Examination of Witnesses (Questions 440
- 459)
WEDNESDAY 9 FEBRUARY 2005
MR JIM
DRUMMOND, MS
PAULINE HAYS
AND MR
RODNEY MATTHEWS
Q440 Mr Havard: Other people will
come on, later on, to questions about the economy itself and building
the economy during this transition between the CPA and the project
contract management office, and the whole of the dysfunctional
problems that came from that as well and are still there. I just
want to raise a couple of issues with you. Out of that overall
programme then, as I understand it, the government makes various
subventions to the different schemes and projects—I have
a list of them here—of various millions of dollars from
this fund, that fund or the other fund to do with the UN or the
World Bank and so on. You were asked a question by one of the
other committees about this, but could you now give us some sort
of idea of exactly what the British contribution is, if you like,
in monetary terms, to all of these different projects in terms
of reconstruction? The estimates vary, do they not, between $15
billion from, I think, the US Aid assessment and then the World
Bank made another assessment of $50-odd billion, so we have got
this continuum which is huge. I know this is not an exact science,
but what is the British contribution in all of this, and what
is the assessment of what the cost is, in terms of what the international
community needs to do?
Mr Drummond: The main assessment
was done jointly by the World Bank and the UN in August 2003 in
preparation for the Madrid Donors' Conference. That came up with
a total bill of $56 billion to be required over about four years,
although it was not terribly precise on that. In the early stages
of that they anticipated that most of the money would need to
be grant aid; in the latter stages they expected the Iraqis' own
resources to provide some of the investment, as indeed it should,
and for the Iraqis to be able to borrow commercially once they
had got rid of a large chunk of their debt, which they pretty
much now have. So we then had the Madrid Conference which produced
pledges of about $32 billion, of which the UK contribution was
about $900 million. The DfID share of that was the majority, but
there was also money through QIPs which went from the Treasury
to the Ministry of Defence.
Q441 Mr Havard: What sort of order
of magnitude was that?
Mr Drummond: I think £30
million, so about $50 million. And some money that went through
the Foreign Office, largely to pay for experts who worked with
the Coalition Provisional Authority.
Q442 Mr Havard: You see, the Foreign
Affairs Select Committee will have a slightly different take on
this, but what I saw on the ground, and I continue to see, is
military personnel doing things they should not have to do, with
resources they have not got, and very often they are doing all
these quick impact projects, and all the rest of it. They are
making up for deficiencies in the flow of the money. We will come
on to questions in relation to the disbursement of money later
on, but the question was asked earlier on about power and water,
and all this sort of stuff. We asked this question last week of
some of the military personnel. When we were in Basra in May,
we were told that there were all these projects doing great things
with the water supply, sewerage and all the rest of it—great—but
when we go back in December, we get there and they say: "Oh
yes, that was all mighty fine but that money has now been diverted
off (stolen, in my opinion) from one budget to another budget,
from doing that job into security sector reform." So one
of the things that we certainly have got an interest in is in
the British sector. These things are obviously not mutually exclusive,
are they—the security and getting people running water and
sewerage and all the rest of it. If we are disbursing this money
into these funds for particular purposes related to our priorities
of reconstruction in the south, how come I see that situation?
Mr Drummond: Rod can take you
through some of the projects which came to a conclusion on the
Emergency Infrastructure side during the time between your visits.
I think that your reference to money being diverted is a reference
to the change that the Americans made with their budget, and what
they did was to take some of their supplemental money and shift
it from infrastructure programmes—water and power projects,
largely, which were due to start in 2006—and to bring that
money forward and spend it instead on security. My judgment is
that it is less an issue about moving that money around than an
issue about how you actually get the programmes going in the south,
having the capacity there to deliver them on the US side.
Q443 Mr Havard: Maybe I am straying
into someone else's question later on about the disbursement of
the money, but what I am trying to get at is that you say you
have a list of priorities—and rightly so and good and fine—and
then you make those decisions but that is against the background
that it is in the context that you are not going to put that money
in there because you know the supplemental money is coming from
the US to do that job, and then all of a sudden it is not. It
is this point about the plan making contact with the enemy and
it starts to fall to bits. I am beginning to wonder who the enemy
is, in some of these things. Have we adjusted priorities to take
account of that?
Mr Drummond: We have adjusted
priorities. In fact, what we have done in the last month (in fact,
following the visit in December) is to appraise the new programme
in which £30-£40 million will be spent on infrastructure,
largely electricity in the south, because we see this—
Q444 Mr Havard: Water?
Ms Hayes: It will include water.
Precisely for the reasons you identified, we expected the US PCO
projects to come on stream quicker than they did. I do not know
whether there are going to be more questions about this but it
has been slower than we would have liked, for a number of reasons.
So, at the end of last year, we had hoped that we could edge out
of the emergency infrastructure work and get on with longer-term
capacity building business, which is what we are in. We recognise
we cannot do that; we cannot leave the south in the lurch either.
So we have decided to reprioritise in the way you have suggested
and are planning a new project over the next 12 months, of £30-£40
million, which will focus 75% on power sector repairs and maintenance
work in the south across all four governorates and 25% will be
water and sanitation. And that should keep us going while we continue
to lobby hard and work a way to get the US delivering on the ground
and other donors as well. We have to recognise that they face
a lot of the same problems that we do with security constraints
and other practices as well, which I think you will know of.
Mr Drummond: Can I ask Rod to
say something about the Emergency Infrastructure Programme, because
there is an implication that nothing happened, and I think that
is perhaps—
Q445 Mr Havard: I was not trying
to imply that nothing was happening.
Mr Matthews: The Emergency Infrastructure
Programme (EIP as it became known) was identified in about August
of 2003, was approved for partial funding by DfID in September
and the team was mobilised in September to initiate the programme.
The total programme was $127 million; there were 40 projects,
covering the essential services of electricity, water (both urban
and rural) fuel stations and fuel distribution, sanitation and
domestic gas supplies. The DfID grant to CPA south was £20
million, which equated to roughly $34 million, and the balance
of the funding came from the Development Fund for Iraq. There
were two separate approvals made by Ambassador Bremer in Baghdad.
The details of the schemes, if you would like us to give you some
highlights, are that on the electricity side five 10-megawatt
power stations were constructed in the south, which are diesel
powered, one 40-megawatt power station was constructed in Al Muthanna
province, which is gas-fired and 2,000 kilometres of 132Kv high-voltage
lines were replaced. The distribution networks and sub-stations
were reinforced in Basra and, also, in a number of the other Governorates.
On the water side, 120 kilometres of new distribution mains were
installed in Basra, mainly using manual labour rather than mechanical—
Q446 Mr Havard: I think this is the
point. I am interested in the catalogue of things, and I am not
trying to suggest that a lot of things are not done and were not
done and that the Brits were not trying their best to do it. This
is the whole point. When we were there we saw military personnel
working alongside civil personnel deployed out there from water
companies in Great Britain; there were TA officers and all sorts
of people, getting on and doing, but very often getting on and
doing against a background which was not helping them, effectively.
It is this question about how you have to constantly switch priorities.
It is all very well making priorities sitting in London and then
you have got different priorities happening on the ground and
it changes. What I was trying to get at is that we can say we
are going to spend X amount of money, but X amount of money might
be the wrong amount or the right amount—I do not know—and
you will not know until you actually go and do it. The point is
we were employing Iraqis; there were, effectively, people digging
holes with shovels where you might be better off using a JCB and
do ten guys out of work, but it was better to have them in work.
So security goes hand-in-hand with reconstruction. We understand
all that, and really what I think we are trying to get at (and
the quality of the distribution of the money we will come on to
later on) is this question about how these sorts of priorities
are decided and how DfID, in the context of everything else, can
actually shift and move and deal with the priorities that it says
it has got for the money that we are actually contributing.
Mr Drummond: On the Country Assistance
Plan, when we prepared it, we talked to Iraqi ministers about
it, we talked to Bremer about it and we talked to NGOs about it.
We did it in a couple of months, which is much quicker than some
of these things often take. It was a consultative process and
we did realise, when we did it, that we had to be flexible and
change plans. We have kept the three broad priorities that I outlined
to you and I think those still feel right. We will need to talk
to the new Iraqi Government about them when they come in.
Q447 Mr Viggers: Press reports about
the way in which funding has been applied in Iraq have been very
critical, and the Coalition Provisional Authority's own Inspector
General's report could scarcely be more critical—it is utterly
damning. It says: "The Coalition Provisional Authority provided
less than adequate controls . . . The Coalition Provisional Authority
did not establish or implement sufficient managerial, financial
and contractual controls to ensure that . . . funds were used
in a transparent manner." There are references to money which
has not been accounted for. What is DfID doing to ensure that
money which is currently being spent is properly accounted for
and that money provided to the interim Iraqi Government is properly
accounted for?
Mr Drummond: Could I just say,
on those press reports, they referred to (at least the ones that
I have seen) the very early stages after Saddam's regime fell.
Q448 Mr Hancock: Up to six months.
Mr Drummond: And they referred
to money that was used to pay Iraqi public sector workers. As
lots of the banks were trashed and lots of government records
were trashed, it was extremely difficult for the people who were
doing that. Had they not made payments to Iraqi public servants
then there would have been lots of other problems as well. It
is good, however, that this has been audited and coming out, and
the lessons should be learned from it. On the UK side, we are
not providing money straight through the Iraqi budget. We might
at some point aspire to that, if they needed it (which we hope
they will not), but we do not do that unless there are sufficient
audit trails in other governments' systems, and we are not at
that stage with the Iraqi Government. Most of their government
expenditure is funded from oil revenues and we should not need
to be subsidising that. So our money is going through UN/World
Bank systems, where they have their own auditing responsibilities,
and it is going through DfID systems. The programme that Rod talked
about had clear audit trails. So I am pretty confident that we
are using the right systems for monitoring the expenditure of
UK money.
Q449 Mr Viggers: In a Parliamentary
answer the Minister, Mr MacShane, said: "In the period up
to 28 June 2004 up to six UK Government officials, and a team
of professional contractors employed by the UK Government, provided
financial administrative support to Iraqi Ministries and offices
in Baghdad, Basra and the northern Governorates." Are UK
officials who are seconded working entirely within the Iraqi organisations
or do they report back to the UK Ministries from which they are
seconded?
Mr Drummond: That refers to people
who were working with the CPA?
Q450 Mr Viggers: Yes.
Mr Drummond: So they were part
of the occupation authority rather than any Iraqi Government authority.
Q451 Mr Viggers: Yes. Do they report
back to UK Ministries or are they working entirely within the
provision government?
Mr Drummond: They would have reported
back to UK authorities. Their main chain of command was within
the CPA, as I recall it.
Q452 Mr Hancock: Can I ask a question
which goes back to my original question? You work in Basra operating
in those four distinct Governorates there. What access did you
have to Iraqi money? Were you satisfied that there was enough
of the national resources that belonged to Iraq going to where
you were working? I cannot understand why they did not back the
priority of getting the power on as the first significant step
to giving people the security they wanted.
Mr Drummond: The Development Fund
for Iraq that Rod mentioned in the context of the Emergency Infrastructure
Programme is, in fact, Iraqi money from oil revenues and from
frozen assets. So during the CPA days the CPA was spending Iraqi
Government money.
Q453 Mr Hancock: Were you getting
a fair share of that? Was it being controlled by the Americans?
Mr Drummond: We had a reasonable
share of that in the south, and the Emergency Infrastructure Programme
that Rod described included £20 million of UK money but it
leveraged £60 million of Iraqi money. So that it was a jointly
funded programme.
Q454 Mr Hancock: So £20 million
of English money only levered out 16 million?
Mr Drummond: Sixty million, and
the CPA South had quite a large amount of DfID money in addition
to that.
Mr Matthews: Yes, another $75
million.
Q455 Mr Hancock: Do you think you
were badly ripped off in the early days?
Mr Matthews: I was not there in
the early days.
Q456 Mr Hancock: Do you think you
were ripped off by the contractors that you employed?
Ms Hayes: No.
Mr Drummond: No. Why do you not
describe briefly the tendering process?
Mr Matthews: One of the points
I was going to make about the Emergency Infrastructure Programme
was that it was managed jointly by representatives from the Iraqi
Directorates, the Provincial Councils and the Multi National Division
South East and the Board was chaired by the Regional Coordinator,
CPA (S). The process of all stages of the project cycle were in
fact overseen by this board or reported to the board. The board
took informed decisions about approving schemes on the funding
and, also, the policy that was going to be adopted for procurement.
We always had competitive tenders. In some cases the contracts
were for supply items which could only be sourced from outside
Iraq, but this was generally within the region—things like
generators and pipes. In terms of the works contracts, these were
awarded to local firms following competition from selected firms,
normally six to seven contractors. Estimates were prepared independently
of the cost of works and a comparison was made between those confidential
estimates for the price that would be received by the contractors.
Based on that, I believe value for money was secured in all cases.
Q457 Mr Hancock: You said each of
these had an audit trail?
Mr Drummond: Yes. Certainly the
CPA contracts were subject to internal audit.
Q458 Mr Viggers: I wonder if you
would care to comment on the scrupulous process you have just
described in terms of competitive tender with the $4 billion contract
that was given without competition to Halliburton, a company that
was once chaired by Vice President Dick Cheney? Would you like
to comment on the comparison between the scrupulous system you
have just described and that bid?
Mr Matthews: I do not think—
Q459 Mr Hancock: You were representing
the British Government at that stage. This is a very important
question. If we really were in a coalition then the British Government
should have been able to exercise some concern over that. I want
to know whether your department said anything about what was going
on. Here we are, meticulously going down to the nth dollar in
contracts here but $4 billion gets put across with no competition
and it would appear the British Government just acquiesced to
that.
Mr Drummond: As I recall, this
was American Government money and American Government procedures.
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