IRAQ: Soaring Security Costs Consume $1 Billion Earmarked for Badly Needed Reconstruction

BAGHDAD - Skyrocketing security costs have forced American officials here to slash about $1 billion from projects intended to rebuild Iraq's shattered infrastructure, dealing another blow to U.S. plans to pacify Iraq by improving basic services.

William Taylor, a U.S. diplomat who oversees Iraqi reconstruction efforts, said the country's violent insurgency had created a "security premium," gobbling up money that otherwise would have been spent to provide clean water, electricity and sanitation for Iraqis.

"The security premium is causing existing projects to cost more and take longer. We need to be able to pay for that," said Taylor, in an interview in his office in the capital's fortified Green Zone, which houses the U.S. Embassy and the interim Iraqi government. "We'll cut some projects, and we won't start projects that we were otherwise going to start."

The slow pace in rebuilding Iraq has raised protests from Iraqis, who continue to suffer from a lack of services. Many Iraqi homes and businesses have electricity only a few hours a day. Raw sewage still streams straight into the Tigris River, just as it did under former dictator Saddam Hussein.

Iraqi officials expressed frustration with the latest cutbacks, saying fewer water, sewer and electricity projects could further alienate Iraqis and bolster the insurgency. Already, one top Iraqi official said she had to cut back on plans to deliver clean water to residents of the often-restive cities of Fallouja and Mosul.

"I'm amazed at how a program meant for reconstruction that could have provided more services and could have effected stabilization could be cut so drastically," said interim Iraqi Public Works Minister Nasreen Mustapha Berwari.

When Congress initially approved $18.4 billion in November 2003 to help rebuild Iraq, the majority of the money was intended to improve electrical and water systems, which had suffered from years of neglect during United Nations-imposed sanctions. But the reconstruction program has struggled to take off in the face of violent attacks, intimidation of workers and allegations of fraud.

In the face of spiraling violence, reconstruction officials have shifted funds during the last few months to improve security. Now, the largest chunk of money, about $5 billion, pays for weapons, uniforms and other equipment to help Iraqi forces quell the insurgency.

Taylor, who has been mentioned as a candidate to replace U.S. Ambassador to Iraq John D. Negroponte, nominated last week to become the first director of national intelligence, said he was preparing to submit a proposal to Congress in the coming days to reflect further changes to the reconstruction plan, the third such modification in six months. Though final details had not been worked out, Taylor said the shift would involve moving money from water and electric to other projects.

As the reconstruction has focused on security, private contractors working on the rebuilding program have had to increase the amount of money they spend to protect themselves and their projects. Security costs now range from 5% to 25%, depending on the project.

The effect of the violence ripples through construction projects. A convoy of bulletproof cars and armed guards can cost more than $5,000 a day. Truckers who cannot travel on dangerous roads charge for sitting in parking lots. Attacks on electricity plants deprive cement factories of much-needed power, driving up the price of concrete.

U.S. officials had assumed that security issues would total about 10% of the money going into projects. Now, as the violence has steadily risen, reconstruction officials are estimating that an additional $1 billion will have to be tacked on to that figure, for a total of nearly $3 billion.

That means that an estimated $8 billion - or 43% - of the reconstruction money will wind up paying to improve security for Iraqis or for contractors, far more than originally intended.

Sen. Russell D. Feingold, a Wisconsin Democrat touring Iraq with a congressional delegation, said he planned to make sure that managers here were held accountable for the reconstruction dollars. A recent Inspector General report sharply criticized the oversight of $8.8 billion in Iraq funds by the U.S.-led coalition that ruled Iraq until the middle of last year.

"We are trying to figure out a way to make sure that we have some accountability in what America is spending," Feingold said.

U.S. officials said the latest cuts would hit water and electricity projects the hardest. U.S. officials said they were hoping to move some projects up, to get more immediate effect, while focusing their cuts on longer-term projects that would not have come on line for years.

The U.S. will no longer build state-of-the-art electricity plants or some water and sewage treatment plants, officials said. Instead, U.S. officials hope other donor countries, such as Japan, or private investors will step in, an unlikely scenario if the current instability continues.

The Bush administration's recent proposal for additional funding for Iraq included no money for infrastructure, but an additional $5.7 billion to purchase more equipment for the security forces.

But Berwari said the most recent cuts had caused her to immediately scale back plans for new water treatment plants in Fallouja and Mosul, meaning less clean water for 500,000 people in two of Iraq's most rebellious cities.

Berwari said Iraq's outdated water and sanitation systems must be improved to provide better health for millions of Iraqis sickened by waterborne diseases. Iraq has not built a water treatment plant in two decades.

"We need more than Power Point presentations," Berwari said, referring to the ubiquitous computer slide shows at U.S. government offices. "We need more water in the pipes."

Charles Hess, director of the U.S. reconstruction office in Iraq, said that he expected progress to pick up substantially in coming months.

The reconstruction effort has been dogged by criticism that it has moved too slowly. So far, about $3 billion of the $18.4 billion has been spent, most of it on the equipment for the Iraqi security forces.

Hess also predicted that upcoming changes would not slow the effort further. He is expected to depart at the end of next month as the U.S. Army Corps of Engineers begins to take over responsibility for reconstruction.

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