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Last Updated: Tuesday, 18 November, 2003, 12:50 GMT
US delays 'hit Iraq oilfields'
Basra oil refinery
Rebuilding work has been slow

Disputes in Washington over funding are slowing rebuilding of Iraqi oilfields, vital for the country's shaky economy.

According to newspaper reports, Iraq's oil ministry has been refused money to help rebuild southern oilfields.

The cash shortfall has meant that Iraq's oil output is still below pre-war levels.

The US Congress, angry that initial contracts were allocated without competitive bids, has insisted that any future oil contracts be open to all.

Decisions delayed

Earlier this month, the US Congress allocated $18.6bn (11.02bn) to rebuild Iraq's shattered economy, including $1.9bn to restore the oilfields.

But the new contracts covering the first $1bn worth of repairs are still out to tender, with no decision expected until December.

Meanwhile, only $716m of the $960m allocated for the emergency oil repair work has been released, according to reports in the Wall Street Journal newspaper.

These projects are being carried out by KBR, the subsidiary of Halliburton, the oil services company formerly run by US Vice President Dick Cheney, under a controversial "no-bid" contract with the US Army Corps of Engineers.

A US soldier distributes pencils in a girls' school
Security: $4.6bn
Restoring oil fields: $1.9bn
Electricity: $5.5bn
Water and sanitation: $3.5bn
Irrigation: $775m
CPA running costs: $980m
Transport and telecoms: $500m
Roads and bridges: $370m
Hospitals: $793m
source: Office of Management and Budget, US Congress
According to a senior advisor to the Iraqi oil ministry, Thamer al-Ghadhban, "funding has been a real disappointment."

He says that - among other problems - the oil export terminal at Mina al-Bakr lacks sophisticated equipment to communicate with the pumping stations onshore.

That means the people operating the pipeline sometimes sending messages by pick-up trucks because of the lack of telephones or radios.

Power has still not been restored at two oilfields in southern Iraq, and a pumping facility has been delayed by four months.

Larry Rogers is the Army Corps of Engineers' civilian project manager in Baghdad.

He told the Wall Street Journal that early funding delays were due to "overly aggressive" requests from the Corps at a time when the Coalition Provisional Authority was swamped with other obligations.

The CPA is in the process of reorganising its reconstruction efforts, appointing a full-time deputy to Paul Bremmer with the sole responsibility for coordinating the rebuilding effort.

Vital oilfields

Iraq's oil production has now reached 2m barrels per day (bpd), about 80% of pre-war output.

But 15% of production, or 300,000 bpd, is re-injected in the ground because of export bottlenecks.

The CPA 's top priority is rebuilding the oilfields, which could help pay future costs of reconstruction, and reduce dependence on imported fuel oil and petrol.

Iraqi oil pipeline
Oil is vital to help repair the Iraqi economy

It hopes to increase production to at least 2.5m bpd by March.

It plans to spend $1.8bn in 2004 on investment in the oil infrastructure - and it has already estimated that another $6bn will be needed over the next three years.

It hopes to increase production to at least 2.5m bpd by March.

The Iraqi interim government estimates its oil revenues at 2004 at $12bn, increasing in 2005 and 2006 to $18.5bn and $19.3bn respectively.

Next year's oil revenues barely cover the continuing cost of the Iraqi government's current spending.

But ideally the surplus of $6bn in the next two years could be used for reconstruction, so long as the security situation which has led to the disruption and sabotage of oil supplies and pipelines can be brought under control.

Pumping equipment

In the longer-term, much bigger investments - as much as $30-$50bn - would be needed to open up new, untapped oil fields in Southern Iraq.

Much of Iraq's oil infrastructure was struggling to function, even before the war.

More than ten years of sanctions have meant that Iraq has found it virtually impossible to get its hands on vital equipment needed to pump oil efficiently.

Iraq is home to the second largest reserves of oil in the world, after Saudi Arabia, but it is likely to take many years to bring oil from untapped areas to market.

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