Office of the Iraq Programme Oil for Food

Press Release
2 October 1998

Oil-for-Food Background Information

The Executive Director of the Office of the Iraq Programme, Benon Sevan, has written to Ambassador Antonio Monteiro, the Chairman of the Security Council Committee established under resolution 661 (1990), raising his serious concerns about the continuing delays in approving applications for oil spare parts and equipment and about matters related to the shortfall in funding for the oil-for-food programme.

In his report to the Security Council in September, the Secretary-General estimated the oil revenues for the current phase to be approximately $2.86 billion, providing $1.79 billion for the humanitarian programme. With the current high level of production and recent increases in the price of oil the United Nations oil overseers now advise that the revenue expected during the current 180 period from 30 May to 25 November could be around $3.3 billion. This would provide $2.178 billion for the humanitarian programme – about one billion dollars less than is needed to fund fully the enhanced distribution plan approved by the Secretary-General in May.

This encouraging increase in oil revenues could be reversed at any time due to technical reasons, equipment failures or a sustained drop in the price of oil. After several days of increases, the price for Iraqi crude oil today fell by 30 cents a barrel to US$12.40 a barrel.

Mr. Sevan continues to stress the importance of the 661 Committee expediting its approval of applications for oil spare parts and equipment contracts. To date the Secretariat has received 128 applications for processing and approval. Of these, the 661 Committee has approved 30 applications worth about $54 million and put on hold 31 applications with a value around $26 million. No parts or equipment have yet arrived in Iraq.

Iraq’s Minister for Oil, Mr. Amir Mohammed Rashid, has advised the United Nations that Iraq has now signed a total of 369 contracts for oil spare parts and equipment with a total value of $182 million and says that the Secretariat could expect to receive a flood of applications in the coming weeks.

The Office of the Iraq Programme is ready to work with the members of the Committee to provide any additional information or explanation in respect of the applications now on hold. In Iraq there is a system in place to monitor the storage, installation and use of the spare parts and equipment. Mr. Sevan asks that the Committee review the applications now on hold.

The shortfall in oil revenues has slowed down the funding of applications approved by the Committee and has focused attention on the need to prioritise the funding of approved contracts. At present 203 approved applications with a total value of $508,581,191 are held in abeyance pending availability of funds.

While it is not possible to know the final number and value of applications to be received for funding from the revenue raised during the current phase, it is evident that there will be applications far in excess of the funds expected to be available. Mr. Sevan is concerned that there should not be over-expenditures in some areas at the expense of higher priority sectors, such as food and medicine. He recognises, however, that the well-being of the people of Iraq also requires improvements in the electricity and water and sanitation sectors.

Last week and again today, the Office of the Iraq Programme is meeting with Iraqi officials to consider the need for prioritization within and between different sectors. The current status of contract applications for the oil-for-food programme is outlined in the annex to this statement.

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Oil-for-Food Background Information		The Executive Director of the Office of the Iraq Programme, Benon Sevan, has written to Ambassador Antonio Monteiro, the Chairman of the Security Council Committee established under resolution 661 (1990), raising his serious concerns about the continuing delays in approving applications for oil spare parts and equipment and about matters related to the shortfall in funding for the oil-for-food programme. In his report to the Security Council in September, the Secretary-General estimated the oil revenues for the current phase to be approximately $2.86 billion, providing $1.79 billion for the humanitarian programme. With the current high level of production and recent increases in the price of oil the United Nations oil overseers now advise that the revenue expected during the current 180 period from 30 May to 25 November could be around $3.3 billion. This would provide $2.178 billion for the humanitarian programme – about one billion dollars less than is needed to fund fully the enhanced distribution plan approved by the Secretary-General in May. This encouraging increase in oil revenues could be reversed at any time due to technical reasons, equipment failures or a sustained drop in the price of oil. After several days of increases, the price for Iraqi crude oil today fell by 30 cents a barrel to US$12.40 a barrel. Mr. Sevan continues to stress the importance of the 661 Committee expediting its approval of applications for oil spare parts and equipment contracts. To date the Secretariat has received 128 applications for processing and approval. Of these, the 661 Committee has approved 30 applications worth about $54 million and put on hold 31 applications with a value around $26 million. No parts or equipment have yet arrived in Iraq. Iraq’s Minister for Oil, Mr. Amir Mohammed Rashid, has advised the United Nations that Iraq has now signed a total of 369 contracts for oil spare parts and equipment with a total value of $182 million and says that the Secretariat could expect to receive a flood of applications in the coming weeks. The Office of the Iraq Programme is ready to work with the members of the Committee to provide any additional information or explanation in respect of the applications now on hold. In Iraq there is a system in place to monitor the storage, installation and use of the spare parts and equipment. Mr. Sevan asks that the Committee review the applications now on hold. The shortfall in oil revenues has slowed down the funding of applications approved by the Committee and has focused attention on the need to prioritise the funding of approved contracts. At present 203 approved applications with a total value of $508,581,191 are held in abeyance pending availability of funds. While it is not possible to know the final number and value of applications to be received for funding from the revenue raised during the current phase, it is evident that there will be applications far in excess of the funds expected to be available. Mr. Sevan is concerned that there should not be over-expenditures in some areas at the expense of higher priority sectors, such as food and medicine. He recognises, however, that the well-being of the people of Iraq also requires improvements in the electricity and water and sanitation sectors. Last week and again today, the Office of the Iraq Programme is meeting with Iraqi officials to consider the need for prioritization within and between different sectors. The current status of contract applications for the oil-for-food programme is outlined in the annex to this statement.
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