Oil-for-Food Background Information
In a letter addressed to the Acting Chairman of the Security Council’s 661 sanctions committee on 1 August 2002, the Executive Director of the Iraq Programme, Benon V. Sevan, expressed “grave concern” at the reduced levels of Iraqi oil exports and the corresponding level of low revenues under the United Nations oil-for-food programme. Noting that “two months into phase XII of the programme and as at 31 July, Iraq had exported only 63.2 million barrels of oil”, he drew attention to the fact that this amount was “lower than previous recorded levels of monthly exports under the programme, particularly during phase VIII”, which had averaged more than 2 million barrels of oil per day.
The letter went on to add that, “even by the most conservative estimates, some $1.5 billion in revenue had been lost, owing to a reduction in the level of Iraqi oil exports”. In May, the average rate of export was 1,012,000 barrels of oil per day, which had dropped to 835,000 barrels per day in June and risen somewhat to 962,000 barrels per day in July.
Mr. Sevan pointed out that “should the current reduced levels of exports persist”, phase XII total revenue would be in the vicinity of $4.5 billion, which after the necessary deductions would leave the humanitarian programme with only $3.22 billion. The Government of Iraq had budgeted this phase of the programme at $5.08 billion. The situation was further exacerbated by the cumulative revenue shortfall from earlier phases, which had left the programme without resources to fund 1,040 approved contracts, worth over $2.2 billion, as at 31 July 2002. Recalling that some $5 billion worth of contracts had earlier been placed on hold by the 661 Committee, he noted the “regrettable fact” that while some $25 million worth of these contracts had recently been approved under the new set of procedures of Security Council resolution 1409 (2002), no funds were available for the issuance of letters of approval for such contracts.
Warning of “very serious consequences on the humanitarian situation in Iraq”, as a result of the increasing shortfall in funds, Mr. Sevan concluded the letter by appealing to the members of the 661 Committee and the Government of Iraq to “take all necessary measures to resolve the difficulties encountered in improving the critical funding situation, including, in particular, the long outstanding question of the pricing mechanism for Iraqi crude oil exports”. “The cooperation of all concerned is essential”, he added.
In the week ending 2 August, Iraq exported 8.4 million barrels of oil through eight loadings, six of which were from Mina al-Bakr terminal, with 6.8 million barrels, and two loadings from Ceyhan terminal, with 1.6 million barrels. At an average price of approximately €24 (euros) or $23.50 per barrel, the exports netted an estimated €202 million or $201 million in revenue, at current prices and rate of exchange, bringing the total estimated revenue in phase XII to €1.594 billion or $1.59 billion.
There are now 142 approved oil purchase contracts for 316 million barrels of oil, including five new contracts approved by the United Nations oil overseers during this week. As at 2 August in phase XII, Iraqi oil exports had totalled 67.3 million barrels. The phase runs from 30 May to 25 November 2002.
Since the start of the programme on 10 December 1996, Iraqi oil exports of some 3.1 billion barrels have generated an estimated revenue of $38.6 billion and €19.1 billion ($17.2 billion). The humanitarian programme receives 72 per cent of the oil proceeds, with 59 per cent allocated to the 15 central and southern governorates and 13 per cent to the three northern governorates. So far, more than $36 billion worth of contracts for the purchase of humanitarian supplies and equipment have been approved by the 661 Committee and OIP, including about $3.3 billion worth of oil industry equipment. Supplies and equipment worth $23.7 billion have been delivered to Iraq, including $1.4 billion worth of oil industry equipment. Another $10 billion worth of supplies and equipment are in the production and delivery pipeline, including $1.8 billion worth of oil industry equipment.
As at 2 August, the revenue shortfall had left 1,051 approved humanitarian supply contracts, worth over $2.25 billion, without available funds. The sectors affected by the lack of funds were: food with $356 million; electricity with $353 million; food handling with $325 million; agriculture with $297 million; housing with $286 million; water and sanitation with $216 million; health with $159 million; telecommunication and transportation with $152 million and; education with $111 million.
There are now 2,058 contracts, worth about $5.2 billion, previously placed on hold by the 661 Committee, of which 1,430 contracts, valued at about $4.5 billion, are for humanitarian supplies and 628 contracts, worth $745 million, are for oil industry equipment.
Paragraph 18 of the new set of procedures under resolution 1409 (2002) divides contracts on hold into two categories. The first category comprises contracts that contain “dual use” item(s), as determined by the United Nations Secretariat experts, which are returned to the submitting Mission or United Nations agency for possible re-submission under the new procedures. The second category includes all other contracts on hold which are re-circulated by OIP under the new procedures. The re-circulation of contracts on hold in the second category will be completed by 15 September. It is foreseen that with the end of this process, there will no longer be contracts on hold.
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