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United Nations Office of the Iraq Programme

17 November 1999

REPORT OF THE SECRETARY-GENERAL PURSUANT TO PARAGRAPH 6 OF RESOLUTION 1242 (1999) (S/1999/1162)

Introductory statement by Benon V. Sevan, Executive Director of the Iraq Programme
Informal consultations of the Security Council - Wednesday, 17 November 1999

 

The report before the Security Council marks the end of phase VI of the humanitarian programme in Iraq pursuant to resolution 986 (1995) which began to be implemented three years ago, and which the world has come to identify as the "oil-for-food programme".

Notwithstanding the enormous humanitarian difficulties faced by the Iraqi people; notwithstanding also the criticisms leveled against the programme and its implementation, the report before you today shows that the programme continues to have a positive impact. The humanitarian situation in Iraq has improved considerably in those three years. As stated by the Secretary-General, the range and quantity of commodities en route as well as those awaiting distribution and utilization mean that the potential impact of the programme is greater still.

It is also very clear that much more must be accomplished if the programme is to realize its potential to improve the health and well being of the Iraqi people.

Responsibility for implementing the programme effectively is shared between the Security Council and its Committee, the Government of Iraq, the Secretariat and agencies, funds and programmes of the United Nations system, as well as by the suppliers and their respective governments.

There has been a welcome improvement in the arrival of contracts for targeted nutrition supplies, and for food basket items such as pulses and full cream milk that were previously in short supply. However, we are concerned that we have seen relatively few applications in phase VI for health, oil spares, water and sanitation, education and infrastructure. As of 10 November 1999, the value of applications received in the health sector was only about 35 per cent of the original distribution plan allocation – leaving aside the increased allocations made possible by resolution 1266 (1999).

Processing issues

Mr. President, 

I would like to draw the Council’s attention to the difficulties we are facing inside the Secretariat as this programme has grown in size and complexity – growth which has not been matched by increases in our staff and resources.

In phase III, the Secretariat was required to process about 1,000 applications under both the 13 per cent and the 53 per cent accounts with a total value of about $1.3 billion. These contracts comprised about 19,000 line items – the best unit for measuring the workload involved in processing contracts.

We have received about 90 per cent of the contracts expected for phase V - some 2,100 applications with about 51,000 line items. The number of contracts has doubled and the number of line items has increased by 250 per cent - reflecting the difference between buying simple commodities and dealing with $80 million contracts to restore generating capacity at major power stations. Our current projection is that phase VI will involve around 3,900 applications with about 90,000 line items.

Despite their long working hours and dedication, my colleagues are struggling to keep up with this volume. I should like to acknowledge that there are, at times, significant delays in circulating applications to the Security Council Committee. In phase III, most applications, provided that they were complete and in good order, were circulated within an average of two to three days. In phase V, this has slipped to three days for food, 10 for health and oil spares, and up to 24 days in other sectors.

We are working to speed up the flow but I must inform you that there are no complete or ready-made solutions. The Committee agreed to revisions of the guidelines for the submission of applications in order to provide more explicit instructions and examples regarding problem areas, and to allow significant reductions in processing time by companies and their permanent missions forwarding line-item data in electronic format. These initiatives were explained at a presentation made by the Office of the Iraq Programme, on 12 October, attended by over 45 delegations. Unfortunately, however, we have yet to register any significant increase in electronic submission. Two additional customs experts have been recruited by my Office, bringing the total to eight, and we are assessing additional staff needs to maintain an acceptable rate of circulation over the coming months.

Holds

During the previous informal consultations of the Council on 28 October, we discussed the issue of holds and also the issue of oil industry spare parts. I do not propose to repeat the arguments covered in the letter of the Secretary-General of 22 October addressed to the President of the Council (S/1999/1083). My colleagues and I will be intensifying our efforts with the Security Council Committee on a number of issues related to holds. We remain convinced that much can be done in terms of early provision of detailed technical information, as well as information about end users and special observation measures in order to avoid, to the extent possible, applications being put on hold.

As at 15 November, the total value of applications placed on hold amounted to $1.042 billion compared with approved applications worth $8.770 billion, since the start of the programme. However, it may be noted that 17 of the 602 contracts on hold account for 43 per cent of the value.

In addition to improving our management of the process – we are working to provide the Committee with a balanced assessment of the consequences of holds. This effort is aimed at giving the Committee additional information to inform their decision makers. It should be borne in mind, as well, that not all the difficulties encountered in the effective implementation of the programme can be attributed to holds placed on applications. Late submission of applications and on-going distribution and installation difficulties are similarly, if not more, serious.

Assessing the impact of holds is a complicated and imprecise effort – especially since we do not have a full picture of the resources available to the Government outside the programme.

However, I wish to provide the Council today with the consequences of holds in respect of food production and the electricity sector. To date, there are around $73 million worth of contracts on hold from phases IV to VI in the agriculture sector. FAO estimates – to the best of their ability - that some of these holds have resulted in significant reductions in the use of land for grain crops and the loss of as much as 20,000 tons of wheat production. FAO also estimates that delays in the arrival of vaccines have resulted in the loss of around seven million kilogrammes of meat.

In the electricity sector to date, of the $746.8 million of applications submitted to the Committee under phases IV, V and VI for the 15 governorates in the centre and south of Iraq, $377.7 million, or 51 per cent, remain on hold. I am sure we all share the view that there is a direct link between reliable power generation and the provision of health care, water supplies and other basic services.

According to UNDP, if all contracts on hold were to be released, the Government would, in theory, be able to add 1,900 megawatts of new or rehabilitated power generation capacity and prevent the loss of approximately 800 megawatts from the national grid. Given that the present power generation capacity stands at some 4,000 megawatts, Iraq could potentially achieve a 50 per cent increase in electricity supply if these holds were released.

With approximately $28 million worth of maintenance equipment on hold, the Iraqi authorities will not be able to slow down system deterioration and, unless other resources are identified, this will contribute to an increased number of forced outages, increased failures in power plants, thereby shortening the lifetime of existing generating units and their auxiliaries. With contracts on hold worth $11.7 million for safety and protection equipment, engineers remain unable to ensure the safe disconnection of equipment under maintenance. Without communications equipment between the dispatch centre and maintenance team, there remains a risk of high voltage shocks through premature restoration of the current.

In terms of telecommunications, I should like to emphasize the necessity for the Council and its Committee to address this long outstanding question, as it has significant implications for other sectors, in particular the efficient distribution of food and medicine. The needs are definitely there and yet 10 of the 13 applications circulated, worth over $100 million, have been placed on hold. The Office of the Iraq Programme would like to know from the Committee what its concerns actually are, in order to be able to address them appropriately.

As I said during my previous briefing of the Council on 28 October, in addressing the letter to the President of the Security Council, the Secretary-General’s main concern remains the excessive number of holds placed on applications, and the manner in which such holds have been affecting the implementation of the programme.

The Secretary-General’s appeal is addressed to all members of the Security Council and its Committee, as well as the Government of Iraq, the suppliers and their respective governments, just as he has directed me along with my colleagues and the agencies and programmes concerned to work together in order to address the difficulties and expedite the applications process and approval. He has also appealed to the Security Council Committee to undertake an early review of all applications currently on hold with a view to expediting a decision, as appropriate, in each case of a hold placed on an application. The Office of the Iraq Programme remains fully committed to assisting the Committee and all others concerned in expediting a review of the holds.

We simply cannot continue with business as usual. We all have to do our part to improve the implementation of the programme for the benefit of the Iraqi people.

Quality of goods

Mr. President,

The Government of Iraq has repeatedly complained to my Office about the contractual breaches on the quality of some of the goods delivered under the programme and has called for initiatives to protect its commercial interests. Possible initiatives have included changes in authentication procedures, amendments to the terms of contracts, additional care in selection of suppliers in light of past performance, and requests for reductions or stoppages in payments from the escrow account. While we are sympathetic to the Government’s concerns, our ability to respond to all these initiatives has been complicated by difficulties in assessing the magnitude of the problem. We are also constrained by Security Council resolutions and the procedures and understandings of the Security Council Committee as well as established banking procedures, and the need to keep the United Nations out of commercial relations and contractual disputes.

On 7 July of this year the Office of the Iraq Programme provided the Committee with a paper on this issue and we are still awaiting a final decision by the Committee on deferred automatic payments and the inclusion of performance bonds or counter guarantees, as two measures that would afford the Government some degree of commercial protection. The Government has meanwhile amended many contracts to remove retention clauses and other payment conditions unacceptable to the Committee, and has advised us informally that it is paying closer attention to past performance when selecting suppliers.

I therefore appeal to the Security Council and its Committee to review the difficulties encountered and to find ways and means to protect the Government against poor performance by some suppliers who, once paid in total for the supplies reaching the borders of Iraq, feel no obligation to either replace defective supplies or reimburse the United Nations Iraq account for the loss. We simply cannot wash our hands or hide behind rules and procedures. We need to address the genuine difficulties encountered.

OIP is also concerned at the manner in which applications for export to Iraq have been declared "null and void". The Committee’s procedures (S/1998/92, para.4 (b) (viii)) allow this to take place both for technical reasons such as transfers between phases or to eliminate duplicate applications, as well as at the request of either party. In this connection, I should like to inform the Council that under the current procedures the declaration of null and void applies only to applications, and that applications should not be declared null and void once they have been approved by the Committee.

This is a matter that I intend to bring to the attention of the Committee for further review.

Stocks

As you are aware, we have begun to report to the Committee on a regular basis on the status of stocks in all sectors at the central warehouse level. There has been considerable progress in refining our understanding and reporting, with the cooperation of the technical ministries concerned.

WHO’s analysis of stocks at Kimadia warehouses indicates substantial differences in distribution rates. As at 31 October, the distribution rate for medicines, vaccines, insecticides, raw materials and laboratory reagents was just over 76 per cent with the other supplies in storage as buffer or working stocks, awaiting distribution, undergoing quality testing or items that have failed quality testing and therefore cannot be distributed. However, to date less than 30 per cent of the health equipment that has arrived in Iraq has been distributed.  

Although this is a slight improvement in regard to the distribution of medicines, serious management deficiencies remain and have been outlined in previous reports of the Secretary-General. I should point out that distribution from Kimadia’s central warehouses to governorates does not necessarily mean that these supplies have been used effectively. WHO continues to work with the Ministry of Health and Kimadia to develop a more efficient procurement system that would ensure a steady flow of essential drugs and medical supplies and promote better prescription practices.

It is encouraging that some applications for specialized transport vehicles for health supplies have been approved; logistic infrastructure, however, remains inadequate to ensure efficient and equitable distribution throughout the country. There is an urgent need for improved communications facilities, new information systems and investment in staffing.

Oil spare parts

As you will note, in paragraph 123 of his report the Secretary-General has reiterated his recommendation to the Security Council to approve the request of the Government of Iraq to increase by $300 million the allocation for oil spare parts and equipment, bringing the total allocation to $600 million for phase VI.

Revenue

In resolution 1266 (1999), the Security Council authorized additional oil revenues beyond those provided by resolution 1242 (1999) equivalent to the shortfall of revenues authorized but not generated under resolutions 1210 (1998) and 1153 (1998).

The estimated revenue for phase VI is $7.464 billion, which after the deductions pursuant to paragraph 8 of resolution 986 (1995) and estimated pipeline fees for phase VI, would provide $4.818 billion for the humanitarian programme. Accordingly, there still remains a shortfall of some $2 billion from the authorized revenue level for the humanitarian programme under phases IV, V and VI. The Secretary-General has therefore recommended that, pursuant to paragraph 14 of its resolution 1242 (1999), the Council keep the current arrangements under review, in order to ensure the uninterrupted flow of humanitarian supplies into Iraq.

Conclusion

At this stage of the implementation of the programme, it has been proven that a multi-sectoral approach is essential in order to meet the humanitarian needs of the Iraqi people. Accordingly, when we talk about priorities, we should bear in mind that these are relative and need to be considered in the context of the overall programme, whether in funding sectoral allocations, contracting, or approving individual applications.

Two years ago, under the direction of the Secretary-General, the Office of the Iraq Programme carried out, in cooperation with the agencies and programmes concerned, a thorough programme and process review, which resulted in the supplementary report submitted by the Secretary-General (S/1998/90). That report assisted the Council in its decision to expand and enhance the programme under resolution 1153 (1998).

We are now planning to undertake a new review, similar to that preceding the Secretary-General’s supplementary report of February 1998 (S/1998/90) with a view to proposing to the Council various measures to enhance further the effectiveness of this programme. The Secretary-General intends to submit a report on this review to the Council in February of next year. We will be in contact with the Government of Iraq shortly to inform them of our intentions to carry out this study, and to invite the Government to assist in and contribute to the review.

Despite all the differences among Council members on the issue of Iraq, I believe there is strong support from every delegation for this programme and I am grateful for that support.

Until now there has also been unanimous support for maintaining the distinct identity of the humanitarian programme – separated from other aspects of the Council’s concerns with Iraq. In closing today, I would ask all Council members to recognize the value of preserving this distinct and separate identity in order to ensure that the United Nations is able to continue addressing the humanitarian needs of the Iraqi people.