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Iraq Is Struggling to Buy Equipment

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1 Iraq Is Struggling to Buy Equipment on Tue Sep 29, 2009 9:57 am


Iraq Is Struggling to Buy Equipment


SEPTEMBER 29, 2009

BAGHDAD -- A severe budget crunch here is holding up the sale of billions of dollars of American military equipment, including tanks, more than two dozen helicopters and thousands of radios.

The hardware is seen by Iraqi and U.S. officials as crucial in helping Iraq's military and police force completely take over security from American combat forces, scheduled to depart by August 2010.

"We are in a cost-crunch, time-crunch situation," says Army Lt. Gen. Frank Helmick, head of the Multi-National Security Transition Command-Iraq, the command training and equipping Iraqi security forces.

Iraqi officials placed orders for the equipment during superhigh oil prices in recent years, then saw their finances dwindle as crude prices fell. Iraq gets most of its revenue from oil sales.

After soaring well above $100 a barrel last year, prices slumped during the global economic downturn. Officials in Baghdad slashed their budget several times to make up for the reduced forecast revenue.

For its 2009 budget, the ministry of defense requested $15 billion. It was allocated $4.1 billion.

Oil has since recovered, with U.S. benchmark crude for November delivery trading at $66.84 a barrel in New York on Monday. That has helped Iraq's spending plans, but won't come close to covering its big-ticket defense needs.

Gen. Helmick says American commanders have asked the U.S. government to give Iraq what is known as "dependable undertaking" status as part of Washington's Foreign Military Sales program. Under the program, foreign defense ministries negotiate with Washington for the purchase of equipment. The U.S. government then awards contracts to private companies to deliver the goods. (W1)

Dependable-undertaking status would allow Iraq to pay the U.S. government for the equipment in installments. But qualifying requires proof of ability to pay in full eventually and a good credit history. So far, Iraq hasn't qualified because of its financing crunch and its history of bad debts under Saddam Hussein. It also hasn't developed a reputable credit history since he was ousted.

Its finances have created a kind of Catch-22, with Iraq's credit rating after being invaded by the U.S. keeping it from buying U.S. equipment meant to aid the end of the U.S. military presence here.

The equipment holdups go back as far as about a year.

The dependable-undertaking status review for Iraq has been held up partly because of an internal debate in the Pentagon over whether Iraq should be treated like any other country in the FMS program or if exceptions should be made given U.S. interests there, according to people familiar with the matter.

The need to get equipment moving fast enough to help with the U.S. drawdown is forcing more flexibility in Washington. The U.S. government is no longer making Iraq pay upfront for the 15 coastal patrol boats Baghdad agreed to buy from the U.S. in 2008. The boats are part of a $454.3 million package aimed at beefing up basic maritime defense. Instead, Iraq will pay for the boats when it receives them.

Washington also is considering allowing Iraq to buy on credit. Big-ticket purchases will be reviewed on a case-by-case basis, says Gen. Helmick. Uncertainty over Iraq's dependable-undertaking status, meanwhile, is holding up the release of 140 M1A1 Abrams tanks, 26 helicopters and thousands of radios.

"We are still waiting for lots of equipment from the U.S. side," said one Iraqi defense ministry official. "And they are things we really need."


2 Re: Iraq Is Struggling to Buy Equipment on Tue Sep 29, 2009 10:25 am


§ 2762. Procurement for cash sales

(a) Authority of President; dependable undertaking by foreign country or international organization; interest rates

Except as otherwise provided in this section, the President may, without requirement for charge to any appropriation or contract authorization otherwise provided, enter into contracts for the procurement of defense articles or defense services for sale for United States dollars to any foreign country or international organization if such country or international organization provides the United States Government with a dependable undertaking

(1) to pay the full amount of such contract which will assure the United States Government against any loss on the contract, and

(2) to make funds available in such amounts and at such times as may be required to meet the payments required by the contract, and any damages and costs that may accrue from the cancellation of such contract, in advance of the time such payments, damages, or costs are due. Interest shall be charged on any net amount by which any such country or international organization is in arrears under all of its outstanding unliquidated dependable undertakings, considered collectively. The rate of interest charged shall be a rate not less than a rate determined by the Secretary of the Treasury taking into consideration the current average market yield on outstanding short-term obligations of the United States as of the last day of the month preceding the net arrearage and shall be computed from the date of net arrearage.

(b) Issuance of letters of offer under emergency determination; availability of appropriations for payment
The President may, if he determines it to be in the national interest, issue letters of offer under this section which provide for billing upon delivery of the defense article or rendering of the defense service and for payment within one hundred and twenty days after the date of billing. This authority may be exercised, however, only if the President also determines that the emergency requirements of the purchaser for acquisition of such defense articles and services exceed the ready availability to the purchaser of funds sufficient to make payments on a dependable undertaking basis and submits both determinations to the Congress together with a special emergency request for authorization and appropriation of additional funds to finance such purchases under this chapter. Appropriations available to the Department of Defense may be used to meet the payments required by the contracts for the procurement of defense articles and defense services and shall be reimbursed by the amounts subsequently received from the country or international organization to whom articles or services are sold.

(c) Applicability of Renegotiation Act of 1951
The provisions of the Renegotiation Act of 1951 [50 App. U.S.C. 1211 et seq.] do not apply to procurement contracts heretofore or hereafter entered into under this section, section 2769 of this title, or predecessor provisions of law.

(d) Competitive pricing
(1) Procurement contracts made in implementation of sales under this section for defense articles and defense services wholly paid for from funds made available on a nonrepayable basis shall be priced on the same costing basis with regard to profit, overhead, independent research and development, bid and proposal, and other costing elements, as is applicable to procurements of like items purchased by the Department of Defense for its own use.
(2) Direct costs associated with meeting additional or unique requirements of the purchaser shall be allowable under contracts described in paragraph (1). Loadings applicable to such direct costs shall be permitted at the same rates applicable to procurement of like items purchased by the Department of Defense for its own use.

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