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US is Running Out of Money in Iraq
Iraq rebuilding slows as U.S. money for projects dries up
By Rick Jervis
October 10, 2005

NASIRIYAH, Iraq — On paper, the Iraqi army barracks was a gleaming example of the future Iraq. The plans called for a two-story, air-conditioned barracks housing 850 soldiers, a movie theater, classrooms, basketball courts, a shooting range, even an officers' club.

But when the $10 million project in southern Iraq is finished this month, it will fall far short of those ambitious plans. The theater, classrooms, officers' club, basketball courts and shooting range have all been scrapped. The barracks will be one story instead of two.

The reason for scaling back the barracks? The U.S. government is running out of money. The higher-than-expected cost of protecting workers against insurgent attacks — about 25 cents of every reconstruction dollar now pays for security — has sent the cost of projects skyward.

The result: Some projects have been eliminated and others cut back.

"American money has dried up,' says Brent Rose, chief of program/project management for the Army Corps of Engineers in southern Iraq.

Tracking the billions of dollars that flooded into a war zone in the wake of the U.S.-led invasion has proved difficult, too. Nearly $100 million in reconstruction money is unaccounted for.

The ultimate price of a slowdown in Iraq's reconstruction could be steep. U.S. strategy here is based on the premise that jobs and prosperity will sap the strength of the insurgency and are as important as military successes in defeating terrorists.

"A free and prosperous Iraq will be a major blow to the terrorists and their desire to establish a safe haven in Iraq where they can plan and plot attacks,' White House spokesman Scott McClellan said last week.

But there are signs that some of the early momentum is gone, particularly for big infrastructure projects. The Ministry of Municipalities and Public Works initially planned to use U.S. funds for 81 much-needed water and sewage treatment projects across the country, says Humam Misconi, a ministry official. That list has dwindled to 13.

Canceled projects include the $50 million project that was supposed to provide potable water to the second-largest city in the Kurdish region and a $60 million water treatment plant in Babil province, which would have served about 360,000 residents, Misconi says.

Some progress has been made. More than 2,800 projects have begun since the transfer of sovereignty in June 2004, and 1,700 of those have been completed, according to the Army Corps of Engineers. They include refurbished schools, new police stations, hospitals, bridges and new roads.

It is the larger, more expensive projects such as water treatment plants, sewage networks and power grids that are being cut back.

Congress appropriated $18.4 billion for Iraq reconstruction in November 2003, but last year nearly $5 billion of it was diverted to help train and equip Iraq's security forces as the insurgency grew in strength.

And the security costs keep increasing. Originally estimated at 9% of total project costs, security costs have risen to between 20% and 30%, says Brig. Gen. William McCoy Jr., commander of the Army Corps of Engineers in Iraq.

By 2003, Iraq's infrastructure was run down after years of United Nations-mandated sanctions and neglect. Rebuilding it has proved tougher than first envisioned. Nearly half of all Iraqi households still don't have access to clean water, and only 8% of the country, excluding the capital, is connected to sewage networks.

And despite progress in fixing Iraq's antiquated oil production system, the country's oil wells produce about 1.9 million barrels of crude oil a day, lower than 2003 levels and well under the 3.5 million barrels Iraq was producing before the 1991 Gulf War.

Iraqi households still get only about 14 hours a day of power. In Baghdad, the power is on about 10 hours a day, according to the Electricity Ministry. Iraqi power plants are now generating nearly 4,800 megawatts, up from 4,400 before the U.S.-led invasion.

The increase hasn't been enough to keep up with demand. Since the end of the war, demand for electricity has increased by about 60% as Iraqis have bought new refrigerators, televisions, air conditioners and satellite dishes, says a Corps of Engineers spokesman.

The lack of dramatic economic progress has hurt efforts to win over Iraqis, says Michael O'Hanlon, a senior fellow at the Brookings Institution, a Washington think tank. Unemployed young men are more easily drawn into the ranks of the insurgency than those with jobs.

And if other Iraqis don't see an improvement in their daily lives, they may sympathize with rebels. "The economy is not helping us win the war,' O'Hanlon says.

The U.S. Coalition Provisional Authority originally set a goal of employing 50,000 Iraqis on reconstruction projects; David Nash, who headed the reconstruction drive last year, spoke of creating jobs for 1.5 million Iraqis. Neither target has been achieved, according to a recent report from the Center for Strategic and International Studies. In August, nationwide unemployment and underemployment were estimated at 50%, the report said.

Security is the largest obstacle to rebuilding. As of June 30, 330 contractors, mostly Iraqis, had been killed, according to the U.S. Office of the Special Inspector General for Iraq Reconstruction.

"It's a challenge,' says Col. Larry McCallister, commander of Gulf Region South District, the Corps of Engineers unit in southern Iraq. "We can't get to projects as often as we'd like. In the U.S., you go to projects every day. Here, you get to them maybe once a week.'

Western contractors can't visit projects without elaborate planning and preparation.

On a recent morning at Camp Adder, the fortified base near here where the Corps of Engineers is housed, a team of engineers huddled around the armored Ford SUVs of an Erinys International security team for the daily briefing. The Army Corps hires private security firms, such as Erinys, to take them to sites.

The civilian and military engineers are briefed before being ferried by the guards in a convoy of three vehicles. A guard sits in the back of the last vehicle, his assault rifle trained on any car that gets too close.

Besides escalating security costs, reconstruction also has been dogged by allegations of fraud and mismanagement. Nearly $100 million in Iraqi funds distributed by the Coalition Provisional Authority for reconstruction was either spent without supporting receipts or vanished, according to an April audit by the Office of the Special Inspector General for Iraq reconstruction.

The U.S. Justice Department has launched a criminal investigation, says Jim Mitchell, a spokesman for the office.

The White House said it hasn't decided whether to request additional funds from Congress. "It is too early to know what may be needed,' McClellan said.

If President Bush does ask Congress for more money, there will be tough questions about oversight and rising security costs.

"Reconstruction in Iraq has been slower, more painful, more complex, more fragmented and more inefficient than anyone in Washington or Baghdad could have imagined,' said Rep. Jim Kolbe (R-Ariz.), chair of the Appropriations subcommittee on foreign operations, at a subcommittee meeting last month.

Much of the security cost is buried in "cost-plus' contracts in which companies get reimbursed for all costs plus a percentage of those costs as a fee.

All 11 multinational firms working on projects through the Iraqi Project and Contracting Office have "cost-plus' contracts, says Karen Durham-Aguilera, the office's director of programs.

One "cost-plus' project is the water treatment plant under construction here, which is managed jointly by London-based AMEC and California-based Fluor Corp. The project was originally estimated to cost $80 million, according to Army Corps of Engineers records.

But the original Iraqi subcontractor pulled out after he was threatened. Delays, drive-by shootings and land-acquisition snags followed, driving security and other costs up, according to Corps officials and records. The project's estimated completion cost rose to $200 million, the corps said.

AMEC officials declined to comment. Bob Fletcher, Fluor's director of water programs, disputed the corps' figures but would not elaborate on the project's cost.

Iraqi contractors, not saddled by steep security costs, say they can do the work for less. The Ministry of Municipalities and Public Works is using Iraqi funds to build two similarly sized treatment plants in Karbala and Kut, says the ministry's Misconi. Combined cost of both projects: $185 million.

"We keep saying, ‘Give us the money and we could do it better, cheaper,' ' Misconi says. "Estimated cost of security on the Nasiriyah project is $54 million. We could build a whole new plant with this amount.'

As funds run dry, some projects are being handed over to Iraqis. In Najaf, for example, Army Corps officials bought parts to upgrade the city's electrical distribution system, including transformers, lines and wires, then handed them to local construction officials for them to do the work, saving millions on labor, security and administrative costs, McCallister says.

In the next few years, Najaf will benefit from 30 projects costing $100 million in U.S. taxpayer money, including new hospitals, clinics and police stations, McCallister says. But bigger projects, such as water treatment plants and electrical grids, are too expensive to launch, he says.

"Will (the projects) make a difference? Yes,' McCallister says. "Will it make a major, major difference? No. We could continue putting three times that much money into that city.'

The refurbished hospitals and new clinics in town are nice, says Abdul Hussein Ali, 52, a retired hospital worker living in Najaf with six children. But what would bring real joy, he says, is water that doesn't pour into his sink cloudy and salty and needing chemicals to purify.

"The water here is as salty as the desert,' he says.

"Since the start of the war to today, you cannot say there has been remarkable change,' Ali says. "The situation is improving, but very, very slowly.'

"Shock and Awe" costs a lot of money to repair. We're morally and legally obligated to fix what we broke. The next time a president wants war - ask him how he's going to pay for it. Then decide if it's worth it.