Tuesday, July 29, 2003

Bush administration officials yesterday pegged this year’s costs for relief and reconstruction in Iraq at $7.3 billion but refused to project expenses for the next fiscal year or further in the future.

“We don’t know what they will be,” Joshua Bolten, director of the Office of Management and Budget, told the Senate Foreign Relations Committee.

Senators from both parties yesterday questioned the administration’s commitment to the Iraqi reconstruction effort and demanded to be told its long-term costs, asking Mr. Bolten and Deputy Defense Secretary Paul Wolfowitz to “fill in the blanks” for the coming months and years.

Mr. Bolten said the reconstruction work would cost $7.3 billion this year and confirmed that troops stationed in Iraq, the biggest expense for the Middle Eastern operation, cost about $4 billion per month.

The administration’s refusal to project budget figures, even for fiscal 2004, which starts Oct. 1, angered some senators.

“When are you guys starting to be honest with us? Come on. I mean, this is ridiculous,” said Delaware Sen. Joseph R. Biden Jr., the ranking Democrat on the Foreign Relations Committee.

“I’m hopeful we can begin to fill in the blanks and take seriously this thought of a plan that we have some confidence in,” said Sen. Richard G. Lugar, Indiana Republican and chairman of the committee.

The reconstruction efforts are meant to restore such essential services as water and electricity, create conditions for economic growth and start the transition to a democratic government.

The military is working to establish a safe and secure environment in the country, but the U.S.-led Coalition Provisional Authority, the governing authority in Iraq, has faced enormous challenges and found difficult the restoration of some basic services.

Uncertainties and setbacks have made problematic any cost projections, administration officials said.

“At this stage, it is impossible to estimate what recovery in Iraq actually will cost,” Mr. Wolfowitz said.

Mr. Wolfowitz, who recently returned from a tour of Iraq, outlined some progress and steps that would be taken to improve reconstruction efforts and emphasized the administration’s commitment to rebuilding the country.

But he acknowledged the “enormous need in Iraq for basic services to be restored, for jobs to be restored. I think everywhere I went I heard the plea for more electricity.”

Restoring electricity has been particularly problematic because Saddam Hussein’s government left behind a dilapidated system and because of continuing sabotage, Mr. Bolten said.

Iraq produced about 4,400 megawatts of electric power before the war, and as of this week produces nearly 3,250 megawatts, said Ellen Yount, a spokeswoman for the U.S. Agency for International Development.

USAID is overseeing much of the reconstruction effort carried out by private-sector companies.

While Baghdad still suffers power shortages, Ms. Yount said the southern city of Basra for the first time in a decade has power 24 hours a day.

“We’re almost there. We’re about where we said we were going to be,” she said of the overall reconstruction effort.

Before the war, the country required, but could not produce, about 6,000 megawatts of power per day, a level still out of reach.

USAID officials had said as recently as June that power would be running at prewar levels by this month, but last week L. Paul Bremer, head of the governing authority, said power would return to those levels in 60 days.

The electric sector is vital to the economy — it runs manufacturing and other key services, and allows oil to be pumped and processed, and water and sewer systems to operate.

Oil, in turn, is central to reconstruction — it is expected to pay much of the cost for rebuilding the nation.

“Iraq already is contributing to its own reconstruction and rehabilitation, and Iraq’s share will increase as oil production and the Iraqi economy recover,” Mr. Wolfowitz said.

The governing authority has had to bring in generators to operate petroleum plants because there is not enough power.

Oil production has reached more than 1 million barrels per day and is expected to reach 1.5 million by the end of the summer, Mr. Bolten said.

BP PLC and Royal Dutch/Shell Group of Cos. last week each agreed to buy 10 million barrels of Iraqi oil under the first long-term contracts to be offered by Iraq since the end of the war.

Iraq’s proven oil reserves are second only to Saudi Arabia’s. Output in 1990 was about 3.5 million barrels per day, but oil fields have been damaged by war, neglect and looting.

Without oil revenue, U.S. taxpayers and Iraqi assets seized by the U.S. government have been footing the reconstruction bill.

The United States earmarked $7.7 billion for relief and reconstruction. About $1.7 billion in frozen state assets, $800 million in cash found in Iraq and $1 billion in oil receipts from the United Nations’ oil-for-food program have been transferred into a fund for Iraq, Mr. Bolten said.

Taxpayers are paying the remaining costs.

Through the end of last month, the United States had allocated $2.7 billion, with $750 million coming from seized Iraqi assets, Mr. Bolten said.

Despite some difficulties, Mr. Wolfowitz said, progress has been made in the reconstruction effort.

Police forces are being reconstituted, schools are operating, the medical system is working, media outlets are operating around the country, and training for recruits to a new army will begin in weeks, he said.

In a sign of private-sector optimism, airlines are lining up to fly in and out of Baghdad. The Transportation Department said yesterday that, subject to further government approvals, seven airlines could schedule flights between the United States and Iraq. Three other airlines already had been granted permission.

Despite some positive developments, the situation in Iraq remains unpredictable, leaving administration officials hesitant to lay out longer-term costs, despite requests from Congress.

“We still lack a comprehensive plan for how to acquire sufficient resources for the operations in Iraq and how to use them to maximum effect,” Mr. Lugar said yesterday.

“What the devil are you going to ask us for?” Mr. Biden said, referring to appropriations for fiscal 2004, which the Senate will consider in the coming months.

Mr. Wolfowitz said there would be a supplemental request for the 2004 budget “when we think we can make a reasonably good estimate of what will get us through the whole year.”

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