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Oil-for-Food Background Information

 

Statement by Benon V. Sevan
Executive Director of the Iraq Programme

to the Security Council on 4 September 1998

The current report of the Secretary-General to the Council (S/1998/823) provides a detailed assessment of the implementation of the oil-for-food programme – which remains a programme of unprecedented size and complexity.

I would like to provide you with an update and draw the Council’s attention to some issues which are of particular concern. In the course of my comments I hope to address some of the points raised by His Excellency, the Minister for Foreign Affairs of the Republic of Iraq, in his identical letters dated 23 July 1998 to the Secretary-General and the President of the Security Council (S/1998/689). We take very seriously the matters raised in communications from the Iraqi authorities as well as concerns expressed by members of the Council, regarding the three northern governorates, where the United Nations is responsible for the implementation of the programme on behalf of the Government, pursuant to the Memorandum of Understanding between the United Nations and the Government.

FOOD

I should like to begin on a positive note. After a slow beginning, the programme is now delivering significant quantities of foodstuffs and having a marked impact on the quantity of food available through the Government’s ration system.

In August and again this month, the food basket will be complete – providing approximately 2,000 kilocalories per person per day. Although this is still not enough and is short of the target set in the enhanced distribution plan (2,300), it compares very well with levels of 1,400 and less before the oil-for-food programme began deliveries just 18 months ago.

By the end of August, nearly 6.8 million tons of food worth $2.2 billion dollars had been delivered. I am able to inform the Council that these foodstuffs have been distributed equitably by the Government throughout the 15 governorates in the centre and south. The Government has handed over the full entitlement to the World Food Programme for distribution in the three northern governorates.

Erratic arrivals of foodstuffs have unfortunately continued, caused by late submissions of applications, inadequate commercial and financial communications as well as poor performance by some suppliers in making timely deliveries. Complaints by consumers about poor quality of supplies have usually been found to relate to consumer preferences; the overwhelming majority of commodities have indeed been delivered according to specifications. It should be noted, however, that the enhanced distribution plan, while increasing the caloric value of the food basket, is unlikely to lead to any marked improvement in the quality of foodstuffs distributed as this would require greater funding at the expense of other sectors, particularly now that we expect a shortfall in funding.

MEDICINE

The situation with the medical sector is complex and far from satisfactory. I accept the criticism from the Government that the rate of distribution to end users in the north is low, at just 20 per cent. However, in the centre and south where the government is responsible, only 16 per cent has reached end users. Nevertheless, I am not here to get involved in comparative figures. What we should all be working for is the benefit of the Iraqi people and to help them meet their medical requirements. The numbers alone do not tell the whole story and, in fact, can be misleading.

While there are considerable difficulties involved in the Government’s choice of suppliers, in the erratic arrival of goods and in the distribution system, it is essential to look beyond dollar figures. In the northern governorates, the World Health Organization is showing that it is possible to develop distribution based on needs and response to demands. The delivery of drugs and medical supplies to the three northern governorates has worked well. The automatic allocation of 13 per cent of supplies delivered to northern Iraq has been replaced by a more efficient supply system in response to specific demand. The United Nations observation system will ensure that the overall health allocation to the three northern governorates is respected. Drug management issues are also being addressed, both by WHO and the Government. In the centre and south, WHO is working with the Ministry of Health to provide advice and training on drug management issues.

The Ministry of Health, assisted by UNICEF, has undertaken a review of the Community Child Care Unit system to ensure that coverage is adequate for the effective distribution under the enhanced distribution plan of additional nutrition for vulnerable children. We welcome this initiative. This is, in fact, the first time the Government has made special provision under the oil-for-food programme for malnourished children. We also welcome that the Iraqi authorities have approved a major survey of the state of the water and sanitation infrastructure, in order to ensure that the rehabilitation of the network moves beyond emergency response and is able to focus additional resources in a prioritized manner.

REIMBURSEMENT

The programme has achieved economies of scale through the use of bulk purchases by the Government for distribution in the north. However, the system by which the 13 per cent account for the programme in the north reimburses the 53 per cent account for bulk purchases of food and medicine by the Government needs special attention in order to speed up the process – especially as we adjust to the current and serious shortfalls in oil revenues.

By the end of July, the amount awaiting reimbursement was $161.4 million dollars. This money was thus not available to fund other contracts approved under the 53 per cent account. This figure is unacceptably high and penalizes the 53 per cent account which covers over 20 million Iraqis in the centre and south. Even at the end of August, there were 65 applications approved with a value of $90 million, waiting for funding. This is a cause of serious concern not only to the Government of Iraq but also to the Secretary-General and the United Nations system as a whole. As directed by the Secretary-General, I am considering, in consultation with the United Nations Controller, various options to make the necessary adjustments to the current procedures to reduce the long delays in reimbursements. In this regard, I count on the full cooperation of the Security Council Committee (661 Committee) in order to find an appropriate solution.

AGENCY PERFORMANCE IN THE NORTH

Council members may recall my briefing in July following my visit to Iraq. At that time, I noted serious concerns about the performance of some agencies responsible for implementing the programme in the north.

I am pleased to inform the Council that since then the United Nations system has been taking urgently the necessary measures, both at the headquarters level and in the field, to speed up the pace of the implementation of the programme in the north. The implementation of the measures are closely monitored by the Office of the Iraq Programme in full cooperation with the agencies and programmes concerned.

In July, I was particularly critical of the lack of activity in the electrical sector. For the past several weeks, officials from my office and UNDP and DESA have been meeting regularly to find ways of accelerating implementation. There have been some early results. Exceptions were granted to ensure emergency procurement to enable repairs to the Derbandikhan Dam – an issue I had highlighted in my last briefing. Engineers are currently at Derbandikhan preparing for work to be carried out when water levels are at their lowest, from October to December.

Although we are working to improve the power generation situation in the north, we should all recognize that the system is in such a state of decay and disrepair that major sections could collapse at any time. The situation is far beyond the available expertise or resources of the local authorities or the funding available to this programme. The best we can hope for is to make the system somewhat more reliable and reduce the potential for dangerous accidents.

This and other cases over the past eighteen months have shown us that the regular procedures and practices of the United Nations are not well suited to an operation of this size and complexity. This programme requires improved management, complemented by new procedures, principally outsourcing, for the procurement of equipment and recruitment of short-term international staff. We will take all necessary measures to ensure that the work plan is fully implemented on a timely basis.

The recent offers of assistance from the Government are a welcome sign of a more cooperative attitude in the electricity sector. As is well known, this sector has been highly centralized and there is need for full cooperation in implementing the programme in the north. Our experts have been directed to fully consult with the Government. However, under the Memorandum of Understanding, the responsibility for implementation of the electricity programme remains with the United Nations.

PRIORITIZATION

The Secretary-General’s report confirms that oil revenues during this 180 period will fall far short of the $5.2 billion authorized by the Council in resolution 1153(1998). The consequences for the humanitarian programme are obvious -- instead of $3.1 billion dollars required for the implementation of the enhanced distribution plan, it is estimated that a net amount of approximately $1.79 billion will be available.

We have already begun discussions with the Ministry of Foreign Affairs on how to prioritize further within and among the different sectors in the enhanced distribution plan for the utilization of the limited resources. In New York, my Office has been meeting with the Permanent Mission of Iraq on a regular basis on this issue.

The agencies implementing the programme in the north have already revised the scope of their activities in consultation with the local authorities.

OIL SPARE PARTS

The shortfall in revenue results from the combined effects of the low price for oil on the international market and the limited pumping and export capacity of Iraq’s oil industry. This problem has been highlighted by the Secretary-General and recognized by the Council in its resolution 1175 (1998) authorizing the purchase of spare parts for the oil industry.

On the part of the Secretariat, we have already established the monitoring system for oil spare parts and equipment. A separate database has been established to track the approval, delivery and end-use of the spare parts, as described in the paper I submitted to the 661 Committee in June. An accounting mechanism has been set up for the joint funding of the contracts for spare parts for the 13 per cent and 53 per cent accounts. Experts from Saybolt have visited New York to assist our customs officers with the processing of complex contracts for oil spare parts, and a mechanism has been set up to allow for rapid technical consultations, as necessary, between the Contracts Processing Section of OIP and Saybolt.

Although Iraq has increased its production of oil through the first months of the current phase, the oil overseers have advised that Iraq is informing its customers that contracts for the sale of oil during the second half of the current phase will have to be reduced by an average of 10 per cent. The reason given is the lack of oil spare parts.

As of today, we have a total of 55 contracts for the sale of oil reviewed and approved, involving purchasers from 21 countries. The total quantity of oil approved for export under these contracts corresponds to approximately 316 million barrels for 180 days - the highest amount since the beginning of the programme. As stated in paragraph 2 of the report of the Secretary-General, the average quantity of oil exported from Iraq has increased from 1.44 million barrels per day during the previous 90-day period, to 1.7 million barrels per day during the current reporting period. Although today’s price of oil has gone up a little to $10.70 per barrel, there is no guarantee that it will stay there or go up any further. Currently, there is a glut of oil in storage worldwide.

We have repeatedly emphasized the need for speedy approval of spare parts. The views of the Secretary-General on this question are clearly stated in his letter dated 15 April 1998, addressed to the President of the Council (S/1998/330).

As of today, we have received 67 contracts for oil spare parts and equipment, at a total value of $79.8 million, of which 52 have been circulated, 19 approved, and 22 applications have been placed on hold. Some of the contracts which have not been circulated yet are still awaiting further clarifications by the suppliers. The pace of submission of applications to the Secretariat depends not only on the rate of contracts signed by the Government but equally and very importantly, on the speed of submission of the applications by the suppliers through their respective permanent and observer missions. For contracts placed on hold, the reason cited has most often been that the "purchase is not directly related to the repair of the Iraqi oil infrastructure for the purpose of increasing exports."

This is a crucial issue which needs urgent resolution. At the request of the Committee, Saybolt experts briefed the 661 Committee last week; they responded to a number of questions regarding the distinction between requirements for upstream and downstream operations. They stated that a rigid division between "upstream" and "downstream" operations is not helpful. They told the Committee that parts considered for "downstream" are, in some cases, needed to enable the industry as a whole to operate safely and efficiently, to sustain current rates of production. They also reiterated what they had stated after their mission to Iraq, on the urgent need for spare parts and equipment to provide the minimum levels of worker safety and environmental protection.

Having authorized the increase in the funding level of the programme for the benefit of the Iraqi people, having recognized the urgency of the need for spare parts, the Security Council Committee members are urged to proceed most urgently with the approval of contracts on spare parts. With oil prices so low, with expected revenues far below the minimum requirements for the implementation of the programme, unless spare parts and equipment are approved most expeditiously, the credibility of the programme will not only be affected adversely, but may also jeopardize the effective implementation of the programme.

The implementation of the enhanced programme requires an enhanced capacity of production and export of oil.

TELECOMMUNICATIONS

As stated in my letter dated 29 May 1998 addressed to the Permanent Representative of Iraq (S/1998/446, annex I), while the Secretary-General recognized that there may well be a need for telecommunications improvements to facilitate the distribution of humanitarian supplies exported to Iraq, the Secretary-General will await the outcome of a joint technical review by United Nations experts and the relevant technical ministries of the Government of Iraq before taking a decision on the proposals contained in the enhanced distribution plan. The group of experts sent to Iraq has just concluded its work and its report is being studied.

VISAS

As stated in the report of the Secretary-General, we have had good cooperation with the Iraqi authorities. We have had, however, some difficulties in the speed with which entry visas are granted. We have repeatedly drawn to the attention of the Government of Iraq that pursuant to the relevant provisions of resolution 986 (1995) and the Memorandum of Understanding, United Nations officials, experts and other personnel referred to in paragraph 45 of the Memorandum of Understanding shall have the right of unimpeded entry into and exit from Iraq, and shall be issued visas by the Iraqi authorities promptly. I regret that we have been experiencing serious delays in some instances as well as a refusal to grant visas to some experts, which have been affecting adversely the pace of the implementation of the programme, in particular in the north where we have had difficulty getting experts in to install equipment. We are currently reviewing the matter with the authorities concerned and I remain confident that we will be able to resolve the difficulties involved, particularly bearing in mind the fact that some of the delays are, in my view, due mostly to misunderstandings.

IMPACT

The overall implementation rate of the programme stands at 58.23 per cent for phases I through III combined.

Assessing the impact of the programme is far easier in the three northern governorates than in the centre and south where we have been unable to receive detailed information on the inputs provided by the Government.

In the centre and south, our observers can assess only the extent of the deliveries and how far these conform to the allocation plans of the ministries concerned. While it is possible to assess some local impact, this does not always translate into sustained or widespread improvements in services to the general population.

With regard to the nutrition sector in the three northern governorates, the fact that the United Nations insisted on funding targeted nutrition activities since the start of the programme has now begun to have a measurable impact. A very important contribution to the availability of increased food in the north has been the agricultural programme. FAO impact assessment indicates increased yields, greater crop protection, reduced animal disease, lower meat and milk prices, and a generally depressant effect on the local market for agricultural inputs. As to health care, the greater availability of drugs and medical supplies has enabled health facilities, in the main, to progress from a rationing system towards one which will operate on the basis of supply-on-demand. This is due to the effective cooperation between Kimadia (the Iraqi State Company for Importation of Drugs and Medical Supplies) and WHO in devising a more efficient provision of supplies than set allocations applied throughout the country.

When I was there in July, the local authorities were unanimous that, thanks to this programme, the average Iraqi in the north now had more regular and reliable access to food and medicine than before.

I am very aware of the need for improving our observation and reporting capability and have already taken steps by recruiting more specialized geographical observers, and have put greater emphasis on our ability to assess and analyze the impact of the programme.

CONCLUDING REMARKS

Official reports inevitably tend to focus on the accountancy aspects of the programme - barrels per day, revenue generated, funds disbursed, goods delivered and distributed. But in this programme, the United Nations is working with the Government to address the complex needs of an entire population within the context of a comprehensive sanctions regime. Food and medicine are important, but need to be provided together with clean water, safe sanitation, and reliable electrical power and decent educational facilities – all rightly given additional emphasis in the enhanced distribution plan.

I have outlined some of the progress made and the serious difficulties still to be overcome if the aims of the programme and the reasonable expectations of Iraq’s people are to be met. However, the United Nations observation mechanism has reported some improvements in the situation throughout Iraq, not just in the northern governorates, with regard to nutrition and the availability of medicine. I am pleased to conclude my statement by noting that despite all the difficulties encountered in the implementation of the programme, and irrespective of what has been said by all concerned, there can be no denial that the 986 programme has indeed made a positive impact on the living conditions of the Iraqi people.

I wish to take this opportunity, on behalf of the Secretary-General, to thank the Council, as well as the Chairman of the 661 Committee and its members, for their continuing support and cooperation with the programme.

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