UNCLASSIFIED If you have a strong preference for either date, that will determine it. If not, our group will come-up with a firm recommendation for you as to the better implementation date. We propose the following action steps: 1. 2. Immediately form and staff the two task teams described above. Have the energy subsidy reform team prepare by November 15 a detailed plan for your approval reflecting the terms outlined above, but including more detail, the amount of the compensatory payment, and detailed implementation steps. Approve, ______ Disapprove _____ Approve with Modification, ____ _ COORDINATION: None ATTACHMENTS: None UNCLASSIFIED COALITION PROVISIONAL AUTHORITY BAGHDAD INFO MEMO October 28, 2003 FOR: THE ADMINISTRATOR FROM: Keith Crane SUBJECT: Comments on Tom Foley's and Peter McPherson's Proposals for Oil Trust Funds I PURPOSE & SUMMARY: The purpose of this memo is to evaluate the proposals for oil funds made by Tom Foley and Peter McPherson, respectively, in terms of the ability of the proposed policies to achieve the goals stipulated in the memos. On the revenue side, both memos provide cogently argued rationales for collecting monies from oil sales in separate funds. On the expenditure side, both memos advocate unduly restrictive policies, especially in light of current and prospective budgetary needs. If CPA's goal is to leave the next Iraqi government with an enduring institution that will collect oil monies in a transparent fashion and limit the ability of future Iraqi governments to use these funds for purposes other than direct redistribution to Iraqi citizens, the two current proposals need to be modified. In their current form, I am certain that a future Iraqi government would change the expenditure allocations. I have provided some suggestions on how the proposals might be modified below. Tbe Purpose of an Oil Fund Both memos provide good arguments for collecting oil monies in separate funds. To recapitulate, if properly designed and managed, an oil fund could: 1. Help control diversion of funds at the collection stage; 2. Provide transparency in expenditure as well as collection; 3. More quickly call government attention to unexpected shifts in oil revenue flows; 4. Can be used to sequester funds for future or special purposes; 5. May dampen economic fluctuations by adding or withdrawing funds from a stabilization fund; 6. May cap the amount of oil income directly available to the government, causing the government to resort to other, broader-based taxes to obtain revenues. Of these goals, those pertaining to revenue collection are the least controversial. Many countries and states establish separate funds for the collection of resource taxes: Iraq operated a UNCLASSIFIED UNCLASSIFIED Development Fund based on oil revenues in the 1950s. An oil fund would put funds outside the control of the Ministry of Finance, pennitting more automatic, timelier payouts for items that are on a regular payment schedule. The Iraqi Ministry of Finance has an institutional culture of multiple approvals and a very bureaucratic, autocratic disbursement system that is subject to individual decisions and whims. Funds may have stipulations on the investment and allocation of monies. The Iraqi Development Fund, set up under the tutelage of the World Bank, mandated investment in infrastructure. Tom Foley's proposal restricts the share of the fund revenues that can be used for general revenues. Both proposals mandate investment in a capital fund and a "dividend" payment to each Iraqi citizen. Peter McPherson's proposal also calls for a stabilization account If this proposal is to last, the mandated allocation of funds has to provide incentives for future governments to adhere to the mandates; otherwise, once elected they will change the operation of the funds. The dividend payment is the easiest to make permanent because once households begin receiving it, they will not give it back. We have already introduced an .. oil dividend" program: the monetization of the food basket and monetary compensation for increased energy prices. No other developing country of which I am aware could afford to provide monetary compensation for either food of fuel. Iraq's oil wealth makes this possible. Going through the accounts, I do not foresee any additional monies becoming available for another "dividend". To illustrate, a $15 a month per capita payment for food and another $5 a month payment for fuel generates an annual expenditure of$6,480 million annually. The 2006 budget assumes 2.5 mbd of oil exports and an oil price of $21 per barrel, resulting in annual gross oil revenues of $19,300 million. Assuming an additional 1 mbd in sales to domestic refiners that would also be sold at this price, total gross oil revenues would be $26,800, this one program would take a quarter of gross oil revenues and a substantially higher share of net oil revenues. In light of other demands on oil revenues, the monetization and energy compensation program leave little or no room for an additional dividend payment. There are two other arguments against making a dividend payment separate from the monetary compensation programs. One, transaction (distribution) costs are very expensive in these programs. I have been working with Danilo Roseano on the costs of distributing the monetization payments. We do not yet know what the costs are, but they could easily run as high as $1 per transaction plus set up costs and set up costs will run in the millions of dollars. Setting up a dividend program separate from the monetization program seems very wasteful in this regard and would absorb a substantial share of the distributed funds. Two, the size of a separate dividend would probably be considered laughable by most Iraqis. I had thought about advertising the monetization of the food basket as an "oil dividend," but the amounts available are the minimal amounts necessary to keep a poor family fed. My guess is that Iraqis perceive substantial dividend payouts. Advertising monetization as an oil dividend would probably result in a popular outcry because most people do not realize how limited funds are. I do not think that CPA would be well-advised to expend political capital on trying to push through these mandates only to see them immediately overturned. Thus, any CPA-inspired mandates need to survive a new Iraqi government. I am unconvinced by some of the proposed mandates. Both memos argue for capital funds in which oil revenues would be collected for future generations. Tom Foley caveats this mandate by stipulating that for the next five years, oil funds should be used infrastructure development for the next five years. I concur with Tom that monies should be channeled into infrastructure for the time being; I am skeptical that five years UNCLASSIFIED UNCLASSIFIED will be enough time. The argument that funds should be set aside for portfolio investment, much of it abroad, would make sense if Iraq were at a mature or declining stage in oil production like Norway or Kuwait. However, the best thing that Iraq can do at this point in time would be to develop its oil resources so that future generations will be able to benefit from increased oil output. Politically, it would be very difficult to argue that the fund should invest abroad while foreign oil companies are being encouraged to invest in Iraq. My guess is that rates of return on funds invested in Iraqi oil in the coming few years will be high. Investing in infrastructure, if conducted sensibly, could also generate very high rates of return, however, measured. Investment in education should also generate high rates of return. In short, an infrastructure/education mandate would be much more palatable (and sensible) than a classic investment fund. Once the Supplemental runs out, I really see no other alternative. In light of Iraq's very young population and infrastructure needs, a classic fund that makes portfolio investments, many abroad, is a political non-starter and also not a good use of resources at this point in time. Those funds are more suitable for aging populations with fewer needs for infrastructure and education. Another argument against national funds is their poor investment track record. If the government believes that oil revenues should be used to pay for future pensions, the most efficient solution is to provide a benefit to individuals and have them invest the benefit themselves in an accredited fund. Pension systems under which wage earners are compelled to invest a set share of income in privately managed savings accounts have been surprisingly popular and successful as alternatives to strictly state-run programs in emerging markets. In my view, it makes more sense to provide money through the oil for cash program and then tax back (show the amount taxed) a share for investment in individual retirement accounts than to have a national fund invest retirement savings and leave the government with the pension obligation. Under these systems, the government places strict conditions on funds eligible to participate in these programs. Everyone in the country monitors the performance of these funds because it is their money. The track record of national funds, including the U.S.-East European enterprise funds has often been mediocre to abysmal. In particular, the idea that creating boards of directors formed of the great and the good will result in solid returns is often mistaken. Many corporate boards, including Enron's, are stacked with such people. A very good friend of mine was on the Hungarian Enterprise Board and, unfortunately, participated in some very bad decisions. These people usually like to be liked. They are very busy. Moreover, the money involved is not their own. Thus, they do not perform the oversight functions or challenge decisions the way they would if they were investing their own money. I would focus on disbursing funds to the government budget and individuals, not trying to have the funds invest it themselves. The stabilization fund argument makes some sense, but is probably irrelevant for CPA as the likelihood that the Iraqi government will enjoy a surfeit of oil revenues in the medium term is very low. Good finance ministries do create set aside accounts and try to constrain spending in times ofboom. This said, stabilization funds for countries or cartels (coffee, nickel, tin, etc.) have had a checkered history. I believe all of the commodity funds have gone bankrupt. The empirical evidence shows that no one can forecast long-term market trends. Thus, governments and cartels tend to spend too quickly and save too little. If CPA advocates a stabilization fund, it should be just that. It only makes sense to put money into these funds when commodity prices exceed a certain level (e.g., $32 a barrel) and only permit withdrawals when the price falls below UNCLASSIFIED -·---· -·----· -·--- --- ---------- --~--- UNCLASSIFIED a certain level (e.g., $12 a barrel). I see no sense in putting money into such a fund when oil prices are "normal" and especially during a period like now when the Iraqi government has such limited revenue options. The Iraqi government would be better off setting up contingent lines of credit in the future or looking at other rainy day options than sticking a large share of resources into a fund. I disagreed with the mandate that only 10 percent of oil tax revenues be used for general government revenue. It is not enforceable and is fairly arbitrary. It also puts the cart before the horse. A substantial number of oil economies have become successful or semi-successful: China, Malaysia, Mexico, Russia, some of the Gulf states, not to mention Texas, California, Great Britain and Norway. As these economies have developed, the share of oil revenues to total government revenues declines, not because of oil tax policies, but because the importance of the oil sector declines as a share of GOP because of economic growth, making it possible to tap other sources of tax revenues. Oil taxes can actually have one of the least distortionary effects on an economy. In Middle Eastern societies, other taxes have much more pernicious effects because they put power in the hands of tax collectors, a profession that has been reviled since Biblical times. Customs, sales, excise, VAT, property, and income taxes are all much more arbitrary in these economies and potentially much more detrimental to economic growth than taxes on oil. Iraq should use its oil wealth to build up a head of steam for growth and then introduce other taxes. Iraq also lacks the resources to become a classic Persian Gulf oil economy. If production hits 7.5 mbd, roughly Saudi production levels, Iraqi output is likely to have a depressing effect on world market oil prices. However, even assuming that it does not, gross Iraqi oil revenues at $20 per barrel would still only be $2,000 per capita, not enough to make Iraqis wealthy. Fund Mechanics: Revenue Both memos stated that net oil revenues rather than oil tax revenues should be used as revenues for the fund. Tom Foley's memo argues that all upstream assets should become the property of the fund. I think both proposals are major mistakes. The fund should only draw on oil tax revenues; the national oil companies need to operate on a commercial basis, not as revenue sources. Currently, the oil industry, despite the nominal existence of "companies,' is run by the Ministry of Oil as a budgetary institution, not as a set of independent units. Robert McKee notes that the best state-owned oil companies are those that are most independent from the Ministry of Finance and the worst run state-owned oil companies are those that are run by financial authorities. If Iraq is to have a strong oil industry, the industry needs to be run on a commercial basis and face as much competition as possible. To elicit the proper supply responses and to create a tax framework in which independent units can operate, the operating units need to be restructured into a set of independent profit centers with an eye to increasing competition in refined oil products markets. Each link in the state-owned supply chain needs to be operated as an independent profit center, making it possible to introduce competition at each stage. This will involve creating balance sheets, cash flow, and profit and loss statements. This financial information can then be used to make better operating decisions and provide proper incentives for management to compete for market share, control costs, and run their operations in a profitable manner. Creating proper incentives and inventory and financial controls is crucial, UNCLASSIFIED UNCLASSIFIED because some managers will lose substantial swns of money because of reduced opportunities for graft. The fiscal instruments used to tax the industry need to be consistent with multiple, independent producers. These include royalties, profit taxes, and dividends paid to the state. Royalties can be set as a percentage of world market prices or export prices. Profit taxes should be designed to leave enough retained earnings to enable the company to operate in a commercial fashion. The board of directors, which would consist of government appointees, would make decisions on dividend payments to the treasury. Eventually, excise taxes on motor vehicle fuels may also be levied. In this structure, taxes are levied at discrete stages of the production process. For example, percentage royalties are levied at the production stage and excise taxes on refined products at the wholesale or terminal stage. Such a tax system can be applied uniformly to all future participants in the oil sector, including foreign investors. A clear, transparent energy tax code will ensure both that the fund or funds will only draw on a clearly defmed set of tax revenues from the oil sector and that state-owned oil companies will be able to retain sufficient funds to conduct their own operations efficiently. In this system, tax revenues from oil will be constrained by the international oil market and Iraqi oil companies' financial performance. The Iraqi government will not be able to treat the industry as a revenue source rather than a business. For these reasons, I do not support giving an oil fund all oil assets. The treasury or state property holding company should hold the equity. The fund should benefit from taxes on the industry as a whole. It should not be involved in owning and managing operating companies. Financial Implications Table 1 shows summary data for the Iraqi budget for 2004-2006. Table 1: Oil Revenues and the Iraqi Budget Million Dollars 2004 2005 2006 (1) Production mbd 12,000 18,500 19,300 _(1) Gross Oil Revenues (exports only) 12,000 18,500 19,300 (2) Total Revenues 13,839.2 19,183.2 19,763.4 (3) Percent 86.7 96.4 97.7 (4) Gross Oil Revenues (4) Oil Tax Revenues assuming $5/barrel production costs _(5) Household Compensation Payments 6,480 ( 6) Government _Qperatin_g Budget UNCLASSIFIED UNCLASSIFIED I (4)-(5)-(6) UNCLASSIFIED ~ COALITION I)ROVISIONAL AUTIIORITY ' BAGIIDAD INFO MEMO October 29, 2003 FOR: THE ADMINISTRATOR From: Robert McKee, Director for Oil Policy Subject: Ministry of Oil Update Please find attached the following requested information: - Pipeline Sabotage: There has an increased sabotage to the oil pipeline (seven attacks since 11 October) which is disrupting oil exports, fuel for electricity production and fuel distribution. We expect a higher level of protection with the full implementation of Task Force Shield. (attached) - 7i"sk Force Shield (Oil Infrastructure Security Force with Erinys): On 15 October, Task Force Shield has begun the implementation phase of its force roll-out in close coordination with CJTF-7. At the end state of this phase, phase on 30 November, we will have a trained, supervised guard force into one command and controlled organization supported by the combat power of CJTF-7. Amb McManaway is receiving a briefing on the current status shortly. (attached) Congressman Waxman's Request for Audit of KBR: In a non-related issue to the above, Congressmen Henry A. Waxman and John D. Dingell, in a letter to LTG Robert Flowers, the USACE Commander, allege that KBR (the US Army Corps of Engineers has contracted KBR to import gasoline to Iraq) has overcharged the US Government. If there is proof of overcharging, they request that reimbursements be initiated and that punitive measures be taken against the contractor.( attached) Attachments: As Stated FOR OFFICIAL USE ONLY FOIA 09-826 CPA 000308 FOR OFFICIAL USE ONLY Congressman Waxman Request for AudH of Fuel Prices Paid by KBR Tnk Order No. 5 Contract No. DACA83-03-0.0005 1. KBR was contracted by the US Army Corps of Engineers (USACE) to import gasoline to Iraq. Congressmen Henry A. Waxman and John D. Dingell, in a letter to LTG Robert Flowers, the USACE Commander, allege that KBR has overcharged the US Government and have requested that the US Army Corps of Engineers conduct a joint investigation with the Defense Contract Audit Agency (DCAA) and other federal agencies to determine how much KBR is paying for gas, the cost to transport the gas, and an explanation as to why the costs are high. If there is proof of overcharging, they request that reimbursements be initiated and that punitive measures be taken against the contractor (Encl 1 ). 2. A USACE assisted DCAA audit is currently underway. The preliminary assessment does not Indicate any criminal wrong-doing on the part of the contractor. The current audit action is focused on the purchase of gasoline from the Altamia Company, a licensed fuel marketer in Kuwait, since fuels purchased from other sources in Turkey were less expensive. The cost for the Kuwaiti fuel and the cost for transportation to Iraq from Kuwait have been determined to be $1.13/gaUon and $1.14/gallon, respectiVely (Encl2). 3. USACE and the OCAA auditors are continuing to evaluate KBR purchase records. The next steps will be to evaluate KBR's purchasing process to determine if they followed proper procedures and then to determine if they exercised due diligence in seeking responsible, low-cost bids for these purchases in accordance with the terms and conditions of the contract. 4. POC: (b)(6) DSN (b)(2) 2 Enclosures: 1. Email from~ Defense Contracting Audit Agency, Baghdad, Subject: Kuwait Gas Pricing, Contract No. DACA63-03-D-0005/Task Order #5 2. Congressional request from Rep Waxman FOR OFFICIAL USE ONLY F 0 lA 09-826 CPA 000309 FOR OFFICIAL USE ONLY Subj.c:t: Kuwait Gas Pricing, Contract No. DACA63.03-0-()()()S/Task Order #5 lmporblnc:e: High 5enlltivlty: Confidential TO: (b )(6) US Army Corps of Engineers RIO Program, Baghdad DATE: 10/27/2003 SUBJECT: Kuwait Gas Pricing. Contract No. DACA63-03-D-0005/Task Order #5 RE: Your co~ (b )(6) DCAA Regional Audit Manager and~ Supervisor Auditor, on 10/26103, Baghdad, Iraq. I At your request, attached please find our preliminary assessment of the Kuwait fuel (gasoline) prices as purchased by KBR under Contract No. DACA63- 03-D-0005, Task Order # 5 only. Please be advised that as of this date the attached infonnation is a compilation of cost that is represented in KBR files, and is not audited, and as such, we express no opinion on the attached. Our audit of these costs is incomplete at this time, and our audit is still in-process; accordingly the information is marked •unaudited." The purpose of the infonnation provided is for your discussions with CPA officials. Please contad me or the following individuals who are located in room M208 of the Presidential Palace in Baghdad if you have any questions relative to the attachment. (b)(6) __ (b )(6) upervisory Auditor Supervisory Auditor ~ Acting Branch Ma~ Tel. No. to Kuwait~ Enclosure 1 FOR OFFICIAL USE ONLY FOIA 09-826 CPA 000310 FOR OFFICIAL USE ONLY FOR OFFICIAL USE ONLY and UNAUDITED Contract No. DACA63-03.0.00051Task Order 15 Kuwait Guollne Cost! Period Covered: 517/03 to 9130103 Gasoline Purchased under the following Purchase Orders KBRPun:ha• Order No. 311 341 402 YS!!:! 41,010,000 38,712,000 134.657.010 Cu"'nc;y 3,774,179.940 3,511,200.000 12.119.130.900 KO KD KD Total 214,379,010 19,404,510.840 KD Uter to Oa!lc!n Conyp!pn 1 gallon '" 3. 7854118 litters 3. 7854118 (KO • Kuwait Dlrlar) Total Gallons Purchased (5/7 to 9130) (214,379,010 I 3.7854118) 56,832,943 Kuwait Cu!!!OCv tp US Dollar! Conyera!on For this exercise 1Kuwalt Dinar (KD) = $3.30 ~ Total G!JSOiine Purchased In US Dollars (19,404,510.840 KD X $3.30) Fuel Tanker Costs Fuel Tankers leased from Inception ttvu 9/30/03 + Total Cost per Gallon (from 517/03 to 8130/03) TOTAL GASOUNE AND FUEL TANKER COSTS ($64,034,888 + $64,638,845) Total GALLONS PRICE PER GALLON ($128,673,731 I 56,632,943 gats.) $64,034,886 64.838 845 USD $128,873,731 56,632,943 C~t of Ga~llne per Gal. ($64,034,886156,632,fU3) Cost of Fuel Tankers per Gal. ($64,638,645156,632,943) Kuwait Gasoline PurchfiSH (Tesk ~ #5) Only $1.13 $1.14 FOR OFFICIAL USE ONLY and UNAUDITED FOR OFFICIAL USE ONLY FOIA 09-826 CPA 000311 FOR OFFICIAL USE ONLY fAX COVER COMMITTEE ON GOVERNMENT REFORM DEMOCRATIC STAFF OFFICE HON. HENRY A. WAXMAN RANI1eu Support to OperatUm Iraqi F.--lorn (Oct. 3, 2003) (oaliJlc at www.hq..uace.umy.millcep.Jinq/faq.htm) ("h i5 liD IDdefinite Daliveryllndefinite Qaarnity, CO$t-plu5 type ccmact. The govll'DIDC:Ilt FOR OFFICIAL USE ONLY FOIA 09-826 CPA 000314 FOR OFFICIAL USE ONLY Lt. Om. Robert B- Flowers October 21, 2003 Page3 Halliburton toe its coau IJld thea provides an additiollal award ofbetwcen 2% &nd 7%.5 When this additiODal award is 1akcn into BCU~unt. the c:ost 10 1he tllq)&)'er m.cr-.QI 10 bctwccu Sl.62 and Sl. 70 pc pllon. A\thou8h Halliburton cl.aima its profita me iDclud.ed in the Sl.S!> per- pllon pricc,6 your staff confirmed fur us last Mlllk tba1 this is not tbl:-. 7 Numerous expert& told ua Halli'burton's prices wen "ou1rageouuly hii:b," thll they were potentially "a huga ripoff' to taxp&yw~, snd tbat Halliburton coulcl ba gu.llty of''price gougiug. ..a They Qltimated a more teaiODible coat of about 96 eeau per galloa. Acoording to the Ccmar-ional :R.aean:h ScrvWe, tba average price far" Arab (]glf' poline in the Middle East wu aboUt 71 Cflllts pe.- pllon between April aDd September, DOt illchlding the cost tD 1nXISpOrt the gasoline into Iraq." One rmpert said that 1llldc:r ordinary conditioaa, it should ba po&ll"ble 10 tranapoat guoline into Il1lq fwcocts ~.fi"OIIllS to 25 cenUper ,.Uon.10 $aid it might be possible to ttiDJPOn gasoline into Jilq, for as little u 10 cc::nts per gallon. 1 Even a&llUl:lliJia the most CKpi!Diive tranJportaticn eltimat:e, Halliburton's total p«-gallon costs should uot ~ 96 cents. Another~ 5 !d. ('"''bc CIIIDrl.cfDr is guariiDteed a~ oftwo.p~ and can mab: a maximum of M\lflD peramt. depCIIldiq OD pcid'onumcc"). · · · '·' . · '. ·. ·; ' ' - . .. 6 Plws Release: HalJibru1011 Jajuw Stat-.N8 Made alitnd Fllel Procunmumt lliUi DehWu-y in l7Dq (Od. 17, 2003) (c:llliinDJi the SL-59 tiglire inc:ludOS the company's profits). 1 Telephone coD.VCIIIItion bctwccn Janice Rasp, U.S. Army Corps of BnginccB. and Minority Slaft', Committee on Gav8mlllel1t R.efonu (Oct. 17, 2003). 1 Telephone coovenatioll betwee:n Philip K. Verleger, Jr.,'l'relidellt. PKVerleger LLC, and PriDcipaJ, Batde Group, and Minority Staff, Committee on Oovamment Reform (Oct. 10, 2003). Otbc:r cpcrts. includiDg illdividuals with detailed JaJowlqe ofiraq's oil maaets. exprealltld similar views, although they liked that their identities uot be revealed. One said: ''Then is DO way on earth Halliburton &hould be buyiug ps far 80 CCPtl aDd selling it far Sl. 70 -that's highway robbery." ' Coqte~aional R.elaR:h Scvice, .A.~ of R-t Ga.soliM PTka ill lA• Ptll'siml Gulf (Oct. 14, 2003) (surveyillg 1"latts Global Energy's Otlgryzm. Price Rcpon for tM av~ tales pric:e of"Anb Gulf' paolille betweeo the fall of Bqhdad Oil April 51, 2003, &lid the last daM for which the Amay Co~ps ofEngineers provided infoJmati.OD, Septrll:llb« 18, 2003). ' 0 TelcphoDe ton"'ersation betweeo Gordcllll Sc:bremp, Snior Fuels Specialilt. Caliibmia EDergy Commiqi011, aoc1 M:mority Statt Com.mitt. oa Oovlmlll'llmt RD!onn (Oct. 14, 2003) (usuming 400 miles bctwccn Kuwait and Bagbdld). 11 Telephone conveuation with l>bilip K. Verleger, IJI[Wd11Dte 8. FOR OFFICIAL USE ONLY FOIA 09-826 CPA 000315 FOR OFFICIAL USE ONLY Lt. Gal. Robat B. }'lowers Oetober 21, 2003 Pap4 De NewiDformadon from SOMO Whm Hallibunou COJilcltcocl tho view~~ of the apctaw. C0111Ultc0, wo IOlllbt infonnation di.n:ctJy from SOMO, the Inqi lllte-oWDcd oil complll)', about wba1 it COlli to import psoliDD into Iraq. We l.med that SOMO bu be1:D impartiDa paol~ ill1o Iraq fumtlbe same colllllriea u Halh"bw11:1a lllld doiJ!a 10 It a ~on oftba COlt that Halliburton bu ~ cbargiDg. ! The miuority ICaft' of tho GovSD111811l RefOim CommiUJOe ~ Mobammod M. Al- Jibouri, tile Gededl Mia&&« of'SOMO. Ahbougb. Mr. AJ.Jibouri WQII)d DOt COIIDI1el1t ot1. whether Halliburton Willi ~its pricos, hAl provided out ltd' with die price& SOMO pays to impod SU~>liDe. .AccomiJI& to Mr. Al-Jibouri, SOMO lJIIYS bcltwoc $32-4 to S347 perlllllltric 1011 of ptOline imported iDto Inq. u Convcrtaci to dollars per .gall.oQ, tbe price paid by SOMO ia betw-90 1114 98 cediS per &alloD. IS Al:con1iDa to Mr, Al-Jibouri. tblt" &peeific price paid by SOMO dclpandl on the IOW"Ce of the imported piOiiDe aqd iu deltirultkm inli&Iraq. The molt~ JUOline purcllued by SOMO is the p1oliue importad from Tutkay lllld delivered to BqbiW. ~to Mr. AJ. Jibouri. "SUI>Iine price ~ Tm:tey oost USD 347 pet m. toa delivtnd to a.pdad which ia about USD 0.98 p.-pllDIL ••4 The leut a pensive paoljDe ia p101iDc imponod 1iom Kawait and dcliVI:Rd to Burah. which eo11t1 ju.t 90 oeaa. per plJmL Guolia.e importod fhnn Kuwait and doli~ to Bqhdad costs 97 c:aots per plkro. The eoortD01III clit!ialac:e betwwD the pric:. claarpd by Hallibmtoa md the prices at which SOMO e111 import paoli:De il DOt eatplllintld by dilri:I'CIDCa in IIOIJRlO c:cnmlrics, mo4e of lniDipOit, or c!clivay locatioDL Jn c:oDIPUiDJ the Halllllurtm iDlpoo1& to SOMO impotU,. lba Coaliuoa Provisional Aulbarit.y (CPA) oonftrm•d that "[b}olh KBR and SOMO arc briDgi.ua ia 12 Lcucr from Mohamml:d. M. Al-Jibouri, Galcnl Mmapr, State Oil MarlcltiDC Orpxaivtioll, to MiDorlty Sta1f, eoau.utt.ee on Gove:rnmtlllt R.elbtm (Oct. 16, 2003). BeciUtC SOMO doel not ba.ve cuh to make tbae puicbua,lbsy t111ter iD&o bartc lnlulactioDll to tnde fuel oil tor psoline. 1 ' &cordiq to tile CcmgreuiOD&I Raean:h Se:Mce, uaric tans of psolinll em be convartecl iato pll0111 by mulaipl.yiDalha Jllllllb« of metric: tcx. by 8.53 to JI)C:t tbe :aumba of U.S. barreta md then muklplyiD& lhis liiJIIlb« by 42. 10 aet the D1l1llbcr of p11ooa. Memo l:om Lawreoco ~Cumins, Coqreasiou1 ~ San.. . SUBJECT: Status of Fuel Contracts (KBR and DESC) • 1) KBR negotiations with AI Tanmia for increasing the fuel impOrts from Kuwait are close to an impasse, which we are monitoring closely. The status of the negotiations is: • According to US Embassy Kuwait, AI Tanmia is the only authorized "sole source" for fuel from Kuwait. AI Tanmia is not experienced with contracts that must comply with US Federal Acquisition Regulations and this is particularly an issue in view of the recent KBR publicity. . • The fuel price is competitive; however, the transportation cost is uncompetitive and is approximately 65% greater than other companies. (SOMO has recently entered negotiations with AI Tanmia and has encountered a similar price differential for fuel delivered to Baghdad as compared to its current suppliers from the Gulf. SOMO continues to be our best alternative for near-term supplies.) • KBR has requested a best and final offer which is needed if a sole source contract can be utilized. AI Tanmia requested and was given a letter of intent to purchase. • AI Tanmia has NOT responded with an offer. • Additional recent publicity, apparently inaccurate, surrounding the DCAA audit, has made the situation more problematical for KBR and has contributed to their conservative approach to the negotiations. · 2) DESC is moving to take over fuel contracts. However, DESC wiU probably not be rapid enough to have a significant impact and will also use limited competition contracts for a short period. • DESC previously: 1) Sent a team to evaluate the current fuel contracts with KBR, 2) Sent a single individual to observe the CJTF-7ffF RIO Fuel Distribution Team. • . DESC currently has a single individual in Baghdad to make logistics preparations for a team to arrive in mid-January. FOIA 09-826 CPA 000327 , .. . • ' " The DESC team arriving in mid-January plans to use 60-90 day sole source or limited competition bridge contracts until full and open source contracts are in place in mid- April. Mid-April fuel import requirements will be less than half of current requirements. Note that CPA Oil and TF RIO are reviewing methods to gradually transfer all import purchasing and delivery to SOMO with a goal of having this complete end-April. ~- UNCLASSIFIED 2 FOIA 09-826 CPA 000328 • ~ --~- · . ~~--~--- - ------------ r tfliJI t,o 3/ COALITION PROVISIONAL AUTHORITY BAGHDAD November 16, 2003 MEMORANDUM To: Mr. Nabil Lamousa, Director General of Planning, Ministry of Oil Through: Robert McKee SUBJECT: Assisting the Ministry of Electricity with Fuel Planning Dear Mr. Lamousa, I would like to thank you and your associates at the Ministry of Oil for your assistance in our efforts to restore the power to Iraq to a stable, pre-war level. This pre- war goal has been achieved, but only meets about half of the country's actual electricity needs. As you know, we are now in a major effort to increase the level of power to provide the Iraqi citizens, businesses and industries with sufficient power to meet the needs of a growing economy over the coming years. The first stage to increase power involves the work of USAID through their contractor Bechtel, and the US Army's Task Force Restore Iraqi Electricity (TF RIE). These entities have been interacting extensively with you in coordination with the Ministry of Electricity (ME) through the Fuel Task Force. I understand there has been some confusion as to points of contact, and in response Mr. Randy Richardson prepared the attached memo to Dr. Aiham Al-Sammarei, who agreed with the proposal contained therein. The second stage involves $5.56 Billion of funding for this sector, nearly $3 billion of which will go to new generation. We recognize that MOO does not have the budget to build the fuel transmission infrastructure to the level needed to support this generation. Therefore, per my verbal request of a week ago, I kindly request that you assist us in the planning effort for this additional electrical capacity. The matrices attached are only slightly improved from those I gave you and your team last week. The questions I pose are the following, for each site or for multiple sites if they can be addressed with a single project: what is the fuel infrastructure for transmission and processing that would be needed to make the project possible, and approximately how much would that work cost? FOIA 09-826 CPA 000329 • Unfortunately, as with many things in this post-war reconstruction effort, we are on a highly accelerated timeframe. We need to have a rough idea on needs and costs by November 20th. The input you provide can certainly be very rough; the principle goal here is for us to convey the need to the US Congress and build in justifiable project components as early as possible. Once these projects are submitted, our Bearing Point consultants wilJ be embarking on a Master Planning effort, and would very much enjoy a closer and high quality interaction with you as we move forward in this sector. While Mr. Randy Richardson, the CPA Senior Advisor for Electricity is out of town, I will be the sole point of contact for the effort described above. Kindest regards, (b )(6) P!eputy Senior Advisor - Electricity Attachments: 1. Memorandum to the Minister of Electricity 2. Matrices on fuel needs for combustion turbines and steam power plants. CC: Dr. Aiham Al-Sammarei, Minister of Electricity Mr. Randall B Richardson, CPA Senior Advisor for Electricity (b )(6) TFRIO Dr. Eymad Hussein Ali, Deputy to the Minister of Electricity (b )(6) TFRIO (b )(6) TFRIO FOIA 09-826 CPA 000330 COALITION PROVISIONAL AUTHORITY BAGHDAD ACTION MEMO DATE: 18 November 2003 FOR: THE ADMINISTRATOR FROM: Rodney G. Bent, OMB SUBJECf: Supplemental Decisions We need your guidance on several issues with respect to the supplemental. I've attached the latest version of our table, along with draft copies of the justification material we propose to send to CPA/Washington following your approval. This material would serve as the basis for seeking OMB apportionment of funding to CPA and subsequent notification to Congress. Issue# 1: Move $124 million in supplemental funding from the New Iraqi Army to the Iraqi Civil Defense Corps. The additional funding for the ICDC would enable it to stand up 36 battalions with 10 brigade headquarters. This number of battalions is double the original proposal in the supplemental, which had one battalion in each of the 18 govemates. Our reconunendation would decrease NIA funding from $2.0 billion to $1.876 billion and increase funding for the ICDC from $76 million to $200 million. We are working with CJTF to identify how we would revise the NIA requirements. • Recommend moving $124 million from the NIA to the ICDC to enable it to double its size to36 battalions. Approve: Disapprove: Approve with modification: Issue #2: Move $189 million in funding from the purchase of emergency supplies of refined petroleum products to (1) increase spending by $168 million on democracy building activities and (2) increase spending by $31 million on private sector development and banking system DlOdernization. Given the proposed transfer of sovereignty by July 2004, we believe it important to spend additional funds on governance and other activities that will improve the odds of successful political and economic transition. At the moment, we are planning on spending $550 million ofDFI on refined petroleum imports, which should fill estimated requirements through the end of January. From February forward, the current estimate of additional needs for these imported products is approximately $420 million through the end of the spring, by which time we hope domestic refining capacity will be available. As the supplemental includes $690 million for purchases of these products, we may have more funding UNCLASSIFIED FOIA 09-826 CPA 000331 COALITION PROVISIONAL. AUTHORITY BAGHDAD than needed. The supplemental specifies that we can only take 10% from any functional category, so we can only moved $189 million from the $1,890 million for oil infrastructure. • Recommend moving $189 million from emergency oil imports to increase spending on governance activities. Approve: Disapprove: Approve with modification Issue #3: Move SlO milllou from the witness protection program and $5 million from teclmical investigative methods to the r~onstruction of detention facilities. • Move $15 million from the witness protection program andtechnical investigative methods to the reconstruction of detention facilities. Approve: Disapprove: Approve with modification: There are two issues of which you should be aware. First, AID is sending you a memo under separate cover in which it lays out what it believes are its spending requirements. Some of these requirements may possibly be accommodated within the increased amounts above for governance issues. Other spending requests would require us to create new categories with offsets from existing categories. Second, there are some explicit spending requirements within the supplemental that will have to be accommodated within broad spending categories. As an example, .. not less than" $6 million shall be made available for administrative expenses of the Department of State Bureau of International Narcotics Control. A TIACHMENTS: Table ofFY 04 Iraq Relief and Reconstruction Fund Proposal Program fact sheets COORDINATION: Rob McKee, Senior Advisor to the Ministry of Oil Scott Castle, Senior Advisor for Governance Jerry Thompson, Senior Advisor to the Ministry of Security Affairs Steve Casteel, Senior Advisor to the Ministry of the Interior Larry Rubini, Senior Advisor to the Ministry of Justice AID Mission Director Co:nJUessional Affairs UNCLASSIFIED F 0 lA 09-826 CPA 000332 COALITION PROVISIONAL AUTHORITY BAGHDAD 18 November 2003 H. E. Dr Ibrahim Bahr al-Uloum Minister of Oil Subject: Capital Investment Budget for 2004 Thamir Gbadhban submitted a letter to CPA dated 9 November 2003 requesting the status of the Oil Ministry capital budget for 2004. Because of the importance of this subject, it is more appropriate that our response be directed to you. Presently, the Ministry has no capital budget allocated for its sole control in 2004. As such, I want to take the time to explain to you just how we should proceed over the next couple of months. The Supplemental that was signed by the President includes funding of $1.2 billion for oil infrastructure projects and $690 million for the purchase of petroleum products. These are US government appropriated funds, so they will be administered by the US Anny Corps ofEngineers or similar organization of the US government. The $1.2 billion will be used to complete the remaining projects of the work plan agreed to last July as well as the new projects that have been identified for the USACE to administer, under the name of Task Force RIO. In addition, there will be a need for additional oil infrastructure capital for the Ministry. How do we attain and manage this capital? We had hoped that completion of a national petroleum regime and transition to the INOC structure would be further along by now, allowing for an efficiently-managed capital investment program among other things. Therefore, it is important to reiterate that I cannot support any additional funding until 1) a national petroleum regime is defined and published and 2) a national oil company is established and we are satisfied the appropriate management processes and financial controls are defined. Per our previous discussions, I know that you are supportive of these very important undertakings and intend to implement them this coming January, after consultation and guidance from CPA and the Governing Council. If money is required prior to either of these two conditions being satisfied, all requests will have to be justified and presented to my office for review, and only emergency funding will be considered. If I agree, we would then seek approval from the Program F 0 lA 09-826 CPA 000333 Review Board for each project. My feeling is that you and your Ministry would not be at all happy with this process. However, when the two conditions ARE satisfied I intend to work with Ambassador Bremer to provide a capital budget which will be solely controlled and administered through INOC, without any day-to-day oversight by CPA. This is a significant step in our being able to return the oil business completely to Iraqi direction and control. I would recommend you continue your planning such that the Ministry is prepared to submit a detailed capital budget for 2004 to CPA in January. Meanwhile, Task Force RIO will be working to complete its approved work program and mission separately from the capital budget discussed above. Sincerely, Senior Advisor Iraqi Oil Ministry Cc: Amb L. Paul Bremer F 0 lA 09-826 CPA 000334 .•.... ···· - --·····--·--·····---- ~~/IZu-27 COALITION PROVISIONAL AUTI JORITY B/\GIIDAD INFO MEMO November 20, 2003 FOR: THE ADMTNISTRA TOR FROM: Robert McKee, Senior Advisor, Ministry of Oil SUBJECT: Product Supply The following summarizes some current issues and information related to supplying product to Iraqi consumers through the coming months. A very high level summation of the supply problem is that, in total volumes~.w~- 41LL..__, __!!!ll!!ili: to manufacture amlimport.en®i\.U~roducts in~he ~g'!. '~ !!.Y . 9 . r:t ~ . ~~ay-to-day basis to ~. ':' cr basic consumption, let alone be able to build 'st- ocks. Therefore, our ciui=ejij-Q!Ys-of stock - ~?E'~(~ _ lJ~i.CJl~(fi:..cre•iS~L:.Our -ct~TC J1i "llu)de ls-by.tleccssity very reactionary, mtH.:h like -the Dutch boy sticking his thumb in the dike; however, it's a fact we're running out of short-term solutions. This situation exists because of several things - security of convoys, pipelines and repair crews; a buildup of refinery byproducts that arc difficult to dispose of; border grid locks; feedstock interruptions to the refineries; erratic electrical grid pcrfom1ance; and,~~~ant delays in retu _ rning some _ l,_ PG _ i clines from the south are for the moment fully operational and we are ablet- £1~~ l~ AI · ,7 . SUBJECT: Status of Fuel Contracts (KBR and DESC) p 1 tfl""'f" ) -"1 r£.ii ~) KBR neg~tiations with ~I -r:anmia for increasing the fuel impo~ ~om. Kuwait are close to an ./ ~ - J 1 ~ 1 tmpasse, whtch we are momtormg closely. The status of the negottat10ns ts: JUI • According to US Embassy Kuwait, AI Tanmia is the only authori~ "sole source" for fuel from Kuwait. AI Tanmia is not experienced with contracts that must comply with i1) ~fft? US Federal Acquisition Regulations and this is particularly an issuJ in view of the recen , ~ KBR publicity. . . • • The fuel price is competitive; however, the transportation cost is uncompetitive and is approximately 65% greater than other companies. (SOMO has recently entered negotiations with AI Tanmia and has encountered a similar price differential for fuel delivered to Baghdad as compared to its current suppliers from the Gulf. SOMO continues to be our best alternative for near-term supplies.) • KBR has requested a best and final offer which is needed if a sole source conttact can be utilized. AI Tanmia requested and was given a letter of intent to purchase. • AI Tanmia has NOT responded with an offer. • Additional recent publicity, apparently inaccurate, surrounding the DCAA audit, has made the situation more problematical for KBR and has contributed to their conservative approach to the negotiations. 2) DESC is moving to take over fue) contracts. However, DESC will probably not be rapid enough to have a significant impact.and will also use limited competition contracts for a short period. • DESC previously: l) Sent a team to evaluate the current fue) contracts with KBR, , 2) Sent a single individual to observe the CJTF-7fl'F RIO Fuel Distribution Team. • DESC currently has a single individual in Baghdad to make logistics preparations for a team to arrive in mid-January. FOIA 09-826 CPA 000347 ------------------------------~------- .. 4lt The DESC team arriving in mid-January plans to use 60-90 day sole source or limited competition bridge contracts until full and open source contracts are in place in mid- April. Mid-April fuel import requirements will be less than half of current requirements. Note that CPA Oil and TF RIO are reviewing methods to gradually transfer all import purchasing and delivery to SOMO with a goal of having this complete end-April. UNCLASSIFIED 2 F 0 lA 09-826 CPA 000348 os!Z/7-36 COALITION PROVISIONAL AUTHORITY BAGHDAD December 17,2003 To: The Administrator From: Ministry of Oil (Erik Nelson) Subject: Main Report Submission for Oil Oil Infrastructure • - . • Pllmp $Ilion ---· PipeliN Crude Oil --·--111-· --LPG -- . ~ LPG Plant -""·- Pipeline 011 Product • Cewll Pllnt ;._:_.:~, Gn Hlldl QOSP -- -OI&O.F- N A I \- \ \ '-------~---·---· Project Code 50000: Infrastructure (Robert McKee) The Iraqi Oil Infrastructure was damaged in the beginning of the war and extensively looted soon afterwards. Oil is the most abundant natural resource in Iraq, and thus the mainstay of the Iraqi economy. It is extremely important that the capabilities of this sector be restored quickly to sustainable levels of production. Oil Infrastructure Restoration is unique in that it is the only sector in which every dollar invested, either directly or indirectly, provides a growing return on investment in the tangible form of direct revenue to the Iraqi people for future reconstruction. The coalition has assisted the Iraq Ministry of Oil in making progress towards reestablishing pre-war production levels. However, more must be done to lay the foundation for the national economic recovery, and to ensure that Iraq bas the revenue for a self- sustaining government. Factors that must be addressed include continued repair of war damage and repair of looting damage. At the same time, continued terrorist sabotage activity is hampering progress. The funds requested will be used to repair the infrastructure, counter the terrorist threat to protect the current investments, and to compensate for the losses that are a direct result of previous successful terrorist attacks. Once production has stabiliz.ed, funds will then be used to continue to improve the Iraqi petroleum production systems with the ultimate goal of restoring pre-war production levels. FUNDS 2003 2004 2005 Development Fund for Iraq $222M 0 0 Iraqi Bud2et $78M 0 0 Category Projected Projected Start Spendln~r Date Construction Initial Mobilization $50M December, 2003 Actual Construction $759M February, 2004 Procurement $323M December, 2003 Security $68M February, 2004 Total $1,200M NOTE. See attached project descripttons for detwls. Oil Infrastructure Restomtion projects fall generally into three categories: Construction, Procurement, and Security. All three categories, while distinct, complement and support each other in order to meet the goals of Public Law (PL) 108-106, to provide "security, relief, rehabilitation and reconstruction in Iraq[.]" Security, one of the specific purposes stated in PL 108-106, is required to protect the current infrastructure, provide a safe working environment, and preserve the gains that are made in the restoration. This will be accomplished through the use of mainly Iraqi guard forces throughout the nation at key infrastructure locations. Procurement of equipment will enable the Iraqi Ministry of Oil and its subordinate operating companies to rehabilitate the currently operational infrastructure, and to begin reconstruction of that which was damaged or destroyed. Procurement also includes petroleum product imports intended to avert a humanitarian crisis while the production infrastructure is brought to the point where it can keep pace with national consumption. To use the terms in PL 108-106, this will provide "relief' to the Iraqi people. Given a secure environment to work in, the confidence that the work done will not be undone by criminal acts, and the tools to actually do the work, the final piece--- Construction-wi11 be the part which can mostly easily be shown to be a direct investment in the future of Iraq. Rehabilitation and restoration of the oil production and oil products production infrastructure is the only portion of the entire American investment that can be shown to have a direct, quantifiable rate of return, serving to restore to prewar conditions the main marketable resource on which the Iraqi economy is based. The plurality of the supplemental funding will go towards procurement, both for equipment and for humanitarian fuel imports (next sub-section) that are necessary until the petroleum product production infrastructure is able to keep up with domestic demand. Construction makes up the second-largest component and security the third, although these expenditures are closely related. A more secure environment will reduce costs associated with construction, and at the same time, higher-than-normal construction costs which are due to the expense of operating in the environment as it exists today, are likely to be n:duced. o The US Army Corps of Engineers is the executive agency for these projects The next step in this project is to procure equipment required by the Ministry of Oil and its subordinate companies for the efficient operation, maintenance, and repair of the Iraqi Oil Infrastructure. Most equipment was rendered inoperable by looting (or was stolen) during or after the war. What little equipment that was recovered required significant repairs and has a severely limited remaining operating life. This list has been extensively coordinated with the Ministiy of Oil, and detailed equipment specifications are completed and awaiting funding. First quarter funds will also be used to award two follow-on construction contracts to allow contractors to mobilize and begin other initial preparations. It is important to note that the funds in this supplemental are being used not to start new programs, but to continue the ongoing mission to Restore the Iraqi Oil infrastructure. Ongoing projects are being closely managed to ensure efficient use of funds. This process causes fluctuations in the scope of future projects, as progress brings new needs to light, and causes other requirements to drop in priority. As such, we require flexibility in making final adjustments to the projects undertaken with these funds. Oil is the most abundant natural resource in Iraq, and thus the mainstay of the Iraqi economy. Speedy recovery of the oil infrastructure will provide the means for a speedy recover of all other Iraqi infrastructure and will allow the Iraqi economy to sustain itself without outside assistance. Success will be measured by increased exports of crude by at least 20%, and decreased petroleum product imports by at least 10%. With weekly income from crude exports topping $200 million, and weekly outlay for imports averaging $40 million, income will increase by $40 million, and outlays will decrease by $4 million, for a net of $44 million weekly. Bottom · e: this investment will pa for itself· roximately six months, reinforcing the statement that exp s sector are a measurable investmen 1 future oflraq. Project Code 51000 Emergeacy Supplies of refiDed petroleum (Robert McKee) War damage, looting, poor maintenance, and sabotage have cause interruptions to the flow of crude to the refineries. Difficulties due to outdated technology and poor maintenance at the refineries themselves, and interruptions to the flow of refined product to the cities, have created the need to import more petroleum products than originally projected. The main products required are Liquefied Petroleum Gas (LPG), used for cooking; kerosene, used for heating in the winter months; benzene, for auto fuel; and diesel, to fuel larger equipment and power generation. Failure to provide any of these will directly affect the quality of life of the average Iraqi citizen. 2003 2004 2005 803 325 0 Funds will be used to cover the difference between Iraqi demand and refinery production, and to establish and maintain a 30-day reserve in all major products to ensure no interruptions in basic services due to future terrorist activity. $400 million will be needed in the first quarter to compensate for the large difference between demand and production. and to build the 30-day reserve. $290 million will be required for the remainder of the fiscal year to compensate for continued production shortfalls while maintaining the reserve. o Defense Energy Support Center is assuming responsibility for this mission from the current executor, the US Army Cmps of Engineers. The aim of this project is to cover the difference between Iraqi demand and refinery production, and to establish and maintain a 30-day reserve in all major products to ensure no interruptions in basic services due to future terrorist activity. Success will be measured by the achievement and maintenance of a 30-day reserve of refined petroleum products. COALITION PROVISIONAL AUTHORITY BAGHDAD oc ... ~ . ~- .. : ACTION MEMORANDUM December 30, 2003 FOR: THE ADMINISTRATOR FROM: SUBJECT: Correction: PRB#S88- Police Equipment for the City ofSamarra- $1,150,732 was approved by the Board. However, the PRB Allocation Request indicated that it was part of Rapid Regional Response Program instead of a stand alone PRB. The Program Review Board met on December 14,2003 and voted on funding requests for programs in support of the CPA mission priorities. The requests were thoroughly vetted by the Program Review Committee prior to presentation to the Board. The Board recommends a total allocation of$118,669,192 for the projects described below. Summary of Proposed Allocation: #585 - Rap sponse Program Replenishment - $80,000,000 Requestor: CPA- Regional Program Manager The request is to replenish the Rapid Regional Response Program #581-De~,ooo Requestor:-CPA- Ministry of Oil This request is to fund the removal of mines in the AI Rumaylah North Oil Field. Task Force RIO removed mines around the oil wells that needed immediate emergency repair. Additional mines have to be removed for repair and maintenance work will have to be done on the rest areas in the oil field. #579-PDo~~~l Credit Scheme- $10,000,000 Requestor: • • CPA- South This request 1s to e provide funds for an agricultural credit scheme that will be affordable and accessible to the farming and agricultural trade sectors. It is planned that the facilitation of the funds to the farmers and other borrowers will be done by the banks, for a small management fee retained from the interest charge on loans. Monies will be retained by CPA -South in a dedicated bank account. Farmers and traders will be expected to repay their loans on crop harvest or delivery of outputs to the market. Expected recovery rate will be 90-96%. #584 - AI Muthanna Cement Factory- $4,500,000 F 0 lA 09-826 CPA 000353 (b )(6) Requestor: CPA - South This request is to fund the purchase of heavy excavating and transport equipment needed to operate the limestone and clay quarries near the cement plant. The plant is currently using the materials from the quarries that were excavated prior to the war. The Board recommends that this request be approved as a loan guarantee. #566 - Micro/SME Loan in Sunni Region - $2,250,000 Requestor: Thomas C Foley, CPA- Private Sector Development Office This request is to provide funds for the immediate loan funding for micro and small to medium enterprises in Al-Anbar, Diyala, and Salah ad-Din. This program will advance the creation of jobs, improvement of economic infrastructure and generate good will. #588- PoUce Equipment for the City of Samarra - $1,150,732 Requestor: CPA- North This request is to fund necessary equipment for the new police force being formed in Samarra. A new force is being reformed because persistent problems in the city. The new equipment will allow the police to communicate and travel to trouble spots. Radios, vehicles and uniforms will be purchase with these funds. #573- Ministry of Water Resources Facility Protection Services- $503,412 Requestor: _ Ministry of Water Resources This request is to fund the salaries for the Facility Protection Service for the last two months of 2003 and provide uniforms and jackets. The salaries for the prior months were paid from the ministry's Goods and Services account. The ministry's account been depleted. #582- SOMO Audit- $120,000 Requestor: ... Ministry of Oil This request is to fund an audit of the State Oil Marketing Organization (SOMO). An audit will be conducted by an independent public accounting firm to ensure that export sales of petroleum and petroleum products are consistent with prevailing international market best practices. The SOW will include reviewing internal controls systems, advising on best practices and reviewing measures to help detect fraud #589 - Indemnity Benefit - $100,000 Requestor:--CPA- Baghdad This request is to provide the family of the Vice Mayor of Baghdad, Faris Abduk Razzaq Khattar al-Asan, who was assassinated in October, 2003. In recognition of his service to the cause of freedom in Iraq and his courage and leadership with the Coalition #586 - Oil SME - $42,048 Requestor: Robert McKee, Ministry of Oil This is to fund a contract with Native American Industrial Distributors to provide a Subject Material Expert (SME) who is an expert with Iraqi oil trading. The SME will FOIA 09-826 CPA 000354 visit the SOMO headquarters and assess their trading practices, whether they are up to proper, modern standards that ensure clean practices and transparency. #587 - Government of Iraq - $3,000 Requestor CPA - Facility Manager This Request is for additional funds to the contract approved and funded with PRB#562. The funds will pay for the needed power outlets for the computer rooms that were not included in PRB#562. Under the authority you have delegated to the Board under the Rapid Regional Response Program, on December 14, the Board approved two projects (Attachment 2). #561 - Publ~ment- $6,900,700 Requestor: ~CPA- South Central This request is to fund the purchase of equipment (Police cars, Border Patrol pickup trucks, Riot Gear and Dispatch Center) to the police and border patrol in the CPA- South Central region. This project will allow the police force to be more mobile to respond to calls for service. RECOMMENDED ACTION: The Administrator approves the attached Allocation Request #50 by signing Attachment 1 at the tab. ATTACHMENTS: One Spreadsheet F 0 lA 09-826 CPA 000355 Allocation Req # 50 Correction PRB 15-Dec-03 PRB Name Governorate CPA Office Funding Src 585 Rapid Regional Response Program Replenishmen Various Program Review Board OFI 581 Demlning Various Ministry of Oil OFI 579 Pilot Agricultural Credit Scheme AI Basrah CPA South DFI 584 AI Muthanna Cement Factory AI Muthanna CPA South DFI (Loan Guarantee) 566 Micro/SME Loans in Sunni Region AI anbar Private Section Development DFI 588 Police Equipment for the City of Samarra Salah Ad Din CPA North DFI 573 Ministry of Water Resources FPS Various Ministry of Water Resources DFI 582 SOMO Audit Baghdad Ministry of Oil OFI 589 Indemnity Benefit Baghdad Baghdad Central Vested 586 Oil SME Various Ministry of Oil DFI 587 Government of Iraq Building Baghdad Facility Management DFI Program Amt Rcmd In Budget $80,000,000 No $20,000,000 No $10,000,000 No $4,500,000 No $2,250,000 No $1,150,732 No $503,412 No $120,000 No $100,000 No $42,048 No $3,000 No Total Amt Rcmd $118,669,192 Approved: CPA Administrator FOIA 09-826 CPA 000356 PRB Name 561 Public Safety Equipment Allocation Req # 50 Correction PRB Rapid Regional Response Program 15-Dec-03 Funding Governorate CPA Office SRC Program Various CPA South Central DFI R3P Authority Approved In Budget $6,900,700 Yes Total Authority Approved $6,900,700 FOIA 09-826 CPA 000357 COALITION PROVISIONAL AUTHORITY BAGHDAD INFO MEMO January 29, 2004 FOR: THE ADMINISTRATOR FROM: Thomas C. Foley, Director, Private Sector Development SUBJECT: Update for Meeting with Minister of Oil In preparation for your upcoming Meeting with the Minister of Oil, we offer the following update and suggested discussion points: Background: Tom Foley and (b )(6) met with Minister Al-Uloum on Thursday, January 15,2004 to discuss fuel price adjustments. Minister Al-Uloum said he had a task force that was preparing a comprehensive recommendation on energy subsidy reform that would be completed within three weeks (Thursday, February 5). Tom and mmtlasked if they could contribute to the task force's effort, but the Minister declined saying that CPA inout would be more appropriate after receiving the task force's recommendation. Tom andODlDsaid they would provide to him, for the task force's use, a set of energy subsidy reform recommendations that were put together by an outside source. These recommendations were the product of the \.. ~ CPA energy subsidy reform task force, but have been recast so as not to appear as a CPA . I . . \..,_,IV recommendation. This document was given tQ Rob McKee to give to the Minister at your . I]'"'~,--:·,/\ upcoming meeting. ~6. As an aside at the close of the meeting two weeks ago, Tom andrmmJIIbrought up the idea of ~~ ,v an.oil tRIA. The Minister seemed supportive of the concept, but was not in favor of the Heritage '" Tru he had seen last fall because the assets were bein used for ension which he said people do not care a ou . e srud he was receptive to learning about the other ideas for a trust, particularly 1£ they provided a dividend. Tom andODlDoffered to pull something - .... c; together on this topic. This material (a memo and presentation) was prepared and sent to the ~ . ~inister for his review. _.d'l\-e~riman, Objective: We are becoming increasingly more convinced of the importance and &' - urgency of addressing fuel price liberalization as soon as possible, and certainly prior to the transfer of sovereignty to the Government of Iraq. Our primary objective from this meeting would be: • To have the Minister meet the deadline for the recommendation from his task force and to agree to a subsequent deadline for a decision and start date for implementing a plan for adjusting fuel prices. UNCLASSIFIED -2- Points ofleverage: We have some, but not much leverage over the Minister. In increasing order of aggressiveness, they are: • If he fails to act, future problems with lines at gas stations will be a political embarrassment to him. • This is the second time Iraq and the Ministry have been faced with the gasoline shortage. If no action is taken, and gas lines develop in the future, the CPA may not provide U.S. Army personnel to provide security at the gas stations or convoys to escort tankers to the appropriate distribution points. • CPA is currently withholding most of the money allocated to the Ministry for oil sector capital projects. If the Minister is anxious to have this money (not known to us), continuing to withhold it may represent leverage. • CPA may be providing the Minister's personal protection which could be withdrawn (though this may worsen the issue of his frequent absence from the country). • The Minister has not been receptive to CPA initiatives and continues to be a bottleneck in addressing areas of significant concern for the Iraqi people and the Coalition military who must deal with the ramifications of his inaction. This is due to a lack of decision- making ability and frequent absence from his post in Iraq. Unless there is a sudden shift in attitude and initiative from the Minister, there is likely to be no alleviation of the ongoing problems in the oil sector. Tennination from his position and installation of a new Minister may be the most effective way of ensuring that these issues get addressed. Suggested talking points: Energy subsidy reforms: • Mention January 15 meeting with Tom andDj)Idand expectation of task force recommendations on energy subsidy reforms on February 5. • Emphasize need for fuel price adjustments to avoid future problems with gas lines. Mention risk of political backlash against Ministry and potential loss of Coalition lives. • Mention cost that subsidy and smuggling place on the Treasury which will be a burden to the future government. • Weave in comments, as appropriate, related to points ofleverage listed above. Iraqi Oil Trust: • Gauge response to materials on the Trust. ATTACHMENTS: NONE COORDINATION: --Private Sector Development Rob McKee, CPA Senior Advisor, Ministry of Oil UNCLASSIFIED Page 1 of2 McKee, Robert E. (SES) From: McKee, Robert E. (SES) Sent: To: Cc: Wednesday, January 28, 2004 11:31 AM Bremer, Paul Kellogg Jr. Joseph (SES-6); (SES) Subject: Meeting with Minister of Oil-29 January- (b )(6) McKee, Robert E. Jerry-As we discussed in passing a couple of days ago, I recommend you use the general theme of "transition" as the basis for our discussion with .Ibrahim on Saturday 31 January at 1100. This will allow all of the most current issues to be raised. One possible way to proceed is as follows: 1. 2. 3. 4. 5. 6. 7. After the hellos are done, spend a litUe time reviewing what happened at the UN, current administration thinking, progress on the supplemental funding, etc. Enquire about his trip to D.JYOS. Compliment him O!l the Ministry's perform~ aR&-Ieadership through the Baghdad benzene shortages in Decemoer. Thank him l'ut ~111g responsive to your request to name a candidate for his IG position. Thank him for continuing to work with Rob's office on all of the challenges the oil sector has. Introduce "transition" planning as very important over the ooming days and weeks. Indicate ifs important enough that you expect certain things to get done guick4t ang certain standards to~ set. If not, there will be certain implications (whatever yoli'reprepared to tell him here). "Transition• is problematical in the oil sector unless the following specific things are accomplished. a. Ibrahim must state his intentjonilor the kind gf ministry be will run, and do it QUickly. (I attach a short speech I wrote for him that would accomplish this) It Is imperative that his employees, the GC, Iraqi people in general, and the world at large know Iraq's intentions soon. Offer to help him with the GC. b. He must expedite the detailed work on a ~for the ministry and oil industry- contracting, procurement, HSE, budgeting, financial controls, ethics, etc. You know that work has begun here but it must have the highest priority. c. He must restructure the Minis · an efficiently managed national oil company that o or. (If I can ride with you to the •mstry, u my the p for this restructuring, which I have also discussed with him.) Since he's totally Incommunicado now, it will be almost impossible to get him to present you with some of his own ideas for restructuring during the meeting, as you requested. In the end, his problem is that his organizational ideas are based on accommodating Personalities, not on creating a structur · I suited to carrying oUfli1s Sitategy. d. e> must be aud (auditors are being contracted now by CPA) and they must be p o e over the importing of all fuels by this summer, as well as carrying on with the Important task of selling Iraqi oil that is exported. e. The Erinys guard force must be placed within the mini must be prepared to mana e their this s wa throu · · try 5a, 5b and 5c must be accomplished within the next month or so. I (Amb Bremer) am prepared to relcu~l A:IMQ¥ to )'QU (Mjojstpr of Qjl) from tbe OFI !,CCQUnt if ypu do these things. Otherwise, I cannot (this is the response to his recent letter to you requesting that his capital budget be released immediately). Be advised that he is extremely "exercised" about this issue. He almost refuses to believe his budget has always been zero, and that somehow we have made it zero to punish them. Of course, since it is zero. I have been trying to tell him that you would make available some money to him if he made considerable progress on the whole restructuring/petroleum regime issue. It's important, in my mind at least, that you emphasize this message and that we stay the course. Corruption is a major concern of yours. Entities at all levels of Iraqi society, including within the Oil 112812004 ---------------------·- --· ···-- Page2of2 Ministry, have to basically decide that lawlessness will not be tolerated and will in fact be punished. You know that corruption exists in the ministry and you are concerned that not enough is being done to root it out. You would like him to use his new IG to begin to get at this problem. 8. You would like to begin the process of price llberal~jon and the foiT(!ation of an oil trust. What does he think of these and how should we proceed? ~ 9. One concern that I (Rob) would like you to voice, if you agree, is that you have heard concerns expressed that the career technocrats at the Mjnlstqr are slnwl)r btd surely being p1•shed a&ide. You don't want all of the expertise and experience, particularly those that saw the industry through it's bad days and through the beginning of the reconstruction effort, to be sacrificed. 10. To summarize, you want him to actively get involved in "transition• planning and accomplishing some of the important tasks outlined above, with a great sense of urge ther every day to help get the oil industry back to its pre-war levels and th Rob does not act unilate (It is important to say something like this, because he's beginning o ge 1!1 e can simply go directly to you on some issues. You should actually remind him to work with you through the oil office on all matters.). 11. Bottom-line, we have much to do in the coming months and a lot of progress needs to be made soon. You and the ministry have done well, but much more remains. This is one of the two or three most important institutions in the country and you need to lead the way. I would be glad to discuss any of this with you prior to the meeting. Thanks. Rob + 1/28/2004 Minister: The following is a draft proposal of a message that we believe you could and should make to your employees at the Ministry of Oil, your fellow Ministers, the Governing Council, the haqi public and to the world-at-large. It allows the Ministry of Oil (the most important of all of them) to take the first, public stance towards a model of what ltaq will become under the current and future lesdership. Just as important, it establishes you firmly as a progn:ssive and aggn:ssive leader who is determined to move haq's oil industry forward. It provides a framework in which all of your various stakeholders can begin to pattern their own behavior, planning and actions. Our prediction is that it will be well-received by all the various audiences. We have arrived at yet another historic day. Since the liberation, we in the Oil Ministry have worked closely with the Coalition to restore our great haqi oil industry. At this point, we are producing well over two million barrels ofoil per day and exporting over 1.5 million barrels a day, all for the benefit ofl!:aq. We have worked in cooperation with our neighbors, our contractors and the Coalition to provide adequate fuel products to all of you for your driving, cooking, heating and lighting needs. We are continuing to make improvements to our oil industry to ensure that the future will be bright for it and all haqis. Our people are to be commended for their great progress in the oil sector as our country is reborn. It is now important for me to tell you some important things that will define lhe Oil Ministry and haq's oil industry for the coming years. Our country has one of the world's largest petroleum reserves and it bas almost unlimited potential to benefit us. Every day, the Oil Ministry will be guided by this knowledge and our purpose will be to ensure these. principles are fulfilled. 1) Our country's oil and gas will be owned by the people ofhaq on a national basis, protected under Iraqi constitutional law. Our mission in the Ministry will be to manage, protect and preserve these resources in a way that benefits haq now and in the future and in a way that creates a secure, stable and independent economy. ... 2) Our goal will be to accomplish the objective1i,8_!1~i~ to Uli.~Y.. ()II! nevv - gove111JDeilt relative to oil production, use of our abundant natural gas resources, and the supply of domestic fuel products for our population. n - - - 3) We will accomplish these goals through the leadership of a strong and visionary Ministry of Oil. We will re-create a modern national oil company to carry out petroleum operations. We will ensure that this national oil company is run for the benefit of the Iraqi people and is divorced from the political process to the extent required. Thus, our Ministry will have a distinct separation of duties within it- from actual petroleum operations to policy planning to compliance monitoring. - -~ _____ ___. -~ Delet~;.cc_d_,r aoa,__~< ___ __] 4) Our Ministry will implement a Code of Condw:t that allows Iraqi oil to operate competitively in the worldwide petroleum industry. This Code will be based on nondiscrimination; ethics; lawfulnesS; international best practices for contracting and accounting lransparency; and good corporale govetllllllce. It will be in every way compatible with our country's various faiths. We will endeavor that our people and contractors are not hurt or killed on our properties and that we have a regard for our environment 5) We will implement strong standards to ensure that managers or employees do not have conflicts-of-interest that would work contrary to the Ministry's stated goals. We also wiU ensure there are strong behavioral stand.arck for aU Ministry employees and managers. 6) We have a large job to do, which will take a large amount of investment to accomplish properly. We thus will welcome outside investors to our country, in a way that satisfies our Code of Conduct, protects our rights to our petroleum resoun;es, and enhances our own internal needs. This is very possible and has been accomplished sw:cessfully in various other countries around the world (including some of our closest neighbors). We have the opportunity to become one of the most important participants in the world's petroleum industry; and to do it in a way that provides significant added benefits to the Iraqi people. We in the Ministry of Oil are laying this foundation and I will keep you informed IIi pro~s is made. Dr. Ibrahim M. Babar Al-Oloum Minister of Oil Rob McKee Sr. Oil Advisor DEPARTMENT OF THE ARMY U.S. ARMY CORPS OF ENGINEERS GULF REGION DIVISION RESTORE IRAQI OIL DIRECTORATE BAGHDAD, IRAQ CEGRD-RIO-DESC 12 February 2004 Memorandum for Mr. Robert McKee, Senior Advisor, CPA-Oil Subject: Ministry of Oil (MoO) Fuel Importation Mission Responsibilities 1. The Defense Energy Support Center (DESC) is currently positioned to provide the necessary expertise and support to the Restore Iraqi Oil {RIO) Directorate mission for the importation and distribution of identified petroleum products (benzene, diesel, liquefied petroleum gas [LPG], and kerosene) in support of the Iraqi civilian populace. 2. DESC is currently working on a seamless transition with the US Army Corps of Engineers to award new contracts through competitive procedures for petroleum products that will include the movement of products to specific wholesale distribution depots within Iraq as well as the mechanisms to perform the necessary management and oversight controls for the mission. DESC is reimbursed for all costs incurred for work performed in support of the RIO mission by the CPA or suitably recognized governing entity via our Defense Working Capital Fund. DESC contracts will begin 1 April 2004 and are scheduled to end 30 June 2004. 3. Chief among all other concerns is that the newly elected Iraqi Government will be required to take over the complete responsibility for importing and distributing all petroleum products within Iraq beginning 1 July 2004 unless an international agreement is negotiated and concluded between the two governments. This international agreement would include the process by which DESC and a post-CPA recognized entity will ensure continuous fuel supply and reimbursement of funds. 4· As background, DESC has received obligation authority for fuel importation costs through 30 June 2004, and since DESC operates from a Working Capital Fund, products sold in execution of a program must have a corresponding credit paid into the fund for reimbursement. Further, in order to conduct these procurements beyond 30 June 2004, DESC must have a designated customer to charge for the fuel sales. s. Under the Defense Working Capital Fund, DESC cannot provide fuel under its contracts to customers without an agreement from the customer to pay for the fuel with appropriate procedures to transfer funds to DESC. It is important to note that DESC does not have the statutory authority to provide fuel without reimbursement. Any deviation from the reimbursement requirements of the Defense Working Capital Fund could limit DESC's ability to procure fuel for its military customers and might result in an Anti-Deficiency Act violation, which is a punishable felony in American statutory law. 6. In order for DESC to continue its contracts to import and distribute petroleum products into Iraq, DESC must receive adequate written assurances, from the responsible entity after the CPA dissolves 30 June 2004, that any future fuel importation requirement is valid (by each petroleum product) and that funding will be made available to reimburse DESC for its procurement purchases. Short of this commitment, funding and performance by DESC under the supply contracts will end 30 June 2004. FOIA 09-826 CPA 000364 CEGRD-RIO 12 February 2004 Subject: Ministry of Oil Fuel Importation Mission Responsibilities 7· DESC recommends that the MoO and Ministry of Finance confirm its understanding, in writing to the undersigned, that unless the critical path milestone referenced below is completed, the MoO will become solely responsible to procure petroleum product imports and to distribute those products to the Iraqi civilian populace beginning 1 July 2004. Decide on MoO need for continued DESC Fuel Importation and wholesale distribution support If yes, then need the following: - Funding Mechanism - International Agreement If no, then the following will take place: - DESC will notifY MoO in writing 1hal the following result will take place DESC Fuel Importation Contract Support will continue for duration of the funding and international agreement 31 May2004 DESC Fuel Importation Contract Support will complete on June 30, 2004. (b )(6) Through: COL, EN Director. RIO (b )(6) By: Team Chief Defense Energy Support Center- IRAQ cc: Ministry of Electricity Ministry of Finance FOIA 09-826 CPA 000365 () <-f O:l/7- 0 tj- COALITION PROVISIONAL AUTHORITY BAGHDAD ACTION MEMO FOR: THE ADMINISTRATOR c 1.rj 1- February 15, 2004 FROM: Jose~uty Administrator and Chief Operating Officer SUBJECT: Public Service Nominations for the Office of the Secretary of Defense Medal for Exceptional Enclosed are five requests for approval for the award of the Office of the Secretary of Defense Medal for Exceptional Public Service: I. Lewis W. Lucke for his actions as the Mission Director for the United States Agency for International Development. 2. Rodney Bent for his actions as the Senior Advisor to the Ministry of Finance, Ministry of Planning & Development Cooperation, and to the Iraqi Supreme Board of Audit; and as the Fiscal Advisor and Director of the Office of Management & Budget. 3. Robert McKee for his actions as the Senior Advisor to the Ministry of Oil. 4. Major General (Retired) James T. Jackson for his actions as my Deputy. 5. (b )(6) for his actions as my Counselor and Senior Advisor. Since I became your Chief Operating Officer, these gentlemen have made an immediate and direct impact for our organization and this recognition would best depict our gratitude for their outstanding efforts. RECOMMENDATION: Approve the award requests. Approve:. ___ _ Disapprove:. __ _ Approve with modification: __ _ ATTACHMENTS: 5 x Award Packets COORDINATION: None UNCLASSIFIED COALITION PROVISIONAL AUTHORlTY BAGHDAD ACI'IONMEMO February 15, 2004 FOR: THE ADMINISTRATOR ~ • . FROM: Joseph K. Ke~dministrator and Chief Operating Officer SUBJECT: Public Service Nomination for the Office of the Secretary of Defense Medal for Exceptional In accordance with OSD Administrative Instruction 29, we are requesting approval for the award of the Office of the Secretary of Defense Medal for Exceptional Public Service to Robert McKee. The basis for this award and the citation are provided in the attachment. Name: Robert McKee Title and Grade: Senior Advisor to the Ministry of Oil for the Coalition Provisional Authority- Baghdad; SES-6 equivalent Coalition Provisional Authority, Baghdad, Iraq, APOAE09335 Organization And Location: Length of Time With Organization: October 2003 to March 2004 Significant Prior Awards Received: None. No other award for this individual is pending and no other previous award had been made for service described herein. Basis for Award: See attached narrative RECOMMENDATION: Approve the award request. Approve:. __ _ Disapprove:. __ _ Approve with modification: __ _ ATTACHMENTS: Narrative and Citation COORDINATION: None UNCLASSIFIED NARRATIVE FOR OFFICE OF THE SECRETARY OF DEFENSE MEDAL FOR EXCEPTIONAL PUBLIC SERVICE A WARD FOR Robert McKee Robert McKee distinguished himself by exceptional meritorious service and devotion to duty while serving as the Senior Advisor to the Ministry of Oil for the Coalition Provisional Authority -Baghdad, from October, 2003 to March, 2004. He was responsible for supervising the largest oilfield reconstruction effort ever attempted while located within the second most oil rich nation in the world. Robert McKee forged a strong partnership built on trust and confidence with the Iraqi Minister of Oil as well as other senior members in the ministry. These relationships are providing the catalyst for Iraq's oil industry, responsible for nearly its entire gross domestic product, and serving as the true engine to drive and sustain Iraq's economy and reconstruction for decades to come. Additionally, Robert McKee's acumen within the contracting and financial areas of the ministry, are building the foundation to facilitate Iraq's emergence as a world class, oil producing nation and provide the leverage for success at the international level. This success will improve domestic growth, thus reducing the requirements for fmancial support and have a direct bearing on all economies, worldwide. Robert McKee also played an integral part in resurrecting the Iraqi-Turkey fuel pipeline in order to further maximize the capacity to exploit Iraq's vast oil reserves. He clearly established himself as the subject matter expert throughout the Coalition Provisional Authority on the intricacies involved with oil production. Robert McKee took great pleasure educating everyone within the Coalition on oil matters, providing the awareness needed to make proper decisions pertaining to one of its most vital national assets. All of these actions are critical components towards Iraq's stabilization and transition to a free market economy which is going to result in enjoyed prosperity that will be shared by all of its citizens. CITATION TO ACCOMPANY THE A WARD OF THE OFFICE OF THE SECRETARY OF DEFENSE l\ffiDAL FOR EXCEPTIONAL PUBLIC SERVICE TO Robert McKee For exceptional meritorious service and devotion to duty while serving as the Senior Advisor to the Ministry of Oil for the Coalition Provisional Authority - Baghdad, from October, 2003 to March. 2004. Robert McKee was responsible for supervising the largest oilfield reconstruction effort ever attempted while located within the second most oil rich nation in the world. His expertise is responsible for building the foundation to facilitate Iraq's emergence as a world class, oil producing nation and provide the leverage for success at the international level. The distinctive accomplishments of Robert McKee reflect credit upon himself, the Coalition Provisional Authority, and the Department of Defense. FOIA 09-826 CPA 000369 L1'1 U L- I l -l.J'-1 d-1 D'l11-oc; COALITJON PROViSIONAL AUTHORITY BAGHDAD ACTION MEMO February 17,2004 FOR: THE ADMINISTRATOR FROM: David Kirk, OPPA COPIES TO: Ambassador Jones, Lt Gen (Rtd) Kellogg SUBJECT: Appointment of First Inspectors General Attached are the letters, in Arabic, to the three nominated Inspectors General and their respective Ministers. (English versions accompany). These came up as part of a larger package on February 14. We expect to recommend further appointments, with similar draft letters in the next few days. RECOMMENDATION: That you sign the attached letters to the nominated Inspectors General and respective Ministers. Approve: __ V_ . Disapprove: __ _ Approve with modification: __ _ ATTACHMENTS: Six letters in Arabic to IG nominees and their respective Ministers. I. Oil-Appointee: Mr. Ali Muhsin Ismail Al-AIIaq 2. Oil-Minister: Dr. Ibrahim Bahar al-Uioum 3. Labor & Social Affairs-Appointee: Ms. Zakia Hakki 4. Labor & Social Affairs-Minister: Mr. Sami Azara al-Ma'jun 5. Municipalities & Public Works-Appointee: Mr. Musa Farage Radhi 6. Municipalities & Public Works-Minister: Mrs: Nasreen Mustafa Sadiq Barwari COORDINATION: Giles Denham Robert Dawes, CPA IG Scott Castle, OGC Mike Mutter, MMPW Jim Otwell, MOLSA Rob McKee, Ministry of Oil UNCLASSIFIED COALITION PROVISIONAL AUTHORITY BAGHDAD FOR: THE ADMINISTRATOR FROM: Robert McKee, Senior Adviser, CPA Oil SUBJECT: Bartering of Petroleum Products Your agreement is sought to allow the Iraqi Ministry of Oil to access funds From the Development Fund for Iraq (DFI) up to a limit of the revenues generated from the export of petroleum products (e.g. fuel oil, but excluding crude oil). The State Oil Marketing Organization (SOMO) has sole authority for the export of petroleum from Iraq. SOMO cum:ntly facilitates the export of crude oil under normal commercial terms and fuel oil under barter arrangements. Oment fuel oil barter contracts are wonh about $350 million and SOMO bas contracted to receive about 900 million liters of gasoline, diesel and kerosene. Barter sales of petroleum products are 11IR: in international markets. They are an inefficient means for trading most products. They typically involve higher costs, Jess flexibility, and a smaller range of potential buyers/sellers compared with nonnal col1llnCI"Cial sales. They may also result in lower financial benefits to Iraq. SOMO is experienCing difficulties with its barter contlaetors and would prefer to be able to operate under normal commercial terms. The UNSCR requires all sales contracts to be 'made consistent with prevailing international market best practices". The proposed arrangements are fully consistent with this requirement. I recommend you allow the IMO to access funds from the DFJ up to a limit of the revenues generated by SOMO from the export ofpetroletun products, with the necessary reporting and monitoring arrangements to be negotiated between the JMO, Ministry of Finance and CPA. Approve: Disapprove: Approve with modification: UNCLASSIFIED •••• FOIA 09-826 clfoo37 1 • · ---·-----------··---- Program Review Board (PRB) Minutes -Nov. 19, 1003 Attendees: *Sherri Kraham Acting Chair/Program Review Board, Director *Frederick C. Smith Acting Senior Advisor for the Office of Security Affairs *COL Mike Kirsch Representative of Office of Operations & Infrastructure (Designee) *Judy Van Rest Representative of Governance (Designee) *LTC Terry Ross Coalition Joint Task Force -7, Deputy Comptroller *Heidi Venamore Representative of the Australian Government *Andrew Golednizowski Council of International Coordination (Designee) *YusafSamiullah Representative of the United Kingdom Greg Buckley CPA - General Counsel COL James Behring CPA Comptroller COL Tony Bell CPA- Head of Contracting Activities Patricia Hatcher Representative of CPA Management Liaison Cell Don Fithian Program Management Office - Comptroller Mary Beal Program Management Office -Budget Officer Jesse Pruett Program Review Board, Regional Programs Manager Bob McKee CPA - Senior Advisor Ministry of Oil Larry Rogers Task Force Restore Iraqi Oil MAJ Erik Nelson Task Force Restore Iraqi Oil Jeff Haberman CPA- South Central COL Tom O'Donnell Task Force- Shield CPT J acyn Dembrosky CPA- Comptroller Office *Voting Members The November 22, 2003 minutes were approved with small modifications* The following Funding Requests were considered by the Board for recommendation to the Administrator: #568 -Fuel Imports - $425,000,000 - Funds were approved for the emergency import of LPG, Benzene, Kerosene and Diesel to help meet the domestic daily needs of these fuels. This request is to fund fuel import requirements through the end of January 2004. Task Force Restore Iraqi Oil {TF RIO) is working with Defense Energy Support Center (DESC) and SOMO (Southern Oil Marketing Organization) to fulfill the Iraqis fuel imports requirements until a new contract could be competitively awarded. DESC was out to Iraq to study the requirements and will get back with TF RIO shortly on their procurement capabilities. SOMO will likely purchase up to $100M. FOIA 09-826 CPA 000372 - - - ------------------------- I I ! I I I I #570 -Oil Infrastructure & Security - t Funds were approved for the contracting of air surveillance security of the oil pipelines in Iraq. The contractor will provide two aircrafts with the Air Scan system for night patrolling of the pipelines. The equipment will be link with a ground station in order to provide a quick reaction to any threat identified by the low-light television sensors mounted on the craft. #456 -Replenishment of Rapid Regional Response Program - $10,000,000- Funds were approved to provide $1OM more to CPA - South Central's Rapid Regional Response Program as was committed to them by Ambassador Bremer earlier. #417- CPA Rewards - $310,200 -Funds were approved to pay for the printing of poster- sized stickers, handbill and small (bumper) stickers listing rewards being offer by CPA for information and the capture of Saddam and his sons, soliciting of info on anti- Coalition activities, and soliciting info on damaging of Iraqi infrastructure. The materials were contracted for in August but the bill was never paid. The Board was informed in regard to PRB#559 & PRB#560 that the ministries will be able to sustain the operating & recurring costs on the trucks. The Board was also informed that the Regional Program Manager was stilt waiting for an answer from one of the donors' representatives on whether or not these trucks can be part of their donor program. t Where the publication of approved funding levels may prejudice the competitive contracting processes, these amounts will be redacted. FOIA 09-826 CPA 000373 I (b )(6) • • Attended five meetings on the lOth and 11th of March where the issue of Production Sharing Agreements in the Northern area of Iraq came up in the meetings. JJ o 'los o,.,) M.ft~ ~ H- JYl ;;-a.~·;-i Me _g 1t~J /ULc;7 Meeting one, morning of the lOth. Alev Kilic, Turkish Deputy Under Secretary of the Ministry of Foreign Affairs, discussed this in the opening meeting with the CPA and Iraqi Trade delegations. During this meeting I emphasized that nether CPA, nor could the current Iraqi Governing Council enter into Production Sharing Agreements and that only a legitimate Iraqi Government could. Any Agreements signed prior to the war with the past Iraqi Government would have to be addressed when a legitimate Government was in place. CPA encouraged all companies having a claim to stay in touch with the current Iraqi Ministry of Oil. Meeting two, afternoon of the lOth. Met with members of the Turkish National Oil Company, U.S. Embassy Turkey, and members of the Turkish Government Foreign Affairs Department. I was questioned on the validity of the Production Sharing Agreements. I answered as noted above. I had the distinct feeling that the National Oil Company was party to the existing agreements in one form or another and possibly looking at fields for its self. Some of the various groups within the National Oil Company do both surface and subsurface work as well as transport oil products. Mr. Hakki Akil, Deputy Director General for Energy, Water, and Environment- Ministry of Foreign Affairs, said he would like me' to meet with the companies who had Production Sharing Agreements with the Kurdish Government the following day. I accepted. Meeting three, morning of the 11th. Met with Mr. Murat Yazici ofYazici Law Offices, Mr. Ha.kki Akil, and a member of his staff. Mr. Y azici was representing Genel EnerjiA.S .. Genel Enerji A.S. had entered into a Production sharing Agreement with the Kurdistan Regional Government, January 19, 2004 for the Tac Tac field. Mr. Yazici stated that he had worked with Mr. Peter Galbraith (believe he is a lawyer in Wash. D.C.) and Johnathon Morrow (believe he is out of the United Kingdom, may be in Afghanistan at this time). A hard copy of this Agreement was supplied at the end of our meeting. Mr. Yazici repeatedly brought up Mr. Talabani's name. Mr Yazici said that Mr. Talabani was going to address the Production Sharing Agreement with the Governing Council in the next several weeks. Mr Yazici said the U.S. Government was aware ofthis Agreement, indicating the U.S. was briefed by the Turkish Prime Minister during his recent visit. Mr. Akil confirmed this. Mr. Yazici said that the U. S. Government had agreed in the past with the Kurdish Government that they had certain rights which included the development of minerals. (I believe this is the Agreement dated Sept. 17, 1998 cited in the Production Sharing Agreement. I have requested a copy ofthis Agreement from Mr. Yazici by email March 13th). Mr. Yazici said the Kurdish Regional Government did not require the authority of the CPA or Central Government to enter into such Agreements. FOIA 09-826 CPA 000374 -------- --------------------------------------------- - - I told him that other companies such as Parker Drilling and BHP have come forward claiming to have agreements with the Kurdish Government, He said that he had heard of such claims, but Genel Bnerji A.S. was the only one with the rights to Tac Tac. He offered no more in this area. Mr. Y azici told me that Mr. Adel Qazaz, Director General Northern Oil Company was aware of the contract between Genel Enerji A.S. and the Kurdish Regional Government. No other names were offered. From what Mr. Y azici indicated, he was planning along with members of Genet Enetji A.S. to be traveling to Baghdad in the forth coming weeks to discuss their claims with the Governing Council along with Mr. Talabani. I requested that he and the others postpone their trip until CPA has had a chance to review their claims. Meetiog four, morning of the 11th. Following the before mentioned meeting, Mr. Guntekin Koksal, Principal of Pet Holding and Dr. M. Ali Ak, General Manager of Petoil joined myself, Mr. Hakki Akil, and his staff assistant. Petoil has entered into a · similar (terms) Production Sharing Agreement with the Regional Kurdish Government. This agreement covered a much larger area than the previous Agreement. It covers the Pulkhana (Kifri), Anfal (Kormor), Chemchemal, and Chia Surkh fields. The later of the fields straddles the Iranian border. A copy of the Agreement was brought to the hotel I was staying in, later that day. Petoil made similar claims as Genel Enerji A.S. that the U.S. Government recognized the Kurdish Government as having the power to enter into Production Sharing Agreements. They told me that Mr. Colin Powell was made aware of their Production Sharing Agreement in August 2003 during a visit with the Turkish Government. Mr. Hakki Akil acknowledged this point. They also mentioned the recent visit to the U.S. by the Turkish Prime Minister. I learned at this time that Mr. Murat Y azici also represented their company in negotiations with the Regional Kurdish Government. When asked if anyone in the Iraqi Ministry of Oil was aware of this Agreement, they replied that Mr. Adel Qazaz, knew unofficially. Mr. Talabani's name was continually mentioned throughout the meeting. They said that several weeks ago that Prime Natural Resources, a U.S. based company entered into a 50% share basis with them after talking to Mr. Robert McKee; past Sr. Advisor for CPA Oil. Petoil interpreted this as a positive sign that the subject Agreement was valid in the eyes of the U.S .. I asked them if they knew of any other companies that were entering into Agreements. Outside BHP and Genel Enerji A.S. they were not aware of any serious companies. I asked if they had heard of any Israeli companies being involved. They said that Prime Natural Resources had asked the same question. They indicated that they had heard that Genel Enerji A.S was possibly connected with an Israeli company. Rob McKee had taken several phone calls from an Israeli company interested in developing fields in the Northern area of Iraq. Petoil told me they bad a good number of individuals already in Iraq and was planning to start physical work in the near future. Geological and Reservoir engineering work had already started. FOIA 09-826 CPA 000375 9L£000 V'd8 92:8-60 V'IO..:I Ministry of 011 e Interview with Joel Berwick, Rob McKee e conducted by OPPA 2004 FEB 9 Strand Category Issue Comments Status Strategy for implementing prioritized fist of Milestone chart outlines one year strategy In detail; Senior advisor anticipates continued growth along the short-term (1 year} and long-term(2-5} years projections for the five year period. The Hmlting factor to growth will be capital to finance. Oil is an existing G goals operational ministry and will only be limited by its ability to adapt to free ma!Ket conditions. Strategy There are some cultural limitations of adapting the free ma!Ket process in the oil Ministry. HJJ4Mfttm;~ 2. Get commitment that the end-state organizatio mclu~de_s_.__~ how important it is to get this done as soon as 1 e. 3. Inform him that McKee and his office are doing much work that will be most helpful to, and the backbone of, coming decisions regarding petroleum policy and oil company functionality---emphasize the need for the Ministry to consult with CPA Oil before ALL decisions impacting these areas are made. 4. Reiterate our request made last meeting to d~le approac~es to Iran, Kuwait and Saudi Arabia for ~ct importation and/or erode exportation. - Questions for Amb Bremer to Ask ~ l. 2. What do you see ~ur major cballenges as Minister over th~ How will th~ oraanization ch~ge as~th addressmg these challenges? 3. What is ur selection proces for identifying your senior advisors? How have they been ve 4. Achieving adequate supplies of kerosene for the winter months is a major problem. How will an organization change now impact the efforts being made to address th~ssue? 5. 6. 7. 8. Why not have a single point of contact for oil operations? How do you see an INOC structure being different from the existing structure? When do you see the establishment of an INOC? Allegations of improprieties at S~~a.~.~~~~~~l£::!i!~irti.,.._,~~i!!:!:~ very serious. Can you share with m at you hav n d what you learned? 9. You have been able to me;-:~taries om foreign countries and I understand you are planning a trip to · What messages are you delivering concerning business relationships with Iraq? 10. Relative to the Governing Council, how do you see the process for going forward withiNOC? 11. Enquire whether he has formulated plans to approach Saudi Arabia, Kuwait or Iran regarding product/crude importation/exportation. FOIA 09-826 CPA 000388 ...,., 0 )> 0 0 0 0 w (X) r- Displacement & - Justice Migration Lawrence Bartlett Daniel L. Rubini 1-- Agriculturs Trevor Flugge t- Banki ng Olio Wethington Environment Alien Irish Finane. Anthony McDonald Labor & Social Affairs James Otwell l Gov1111mc. Coordinators - Youth & ....._ Foreign Sports Affairs Susan Johnson Mounzer R. Fatfat D Coordination (Govem)(ate level) COALITION PROVISIONAL AUTHORITY November 2003 Amb McManaway Counselors -----1 Donald Hamilton Intel Jane Green Administrator L. Paul Bremer 1--------lj Council for International Cooperation (CIC) J Andrew Goledzinowski (AUS) H < S~etariat I Jessica LeCroy .__ _ __;.,__~,__. j Info Mgmt Unit (IMU) Donald Harrison; Leslie Curtin General Counsel Edwin Castle RobJMcKee Director l OIL r lfll:!m David Nash Dlrtctor l PMO Di= -l Rodney Bent l Chief Operating Officer LTG Keith Kellogg (ret) I even Casteel Amb Andlw Sear part<. LewiJLucloe Direc:tor I r Director Interior I Infrastructure Director AID I- Communication Daniel SUdnick Construction & Housing John Rintoul Electricity Randall Richardson Public Works j Senior Advisors / Michael Mutter ,.... Transport Darrel Trent - Water Resources Jerry Webb 23 DEC 03 FOIA 09-826 CPA 000393 Summary of non-CA support to CPA for OIF 2 • There are 24 positions identified to be filled by non-CA military personnel • These personnel fills may be selected from incoming forces or tnay be requested by a special RFF 13 Dec 2003 Page 13 of 13 FOIA 09-826 CPA 000394 CPA OIF 2 REQUIREMENTS The original listing of positions from CPA for CA forces identified 72 positions. A review of those positions by the C9 and the CPA civilian personnel director resulted in the changes reflected below. Agriculture Talked to--senior advisor, about TOA requirements for his ministry. He was n~ billets proposed on the requirements sheet. He further advised he did not need the three slots county extension officer, legal agriculture officer and agricultural advisor. He did say he needed an LNO to facilitate interaction between the military, CPA, the ministry and the advisor. Agriculture Agriculture Agriculture Agriculture County ext agriculture officer Legal agriculture officer Agriculture advisor MilitaryLNO No requirement No requiremente No requirement 1 0-3 Branch immaterial CommuDieatfon Talked to--senior advisor, about TOA requirements for this ministry. He also seemed unaware of these requirements. He advised he need four personnel to do spectrum management. Commo Commo Commo Commo Commo Advisor Commo Advisor Commo Advisor Commo Advisor ADDITIONAL REQ 1 0-4 Signal 1 E-8 Signal 1 E-6 Signal 1 E-5 Signal Culture Talked to the deputy senior advisor (b)(6) about TO A. He provided a paper which provides a brief job description. Based on his general job description, the following billet recommendations are provided. Culture Culture Culture Culture Culture Advisor Advisor Advisor Advisor Advisor 0-3CA Will hire civilians Will hire civilians Will hire civilians Will hire civilians Education Talked~ one of three senior advisors (?) about TOA for her ministry. F 0 lA 09-826 CPA 000395 ----- --- __ . .. She was aware of the issue and requirement on the staffing sheet She advised she needed the two positions requested. Education Education Admin Assistant School Infastructure Will hire civilians 10-3 CA Electricity Talked to-COS, about TOA for his ministry. He advised that he has advised CPA personnel that these personnel don't need to be CA. The COS is a project coordinator and the other two positions are contract expediters. Electricity Electricity Electricity Executive Officer UNDP Contract Coord Materials/UNDP expediter 1 0-5 Branch Immaterial 1 0-4 Logistics 1 Will hire civilians Higher Ed Talked to senior advisor, (b )(6) about TOA for his ministry. He advised he needs help now. He advised he requires a legal or education background. The project, in addition to doing operations functions, will work a criminal justice curriculum for the Iraqi higher education system. Higher ED Advisor 1 0-4CA Housing Housing Deputy Sr. Advisor 10-5 CA Housing Prog Mangr road/bridge 1 0-4EN Indust/Minrls Indust/minrls Advisor Indust/minrls Advisor Indust/minrls State owned enterprise CA 0-3 w/finance exp CA 0-3 w/finance exp CA 0-4 w/finance-bussiness exp Public works Talked to memory. (b )(6) about TOA for his ministry. ~has requested extension in this slot Recommend he remain in the billet for institutional Public Works Civil military Liaison Extended 10-5 CA Water & Irragtion F 0 lA 09-826 CPA 000396 Talked to-about TOA for his ministry. The senior advisor and deputy are out of town. To the best of-understanding, they require an engineer/LNO billet. Waterllrrigat Reconstruction 1 0-4 Engineer officer Justice Talked to (b)(6) deputy senior advisor, about TOA for his ministry. He advised he needs people to set up and monitor the judicial systems in the orovences. His need is for JA personnel or people with judicial experience. Talked to senior advisor, for prisons about TOA for his ministry. He advised he has an augmentation of about 7 MP's and had three CA personnel. He is unsure why the CPA list has only three personnel. He advised one MP officer and two CA soldiers would be the best mix of three soldiers. Justice Justice advisor Justice Justice advisor Justice Justice advisor Prisons Prison advisor Prisons Prison advisor Prisons Prison advisor Prisons Prison advisor Prisons Prison advisor Prison Prison advisor 1 03-5 JA 1 03-5 JA 1 03-5 JA 10-3 MP 1 E-7 CA w/some training exp 1 E-7 CAw/some adminlbudget exp 0-5 CA Prison experience 0-3CA 0-2CA National Security Talked to--, senior advisor. about TOA for his ministry. He advised this position has been filled by (b )(6) who just arrived. Nat Sec COS/Mil Asst-def ministry Not required Talked to Rob Mckee, senior advisor, about TOA for his ministry. He advised he needed a finance/payroll guy and a COS. Oil Oil Oil Task Force Shield Military asst. oil Military asst. oil 0-4CA 0-4Finance 0-5 COS Branch Immaterial FOIA 09-826 CPA 000397 Talked to-acting senior advisor, about TOA for his ministry. He advised that a couple of these positions were civilianized. Trade Trade Trade Trade Asst III Corp LNO Database manage Off OFF contracts Standards 1 0-3 Branch hnmaterial Civilianized Civilianized Position moved Transportation Talked to (b )(6) . COS, about TOA for his ministry. Trans Trans Airport Admin CFACC Trans Trans Trans Ports Security adv Transcom Aviation Will hire civilian Air Force Billet, replacement projected 0-4QM 0-4TC Air Force Billet, replacement projected Youth Sports Talked to out of town. has requested extension tilll July 04. military LNO in the orffice. The minister, Dr Mounzer Fatfat, is that is also working in the office and Youth Sports Military LNO Extended 1 0-4CA Financ:e Talked to unavailable), (b )(6) new executive assistant (senior advisor and deputy were about TOA in his ministry. Finance Finance Finance Finance Finance Budget analyst Mil assist Econ Policy HQ Dev/Bur of supreme audit Dev/Bur of supreme audit Stock market analyst 1 0-5 FI 1 0-5 CA w/econ exp 1 0-4 FI 1 0-4 FI 1 0-4 CAw/ stock marketexp Health Unable to link up with health ministry. Anticipate the following Health Disease surveillance 0-3 CA w/ med exp FOIA 09-826 CPA 000398 Interior Interior Interior Interior Fire & rescue Adv Sr policy Adv border enforcement Sr policy adv police 0-3 CAw/ firefighting exp 0-3 CA w/border exp 0-3 CAw law enforcement exp Labor & social servi(es Senior advisor and deputy were both unavailable. Discussed the position with two employees. Position bas ops element and much interaction with civilians Labor Ops & log interim adv 0-4CA Program Manager Oftke Talked to (b )(6) about his organization. He advised that this position bas been resolved in that someone is on the way to fill the position. Pro mang off IT manager Not required Per information provided by Regional personnel. Regn off Baghdad Regn CA advisor Extended Regnoff North Regn CA advisor Regn off Regn CA advisor Central South · 0-5 CA Ops off/ COS 0-4 CA Proj manage off 0-4 CA Ops off 0-5 CA Ops off/COS 0-4 CA Proj manage off 0-4 CA Ops off Not required Regnoff South Regn CA advisor 0-5 CA Ops off/COS 0-4 CA Proj manage off 0-4CAOpsoff Science & Technology FOIA 09-826 CPA 000399 Talked to (b )(6) COS, about TOA for his ministry. He felt he does not need two positions. He requested an 0-4/5 operations officer. This job would do some contracting, FPS coordination, PDS coordination for the minister. Scie/Tech Scie/Tech Advisor Advisor 04 Branch Immaterial Not required CPABar.hdad Talked to (b )(6) government coordinator, about TOA for his organization. He needs CA personnel with government experience. These personnel are in addition to the three in one of the Regional teams above due to the 1 CA V not having a BDE headquarters. CPABagh CPABagh CPABagh CPABagh CPABagh CPABagh CPABahg CPA North CAasst CAasst CAasst CAasst CAasst Ops Ops 0-5CA 0-4CA 0-2CA 0-2CA E-5 CA . 0-4 branch immaterial E-6 branch immaterial Per the CPA Personnel Office, additional CPA North support beyond the regional office personnel listed above. CPA North CPA North CPA North CPA North CA asst CA asst CAasst CAasst 0-4CA 0-3CA E-7CA E-5CA Soldiers required per the above paper: 64 = 40 CA + 24 Other US Army FOIA 09-826 CPA 000400