18 March 1999
Oil-for-Food Background Information
Director Benon V. Sevan details consequences of revenue shortfalls for the oil
for food programme
The Executive Director of the Office of the Iraq
Programme (OIP), Benon V. Sevan, has written to the Chairman of the Security
Council's 661 Committee, Ambassador Peter van Walsum (Netherlands), detailing
the reductions in the humanitarian programme as a consequence of the drop in
revenues from the sale of Iraqi oil.
The enhanced distribution plan for Phase IV,
including an allocation of $300m for oil industry spare parts and equipment, was
budgeted at $3.1 billion. In Phase IV gross revenues were just $3.0127 billion -
compared to the $5.265 authorized by the Security Council on the basis of the
Secretary-General's report in February 1998 setting out the need for a major
expansion in order to meet the urgent humanitarian needs of Iraq's people. Under
the terms of Security Council resolution 986 Iraq's oil revenues are used for
the humanitarian programme (66%), the Compensation Fund (30%), the United
Nations costs in administering the programme (2.2%), the administration of the
Special Commission (0.8%) and the escrow account (1%).
After the deduction of $113 million to Turkey
for the pipeline fee the amount available to fund the purchase of humanitarian
supplies and oil sector equipment was $1.9 billion.
Faced with this shortfall of $1.2 billion, the
OIP and the Iraqi authorities have consulted extensively since last October to
reach agreement on adjusting allocations for the sectors in the oil for food
programme, bearing in mind the priority for food, health supplies and oil
industry equipment set by the Security Council.
Mr Sevan advised the 661 Chairman that even with
successive downward revisions, there was around $500 million dollars worth of
approved contracts for which no funding would be available. At the request of
the Government of Iraq, the OIP agreed to transfer these contracts to Phase V.
However, the distribution plan for Phase V
requires some $2.7 billion - about $950 million more than the revenue expected
to be available for humanitarian supplies and oil sector equipment. The
Government's revised allocations, submitted on 25 February, still exceed
expected revenues unless the current rising trend in the price of Iraqi crude
oil continues until the end of Phase V. Phase V runs from 26 November 1998 to 24
In February, Mr Sevan informed the Security
Council that the current level of oil revenues and the need to fund oil sector
equipment had resulted in the resources available for the humanitarian programme
had remained virtually unchanged as compared to the first three phases of the
oil for food programme.
the bulk purchase by the Government of food and health supplies for the
Governorates of Dahuk, Erbil and Sulaymaniyah, where the United Nations
implements the programme on behalf of the Government.
Excludes the allocations for food and health supplies.
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