Oil-for-Food Background Information
BENON V. SEVAN
EXECUTIVE DIRECTOR OF THE IRAQ PROGRAMME
AT THE INFORMAL
CONSULTATIONS OF THE SECURITY COUNCIL
WEDNESDAY, 29 MAY 2002
I am grateful to the members of the Security Council for having agreed with my suggestion to change somewhat the traditional reporting pattern on the implementation of the humanitarian programme in Iraq, pursuant to paragraph 1 of resolution 1382 (2001). I should like to assure the Council that our intention was not in any way an attempt to shy away from the responsibilities entrusted to us. On the contrary, we wished to provide you in a timely manner, with as much and as comprehensive information as possible, which, in fact, is far more demanding than submitting a report in the traditional manner. As promised, I have already made available to the members of the Council, last Friday, a Note by the Office of the Iraq Programme (OIP), which provides all the relevant information on the implementation of the humanitarian programme in Iraq, since the latest report of the Secretary-General covering the period up to 31 October 2001 (S/2001/1089), as well as, an advance copy of the text of my present statement.
During my briefing today, I will refer to some of the difficulties,
which we have been facing in the implementation of the programme,
particularly in the three northern governorates, where the United Nations
implements the programme on behalf of the Government of Iraq.
I will also use this opportunity to provide you with a briefing on the
measures taken, thus far, by the Secretariat, together with colleagues from the
United Nations Monitoring, Verification and Inspection Commission (UNMOVIC) and
the International Atomic Energy Agency (IAEA), on the implementation of the
relevant provisions of resolution 1409 (2002) of 14 May 2002, including the
Soon after the adoption of resolution 1409 (2002), I organized a joint
meeting of the relevant staff members of OIP, UNMOVIC and IAEA, in order to
start promptly the coordination of our work on the implementation of the
relevant provisions of the resolution. Since
then, the group has held three meetings, and we will continue to meet at least
once a week. This is essential in
order to secure full cooperation and coordination among OIP, UNMOVIC and IAEA,
thus ensuring the effective implementation of the measures within our respective
17 May, we posted on the OIP Web site our first update on the implementation of
resolution 1409 (2002), providing basic information and main deadlines for the
implementation of the revised procedures. We
will update the Web site regularly, providing most recent and accurate
information. On 22 May, we sent a
note to all permanent and observer missions to the United Nations, as well as,
the United Nations agencies and programmes that have applications with OIP,
informing them of the changes and new requirements.
We will invite all permanent and observer missions as well as the UN
agencies and programmes to participate in a workshop to be organized by the
Contracts Processing and Monitoring Division of OIP on 24 June 2002, concerning
the revised procedures, providing additional information, documentation and
further details. The delegations
concerned may invite suppliers to accompany them to the workshop. We will issue a formal invitation to the workshop by 3 June
have already devised the necessary internal working guidelines for the
implementation of paragraph 18 of the revised procedures and have divided the
applications currently on hold into two categories. As of 20 May 2002, there were 220 applications in category A
to be returned to the submitting missions or the United Nations agencies and the
programmes. In the second category,
category B, there were 1,916 applications.
These are the applications which will be re-circulated by OIP under the
revised procedures. We will update
daily both lists of applications on hold in categories A and B, in order to
reflect the holds lifted from applications as well as any applications placed on
hold which have been rendered “null and void”, until the end of the 120-day
deadline for completion of re-circulation of applications currently on hold –
that is 15 September 2001. By
Friday, 24 May 2002, OIP had already re-circulated 130 applications from the
list of category B to UNMOVIC/IAEA for initial GRL assessment.
On average, OIP will continue to re-circulate 20 applications per day to
UNMOVIC/IAEA for GRL assessment. I
should like to inform members of the Council, however, that full processing of
applications in category B found to contain GRL items or require additional
information will start only after all procedural and database requirements are
in place by 15 July, that is 60 days after the adoption of resolution 1409
(2002) on 14 May. Return of
applications under category A to the submitting missions and the United Nations
agencies and programmes will also start 60 days after the adoption of resolution
most complex changes required are those concerning the existing "Oil for
Food" and "Oil Spare Parts" databases of the OIP.
Phased changes, to include development of a system that would enable us
to review individual items rather than complete applications, are being
should also like to inform you that UNMOVIC has begun practical arrangements to
implement the requirements placed upon it in the revised procedures attached to
Security Council resolution 1409 (2002). UNMOVIC
is working in close cooperation with OIP and the IAEA to elaborate these
arrangements. These include the
efficient and accurate transfer of data between different Offices and the
development of formats to meet new reporting requirements. Within UNMOVIC,
efforts are underway to devise internal procedures which will permit, as far as
possible, a uniform and consistent interpretation of the contents of the GRL, as
well as the development of guidance for suppliers on technical information to be
provided with applications. UNMOVIC has identified and begun the recruitment of
additional experts to assist in the short and longer-term, as well as the
acquisition of office space and equipment and the construction of the necessary
infrastructure. Pursuant to the
requirements of paragraph 18 of the procedures, UNMOVIC is developing a system
to review some two thousand “category B” contracts which are to be
re-circulated. Given the timelines
laid down in the procedures, this review will have to be undertaken concurrent
with the implementation of the full new system.
in co-operation with UNMOVIC, the IAEA Action Team in
Vienna has already reached the point where contracts scanned in New York are
transmitted to Vienna on a secure digital link. The Action Team is currently
finalizing the development of a dedicated computer environment, which will be
fully operational by 30 May. The
Action Team is already processing contracts in category B, which are being
re-circulated by OIP.
Action Team is discussing the possibility of OIP and UNMOVIC sharing structured
digitized data, simultaneously with the transmittal of contracts to Vienna, in
order to optimize the efficiency of the whole process and in particular, take
full advantage of trans-Atlantic time differences.
is in the process of recruiting additional expert staff required for the
reviewing of contracts, as appropriate. In
the meantime, however, in order to expedite the effective implementation of the
revised procedures, the short term needs will be covered by contingency
measures and temporary placements.
brief, I should like to give assurances to all members of the Council that we
are sparing no effort in ensuring the prompt and effective implementation of all
the tasks entrusted to us. I remain
fully confident that together with UNMOVIC and IAEA, we will meet the challenge.
OIP will ensure the most expeditious review and registration of all
applications received within the 10 working days set forth in the revised
procedures (No. 3).
pursuant to revised procedure No. 4, UNMOVIC, IAEA and OIP will, as soon as
possible, develop a procedure whereby OIP may evaluate and approve applications
based on guidance issued by UNMOVIC and IAEA, at their discretion, and subject
to the approval of the Committee established by resolution 661(1990).
The Security Council and its Committee, as well as the Government of Iraq, will be kept fully informed on a regular basis on all the steps taken by us in the implementation of the relevant provisions of the resolution and the revised procedures. It is also my intention to keep you informed and seek your guidance with respect to any procedural difficulties which may be encountered.
During my briefing at the Council’s informal consultations held on 26
February this year, I had observed the fact that despite all the billions of
dollars we had been talking about, the programme implementation was facing a
financial crisis of growing magnitude due to the substantial drop in revenues
received from Iraqi oil exports under the programme.
As at 15 February 2002, there were 699 approved applications for
humanitarian supplies with a total value of $1.6 billion, waiting to be funded.
The amount of just over $1.9 billion still available then in the escrow
account was earmarked for oil spare parts and equipment ($1.34 billion) and for
the purchase of supplies under the special allocation ($584 million) included in
the distribution plan.
It is regrettable that an agreement regarding the setting of the price of
Iraqi crude oil has remained elusive. Thus,
the continuing practice of setting the price of Iraqi crude oil retroactively by
the 661 Committee, which, combined with the continued excessive premia demanded
by Iraqi crude oil contract-holders, has led to an average reduction in exports
of some 500,000 barrels per day or $1.2 billion in lost revenue since the
beginning of phase XI on 1 December 2001. Moreover, Iraq’s month-long
suspension of its oil exports, starting on 8 April this year, resulted in a
further estimated revenue loss of some $1.2 billion.
With the end of the prolonged consultations on the GRL list and the
adoption of resolution 1409 (2002), I do hope that the members of the 661
Committee would spare no effort to resolve the difficulties encountered with
regard to the pricing of the Iraqi crude oil.
In that regard, the full cooperation of the Government of Iraq is
essential. Unless the question of the pricing mechanism for setting the
price of Iraqi crude oil is resolved urgently, all other efforts and decisions
taken to expedite the approval of humanitarian supplies for Iraq may
unfortunately remain academic. Irrespective
of improvements in procedures, including those recently adopted by the Council
in resolution 1409 (2002), without the necessary funds available in the escrow
account it will be impossible to implement the humanitarian programme
I am pleased to inform you that the Government of Iraq has responded
positively to my suggestion to revise downwards the allocations to the oil
sector in various phases, in order to utilize the balance of $1.1 billion for
funding priority applications in other sectors, making $778 million available
for such purposes. However, the
same approach cannot be taken with regard to the funds ($739 million) reserved
for the “special allocation” sector, which can be used only for strictly
humanitarian projects to address the needs of the most vulnerable groups.
Accordingly, as at 24 May, there was a total of 678 approved humanitarian
applications awaiting funding, with a total value $1.75 billion.
at 22 May, the shortfall in available funds for the purchase of humanitarian
supplies was approximately $1.84 billion. The
total of reserved funds for the oil and the “special allocation” sectors was
about $1.07 billion, including $329 million for the oil sector.
10 May 2002, in a letter addressed to the Permanent Representative of Iraq, I
reiterated the recommendations made previously on several occasions, that the
Government of Iraq may wish to consider, inter alia, the following:
Review with the suppliers concerned the cases of 651 applications worth $1.24
billion, which were approved over a year ago, but under which no shipments to
Iraq had been delivered as at 30 April 2002, and cancel those contract
applications, which were unlikely to be fulfilled.
Review the cases of 238 applications worth $506 million, which were approved
before 31 December 2001, but for which the Central Bank of Iraq had not
requested the issuance of letters of credit as at 30 April 2002, and cancel those contract applications
which were unlikely to be fulfilled.
have been informed by the Government of Iraq that each of the concerned
ministries would be reviewing all the approved applications submitted under
their respective sectors, with a view to identifying those applications which
were no longer a priority. Those
applications which were not considered to be of sufficient priority to warrant
funds at this stage would be cancelled after consultations with the suppliers
concerned. The Government of Iraq
would also be reviewing the list of approved applications for which letters of
credit had been opened but against which no deliveries had been made as at 30
April 2002. Furthermore, a similar
review would be undertaken by the ministries concerned with regard to
applications placed on hold, taking into account the fact that some applications
had been placed on hold for a long period and that the contractors concerned may
not wish to continue with their contracts under the same terms as originally
Programme implementation in the three northern governorates
the informal consultations held on 26 February this year, I drew the Council’s
attention to the relative limitations in “the absorptive capacity” of the
three northern governorates. I also
stated then - and I continue to believe - that we, too, had to recognize the
relative limitations in the absorptive capacity of some of the United Nations
agencies and programmes involved in the implementation of large-scale projects,
particularly with regard to construction works. I very much regret to reiterate that, in fact, in some areas
we have made zero progress in even starting to implement some large-scale
projects for which commitments had been made over three years ago.
As I had informed you on 26 February, we needed to take some hard
decisions in that regard and review also the overall implementation rates in
order to ensure that projects undertaken are completed in a timely manner before
getting involved in additional projects.
it has been decided that during phase XII, starting on 30 May, we should
consolidate existing activities undertaken by the United Nations agencies and
programmes in the three northern governorates rather than initiate new projects.
Priority should be given to recurrent projects, as well as multi-phase
ones, such as healthcare facility construction and water and sanitation
projects. Additional resources available to the programme in the three
northern governorates should be allocated to speed up the implementation and
completion of projects already commenced. Where
there is a pressing humanitarian need to initiate new projects, the United
Nations agency or programme concerned should first confirm that it is in fact in
a position to undertake the implementation of a project, with immediate effect.
Accordingly, funds should not be allocated for new activities where it is
known that the projects concerned will not be programmed in the immediate
future. We, therefore, should not
undertake additional commitments that we are unable to fulfill. We should recognize the realities on the ground and act
accordingly. It is better to be
criticized for not doing enough, rather than be criticized for failing to
deliver on our commitments.
fully appreciate and share the frustrations of the local authorities who often
take out their frustrations on my colleagues and I.
The local authorities are short of funds and often cannot even meet the
requirements of their employees, including teachers, doctors, etc.
We have been rehabilitating and/or building medical and educational
facilities and yet the local authorities are not in a position to pay the
salaries of the personnel concerned. It is almost a catch-22 situation.
The United Nations cannot pay the salaries of teachers, doctors and
medical personnel, nor provide cars for the use of local authorities, etc.
However, demands are made on us to provide such assistance because the
local authorities simply do not have sufficient funds to meet those
requirements, let alone cover recurrent costs of, for example, agro-industrial
establishments being rehabilitated by the United Nations in the north. I appeal to all concerned for more cooperation and better
understanding of the parameters within which we have to implement the programme
in the three northern governorates and the use of the cash funds, in order to
ensure the efficient implementation of the programme for the benefit of all the
three northern governorates.
have emphasized to the local authorities that while the United Nations would
fully consult and cooperate in formulating the projects there is no room for
co-management, as the United Nations is fully responsible and accountable for
the management and implementation of the programme in the three northern
governorates on behalf of the Government of Iraq, pursuant to the memorandum of
understanding signed between the UN Secretariat and the Government of Iraq.
revenues have led to an expansion of the programme and a still ongoing process
to build, rehabilitate and equip hundreds of educational and healthcare
facilties, to enlarge, and in some cases, introduce large-scale water and
sanitation systems in towns and urban centers, and complete the rehabilitation
of the entire electricity and telecommunications networks.
However, this also has raised a unique set of problems for the United
Nations, namely the ownership/custodianship/insurance of equipment and other
infrastructure financed under the ESC (13 per cent) account, as well as the
issue of recurrent and other associated costs that arise from the use and
management of such infrastructure and/or equipment requiring the use of cash
funds. What I have just stated is
only a modest account of the problems being faced.
relatively limited parameters established by the Security Council, within which
we have to implement the programme, is increasingly exacerbating the
difficulties being encountered, both in the implementation of the programme, as
well as, at times our working relationship with the local authorities.
As an example of the problems, which need to be addressed urgently by all
concerned, is agriculture. In stark
contrast to the previous three years, the precipitation during the last winter
was high, and in the three northern governorates it was the highest on record. This has had an impact on many sectors. However, the effect of the high rainfall on the agriculture
sector has been particularly significant, with a bumper harvest expected
countrywide this year. This will have very significant implications for the
economy of the country as a whole, particularly in the three northern
governorates where agriculture, specifically wheat production, is the primary
source of income for many communities.
are that the wheat crop in Iraq will yield approximately 2.1 million metric tons
this season, 1.6 million metric tons in the centre/south and 500,000 metric tons
in the north. All food distributed
throughout the country under the programme has been imported from abroad.
Iraq purchases from overseas some 3.4 million metric tons of wheat per
annum at a value of some $740 million. Wheat is the single largest commodity in
the distribution plan. We
have informed the Council previously on the adverse effect of these imports on
local agricultural production, which has become a disincentive for the farmers
to continue cultivating their fields, as they are unable to dispose of their
crops at fair prices.
For reasons of sustainability for the agriculture sector, particularly in the three northern governorates, and to optimize the use of funds available in the escrow account, it may be appropriate to consider using local wheat to the extent available for milling into flour for distribution to the population in the monthly food entitlement scheme, provided that an appropriate mechanism can be agreed upon on the modalities for pricing and payment.
We need to work out a solution whereby the farmers can be allowed to
market their harvest and draw the well-deserved benefit from the bumper harvest,
without violating the provisions of the relevant Security Council resolutions.
The situation illustrates clearly the real urgency of arriving at a
pragmatic solution to the use of programme funds for local procurement, which
has been elusive for so long.
The Secretary-General has consistently advocated the easing of procedures for review and approval of all applications for humanitarian supplies and equipment for Iraq. Irrespective of regulations and procedures, if all concerned, including the Government of Iraq, fully cooperate towards the achievement of the main objectives of the humanitarian programme, we can and must be able to improve further the humanitarian situation in Iraq. As stated by the Secretary-General on several occasions, with the improved funding level for the programme, the Government of Iraq is indeed in a position to address the nutritional and health concerns of the Iraqi people, particularly the nutritional status of children. If the stated objectives of resolution 1409 (2002) are implemented both in the letter and spirit by all concerned, including the 661 Committee and the Government of Iraq, we will be in a position to expedite the review and approval of applications, and the speedy arrival of humanitarian supplies and equipment into Iraq.
I should like to appeal to all concerned to bear fully in mind the determination of the Security Council, as stated in resolution 1409 (2002), which is “to improve the humanitarian situation in Iraq.”
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