Second quarterly report of the Government of Iraq
Pursuant to paragraph 5 of Security Council resolution 1905 (2009) and further to the letter from the Minister for Foreign Affairs of Iraq dated 18 March 2010 and its annex, the first quarterly report contained in document S/2010/308, and in the light of the observations of the United Nations Secretary-General contained in document S/2010/166, pursuant to paragraph 3 of resolution 1905 (2009), the Government of Iraq would like to state the following:
1. The completed parts of the plan and timetable for the transition to successor arrangements for the Development Fund for Iraq
In its first report the Government of Iraq stated that it would continue with the same mechanism as currently used for depositing revenues from oil export sales into a main account opened with the Federal Reserve Bank of New York (FRBNY) and held by the Central Bank of Iraq (CBI). A separate sub-account will also be opened with the same bank, into which 5 per cent in compensation (or any lower percentage that may be agreed upon later) from the revenues from oil export sales will be transferred automatically. In accordance with the timetable of the plan:
CBI got the approval of FRBNY regarding the CBI accounts to be opened with it through a letter from the president of FRBNY (attachment 1) sent to the Governor of CBI on 19 May 2010. As for the completion of the efforts of the Government of Iraq to determine the available protection for CBI reserves and the Government’s fund, to the jurisdiction of the States with which Iraq was planning to open accounts, and the contacts made by the Iraqi authorities either with FRBNY or other banks, the protection provided is not up to the immunities provided by a Security Council resolution under Chapter VII of the Charter of the United Nations. The Government of Iraq will continue its efforts to take the appropriate decision after further contacts with the relevant authorities. The Government of Iraq can determine its position in this regard in its next quarterly report, in the light of contacts with the banks and the agreements reached in regard to the claims inherited from the previous regime.
Agreement was reached with the international audit firm Pricewaterhouse Coopers (PWC) to audit the Development Fund for Iraq for the year 2010. This firm was selected through competitive bidding in which three offers from international audit firms were received. The contract will be signed soon with the Government of Iraq. As indicated on the website of the Committee of Financial Experts (www.cofe- iq.net), the same procedure will be followed next year as well.
2. The status of the debts and the programme of the Government, including the bilateral agreements with countries outside the Paris Club
Bilateral agreements with countries outside the Paris Club. In the first quarterly report it was pointed out that Iraq had succeeded in resolving the debt issues with 55 States outside the Paris Club. There has been no significant progress in this respect with the remaining 13 States, as Iraq is still waiting for their responses and they have neither set a date for signing the agreements nor positively responded to the draft bilateral agreements transmitted to them.
The Government of Iraq is following up on the contacts with those countries in order to reach a settlement acceptable for both parties. In this context, the Minister of Finance of Iraq transmitted confirmation letters on 18 May 2010 to his counterparts in each of the Republics of Turkey, Pakistan, Poland and Brazil suggesting to send official delegations from the Ministry of Finance together with its international financial adviser to those countries during June and July 2010 to discuss details of debt settlement in accordance with Paris Club provisions. The Government of Iraq is awaiting those States’ reply to the proposal of the Minister of Finance. The Security Council will be kept updated with the results. It should be noted that the claims of some of the members of the Gulf Cooperation Council constitute the largest proportion of those debts. Despite the continuous efforts of the Government of Iraq and decisions of the Arab Summits, the latest held in Sirte, Libyan Arab Jamahiriya, on 28 March 2010, to deal with these debts, Iraq has not so far received the desired response and an intervention from brotherly and friendly States may be helpful to expedite settlement of these debts or the signing of such agreements.
The commercial creditors. The Government of Iraq commented in its first quarterly report on this subject and on the programme adopted for the settlement of their claims. On that basis, three British companies agreed recently to enter into negotiations to sell their entire debts in cash for 10.25 per cent of the original debt and the negotiations are expected to be completed soon.
These companies are:
1. 2. 3.
Mass Property and Investment Ltd. Universal Plant & Machinery Ltd. Millars Projects Ltd.
But the concern of the Government of Iraq on this subject is that there is a possibility that a number of commercial creditors did not submit their claims and, therefore, that the Government did not know how many claimants there are in this category. While the Government of Iraq emphasizes its commitment to resolving all the debts and claims inherited from the previous regime and continues to address them until they are offset, it looks to the international community to continue to provide assistance in this regard and, in particular, advice on how to identify commercial creditors who did not register their claims.
The remainder of the United Nations oil-for-food programme. With reference to paragraphs 20 and 21 of the Secretary-General’s report (S/2010/166), the Government of Iraq would like to point out that the letters of credit which the United Nations requested to be settled of the oil-for-food programme amounted to 65 as of 30 April 2010. Due to the importance for the Government of Iraq of addressing this issue, the ministerial committee formed under a Council of Ministers’ order in 2010, chaired by the Deputy Prime Minister for Economic Affairs and the relevant parties, was authorized to take decisions about these letters of credit. The committee has completed consideration of all outstanding letters of credit and decided to pay out 26 of them. As for the rest of them, the committee has not found documented receipt of goods related to those letters of credit. Therefore, these companies do not deserve to receive those amounts.
Other claims inherited from the previous regime. The competent Iraqi authorities have drafted a legal agreement on a package deal to be concluded between the Government of Iraq and the Government of the concerned State.
This agreement is currently before the Iraqi legal authorities for approval, and then the Government of Iraq will be able to address this issue and close it completely.
3. Assessment of the progress made in strengthening financial and administrative control of the current Development Fund for Iraq
(a) Forty-one ministries have completed their structural charts, and some of them have been referred to the Council of Ministers for approval. As for laws, two laws that relate to the Ministry of Immigration and Displacement and the Ministry of Planning and Development Cooperation were adopted in the period between our first and second quarterly reports after being published in the official gazette, in addition to what was stated in our previous report.
(b) The Ministry of Finance has a valid job description and work is going on to develop it.
(c) After the issuance of the law on the Federal Board of the Civil Service, the committee formed within the Council of Ministers still interviews persons of proven competence and ability to fill positions and administrate the newly established body that is charged with the task of selecting and developing the administrative staff in Iraq.
(d) The Ministry of Finance has gathered together and unified the financial instructions and it will have them distributed to all State ministries and entities for implementation during the next month.
(e) The completion of the comprehensive oil metering and calibration system: the Ministry of Oil submitted a report on the status of the system as at 31 May 2010 (attachment 2,wr1). The delay in establishing some of these meters compared with the approved plan was the result of some administrative procedures relating to imports and post-contracting financing, and the Ministry is trying to overcome these obstacles. In order to highlight the very transparent orientation of the oil industry, Iraq has joined the Extractive Industries Transparency Initiative (see attachment 3, which contains comments from international entities and refers to the positive procedures taken by the Ministry of Oil in this regard).
(f) A high-level committee was formed in order to follow up on Iraqi funds abroad, and is trying to recover them through legal procedures, including resort to the Security Council Committee established pursuant to resolution 1518 (2003), and establishing a relevant database. This Committee was able to obtain a court order to recover 300 million dollars in Switzerland and 25 million euros in France, in addition to recovering other fixed assets.
(g) Completion of the final financial statement of the State for 2008: the final financial statement of the State is under way and is expected to be discussed by the Financial Audit Board during July 2010.
(h) Follow-up and clearance of the observations for 2007 and 2008 of the external auditor for the Development Fund for Iraq: through continuous meetings with the heads of audit teams of the Board of Supreme Audit working in the concerned entities, and their representatives, a significant number of these observations were cleared and the causes for the remaining observations made by the international audit firm not being settled were identified. The status of clearance of those observations is the following:
Cleared observations
159 55%
Observations under clearance
98 34%
Still valid observations Total
34 291 11% 100%
It is to be noted that the details of the still valid observations are being followed up and will be cleared after the issuance of the present report, but the nature of most of those observations requires structural reform for their clearance combined with their being addressed at the legal and administrative levels, as mentioned above.
Pursuant to paragraph 5 of Security Council resolution 1905 (2009) and further to the letter from the Minister for Foreign Affairs of Iraq dated 18 March 2010 and its annex, the first quarterly report contained in document S/2010/308, and in the light of the observations of the United Nations Secretary-General contained in document S/2010/166, pursuant to paragraph 3 of resolution 1905 (2009), the Government of Iraq would like to state the following:
1. The completed parts of the plan and timetable for the transition to successor arrangements for the Development Fund for Iraq
In its first report the Government of Iraq stated that it would continue with the same mechanism as currently used for depositing revenues from oil export sales into a main account opened with the Federal Reserve Bank of New York (FRBNY) and held by the Central Bank of Iraq (CBI). A separate sub-account will also be opened with the same bank, into which 5 per cent in compensation (or any lower percentage that may be agreed upon later) from the revenues from oil export sales will be transferred automatically. In accordance with the timetable of the plan:
CBI got the approval of FRBNY regarding the CBI accounts to be opened with it through a letter from the president of FRBNY (attachment 1) sent to the Governor of CBI on 19 May 2010. As for the completion of the efforts of the Government of Iraq to determine the available protection for CBI reserves and the Government’s fund, to the jurisdiction of the States with which Iraq was planning to open accounts, and the contacts made by the Iraqi authorities either with FRBNY or other banks, the protection provided is not up to the immunities provided by a Security Council resolution under Chapter VII of the Charter of the United Nations. The Government of Iraq will continue its efforts to take the appropriate decision after further contacts with the relevant authorities. The Government of Iraq can determine its position in this regard in its next quarterly report, in the light of contacts with the banks and the agreements reached in regard to the claims inherited from the previous regime.
Agreement was reached with the international audit firm Pricewaterhouse Coopers (PWC) to audit the Development Fund for Iraq for the year 2010. This firm was selected through competitive bidding in which three offers from international audit firms were received. The contract will be signed soon with the Government of Iraq. As indicated on the website of the Committee of Financial Experts (www.cofe- iq.net), the same procedure will be followed next year as well.
2. The status of the debts and the programme of the Government, including the bilateral agreements with countries outside the Paris Club
Bilateral agreements with countries outside the Paris Club. In the first quarterly report it was pointed out that Iraq had succeeded in resolving the debt issues with 55 States outside the Paris Club. There has been no significant progress in this respect with the remaining 13 States, as Iraq is still waiting for their responses and they have neither set a date for signing the agreements nor positively responded to the draft bilateral agreements transmitted to them.
The Government of Iraq is following up on the contacts with those countries in order to reach a settlement acceptable for both parties. In this context, the Minister of Finance of Iraq transmitted confirmation letters on 18 May 2010 to his counterparts in each of the Republics of Turkey, Pakistan, Poland and Brazil suggesting to send official delegations from the Ministry of Finance together with its international financial adviser to those countries during June and July 2010 to discuss details of debt settlement in accordance with Paris Club provisions. The Government of Iraq is awaiting those States’ reply to the proposal of the Minister of Finance. The Security Council will be kept updated with the results. It should be noted that the claims of some of the members of the Gulf Cooperation Council constitute the largest proportion of those debts. Despite the continuous efforts of the Government of Iraq and decisions of the Arab Summits, the latest held in Sirte, Libyan Arab Jamahiriya, on 28 March 2010, to deal with these debts, Iraq has not so far received the desired response and an intervention from brotherly and friendly States may be helpful to expedite settlement of these debts or the signing of such agreements.
The commercial creditors. The Government of Iraq commented in its first quarterly report on this subject and on the programme adopted for the settlement of their claims. On that basis, three British companies agreed recently to enter into negotiations to sell their entire debts in cash for 10.25 per cent of the original debt and the negotiations are expected to be completed soon.
These companies are:
1. 2. 3.
Mass Property and Investment Ltd. Universal Plant & Machinery Ltd. Millars Projects Ltd.
But the concern of the Government of Iraq on this subject is that there is a possibility that a number of commercial creditors did not submit their claims and, therefore, that the Government did not know how many claimants there are in this category. While the Government of Iraq emphasizes its commitment to resolving all the debts and claims inherited from the previous regime and continues to address them until they are offset, it looks to the international community to continue to provide assistance in this regard and, in particular, advice on how to identify commercial creditors who did not register their claims.
The remainder of the United Nations oil-for-food programme. With reference to paragraphs 20 and 21 of the Secretary-General’s report (S/2010/166), the Government of Iraq would like to point out that the letters of credit which the United Nations requested to be settled of the oil-for-food programme amounted to 65 as of 30 April 2010. Due to the importance for the Government of Iraq of addressing this issue, the ministerial committee formed under a Council of Ministers’ order in 2010, chaired by the Deputy Prime Minister for Economic Affairs and the relevant parties, was authorized to take decisions about these letters of credit. The committee has completed consideration of all outstanding letters of credit and decided to pay out 26 of them. As for the rest of them, the committee has not found documented receipt of goods related to those letters of credit. Therefore, these companies do not deserve to receive those amounts.
Other claims inherited from the previous regime. The competent Iraqi authorities have drafted a legal agreement on a package deal to be concluded between the Government of Iraq and the Government of the concerned State.
This agreement is currently before the Iraqi legal authorities for approval, and then the Government of Iraq will be able to address this issue and close it completely.
3. Assessment of the progress made in strengthening financial and administrative control of the current Development Fund for Iraq
(a) Forty-one ministries have completed their structural charts, and some of them have been referred to the Council of Ministers for approval. As for laws, two laws that relate to the Ministry of Immigration and Displacement and the Ministry of Planning and Development Cooperation were adopted in the period between our first and second quarterly reports after being published in the official gazette, in addition to what was stated in our previous report.
(b) The Ministry of Finance has a valid job description and work is going on to develop it.
(c) After the issuance of the law on the Federal Board of the Civil Service, the committee formed within the Council of Ministers still interviews persons of proven competence and ability to fill positions and administrate the newly established body that is charged with the task of selecting and developing the administrative staff in Iraq.
(d) The Ministry of Finance has gathered together and unified the financial instructions and it will have them distributed to all State ministries and entities for implementation during the next month.
(e) The completion of the comprehensive oil metering and calibration system: the Ministry of Oil submitted a report on the status of the system as at 31 May 2010 (attachment 2,wr1). The delay in establishing some of these meters compared with the approved plan was the result of some administrative procedures relating to imports and post-contracting financing, and the Ministry is trying to overcome these obstacles. In order to highlight the very transparent orientation of the oil industry, Iraq has joined the Extractive Industries Transparency Initiative (see attachment 3, which contains comments from international entities and refers to the positive procedures taken by the Ministry of Oil in this regard).
(f) A high-level committee was formed in order to follow up on Iraqi funds abroad, and is trying to recover them through legal procedures, including resort to the Security Council Committee established pursuant to resolution 1518 (2003), and establishing a relevant database. This Committee was able to obtain a court order to recover 300 million dollars in Switzerland and 25 million euros in France, in addition to recovering other fixed assets.
(g) Completion of the final financial statement of the State for 2008: the final financial statement of the State is under way and is expected to be discussed by the Financial Audit Board during July 2010.
(h) Follow-up and clearance of the observations for 2007 and 2008 of the external auditor for the Development Fund for Iraq: through continuous meetings with the heads of audit teams of the Board of Supreme Audit working in the concerned entities, and their representatives, a significant number of these observations were cleared and the causes for the remaining observations made by the international audit firm not being settled were identified. The status of clearance of those observations is the following:
Cleared observations
159 55%
Observations under clearance
98 34%
Still valid observations Total
34 291 11% 100%
It is to be noted that the details of the still valid observations are being followed up and will be cleared after the issuance of the present report, but the nature of most of those observations requires structural reform for their clearance combined with their being addressed at the legal and administrative levels, as mentioned above.