI, XII and XIII, as well as the list of oil purchasers registered with OIP were transferred to the CPA and the acting head of the Ministry of Oil. CD-ROMs concerning previous phases will also be made available).

12. Pursuant to paragraph 18 of resolution 1483 (2003), all UN observation and monitoring activities have ceased. The core of all activities undertaken by the United Nations in the 15 governorates in the centre/south of Iraq was observation and monitoring of the distribution and utilization of supplies and equipment purchased under the Programme.

13. All members of the United Nations Guards Contingent (UNGCI) were withdrawn at the time of the evacuation of UN international staff in March 2003. The contributing countries were informed that for the time being the services of the UNGCI would not be required. The former Chief of UNGCI is presently serving as Security Advisor with UNOHCI.

14. The Programme has had no revenue from oil sales since 20 March 2003. As at 12 September 2003, following the transfer of $1 billion to the Development Fund for Iraq pursuant to paragraph 17 of resolution 1483, the balance of unencumbered funds in the consolidated account referred to in paragraph 9 above, was about $2.6 billion.

15. In a letter dated 28 August 2003 addressed to the Secretary-General, the Permanent Representative of the United States of America to the United Nations conveyed an “urgent request from CPA seeking specific financial information concerning the 13 percent UN Oil-for-Food escrow account, in particular with regard to the unencumbered funds and funds associated with specific projects.” The CPA has also repeatedly requested that the surplus of $277.4 million in the ESD (2.2 per cent) account referred to in paragraph 16 of the report of the Secretary-General be transferred urgently to the Development Fund for Iraq (S/2003/640).

16. Under the present circumstances, it is difficult to estimate the exact amount of surplus funds in the escrow accounts established pursuant to resolution 986 (1995), which will be available for transfer after 21 November to the Development Fund for Iraq, as required in paragraph 17 of resolution 1483 (2003). With regard to the requested “specific financial information” concerning the ESC (13 per cent) account, any information provided could only be provisional, as there remain a number of outstanding matters that can be addressed only after the publication of the national budget by the CPA on 1 October 2003.

17. With regard to the surplus of funds in the ESD (2.2 per cent) account and the unencumbered funds in the consolidated account, it must be borne in mind that since the publication of the report of the Secretary-General (S/2003/640) on 11 June 2003, there have been unforeseen additional and costly requirements for United Nations administrative and operational activities. These include revisions proposed by the CPA in mid-July for inspection and authentication sites for supplies and equipment arriving in Iraq, referred to in paragraph 30 below. Additional costs arising from renegotiations of the multitude of prioritized contracts under the ESB (59 per cent) account referred to in paragraphs 5 above and 22 to 25 below, have been and will continue to be covered from unencumbered funds referred to in paragraph 14 above, as will the cost of the new projects referred to in paragraph 27 below.

18. This situation has been compounded by the bombing of the UN headquarters at the Canal Hotel in Baghdad, on 19 August. Additional funds will be required for, inter alia, construction of new premises and security measures, as well as the redeployment of international staff.

19. Accordingly, it is essential to review the estimated budget requirements under the ESD (2.2 per cent) account before making a final decision on the transfer of the surplus funds referred to above. It is also essential to keep under constant review the funds committed to approved projects and activities in the three northern governorates as well as the unencumbered funds available in the consolidated account.

20. In paragraph 16 (b) of resolution 1483 (2003), the Security Council requested the Secretary-General to review, in coordination with CPA and the Iraqi interim administration, “the relative utility of each approved and funded contract with a view to determining whether such contracts contain items required to meet the needs of the people of Iraq both now and during reconstruction, and to postpone action on those contracts determined to be of questionable utility and the respective letters of credit until an internationally recognized, representative government of Iraq is in a position to make its own determination as to whether such contracts shall be fulfilled.”

21. OIP immediately took the necessary measures for the implementation of the relevant provisions of paragraph 16 of resolution 1483 (2003). Through continuing discussions held in Baghdad, modalities of coordination, as envisaged in the resolution, were agreed upon, and the CPA provided a list of individuals who would serve as its focal points in dealing with matters related to eight sectors. Sectoral working groups, composed of representatives of the Office of the United Nations Coordinator in Iraq (UNOHCI), the UN agencies and programmes concerned, the CPA coordinators and advisors for the relevant sectors, and their Iraqi sectoral counterparts were established. The working groups convened as frequently as necessary in order to deal with issues related to the prioritization of contracts. Schedules of all prioritized contracts are submitted to OIP under the signatures of the concerned UN agencies and programmes, the CPA, the relevant official of the Iraqi ministry concerned and UNOHCI. OIP has kept the Security Council Committee established by resolution 661 (1990) fully informed on the prioritized contracts.

22. Additional contracts - additional to those referred to in paragraph 5 above - have been reviewed and the value of supplies and equipment prioritized for shipment to Iraq pursuant to resolution 1483 (2003) had reached, as at 9 September 2003, over $5.6 billion: food ($1.4 billion); electricity ($808 million); agriculture ($557 million); health ($270 million); water and sanitation ($500 million); education ($62 million); food-handling ($406 million); housing ($267 million); special allocations ($94 million); telecommunications and transportation ($210 million) and oil spare parts and equipment ($1.02 billion). The CPA has recently accelerated the process of submitting requests for prioritization of contracts for expeditious delivery to Iraq, using procedures proposed by OIP.

23. As at 9 September 2003, out of the $10 billion worth of contracts in the delivery pipeline, the total value of all contracts identified as priority under resolutions 1472 (2003), 1476 (2003) and 1483 (2003) was over $7 billion. The total number of contracts in the delivery pipeline, which are not yet prioritized and are still under review was, as at 9 September, 2,559, with a total value of $2.32 billion.

24. OIP established procedures for handling $1.9 billion worth of approved contracts for the oil sector listed in the delivery pipeline, which do not fall within the purview of any UN agency or programme. The above-mentioned contracts, as well as other contracts concerning various sectors that were in transit but not “adopted” by a UN agency or programme, have now been assigned to the United Nations Office for Project Services (UNOPS) for negotiating the required amendments, as appropriate, regarding their delivery to Iraq.

25. Some previously approved but unfunded contracts have also been prioritized and funded, in view of urgent needs of the Iraqi people. As at 9 September, 155 such contracts with a total value of about $380 million concerning the food, food handling and agriculture sectors, had been funded: Food ($366,173,810), Food Handling ($13,391,323), and Agriculture ($17,220). As at

11 September 2003, the total number of approved but unfunded contracts was 3,413, with a value of $6.67 billion.

26. Due to the delay by CPA in identifying alternative delivery locations inside Iraq, referred to in paragraph 28 below, compounded by the security developments since 19 August, there have been considerable delays in finalizing the amendments to the prioritized contracts. As at 16 September, the total number of amendments to contracts submitted by the UN agencies and programmes was 214. OIP has requested the UN agencies and programmes to expedite their efforts in finalizing the amendments, if need be by retaining the services of additional staff. Given the volume of the prioritized contracts, however, it may not be possible to finalize all amendments before 21 November. It must be borne in mind that although contracts are prioritized, not all the supplies are scheduled to arrive prior to the termination of the Programme. While supplies under many contracts are intended for immediate delivery, most of the items in the prioritized contracts are scheduled to arrive during the course of 2004.

27. Furthermore, since the adoption of resolution 1483 (2003), 11 new projects, with a total value of $450 million, have been approved, with funding from unencumbered funds in the escrow account. They include contracts for procurement of essential medicines ($22 million); local procurement of wheat and barley as well as wheat and barley seeds ($188.62 million); rehabilitation of veterinarian facilities - ‘cold chain’ ($5.35 million); procurement of fertilizers for the winter season ($118.29 million); procurement of fungicides for treatment of wheat and barley seeds ($6.81 million); emergency rehabilitation of irrigation pumping stations ($2.4 million); and printing of textbooks for the 2003/2004 academic year ($72.39 million).

28. In a letter dated 16 July 2003 addressed to the Executive Director of the Iraq Programme, the CPA Senior Advisor, Ministry of Trade, proposed that Cotecna inspectors continue authentication of the supplies and equipment purchased under the Programme at Zakho and resume authentication at Umm Qasr, in order to ensure that goods purchased under the Programme are delivered to their final destinations. It was also proposed to establish three new bases for the inspectors in Baghdad, Basrah and Kirkuk. Furthermore, it was proposed that the inspectors would travel from the above bases to final delivery sites identified by the receiving Ministries to authenticate the goods. Previously established bases of operations at Al-Walid and Trebil, respectively at the border with Syria and Jordan, were considered to pose too much of a security risk. After discussions with the CPA, in a letter dated 9 August 2003 addressed to the CPA Senior Advisor, the Executive Director of the Iraq Programme confirmed agreement, subject to security assessments by the Office of the United Nations Security Coordinator (UNSECOORD), with the establishment of the five operational bases mentioned above, from where the inspectors would be deployed for inspecting goods delivered by the suppliers to some 50 alternative delivery locations.

29. The current security situation, however, has rendered that option inoperable. Basing authentication on confirmation by the purchaser also presents problems as the Office of Legal Affairs, UN Treasury and BNP Paribas have raised concerns that such an arrangement would be inconsistent with international commercial practice and present other potential problems. Accordingly, the preferred option for inspection and authentication of goods is to revert to the system in place just before the withdrawal of the inspectors on 17 March 2003. However, the essential prerequisite for such an option is the existence of adequate and sustainable security conditions, which would enable UNSECOORD and the Designated Official for security in Iraq to give security clearance for staff to be deployed for operations in those locations.

Zakho

30. The Iraqi entry point at the Turkish border, Zakho, was the first such location where Cotecna staff were redeployed following confirmation of stable security conditions and appropriate clearance by the Designated Official and UNSECOORD. As long as the security situation remains relatively stable in the three northern governorates, Cotecna will be able to continue to carry out authentication activities at Zakho.

31. It would be desirable if security conditions could also allow the reactivation of Cotecna sites at Al-Walid, Trebil and Umm Qasr, and the resumption of inspection/ authentication activities in accordance with the arrangements in place prior to the war. However, unless

adequate security and safety of the Al Walid and Trebil sites can be assured, the relevant Cotecna sites cannot be reactivated. The only other feasible option for inspection/authentication would be for Cotecna to relocate on the Jordanian and Syrian sides of the borders, as closely as possible to the Trebil and Al-Walid entry points. Given the volume of trucks to be inspected and time constraints, it is unlikely that Cotecna would be able to secure adequate inspection facilities in the vicinity of the border within a matter of weeks. Considering that only ten weeks remain until the end of the Programme’s mandate, it is recommended that the senior management of OIP approach the permanent representatives of Jordan and Syria with a view to requesting that Cotecna inspectors be permitted to utilize the facilities available to their respective customs authorities at the border entry points to Iraq. If such permission were to be granted, the customs premises in the above-mentioned countries could be designated as alternative inspection/authentication locations permitted by the contract between the United Nations and

Cotecna, and Cotecna would be required to transfer staff to the border locations and start operations at the sites concerned within a maximum of 10 days. It is proposed that, initially, a

total of 16 Cotecna inspectors be deployed to work from the customs premises of the Jordanian and Syrian authorities.

32. The Jordanian and Syrian customs posts are located just a short distance from the border entry points with Iraq. Authentication would go forth, as in the period prior to the withdrawal of Cotecna from Iraq, immediately after the inspection of the goods, provided any required laboratory tests have been performed satisfactorily.

33. If the agreement of the Governments of Jordan and Syria to the above proposal is obtained, OIP will immediately deploy the necessary staff, together with senior Cotecna staff, to establish the modalities of the operations with the Jordanian and Syrian customs authorities. Specifically, a system should be established to monitor the entry into, and departure from, Iraq of trucks that have transported supplies and equipment purchased under the Programme, in an effort to ensure that supplies and equipment imported under the Programme are not being diverted from Iraq. This measure should provide a greater degree of confidence to CPA that goods authenticated at the entry points are not being “carouseled” and will reach the end user.

34. In the case of the seaport of Umm Qasr, the challenge for inspections is greater, as there is no corresponding land boundary at which Cotecna inspectors could be based. If UNSECOORD establishes that Umm Qasr is safe for United Nations operations, the preferred option would be to redeploy Cotecna staff to their previous site at Umm Qasr after it has been adequately refurbished.

35. If reactivation of the Cotecna site at Umm Qasr is not considered to be a viable option, then there is another alternative course of action available, which is, however, far from perfect. That would be to reroute all goods consigned to Umm Qasr through Kuwait for inspection, authentication and subsequent escorted delivery to Umm Qasr. This would, however, complicate negotiations with suppliers considerably, and the diversion would incur additional expense to the Iraq account.

36. All the above recommendations and options would require close coordination with the CPA and UNSECOORD.

37. In anticipation of the adoption of resolution 1483 (2003), OIP had decided that all agencies, funds and programmes concerned should refrain from initiating new projects in the three northern governorates of Dahuk, Erbil and Sulaymaniyah and concentrate their efforts on expediting the completion of projects already underway. Furthermore, it was decided that all concerned should refrain from initiating new contracts unless they were directly related to and essential for the completion of projects in progress.

38. In order to ensure the timely transfer of all operational responsibility, as well as all Programme assets and relevant documents to the CPA, the United Nations requested the CPA to take the measures necessary to secure the presence of appropriate CPA representatives in the region. Furthermore, it was proposed to the CPA that similar to the establishment of sectoral working groups in Baghdad, a separate multi-disciplinary working group be established, based in Erbil, in order to start immediately the process of reviewing all projects undertaken by the United Nations in the three northern governorates in order to ensure their orderly transfer, together with operational responsibility of the Programme to the CPA.

39. On 14 July 2003, the UN Humanitarian Coordinator in Iraq submitted to the CPA Senior Advisor, Ministry of Trade, Baghdad, the list of 320 projects approved under the ESC (13 per cent) account. It may be recalled that until phase IV (1998), the Programme was mainly involved in the delivery of essential humanitarian supplies. Owing to relatively limited financial resources, there were no large-scale capital or rehabilitation projects. As the Council raised the funding level, and thereafter lifted the ceiling on oil exports during subsequent phases, additional resources were also made available for rehabilitation and reconstruction activities in the three northern governorates.

40. Until the bombing of the UN headquarters in Baghdad on 19 August 2003, the transfer process was essentially driven by the CPA, and meeting the deadlines required for the orderly transfer by 21 November hinged on the sufficient staff resources of the CPA and the timeliness of its consultative and decision making process. Regrettably, CPA had a slow start in assigning sufficient staff resources. Although resolution 1483 (2003) was adopted on 22 May 2003, the CPA Senior Advisor for the Oil-for-Food Transition Team in the three northern governorates arrived in Erbil on 9 August 2003. The prevailing serious security situation since 19 August, however, which has resulted in the substantial reduction of UN international staff, has further compounded the difficulties faced in the orderly transfer of Programme assets and activities to the CPA by 21 November 2003.

41. The Executive Director of the Iraq Programme undertook a mission to Iraq from 6 to 15 August to help advance the transfer process.

42. In response to CPA’s decision that the United Nations should transfer Programme assets and activities in the three northern governorates directly to the local authorities, the Executive Director of the Iraq Programme drew to the attention of the CPA Senior Advisor as well as the local authorities the relevant provision of paragraph 16 of resolution 1483 (2003). He emphasized that pursuant to the above resolution, the United Nations will transfer all Programme assets, fixed and movable, remaining activities and related responsibilities to the CPA. He added that it was up to the CPA to transfer such assets to the local authorities or any other Iraqi entity. In that regard he drew attention to the draft agreement for the transfer of assets, which he had transmitted to the CPA after having it cleared by the Legal Counsel.

43 At meetings held on 9 and 13 August 2003 between the CPA Senior Advisor, the Executive Director of the Iraq Programme and the representatives of the local authorities in the three northern governorates it was decided to establish:

(a) A High Level Tripartite Working Group (HLTWG) composed of the CPA Senior Advisor, who would also chair the meetings, the representative of United Nations Office of the Humanitarian Coordinator in Iraq (UNOHCI), and senior representatives of the local authorities in Erbil and Sulaymaniyah. All policy matters and final decisions would be taken by the HLTWG. Unless decided by the CPA, no new projects would be approved/funded, renegotiated and/or resumed;

(b) Sectoral Tripartite Working Groups composed of the relevant UN agencies and programmes, CPA sectoral advisors in the three northern governorates (and Baghdad), UNOHCI and the relevant representatives of the local authorities. The Working Groups, chaired by CPA, would review all projects and related matters and submit recommendations to the HLTWG for its consideration and final decision.

44. It was agreed that the guiding principle throughout the process must be the needs of the Iraqi people. Furthermore, while operating at a unified regional level and within an overall national policy framework, the local authorities from the three northern governorates should be represented, with a view to ensuring that governorate-specific requirements were taken into account. It was also agreed that all participants would work on the basis of a common document

prepared by UNOHCI, in consultation with the UN agencies and programmes concerned. Furthermore, it was agreed that the transfer of any assets and/or projects would require the approval of all the members of the HLTWG. In order to ensure a smooth and orderly transfer of projects, the relevant local authorities would designate focal points that would start working

immediately with their counterparts at the UN agencies and programmes based on “a common roof approach”. As at 4 September 2003, the HLTWG had held five meetings and the Tripartite Sectoral Working Groups have held 29.

45. At the request of the CPA, tripartite sectoral working group meetings were organized with the participation of UN agencies and programmes in order to assist the local authorities in their prioritization of Programme projects for inclusion in the national budget. The CPA deadline for submission of projects for incorporation into the national budget was 25 August.

46. The HLTWG is currently reviewing the 2004 budget for the three northern governorates. However, other than the provision of relevant information on certain recurrent costs that were

incurred under the Programme and technical support, the United Nations has no role in the formulation of the budget or in the prioritization of Programme projects for inclusion in the national budget.

47. The CPA has informed the United Nations that the national budget will be approved and published on 1 October 2003. However, tentative estimates may be available on 15 September 2003.

48. In the context of the CPA’s decision to transfer Programme projects and assets in the three northern governorates to the local authorities, the UN agencies and programmes were asked to prepare an assessment of local capacity to plan, implement, manage and monitor the projects and activities, as well as their respective recurrent costs. Based on the results of the assessments, the sectors will be categorized into two: (a) sectors, which can be managed independently by the local authorities (i.e., construction and service sectors); (b) sectors that would need technical support. Preliminary findings indicate the need for technical support and guidance, training and supplies, particularly in the food handling, rural water supply and sanitation, electricity,

agriculture, health and education sectors. The local authorities can carry out independently the rehabilitation and settlement programme.

49. The total number of Programme projects and activities is 427 (320 projects and 107 activities), with an estimated total value of $3.31 billion. All 107 activities, with an estimated total value of $992 million, have been completed. Out of the 320 projects, 213 amounting to $1.46 billion were approved in 2002 and beginning of 2003 - 7 were completed and 15 did not commence due to the uncertain situation in Iraq. The remaining 127, estimated at about $860 million were approved between 2001 and 2002 - 23 were completed. Most of the projects were designed and planned for completion by 2005.

50. At the HLTWG meeting on 24 August, the local authorities from Erbil and Sulaymaniyah presented an incomplete budget based on projects prioritized as “Urgent, Very Important and Important”. Although most of the projects selected were under the Programme, there were some that were new and for areas outside the three northern governorates. The total amount presented for the projects under the Programme, excluding the new projects as well as recurring costs, was $2.4 billion. Such a level of funding would most probably be revised downwards by the CPA in Baghdad, due to the shortfall in funding, particularly in view of difficulties being experienced in exporting oil.

51. Only after the national budget is published on 1 October, would it be possible to determine which ongoing projects will be funded after the termination of the Programme, and those that should be discontinued. Furthermore, arrangements for the termination and/or continuation of contracts associated with those projects can be made only after the publication of the budget. In view of the very substantial number of local and international contracts concluded under the Programme, it is a matter of serious concern that the timeframe for the resolution of any arising contractual issues will be very limited.

52. As of May 2003, the total value of assets procured under the ESC (13 per cent) account was estimated at $1.38 billion, consisting of fixed assets (about $790 million) and movable assets ($590 million). In addition, as of July 2003, there was an estimated $150 million worth of inventory in the warehouses under the control of the UN agencies and programmes. As of May 2003, the total value of assets in the three northern governorates, procured under the ESD (2.2 per cent) account, was estimated to be $33 million. The above estimates, however, are not based on audited figures and can only be used for planning purposes. More precise data should be available by the end of September.

53. Given the current level of insecurity and the reduction of international staff, discussions are under way regarding the feasibility of carrying out in Amman, Jordan, part of the paperwork required for the transfer. In that regard, cargo flights would be organized to move documents and carry out the task on a rotation basis from Erbil and Amman.

54. UN agencies and programmes, with the exception of the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the World Health Organization (WHO), have established local property survey boards to examine obsolete and damaged items, and to decide on the disposal of such items. WHO has established a joint committee with the participation of the local authorities for the disposal of expired medicines, and it will be covered by the report to be handed to the CPA. The report of the joint committee is expected by the end of September.

55. In the absence of sufficient CPA personnel in the three northern governorates, joint technical evaluation of Programme assets could not commence as early as desirable. Furthermore, with the substantial reduction in the total number of UN international staff since 19  August, the envisaged physical count of assets and inventories cannot be carried out, as planned, within the time constraints. Accordingly, there is no alternative to transferring the assets, “as is” to the CPA, together with the relevant documentation. It was suggested to the CPA that it retain private Iraqi consultants or contractors to work, on its behalf, with the UN agencies and programmes.

56. The CPA has recently retained the services of a consulting firm for the handover process, which is considering the introduction of a “sampling techniques”. Based on the results of their findings, the transfer of assets and activities could be based on the relevant documents prepared by the UN agencies and programmes, and an identification of high value assets where physical count would be made, without a review of the rest of the assets. Based on their initial discussions and the review of documentation thus far, the consultants seem to be confident that the sampling technique could be acceptable. The consultants have also expressed their satisfaction with the documentation made available to them.

57. Paragraph 16 (f) of resolution 1483 (2003) states that the Programme should deliver “all relevant documentation” to the CPA. The criteria for determining such documentation should be whether it is a necessary tool that would enable the recipient entity to administer and manage the Programme projects and assets.

58. Prior to the temporary suspension of Programme activities in March 2003, UNOHCI had commenced arrangements for the termination and transfer of Programme assets and projects. UN agencies and programmes were requested to complete “project checklists” which set out, amongst other information, financial expenditures incurred under each project, date of initiation and completion, location of the project, status of implementation and ongoing local and international contracts that were concluded by the agency/programme for the project.

59. UNOHCI has also obtained from the UN agencies and programmes, exit strategy documents, sectoral overviews and lists of warehouse assets. All the documents have been made available to the CPA and the respective local entities in order to facilitate the transfer arrangements. Copies of standard form contracts used by the UN agencies and programmes have also been shared with the CPA to enable an understanding of the legal implications, which arise in the context of the termination and transfer of the Programme.

60. There is a consensus within the United Nations that completed and ongoing projects, programmes and activities may be transferred to the CPA through the instrumentality of a “dossier” prepared for each project. The proposed dossiers would contain the following: agreement on the transfer of assets, the project checklists, all active contracts and purchase orders pertaining to the project, deeds of assignment of active contracts, information on warranties, feasibility studies, inventory of assets for each project, as well as extracts of relevant correspondence with the local and national authorities that pertain solely to the management of the facility.

61. UN agencies and programmes have informed UNOHCI that the bulk of the information required to complete the dossiers will be available by 15 September, after which date the UN would be in a position to begin the transfer of projects covered by those dossiers.

62. Although a number of understandings and agreements have been reached with the CPA, the following matters have not yet been resolved or finalized and await action by CPA:

(a) An understanding with the CPA on the methodology for the transfer process;

(b) An understanding with the CPA on the time schedule for the transfer process;

(c) The modalities for the transfer of the administration and management of projects and activities;

(d) The inclusion of ESC (2.2 percent) account assets in the transfer process; and

(e) A bilateral agreement concerning the transfer of assets, based on a UN Draft Agreement, as cleared by the Office of Legal Affairs, which was submitted to the CPA. The CPA has been requested to submit its proposed revisions to the draft agreement through the Permanent Mission of the United States.

63. Pursuant to the recommendations of the UN Country Team in Iraq and endorsed by the Steering Group, it was decided that United Nations staff numbers at all duty stations in Iraq be limited to available office space and living accommodations, which are compliant with the Minimum Operating Security Standards (MOSS). On 30 August 2003, after the visit to Erbil by the UN Security Coordinator and discussions held with the UN Country Team and the local authorities in the region, it was agreed to reduce the total number of UN international staff in the three northern governorates to 50. That number, however, was meant for indicative planning purposes.

64. After further consultations on 2 September, UNOHCI and UN agencies and programmes determined that a minimum number of 115 international staff - reduced from 316 - would be required for an orderly phasing-down and termination of the Programme by 21 November 2003.

It was also proposed that work would continue from Amman - paperwork especially - accompanied by the rotation of staff, as necessary, to meet the requirements. Even with this reduction it was understood much would depend on the security situation.

65. On 9 September, the Deputy Humanitarian Coordinator in the three northern governorates informed OIP that, after consultations with the UN agencies and programmes, that the minimum number of international staff required for the handover process was 115, comprising: WFP (15); UNICEF (5); (UNDP 7); UNOPS (18); HABITAT (5); FAO (11) WHO (15); UNESCO (5); ITU (1); UNOHCI (23) and Cotecna inspectors (10) based at Zakho, for the authentication of Programme supplies entering Iraq at the Turkish border. The agencies not involved in the handover process are UNHCR (6); IOM (3), and the Center area offices 8 (6 WFP and 2 UNOHCI).

66. It is inevitable that any UN international staff reductions will have a significant impact on the transfer process. Reductions in staff will:

(a) Slow down efforts being made by the agencies to prepare project dossiers;

(b) Most likely prevent the United Nations from giving a proper and detailed account of ESC (13 percent account) and ESD (2.2 per cent) assets in its custody. It is essential that international staff oversee such an exercise;

c) Have a negative impact on capacity building measures needed to enable local authority personnel to administer and manage sectoral programmes;

d) Handicap proposed joint UN/CPA technical evaluation of installed facilities, machinery, equipment, plant, vehicles and other assets due to be transferred. As a result, these assets would have to be transferred “as is”;

e) Reduce United Nations prospects of completing projects already initiated before 21 November 2003, and;

f) Prevent a complete examination of all assets imported under the Programme prior to transfer. UN agencies and programmes are currently examining all obsolete and damaged ESC (13 per cent) and ESD (2.2 per cent) account assets in their custody.

67. In paragraph 16 (f) of resolution 1483 (2003), the Secretary-General is requested “to provide the Security Council, 30 days prior to the termination of the Programme, with a comprehensive strategy developed in close coordination with the Authority and the Iraqi interim administration that would lead to the delivery of all relevant documentation and the transfer of all operational responsibility of the Programme to the Authority.” The report must be submitted to the Council by 21 October 2003.

68. In anticipation of the adoption of resolution 1483 (2003), OIP/UNOHCI had already begun the necessary preparations and actions required for phasing down the Programme and for its termination. A checklist for the orderly termination of the Programme was prepared, incorporating views expressed in discussions with the Authority in Iraq as well as with members of the Security Council Committee established by resolution 661 (1990). The checklist has been kept under constant review in order to ensure the timely and orderly phasing down and termination of the Programme.

69. The draft exit strategy will have to be revised in light of recent developments and the decision to reduce drastically the number of international staff.

70. Iraq will remain a dangerous place for United Nations personnel for the foreseeable future. The United Nations and its staff remain vulnerable to terrorist attacks, leaving the Organization with a difficult balancing act between the fulfillment of its responsibilities and the safety of its personnel. As the Secretary-General stated in Geneva on 12 September 2002: “We need to find a way to maximize the contribution we are making to the people of Iraq while minimizing the risk to our staff.”

71. Even under the best security conditions, the phasing down and termination of a programme of such magnitude in scope, level of funding and operational scale and complexity as the Oil-for-food Programme within a relatively short period of six months would be an extraordinary challenge. Concurrently with the phasing down and termination of the Programme, the United Nations had to continue providing essential humanitarian assistance to the Iraqi people. Despite the enormity of the tasks involved, the United Nations remained confident, subject to security conditions, of meeting the challenge for an orderly termination of the Programme by 21 November 2003 pursuant to resolution 1483 (2003).

72. The terrorist bombing of the United Nations headquarters in Baghdad on 19 August dealt a major blow to the timetable and procedures for the orderly phasing down and termination of the Programme meticulously negotiated with the CPA and other parties concerned. The number of UN international staff in Iraq had to be reduced substantially. Furthermore, authentication and shipments of humanitarian supplies and equipment under the Programme had to be temporarily suspended and/or slowed down.

73. The prevailing security conditions have made the alternative authentication arrangements for Programme supplies and equipment agreed upon by the CPA and OIP on 9 August unworkable. Hence, OIP’s current efforts to reach an understanding with the relevant authorities in some countries neighboring Iraq for co-location of Cotecna inspectors with their respective border customs installations, along their borders with Iraq.

74. Furthermore, the quadripartite sectoral working groups (CPA, the relevant Iraqi ministry, the relevant UN agency/programme and UNOHCI) that were established in order to facilitate the coordination of prioritization of contracts pursuant to paragraph 16 of resolution 1483 (2003), have been unable to meet in most cases, mainly due to the drastic reduction of UN international staff in Baghdad. Although alternative means of remote communication and coordination are now in place, they are not as efficient and expeditious as regular and direct contacts among all interlocutors. Efforts are being made to minimize the adverse impact of the present staff relocation on the process of prioritization and determination of relative utility of the remaining contracts in the delivery pipeline.

75. It is inevitable that any substantial reduction in the number of international staff in the three northern governorates will have a significant impact on the orderly transfer of Programme assets and activities to the CPA by 21 November. After a very slow start, the CPA has finally taken steps to increase its staff capacity for the transfer process. Regrettably, however, CPA’s efforts coincide with the heightened insecurity and drastic reduction in the number of UN international staff in the three northern governorates. As at 15 September 2003, the total number of international staff in the three northern governorates had already been reduced from 316 to 64, with an additional 14 staff members to be relocated out of the region, leaving behind a total of 50.

76. The minimum number of UN international staff required for an orderly transfer of over $1.5 billion worth of Programme assets acquired under the ESC (13 per cent) account and the transfer of responsibilities to the CPA as stipulated in resolution 1483 (2003), is 115. At present there are sufficient MOSS-compliant residences in the region to accommodate 70 international staff, and work is in progress to provide additional MOSS-compliant residences to accommodate up to 150 international staff within two weeks.

77. Accordingly, the endorsement by the Steering Group on Iraq on 16 September 2003 to authorize the minimum number of 115 UN international staff required for the orderly termination of the Programme in the three northern governorates by 21 November 2003, subject to a review of the security measures taken to ensure MOSS compliance of residences and workplaces, is most welcomed. However, unless CPA increases most expeditiously the number of its personnel involved in the transfer process, the difficulties faced may become insurmountable irrespective of the number of UN personnel in the three northern governorates.

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