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cp vfyl! 1'\-
COALITION PROVISIONAL AUTHORITY BAGHDAD ~
ACTION MEMO
December 17, 2003
FOR: THE ADMTNISTRA TOR
FROM: ._l<h_)_(6 _) _ __,~ Director, Private Sector Development
SUBJECT: SOE transition plan costs
You have asked for more information about the cost of the employee transition plan we are
recommending be adopted for SOE corporatizations and MIC closures. Below are estimated cost
savings resulting from the transition plan as well as an estimate of the cost of enhancing the
retirement benefit for certain employees to make the plan less likely to meet with unacceptably
high Ministry and employee resistance. Also, attached is a copy of the SOE transition plan
including some modest revisions following a more detailed review of the effect of the plan at
higher job grade levels.
The transition plan is estimated to have the following impact on SOE employees:
Forced retirement/ disability
Terminations (mostly from MIC closures in 2004)
Total
2004
65,200
38,400
103,600
Employees
2005 2006
0 0
7,500 7,500
7,500 7,500
2007
0
0
0
These employees, if not retired or separated, will have a payroll cost of over $125 million a year
over the three years from 2004 2006. If the transition plan is implemented, the annual cost of
these employees will be reduced by $88 million beginning in 2005. $33 million, or
approximately a third, ofthese savings will result from the MIC closures. Combined savings
over the three years from 2005-2007 are approximately $300 million. (Details of the data in
these tables are contained in the attachments.)
Forced retirement/disability
Terminations (includes training costs)
Total
Savings ($m) vs. retaining employees on payroll
2004 2005 2006 2007
$0 $52 $52 $52
(7) 36 43 47
--(:+:$7:=:-7)- $88 $95 $99
Despite the savings shown above, the retirement benefits proposed in the SOE transition plan
will be more expensive than the standard retirement plan currently in place. We feel the
increased benefits are necessary to obtain acceptance of the plan and avoid adverse employee
11111111111111111111111
00$52

reactions. As a result, the annual cost savings from the employee transition plan are $20 million
less than they would be without the enhanced retirement and severance benefits. This annual
cost differential diminishes from $20 million toward zero over a period of 15 - 20 years.
Job retraining and job placement services
Short-term vocational re-training and job placement programs are being developed by the
Ministry of Labor and Social Affairs (MOLSA). The current focus ofMOLSA is setting up job
placement centers, which will also be the site for some of the short-term vocational training
programs. There are currently plans for 27 such centers, with the first 10 in major cities to be
completed by January 1, 2004 and the other 17 to be completed by Jtme 2004. They expect to be
able to handle 100,000 employment seekers throughout the course of 2004. Revival of the
MOLSA training centers may take some time. In the meantime, we may want to have the
Ministry ofHigher Education (MHE has 43 centers and nearly 100,000 students in vocational
programs around Iraq) administer the re-training programs for displaced workers.
The Ministry of Labor estimates the cost of short-term vocational training to be $200 per
person per course (courses averaging 8 weeks) and the cost of job placement services to be $100
per person. Under our plan, all employees terminated or forced into retirement that are under age
55 are eligible for these programs. For the purpose of our analysis, we have assumed that 50%
of those eligible use the services. The cost of the program is estimated to $11 million in 2004
and $1 million in each of2005 and 2006.
RECOMMENDATION: The SOE Employee Transition Plan attached to this memorandum be
approved and implemented in accordance with its terms.
ApJpro'¥e: _____ D~isaJ?Pn)ve:: _____ Approve with mo·difi,cati,on: ____ _
COORDINATION: OMB
ATTACHMENTS: SOE Employee Transition Plan
Appendix Additional and supporting data

_____________ " ___ "
SOE EMPLOYEE TRANSITION PLAN
The following shall apply to all SOE employees:
1. 2. 3. Effective January 1, 2004, all SOE employees with 25 years or more of
service, or who are 55 years old or older, shall retire. Upon retirement they
shall continue to receive for one year their annual salary. On the first
anniversary of their retirement they shall qualify for the SOE retirement
benefit that applies to them, except that the annual retirement benefit shall be
the higher of the normal benefit or 40% of their final salary, but not more than
75,000 ID per month.
Effective January 1, 2004, all SOE employees who have a long term disability,
but who have not transitioned to long term disability status, shall transition to
long term disability status. For one year following their transition to long
term disability status they shall continue to receive their annual salary. On the
first anniversary of their transition to disability status they shall begin
receiving the SOE long term disability benefit that applies to them, except that
the annual long term disability benefit shall be the higher of the normal benefit
or 40% of their final salary, but not more than 75,000 ID per month.
Effective January 1, 2004, any SOE employee who is terminated from
employment at an SOE shall receive the following severance benefit:
a. Employees who do not qualify for retirement or long term disability,
but who have 15 years or more of service or who are 40 years old or
older, shall continue to receive their salary for one year following their
severance date. On the first anniversary of their severance date they
shall qualify for retirement as if they had met the full term of 25 years
of service or 55 years of age, except that the annual retirement benefit
shall be the higher of the normal benefit or 40% of their final salary,
but not more than 75,000 ID per month. Employees in this category
who are under 55 years of age shall qualify for job retraining and job
placement services.
b. Employees who have 5 or more years of service, but less than 15 years
of service, shall continue to receive their salary for one year following
their severance date. On the first anniversary oftheir severance date
they shall qualify to receive an annual retirement benefit equal to the
higher of3,000 ID per month or 4% of their final annual salary, but not
more than 7,500 ID per month for each year of service over 5 years.
Employees in this category who are under 55 years of age shall qualify
for job retraining and job placement services.
c. Employees who have less than 5 years of service and under 40 years of
age shall receive a cash bonus equal to 20% of their salary for each full
year of employment. Employees in this category shall qualify for job
retraining and job placement services.

Appendix- Additional and supporting data
Table 1: Costs associated with forced retirements/disability
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $80 $0 $0 $0
Retirement pay 0.0 28 28 28
Status Quo costs 80 80 80 80
Marginal cost (savings) $0 {$52) ($52) {$52)
Table 2: Costs associated with redundancies
2004 redundancies 38400 .
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $38 $0 $0 $0
Retirement pay 0 11 11 11
Lump sum payments to displaced 4 0 0 0
Status Quo costs 47 47 47 47
2005 redundancies 7 500 '
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $0 $7 $0 $0
Retirement pay 0 0 2 2
Lump sum payments to displaced 0 1 0 0
Status QUO costs 0 9 9 9
2006 redundancies 7 500 .
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $0 $0 $7 $0
Retirement pay 0 0 0 2
Lump sum payments to displaced 0 0 1 0
Status QUO costs 0 0 9 9
2007 redundancies 0
Assoc;iated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $0 $0 $0 $0
Retirement pay 0 0 0 2
Lump sum payments to displaced 0 0 0 1
Status Quo costs 0 0 0 0
2004- 2007 redundancies 53400 .
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $38 $7 $7 $0
Retirement pay 0 11 13 17
Lump sum payments to displaced 4 1 1 1
Status Quo costs 47 56 65 65
Marginal cost (savings) ($4) ($37) ($44) ($47)

Table 3: Costs associated with training
Associated annual costs ($m) 2004 2005 2006 2007
People qualifying for job retraining/placement 73,000 7,500 7,500 0
People using training/placement services 36,500 3,750 3,750 0
Cost per person $300 $300 $300 $300
Total cost ($m} $11 $1 $1 $0
Table 4: Costs by ministry and year of displacement
2004 • 2006 Post transition costs ($m)
Retire./ 2004 2004 2005 2005 2006 2006
disability Redund. Attrition Redund. Attrition Redund. Attrition Total
MIM, Trade, Etc. $82 $10 $0 $8 $0 $6 $0 $106
Elec., Oil, Fin. 44 5 0 4 0 3 0 56
MIC 9 61 0 0 0 0 0 70
Total $136 $75 $0 $12 $0 $9 $0 $232
2004 • 2006 Current cost ($m)
Retire./ 2004 2004 2005 2005 2006 2006
disability Redund. Attrition Redund. Attrition Redund. Attrition Total
MIM, Trade, Etc. $145 $18 $0 $12 $0 $6 $0 $182
Elec., Oil, Fin. 78 9 0 6 0 3 0 97
MIC 16 113 0 0 0 0 0 130
Total $239 $141 $0 $18 $0 $9 $0 $408
2004 • 2006 Cost of not transftion/ng employees ($m)
Retire./ 2004 2004 2005 2005 2006 2006
disability Redund. Attrition Redund. Attrition Redund. Attrition Total
MIM, Trade, Etc. $63 $9 $0 $5 $0 $0 $0 $76
Elec., Oil, Fin. 34 4 0 2 0 0 0 40
MIC Total 7 53 0 0 0 0 0 60
$103 $66 $0 $7 $0 $0 $0 $175

Table 5: Employee elimination by ministry and cause
End 2003 Retire./ 2004 2004 2005 2005 2006 2006 End 2006 %
Redund. Attrition Redund. Attrition Redund. Attrition Total Emelo~ees
Reduction
MIM, Trade, Etc. 216,300 39,500 5,000 5,000 5,000 5,000 5,000 5,000 69,500 146,800 32%
Elec., Oil, Fin. 116,600 21,300 2,500 2,500 2,500 2,500 2,500 2,500 36,300 80,300 31%
_MIC ----~900 __ 4,40()__30,9QQ_ __ 600 ___ Q_ __ _§QQ_ __ __Q_ ___ 600. __ ...E.,100 _ _1_8,800_~~--
Total 388,800 65,200 38,400 8,100 7,500 8,100 7,500 8,100 142,900 245,900 37%
Emelo~ees disabilit~

· ·
----------------------- ------- -- -
-------
COALITION PROVISIONAL AUTHORITY . ·. _ 1 ~~~· $.J.t,
BAGHDAD .iJ f$ 0 /f' Yj
ACTION MEMO
December 18, 2003
FOR: THE ADMINISTRATOR
FROM: l<h)(6) 1 -Director, Private Sector Development
SUBJECT: SOE transition plan costs
You have asked for more infonnation about the cost of the employee transition plan we are
recommending be adopted for SOE corporatizations and MJC closures. Below are estimated cost
savings resulting from the transition plan as well as an estimate of the cost of enhancing the
retirement benefit for certain employees to make the plan less likely to meet with unacceptably
high Ministry and employee resistance. Also, attached is a copy ofthe SOE transition plan
including some modest revisions following a more detailed review of the effect of the plan at
higher job grade levels.
The transition plan is estimated to have the following impact on SOE employees:
Forced retirement/disability
Terminations (mostly from MIC closures in 2004)
Total
2004
65,200
38,400
103,600
Employees
2005 2006
0 0
7,500 7,500
7,500 7,500
2007
0
0
0
These employees, if not retired or separated, will have a payroll cost of over $125 million a year
over the three years from 2004-2006. If the transition plan is implemented, the annual cost of
these employees will be reduced by $88 million beginning in 2005. $33 million, or
approximately a third, of these savings will result from the MIC closures. Combined savings
over the three years from 2005-2007 are approximately $300 million. (Details of the data in
these tables are contained in the attachments.)
Forced retirement/disability
Terminations (includes training costs)
Total
Savings ($m) vs. retaining employees on payroll
2004 2005 2006 2007
$0 $52 $52 $52
(7) 36 43 47
--(:;:2,$7~')- $88 $95 $99
Despite the savings shown above, the retirement benefits proposed in the SOE transition plan
will be more expensive than the standard retirement plan currently in place. We feel the
increased benefits are necessary to obtain acceptance of the plan and avoid adverse employee

reactions. As a result, the annual cost savings from the employee transition plan are $20 million
less than they would be without the enhanced retirement and severance benefits. This annual
cost differential diminishes from $20 million toward zero over a period of 15-20 years.
Job retraining and job placement services
Short-term vocational re-training and job placement programs are being developed by the
Ministry of Labor and Social Affairs (MOLSA). The current focus ofMOLSA is setting up job
placement centers, which will also be the site for some of the short-term vocational training
programs. There are currently plans for 27 such centers, with the first 10 in major cities to be
completed by January 1, 2004 and the other 17 to be completed by June 2004. They expect to be
able to handle 100,000 employment seekers throughout the course of2004. Revival of the
MOLSA training centers may take some time. In the meantime, we may want to have the
Ministry of Higher Education (MHE has 43 centers and nearly 100,000 students in vocational
programs around Iraq) administer the re-training programs for displaced workers.
The Ministry of Labor estimates the cost of short-term vocational training to be $200 per
person per course (courses averaging 8 weeks) and the cost of job placement services to be $100
per person. Under our plan, all employees terminated or forced into retirement that are under age
55 are eligible for these programs. For the purpose of our analysis, we have assumed that 50%
of those eligible use the services. The cost of the program is estimated to $11 million in 2004
and $1 million in each of 2005 and 2006.
RECOMMENDATION: The SOB Employee Transition Plan attached to this memorandum be
approved and implemented in accordance with its terms.
Appro>ve: ____ Dis~aptltO'Ve: ______ Approve with modification: ____ _
COORDINATION: OMB
ATTACHMENTS: SOB Employee Transition Plan
Appendix Additional and supporting data

-----·-- ·------
SOE EMPLOYEE TRANSITION PLAN
The following shall apply to all SOE employees:
1, 2. 3. Effective January 1, 2004, all SOE employees with 25 years or more of
service, or who are 55 years old or older, shall retire. Upon retirement they
shall continue to receive for one year their annual salary. On the first
anniversary of their retirement they shall qualify for the SOE retirement
benefit that applies to them, except that the annual retirement benefit shall be
the higher of the normal benefit or 40% of their final salary, but not more than
75,000 ID per month.
Effective January 1, 2004, all SOE employees who have a long term disability,
but who have not transitioned to long term disability status, shall transition to
long term disability status. For one year following their transition to long
term disability status they shall continue to receive their annual salary. On the
first anniversary of their transition to disability status they shall begin
receiving the SOE long term disability benefit that applies to them, except that
the annual long term disability benefit shall be the higher of the normal benefit
or 40% of their final salary, but not more than 75,000 ID per month.
Effective January 1, 2004, any SOE employee who is terminated from
employment at an SOE shall receive the following severance benefit:
a. Employees who do not qualify for retirement or long term disability,
but who have 15 years or more of service or who are 40 years old or
older, shall continue to receive their salary for one year following their
severance date. On the first anniversary of their severance date they
shall qualify for retirement as if they had met the full term of 25 years
of service or 55 years of age, except that the annual retirement benefit
shall be the higher of the normal benefit or 40% of their final salary,
but not more than 75,000 ID per month. Employees in this category
who are under 55 years of age shall qualify for job retraining and job
placement services.
b. Employees who have 5 or more years of service, but less than 15 years
of service, shall continue to receive their salary for one year following
their severance date. On the first anniversary of their severance date
they shall qualify to receive an annual retirement benefit equal to the
higher of3,000 ID per month or 4% of their final annual salary, but not
more than 7,500 ID per month for each year of service over 5 years.
Employees in this category who are under 55 years of age shall qualify
for job retraining and job placement services.
c. Employees who have Jess than 5 years of service and under 40 years of
age shall receive a cash bonus equal to 20% of their salary for each full
year of employment. Employees in this category shall qualify for job
retraining and job placement services.

Appendix - Additional and supporting data
Table 1: Costs associated with forced retirements/disability
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $80 $0 $0 $0
Retirement pay 0.0 28 28 " 28
Status quo costs 80 80 80 80
Marginal cost (savings) $0 ($52) ($52) ($52)
Table 2: Costs associated with redundancies
Associated annual costs 2004 2005 2006 2007
Salary continuance portion of severance $38 $0 $0 $0
Retirement pay 0 11 11 11
Lump sum payments to displaced 4 0 0 0
Status uo costs 47 47 47 47
2005 redundancies 7,500
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $0 $7 $0 $0
Retirement pay 0 0 2 2
Lump sum payments to displaced 0 1 0 0
Status quo costs 0 9 9 9
2006 redundancies 7 500 .
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $0 $0 $7 $0
Retirement pay 0 0 0 2
Lump sum payments to displaced 0 0 1 0
Status quo costs 0 0 9 9
2007 redundancies 0
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $0 $0 $0 $0
Retirement pay 0 0 0 2
Lump sum payments to displaced 0 0 0 1
Status_ q_uo costs 0 0 0 0
2004 - 2007 redundancies 53400 ,
Associated annual costs ($m) 2004 2005 2006 2007
Salary continuance portion of severance $38 $7 $7 $0
Retirement pay 0 11 13 17
Lump sum payments to displaced 4 1 1 1
Status quo costs 47 56 65 65
Marginal cost (savings) ($4) ($37) ($44) ($47)

Table 3: Costs associated with training
Associated annual costs ($m) 2004 2005 2006 2007
People qualifying for job retraining/placement 73,000 7,500 7,500 0
People using training/placement services 36,500 3,750 3,750 0
Cost per person $300 $300 $300 $300
Total cost ($m) $11 $1 $1 $0
Table 4: Costs by ministry and year of displacement
2004 • 2006 Post transition costs ($m)
Retire./ 2004 2004 2005 2005 2006 2006
disability Redund. Attrition Redund. Attrition Redund. Attrition Total
MIM, Trade, Etc. $82 $10 $0 $8 $0 $6 $0 $106
Elec., Oil, Fin. 44 5 0 4 0 3 0 56
MIC 9 61 0 0 0 0 0 70
Total $136 $75 $0 $12 $0 $9 $0 $232
2004 • 2006 Cu"ent cost ($m)
Retire./ 2004 2004 2005 2005 2006 2006
disability Redund. Attrition Redund. Attrition Redund. Attrition Total
MIM, Trade, Etc. $145 $18 $0 $12 $0 $6 $0 $182
Elec., Oil, Fin. 78 9 0 6 0 3 0 97
MIC 16 113 0 0 0 0 0 130
Total $239 $141 $0 $18 $0 $9 $0 $408
2004 · 2006 Cost of not transltlonlng employees ($m)
Retire./ 2004 2004 2005 2005 2006 2006
disability Redund. Attrition Redund. Attrition Redund. Attrition Total
MIM, Trade, Etc. $63 $9 $0 $5 $0 $0 $0 $76
Elec., Oil, Fin. 34 4 0 2 0 0 0 40
MIC Total 7 53 0 0 0 0 0 60
$103 $66 $0 $7 $0 $0 $0 $175

. I
Table 5: Employee elimination by ministry and cause
End 2003 Retire./ 2004 2004 2005 2005 2006 2006 End 2006 %
MIM, Trade, Etc.
Elec., Oil, Fin. 116,600 21,300 2,500 2,500 2,500 2,500 2,500 2,500 36,300 80,300 31%
MIC 55,900 4,400 30,900 600 0 600 0 600 37,100 18,800 66%
Total 388,800 65,200 38,400 8,100 7,500 8,100 7,500 8,100 142,900 245,900 37%

\
COALITION PROVISIONAL AUTHORITY
BAGHDAD
ACTION MEMO
December 6, 2003
FOR: The Executive Board
FROM:
j(b)tg) Private Sector Development, Director
~"~. (h~}~(~~l~-L...:..---.;...:._;1 Private Sector Development, Deputy Director
l
SUBJECT: Ownership transformation program for 2004
The CPA immediate goal: to assist Iraqi government administration in its efforts to revitalize
SOEs through so called lease program. CPA proposes only to modify this original program to
increase its long run effectiveness and transparency. CPA proposes also to deliver to Iraqi
ministries a group of privatization and M&A experts to give the extensive in-house and hands-on
)advising in organizing and implementation of that program. In the longer run straight sales or
other methods of ownership transformation of the SOEs might be proposed.
Most of the Iraqi SOEs lack marketing skills, reliable (or any) accounting data, experience in the
market environment, working capital, modern technology. They also need investments. Many are
heavily looted. A lot of them are non-operational or only partly operational. All are subsidized
obtaining salaries funds, some are subsidized additionally. This situation is obviously
unsustainable.
All-encompassing solution for these problems is the privatization program, combined with
market oriented macroeconomic reform and also other microeconomic instruments.
However, few weeks ago Iraqi .Governing Council refused to accept the privatization plan
developed by CPAJhe plan included.£reatjon gfthe Qvmership Daasf9rmation Agency (OTA) vk.
which was to be entrusted with majority of SOEs and responsible for their subsequent "i.P'~
privatization. Instead, the several ministries have announced and initiated th·. e other plan to { ~~ 1
revitalize SOEs. Instead of OT A, decentralized (i.e. ministerial) approach has been adopted. ~ ')'D
Instead of privatization, lease optior: has been s~lected. ' 1.4 t'.
- -
CPA strategic goal is to make good things happen. All positive initiatives should be fostered. If
needed, any assistance should be given.
1,~,
Therefore CPA should accept lease approach although with two modifications. First, the leaseJfJt ~
contract should end up wtth the ownershtp transfeiur:ihe::Srffi-~e. Second, the lease contract should allow the lessee to ma.ke necessary employment adjustments in SOE (combined l. t/.it)
,~
with government funded social safety net for redundant emplo_yees ). · V ~'
Private Sector Development has already worked out step-by-step manual how to make the lease transaction. At the moment, Private Sector Development is completing the template lease ~~
. Vf~-M-11£
'P T'y;.,.-..,
0~-
~
UNCLASSIFIED

-2-
contract as well as the proposal of social safety net funding. These documents should be
delivered to all interested parties (i.e. ministries supervising SOEs) together with the proposal, that CPA may help them delivering full time privatization and M&A experts. Initial talks wii 6"f c.-o-v. the Minister oflndustry and Minerals testing suitab1hty of this kind of assistance package received very warm reception. . . \f~.q
"f~V ">~
K., V"l ~ ~
~t
The program outlined above combines practicability with some strategic goals. First, it is useful -{~""
right now for the Iraqi officials who manifested very positive initiative concerning SOEs, it also
adds new quality (effectiveness and transparency) to this initiative. Second, if adopted on a wider
scale, it can be a springboard for the next undertakings. Well established working every-day
relations between highly professional experts hired by CPA and Iraqi ministries may result in
better mutual understanding and trust. That can facilitate next privatization initiatives
encompassing other methods, more suitable for some specific SOEs, methods which are now
perceived as not acceptable. ~
RECOMMENDATION (1): to accept new, low key, decentralized approach towards \1,...-t,t {1\~~~
ownership transformation adopted by Iraqi ministries with lease as the basic present tool to &,J.:.
install effective management and attract investments. Original lease idea is to be modified as
described above.
Approve:. ___ _ Disapprove: __ _ Approve with modification: __ _
RECOMMENDATION (2): to prepare social safety net solution, to recognize the funding size needed and funding sources. To implement this solution ASAP as the integral part of the CPA contribution to the lease program. -~ ~~
C ....A
"\.,.. I
·~·..,... r>
Approve: Disapprove: Approve with modification:___ 1....
11J-j" •
~~sis: G.~~Sr((~~ ~
RECOMMENDATION (3): to prepare the group of privatization and M&A experts working in
Private Sector Development and attached to the particular Iraqi institutions. To assess the
funding size needed to cover their costs. To recognize the funding sources.
Approve: __ _ Disapprove: ___ _ Approve with modification: __ _
ATIACHMENTS: NONE
COORDINATION: Economic Development Departmen~(b)(6)
I Director
UNCLASSIFIED