AUDIT OF USAID IRAQ’S- ELECTRICAL POWER SECTOR ACTIVITIES

Chowyig - Rig/Iraq

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37 pages

English

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Publié par	Chowyig
Nombre de lectures	47
Langue	English

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OFFICE OF INSPECTOR GENERAL

AUDIT OF USAID/IRAQ’S
ELECTRICAL POWER
SECTOR ACTIVITIES

AUDIT REPORT NO. E-267-05-003-P
June 29, 2005

BAGHDAD, IRAQ

Office of Inspector General

June 29, 2005

MEMORANDUM

TO: USAID/Iraq Mission Director, Dawn M. Liberi

FROM: Regional Inspector General, Baghdad, Christine M. Byrne /s/

SUBJECT: Audit of USAID/Iraq’s Electrical Power Sector Activities
(Report No. E-267-05-003-P)

This memorandum transmits our final report on the subject audit. In finalizing the report,
we considered your comments on the draft report and have included them in their entirety
as Appendix II.

The report contains one recommendation for corrective action. In your written comments,
you concurred with the recommendation and described action the Mission plans to take
to address the auditors’ concerns. Based on your comments, we consider that a
management decision has been reached on this recommendation. Please coordinate
final action with USAID’s Office of Management Planning and Innovation.

I want to express my sincere appreciation for the cooperation and courtesies extended
to my staff during this audit.

U.S. Agency for International Development USAID/IRAQ/RIG
APO AE 09316
CONTENTS

Summary of Results ....................................................................................................... 1

Background ....................................................................................................................2

Audit Objectives ................................................................................................................3

Audit Findings................................................................................................................. 4

Are USAID/Iraq’s electrical power sector projects
achieving their intended outputs? ..................................................................................... 4

Intended Outputs Were Not
Always Being Achieved............................................................................................... 6

Is USAID/Iraq addressing institutional capacity-building in its projects
to rebuild and rehabilitate Iraq’s electrical power sector infrastructure? ........................ 14

USAID Infrastructure Projects
At Risk of Sustaining Damage .................................................................................. 15

Evaluation of Management Comments....................................................................... 27

Appendix I – Scope and Methodology ........................................................................ 28

Appendix II – Management Comments 31

Appendix III – List of Electrical Power Sector Projects Reviewed ........................... 33

SUMMARY OF RESULTS

Since the end of the conflict in Iraq, USAID has been directly involved in the
reconstruction effort to rebuild and rehabilitate the country’s critical infrastructure. One
of the most high-profile topics during this period has been the restoration of Iraq’s
electrical power supply. Years of minimal repairs and no regular maintenance, coupled
with fuel shortages and vandalism, have left Iraq’s national electrical system with limited
power-generating capacity for homes and businesses. To address this problem, USAID
has been implementing an infrastructure reconstruction program which includes projects
focusing on the construction and rehabilitation of Iraq’s electrical power sector.

The Regional Inspector General in Baghdad, Iraq conducted this audit to determine
whether (1) USAID/Iraq’s projects to rebuild and refurbish Iraq’s electrical network were
achieving their intended outputs and (2) whether the Mission was addressing institutional
capacity-building in these projects to ensure their sustainability. (See page 3.)

USAID/Iraq’s infrastructure projects in the electrical power sector were not always
achieving their intended outputs. Specifically, 7 of the 22 power sector projects
reviewed (32 percent) either had not or were not achieving their intended output. The
audit, however, determined that the underlying problems preventing planned outputs
from being achieved were beyond the Mission’s control. For example, two of the seven
projects were impacted, either directly or indirectly, by the U.S. government’s earlier
efforts, in September 2004, to reallocate over a billion dollars in government-wide
infrastructure funding from the electrical sector to security and other priority areas,
resulting in the cancellation of the two projects. Likewise, several other projects were
found to be experiencing major implementation delays, in one case stemming partly from
delays involving a non-USAID contractor, while other projects were hampered by a lack
of cooperation from the Iraqi Ministry of Electricity staff at the plants, the deteriorating
security situation and other factors. Given the circumstances involved under these
projects, a recommendation was not issued with regards to this finding. (See page 6.)

In addition, while the Mission was found to be addressing institutional capacity-building
under its power sector projects through the provision of training and operational
manuals, it is clear that much more needs to be done to address the existing problems
and challenges in this area, both at the power plants and at the ministry level. With the
Mission preparing to turn over several major power-generation projects ―having a
combined budget of over $600 million ―to the Ministry of Electricity by the end of 2005, it
is critical that steps be taken to address the problems to ensure the newly refurbished
infrastructure is properly operated and maintained and not put at risk. (See page 15.)

This report contains one recommendation for USAID/Iraq to develop a multi-year
strategy outlining its long-range plan of activities to strengthen the Iraqi Ministry of
Electricity’s institutional capacity to properly operate and maintain the electrical power
infrastructure rebuilt or rehabilitated by the U.S. government. (See page 26.) Mission
management concurred with the recommendation and was in the process of developing
a 3-year (2006-08) transitional strategy to address the operations and maintenance
issue. Based on the Mission’s response, we consider a management decision to have
been reached on this recommendation. See page 27 for our evaluation of management
comments. Management comments are included in their entirety in Appendix II.
1
BACKGROUND

Under Saddam Hussein, the electrical network in Iraq deteriorated dramatically from one
of the best in the Middle East to its present state where the power supply has become
extremely unreliable. Years of neglect, resulting from sanctions and more recently from
looting and sabotage, have left critical infrastructure in a shambles. The lack of spare
parts, scheduled maintenance and capital investment over the past two decades have
compounded the situation and caused major power-generation facilities to deteriorate
and function at a fraction of their designed operating capacity. This, in turn, has resulted
in frequent power cuts as demand for electricity continues to exceed production levels.
After the conflict in 2003, for example, Iraq had a generating capacity of around 3,300
megawatts (MW), enough to supply power to satisfy only a portion of the total peak
demand ―estimated to be on the order of 6,500 to 7,000 MW.

1One of the key components of the Coalition Provisional Authority’s (CPA’s) strategic
plan to restore full sovereignty to the Iraqi people was the restoration of basic
infrastructure and services, including electricity. To finance the reconstruction,
Congress appropriated $2.48 billion under the FY 2003 Emergency Wartime
Supplemental Appropriations Act, signed on April 16, 2003, which became known as the
Iraq Relief and Reconstruction Fund (IRRF I).

In support of this reconstruction effort, USAID/Iraq awarded two successive contracts
under its Iraq Infrastructure Reconstruction Program (IIR). The first of these two
infrastructure reconstruction contracts, valued at $680 million (later increased to $1.03
billion), was awarded to Bechtel National, Inc. (Bechtel) on April 17, 2003. This IRRF I-
funded contract (referred to as Phase 1) was designed to repair, rehabilitate, or rebuild
vital elements of Iraq’s infrastructure, including the electrical power network. While
covering several sectors, most of the funding under the contract was allocated to the
electrical power sector in the areas of power generation, transmission and distribution.
The contract’s expiration date, which has been extended, is June 30, 2005.

On November 6, 2003, President Bush signed a second emergency supplemental
appropriations act which authorized $18.4 billion in additional funding for the IRRF.
Funding under this