IRAQ: New reports Show Limited Progress in Iraq Rebuilding

WASHINGTON, July 31 (Reuters) - Despite pouring more than $9 billion into rebuilding Iraq over the past two years, the United States has made only limited progress in key areas such as oil and power, according to new reports on U.S.-funded projects there.

Rebuilding Iraq is seen by the Bush administration as a major foreign policy priority but three U.S. government reports released this week -- the latest on Sunday -- indicate ambitious reconstruction goals are falling short.

Soaring security costs are a major stumbling block in what is billed as the biggest U.S. foreign aid operation since the post-World War II reconstruction of Europe.

Congress's investigative arm, the Government Accountability Office, said in its latest report that as of May 2005, power generation in Iraq was at a lower level than before the U.S. invasion of Iraq in March 2003.

Iraq's oil output, which U.S. officials initially said would help pay for rebuilding projects, has also dropped in the past two years, said the GAO's report on Iraq reconstruction.

In March 2003, Iraq produced 2.6 million barrels of oil per day and exported 2.1 million barrels daily. By May 2005, Iraq was producing just 2.1 million barrels of oil a day and exporting only 1.4 to 1.6 million barrels a day, said the GAO.

In a report to Congress released on Sunday, the U.S. Special Inspector General for Iraq Reconstruction said two key concerns were whether the U.S. government could accurately predict how much it would cost to complete projects and whether Iraq's government could sustain U.S.-funded work after it was handed over.

"A failure on either of these points puts at risk the important legacy of success that the U.S. intends to leave," said Stuart Bowen, the inspector general.

As of June 30, 2005, about $32.62 billion of U.S. and international donor funds had been pledged for Iraq reconstruction and about $32.75 billion of Iraqi funds arising largely from oil sales were available for rebuilding.

Of this, the United States has set aside $24 billion in total for Iraq's reconstruction since 2003, and so far some $9 billion has been paid out for work done.

FUNDS DIVERTED TO SECURITY

Security costs are chewing up funds originally earmarked for power, water and health care, and key projects have been canceled as more funds are shifted to security.

"When it's analyzed overall, it will turn out as being an expensive program in terms of what we actually got for our money," said one senior U.S. official, who asked not to be named because such a statement might be viewed as too negative by Bush administration officials.

"It will be high cost but that does not mean that we should not have continued," the official said of the rebuilding plan.

Rising security costs also make it difficult to estimate how much it will cost to complete projects. For example, as of March 31, 2005, security costs for work done by the Project and Contracting Office in charge of most Iraq deals rose from an original baseline of $1.2 billion to more than $2 billion.

The Pentagon estimates there are about 60 private security firms in Iraq, employing up to 25,000 employees. The GAO said in a report on these security firms on Thursday that some elite staff were earning up to $33,000 a month.

But security is essential to getting work done and risks to contractors have increased in recent months, with at least 330 contractors killed in Iraq as of June 30, said Bowen.

"The threat to life and property from continuing insurgent attacks remains a major impediment to the reconstruction and rehabilitation of Iraq," Bowen said in his quarterly report.

Jim Crum, a senior U.S. official involved in Iraq reconstruction, said despite security problems he believed there had been great progress in rebuilding Iraq and he pointed to the more than 600 schools rebuilt using U.S. funds.

"I think it has been done in a wartime environment with a very intelligent enemy that is continually adjusting to attack our progress and that of the Iraqis," said Crum, head of the Washington branch of the Project and Contracting Office, which is in charge of many U.S.-funded rebuilding projects.

"But given that environment, the progress on the construction program has been nothing short of astounding," he added in a recent interview with Reuters.

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