Annan backs expert proposal on funds to curb decline of Iraqi oil industry

Secretary-General Kofi Annan has recommended that the Security Council adopt an expert team's proposals on providing cash to Iraq for use in repairing and upgrading its sagging oil industry.

The Secretary-General established the team after the Security Council requested that he make arrangements for providing a "cash component" of up to 600 million euros to Baghdad, which uses a portion of its petroleum revenues to fund the UN humanitarian relief effort in Iraq, known as the "oil-for-food" programme.

In a letter transmitting a summary of the expert team's report to the President of the Security Council, Mr. Annan emphasizes the need to "address the rapid decline of oil production capabilities of existing fields, as well as to ensure additional production capabilities in order to sustain the current production and export levels."

The Secretary-General recommends that the Council approve the expert group's call for transferring funds from the UN escrow account to the Rafidain Bank in Amman. Subsequently, the funds will be transferred in euros, in monthly instalments, to the Iraqi Ministry of Oil, for transfer to the operating companies in Iraqi dinars.

In the letter, Mr. Annan notes that Iraq has agreed that up to three monitors will be stationed in Baghdad to participate in a quarterly review of the new arrangement. Iraq has also indicated that it would expect that the allocation of 600 million euros be approved for each new phase of the oil-for-food programme.

According to the experts, this expectation is "commensurate" with the prevailing needs. "In the context of one of the largest oil-producing operations in the world, it is not a practical proposition to initiate significant, expensive and widespread projects without the guarantee of continued funding," they note. "The impact of a 'stop-start' situation would be negative - probably in the extreme - on the effectiveness of the operating companies, and would largely negate the positive effects of the initial expenditure, resulting in a 'poor value for money' situation."