Corruption Cited in Iraq's Oil Industry

By Walter Pincus
Washington Post Staff Writer
Monday, July 17, 2006; A12

U.S. Comptroller General David M. Walker told Congress last week that "massive corruption" and "a lot of theft going on" in Iraq's government-controlled oil industry is hampering the country's ability to govern itself.

"It took me about, you know, a second and a half to realize that, obviously, there was massive corruption going on, because the numbers just didn't add up," Walker said, referring to a trip he took to Iraq this year in which he was shown figures on oil production and revenue.

Walker, who heads the Government Accountability Office, made his remarks at a House Government Reform subcommittee meeting last Tuesday called to examine implementation of the Bush administration's 2005 "National Strategy for Victory in Iraq." He said one of the failures of the U.S. program was related to the prewar assumption that Iraq would be able to pay for its reconstruction "in large part through oil revenues."

He said about 10 percent of Iraq's refined fuels and 30 percent of its imported fuels are being stolen, in part because the subsidized Iraqi price of gasoline, about 44 cents a gallon, is less than half the regional price of 90 cents a gallon. "That provides a tremendous incentive to be able to steal these fuels and be able to sell them for whatever purposes, corruption or otherwise," Walker said.

Walker noted that oil production, which was to provide prime support to the new government, is below prewar production and distribution levels, complicated by the insurgency and difficulties in maintaining the aging oil infrastructure.

Another GAO official, Joseph Christoff, director of international affairs and trade, pointed out that the Iraqi budget is paying for "what some could contend to be a bloated bureaucracy, primarily because oftentimes you don't know who is working in the different ministries -- there are ghost employees."

Rep. Christopher Shays (R-Conn.), chairman of the subcommittee on national security, said the hearing was held to determine "whether we had and have a strategy and to what extent that strategy is meeting the needs of our engagement in Iraq."

The GAO report criticized the administration's strategy for not identifying which U.S. agencies are responsible for implementation, for not integrating U.S. goals and objectives with the Iraqi government and for failing to identify future costs.

James Jeffrey of the State Department's Bureau of Near Eastern Affairs also testified at the hearing. "The organization roles have been as clear as I have ever seen," he said, but he acknowledged, "Of course there are disputes." He said the GAO was correct in saying that "we haven't been able to align our goals, our resources and such fully with the Iraqis," but he added: "That's because we have not had a long-term Iraqi government."

He said the reconstruction program, which involved the Defense Department, the State Department and the Agency for International Development, was, at $21.9 billion, "the largest . . . since the Marshall Plan." He said that prewar assumptions that "there would be a permissive security environment that would allow reconstruction to go forward" turned out to be wrong along with the estimate "that the Iraqi government would make important contributions to the reconstruction effort."

As a result, Jeffrey said, "we shifted billions of dollars from longer-term infrastructure into shorter-term projects -- primarily security, but also democracy programs."

But "without security," he said, "you really can't do anything or enough on the political and economic tracks. However . . . the solution to the security situation is not military but political."

Walker's GAO report criticized the administration's failure to identify "current and future costs" or "the sources of funding needed to achieve U.S. political security and economic objectives in Iraq."

The report concludes that neither the Defense Department nor Congress "can reliably determine the costs of the war, nor do they have details on how appropriated funds are being spent or historical data useful in considering future funding needs." He said it costs about $1.5 billion a week for U.S. military operations, reconstruction and support for Iraqi forces.

Walker said that although the administration "has resisted for several years providing cost estimates longer than one year in advance, there is a basis to come up with some estimates."

The Congressional Budget Office last week released its estimate of potential spending requirements for Iraq in the fiscal years 2007 to 2016 based on scenarios where there was either a rapid or slow drawdown of U.S. forces. In the case of rapid withdrawal -- troops out by 2009 -- the CBO estimated an additional $166 billion would be needed for military operations, on top of $290 billion already allocated. For a slower withdrawal, where 40,000 troops stay through 2016, it would cost $368 billion, said the CBO.