3 careful planning by the administration, full participation by the Congress, and support from the American people. We look forward to exploring these issues with each of you today. I call now upon the distinguished ranking member of our com- mittee, Senator Biden, for his opening statement. STATEMENT OF HON. JOSEPH BIDEN, U.S. SENATOR FROM DELAWARE Senator BIDEN. Thank you very much, Mr. Chairman. I think we have a lot of important hearings but I think this is a truly impor- tant hearing. The reason I do is that to state the obvious, but you are assembled at the table the players who are going to make this work or not work in Iraq, and we have a lot of questions. Let me begin, though, by saying that I think this is a moment of great opportunity both in the war on terrorism generally and specifically in terms of changing the face of, the climate, and the circumstances in the Middle East generally. And I want to begin by complimenting the President. I have been an open critic of the President and a private critic to him person- ally for his failure from the time he became President to get deeply involved in the Palestinian-Israeli conflict, because I believe there is no possibility of resolution without U.S. leadership there. And I must say that I have been very positively impressed by his commit- ment which he made privately as well as publicly to me and to oth- ers that he is going to get involved with both feet. I noted in today's New York Times one paragraph, and I quote: “In a remarkable turnaround for the President, who has resisted taking a personal role in peacemaking in this part of the world, Mr. Bush spent 90 minutes alone with Arab leaders, leaving Secretary of State Colin Powell and National Security Advisor Condoleeza Rice sitting in an ante room as he concluded and conducted talks with the help of only a translator.” That to me is the most signifi- cant thing that I have seen or heard of the President's efforts in the Middle East thus far, and I want to publicly compliment him. We all understand, we have been here a while, that a President who involves himself in this way is putting his political capital at risk. He has great capital right now and I want to publicly ac- knowledge that as long as he is working this way, he will get the support of this senator and I suspect many Democrats in his effort. The second point I would like to make is that I hope we get by in this hearing today about, you know, how well you planned this before. You didn't plan this well before and this has not been planned well, it's understandable why it's not been planned well. The thing never got off the ground the right way in terms of the reconstruction of Iraq. You guys had your hands full. Let's just go from here. Please do not bore me with how much planning you did before you got involved and what this long lead-up was. The fact of the matter is, it's understandable that we find our- selves in a situation where all the things that we were privately told that you and the administration planned on didn't come to fru- ition. We were told there was going to be an infrastructure left of the military, we would have them available to us. An infrastruc- ture left of the various agencies, all we are going to do is decapitate the bad guys and the Ba'athists, and we would have agencies up 5 AID published a vision statement in February that identified benchmarks on a range of sectors of Iraqi reconstruction. I would like to know from Mr. Natsios whether or not we're on target and if not, what do we have to do to get you on target, or have the tar- gets changed? And what is the plan across a number of areas? How are we going to get Iraqis back to work, including former military per- sonnel? What's going to replace the Oil-For-Food program when it's phased out over the next six months? What efforts are being made to rebuild the justice system? How is education to Iraqi children being managed? Are there new textbooks that will be available to every Iraqi child the next school year, as AID planned? These are practical things we'd like to know about. I don't expect you personally, I don't expect you to have all the answers to these things, but I do expect, and quite frankly respectfully demand that you let us know what your plans are, who's in charge, what your estimates are. We have an absolute right to know that. And I would ask unanimous consent that my formal statement be placed in the record at this point, Mr. Chairman. The CHAIRMAN. Placed in the record in full. Senator BIDEN. I thank you all for being here, and we look for- ward to having a conversation with you. [The prepared statement of Senator Biden follows:] PREPARED STATEMENT OF SENATOR JOSEPH R. BIDEN, JR. Mr. Chairman, our witnesses today come from a wide range of agencies within our government: the Pentagon, the State Department, the Treasury Department and AID. Even more agencies will have a role in Iraq in the coming months and years—from the Commerce, Justice, and Energy Departments, to the Office of Man- agement and Budget. Each has a critical part to play in helping to win the peace in Iraq. The fact that so many parts of our government will be focusing their time and resources on Iraq shows just how extensive our effort must be. But for all this effort, there appears to be no effective structure to coordinate the activities of these diverse agencies. We have been told that the Defense Department is in charge. But which office and who in Washington has the sole and exclusive responsibility minute-by-minute, day-to-day to ensure that decisions are made effi- ciently, agencies are coordinating their activities, and that Ambassador Bremer is getting all of the support he needs in the field. Our superb planning for and execution of the war has not been matched by our planning for and execution of the peace. It appears there was a failure to com- prehend that security would be the sine qua non for progress in all other areas. This should have come as no surprise after our experience in the Balkans. This committee, going back to last summer, has been a virtual Groundhog Day on the question of security and post war planning, repeating over and over again the need to get our act together before we went into Iraq, not after the fact. And many of the leading think tanks in town have made the same point, too. Simply put, without security, people will not return to their jobs, parents will not send their children to school, doctors and nurses won't make it to their hospitals, women will not leave their homes and participate in rebuilding their country, and engineers cannot make vital repairs to the infrastructure. So, I'd like to learn today what we are doing to secure international contribu- tions—for police forces like the gendarmes, for more traditional troops, and for funds to stabilize and rebuild Iraq. I'm glad that President Bush has moved beyond the finger pointing and talk of retribution with our allies in Europe and is asking for their help. Marshalling the help of friends and allies in Iraq is the the best way to spread the risks and reduce the burden on U.S. troops and taxpayers. I also hope to hear from our witnesses the answers to several fundamental ques- tions today: What are the working estimates for the cost and duration of the occupa- tion? What are the working estimates for the cost of reconstruction? 14 Found and Vested Assets First, existing Iraqi state assets and the ill-gotten gains of Saddam Hussein and his regime will be made available for the benefit of the Iraqi people. After Saddam Hussein's invasion of Kuwait in 1990, the United States acted quickly and decisively to deprive the Iraqi regime of the means and materials to continue its regional aggression, further develop its weapons of mass destruction programs, and continue its repression of the Iraqi people. Consistent with UNSC Resolution 661, the United States blocked all Iraqi state assets legally within its control. Today, the United States is using those assets for the benefit of the Iraqi people, as they build a new and better Iraq. The President vested $1.7 billion in Iraqi gov- ernment assets in the United States. The Secretary of the Treasury has already des- ignated the Secretary of Defense with the authority to use over $573.5 of these as- sets to meet the immediate humanitarian needs of the Iraqi people. Since the President signed the March 20 Executive Order vesting Iraqi state as- sets in the United States, the State Department, in cooperation with our inter- agency partners, is confirming the status of assets declared frozen by foreign gov- ernments in 1991. We have reached out to more than 20 additional countries that also may have information regarding Iraqi state assets. With the unanimous pas- sage of UNSCR 1483, we are also reminding countries of their obligation under the new resolution to make available any Iraqi state assets to the Development Fund for Iraq. We have had, and continue to have, extensive bilateral and multilateral meetings with key jurisdictions. For example, the administration took advantage of the IMF/ World Bank meetings held in Washington in April to hold several important bilat- eral meetings to discuss the matter. Treasury and State officials have contacted their counterparts in key jurisdictions. My colleagues and I have stressed the need for all countries to search their financial institutions for ill-gotten gains of Saddam Hussein and his regime. The Department of State is working closely with the Departments of the Treas- ury, Justice, Defense, and Homeland Security, as well as law enforcement and intel- ligence colleagues across the government, to identify additional assets and front companies that may be connected to Saddam Hussein or his fallen regime. Our ef- forts are leading to the identification of funds that can be made available for the benefit of the Iraqi people. To date more than $1 billion in previously unfrozen as- sets outside Iraq have been identified. Revenue from Petroleum Production Oil sales are the biggest potential source of revenue for the new Iraq, as they were for the old, but this time Iraq's oil revenues will benefit the Iraqi people. A top priority is to bring the industry on line and to repair and rehabilitate the exist- ing infrastructure. A highly qualified team is ready to take on this work. Thamir Ghadhban is the CEO of the Oil Ministry and is actively directing the process. He has a team of experienced and well-qualified Iraqi managers and engineers in place at the Oil Ministry, the State Oil Marketing Organization (SOMO), and the South and North Oil Companies, and they have technical support from the Army Corps of Engineers. Steps are being taken every day by Iraqis working with the Army Corps to assess the condition of wells, pipelines, pumping stations, gas-oil separa- tion plants, power grids, and refineries, and to make repairs. As the security situa- tion improves, the work will proceed at a faster pace. Iraq's entire oil infrastructure was shut down in the face of the American ad- vance. The Iraqis and we have been working diligently since the international coali- tion liberated Iraq, to bring the sector back on line. Mr. Ghadhban announced on May 21 that Iraq was already producing 800,000 barrels of oil per day. While there are many variables that can affect success in meeting production goals, he also said that production could reach 1.4 or even 1.5 million barrels by June 15. On May 28, Mr. Ghadhban announced that the northern fields around Kirkuk have been pro- ducing 600,000 barrels per day since May 27 but are not expected to increase pro- duction above that level in the near term. In the south, the situation is not as far advanced, but again, progress is being made. He also said that, as of May 27, oil production in southern Iraq exceeded 200,000 barrels per day, so it seems that Iraq is well on its way to meeting Mr. Ghadhban's production goals. As a point of comparison, Iraq produced between 2 and 3 million barrels per day in 2002. This is was down from 3.5 million barrels produced at Iraq's production peak in 1990. During 2002, Iraq exported an average of 1.7 million barrels per day. Mr. Ghadhban also announced that the Basra refinery is—or soon will be—oper- ating at full capacity–140,000 barrels per day. The plant is antiquated and the con- dition of the pipeline that runs to Baghdad is still being assessed. Iraq's two other 16 for Iraq's sour crude to keep the price at the projected range. The state of the global economy is also hard to predict, and this too will have an impact on potential earn- ings. In looking toward the longer term, Iraq's oil ministry has begun to assess its reha- bilitation requirements and evaluate existing service contracts against identified needs. Development contracts with Lukoil and China are being held in abeyance until a new Iraqi government is in place to determine their future. We would expect that the new government would also need new contracts to upgrade facilities-in- cluding refineries, gas-oil separation plants, power plants, pipelines and pumping stations, as well as to rehabilitate wells and open new fields to production. Because Iraq has not had access to investments or new technology over the last decade, analysts say that the country may not be able to increase its production at existing fields even to pre-1990 levels, because standard operating procedures used over the past decade may have caused irreparable damage to the fields, especially in Kirkuk. The status of these fields will need to be assessed. Over the long term, Iraq will want to acquire updated technology, and may want to open new fields (only 15 of the 73 known fields are in production now). It is pos- sible that Iraq will also be looking into options for exploration in other regions. Other parts of the oil sector infrastructure also need work. According to recent reports, the Mina al-Bakr export terminal in the Gulf has the potential to handle 1.6 million barrels per day, but we estimate that it cannot be safely run at levels much above 1.1 million. A second oil terminal, Khor al-Amaya, was destroyed in the first Gulf War and only partially repaired. It lies in a calmer area of the Gulf, how- ever, and once rehabilitated will provide a useful alternative. Many commentators are speculating about how much it would cost if Iraq should seek to raise production above historical levels. For example, experts at Deutsche Bank, PFC Energy Associates, and Energy Compass, have looked at not only sector rehabilitation, but also new field production. They have come up with large esti- mates of the financial cost of raising Iraqi oil production far above its historical peak. But it will be up to the new Iraqi government to decide how far it wants to go and just where it wants to target Iraq's future production levels. Any large expan- sion of Iraqi production capacity would have to be accommodated by increased de- mand in the international oil market; such an increase in production capacity would, in all probability, need to be privately financed. The focus now is on rehabili- tation and repair to help Iraq meet Mr. Ghadhban's more modest goal of 2 to 2.5 million barrels per day. Finally, new laws and regulations will be needed to foster investment and facili- tate foreign ventures in order to fund new development. OPEC will hold its next meeting on June 11 in Doha. Mr. Ghadhban has indicated that Iraq has no plans to leave OPEC, which it helped establish, but he also has no plans to attend the June 11 meeting. Before the first Gulf War, Iraq was respon- sible for about 4 percent of world oil sales. Under UN sanctions, Iraq was exempt from OPEC quotas, and the other OPEC members, especially Saudi Arabia, adjusted production to compensate for Iraqi oil sales through the UN Oil for Food program and to maintain their target price of $25 to $28 per barrel. CONTRIBUTIONS FROM OTHER COUNTRIES Despite the billions Iraq has in existing assets and expected oil revenues, re- sources will remain far below what will be needed for the next year or so to help the Iraqis achieve a stable economic base. We expect that other countries—both in- dividually and through international organizations such as the United Nation-will make major contributions to this effort. Many countries have come forward with of- fers of assistance-either monetary or in-kind contributions. To date these have been offers nearing $2 billion from third countries—much of this pledged through the $2.2 billion UN appeal. The EU alone has promised $107 million. There have also been many pledges of in kind contributions—from Albania's 70 peacekeeping troops to Jordan's field hospital to a medical team from Lithuania. Even before the fighting stopped, the State Department, working closely with col- leagues from DoD and Treasury, launched a series of quiet consultations with coun- tries that share our interest in helping Iraq rebuild. These consultations confirmed that there is widespread recognition that repairing the damage of decades of misrule in Iraq is an international undertaking. We now are working with the United Nations and the World Bank on a pre- paratory meeting on reconstruction that will involve a broad cross section of coun- tries. The preparatory meeting will examine not only current needs, but also explore requirements in coming years. The preparatory meeting will be organized by the 17 UINDP, the World Bank and the United States on June 24. One outcome of the meeting is likely to be a major donors conference in the fall. The meeting should also underline the urgency of undertaking a World Bank/UNDP needs assessment. DEBT RELIEF In addition to the many costs Iraq faces to rebuild its economy, it will also have to deal with the weight of huge amounts of debt contracted by the previous regime. Treasury and State are working with other creditor countries on a long-run solution to Iraq's debt burden that is responsive to the full range of Iraq's creditors. Sec- retary Snow has urged the need for a comprehensive, multilateral debt treatment for Iraq. The issue was discussed at the spring World Bank/IMF meetings and in the G–7, where nations agreed on the need to engage the Paris Club, a group of creditor nations that meet regularly to provide debt relief to debtor countries. At the April session of the Paris Club, State and Treasury and Paris Club col- leagues discussed Iraq and began the process of debt data reconciliation. In their recent meeting at Deauville, G-8 Finance Ministers recognized that it would be un- realistic to expect Iraq to make payments on its debt at least through the end of 2004. Currentły, Iraq is not making payments on its international debt. The G-8 also asked the IMF to assess Iraq's debt situation. PRIVATE SECTOR INVESTMENT In the end, the single largest contributor to Iraq's economic renewal will be the Iraqi people, their ingenuity and their determination to improve their lives, now that the burden of the Saddam regime has been lifted. Ambassador Bremer has stressed that we must begin to create the conditions for a free market economy in Iraq now. Our biggest challenges will be creating a secure environment in which honest Iraqi's can establish and run businesses, and the smooth transformation of a state-controlled economy into a free market. But the Iraqi people are talented and ambitious. And, despite decades of war, Iraq has a small private sector, which can be nurtured back to health. We have been studying the legal and economic reforms needed to create a stable business environment in Iraq. Ambassador Bremer's team has been cataloging such reforms—which range from lifting tariffs to WTO accession to creation of a new legal framework. These and many other practical issues must be addressed before international trade activity with Iraq will resume and flourish. In Washington, State's Assistant Secretary for Economic and Business Affairs has hosted a series of interagency meetings to look at key economic reconstruction issues for which Ambassador Bremer's team in Baghdad needs Washington guid- ance. Last week, the group conferred over necessary steps to revitalize business and commerce in Iraq following the lifting of economic sanctions. The group also exam- ined action needed to successfully transition from the current centrally controlled food distribution system under the UN's Oil for Food program to a market-based food distribution system. We have been drawing on the knowledge and expertise of our embassies in the region, and are also working to engage regional governments—the idea being to identify "best practices” and use regional reform models where appropriate. One of the most important steps we can take is to help Iraq re-integrate with the broader regional economy. The upcoming June 21–23 special World Economic Forum event in Amman, Jordan, provides an excellent opportunity to begin this process, as Secretary Powell will undoubtedly underline during his discussions there. In ad- dition, the international development institutions and the donor community will focus extensively on steps we can take to re-stimulate private economic activity in Iraq during June 24 donor's meeting at the United Nations. CONCLUSION The transformation that will take Iraqis from life under a ruler of unimaginable cruelty to a free and prosperous nation will take time. The American people have committed to help Iraqis make this transformation, but it will require much more work on our part. The long-term future of Iraq depends on the establishment of rule of law, representative government, and sustainable economic development. The United States, our coalition partners, the United Nations, and most importantly, the Iraqi people, must work together to finish the job, in order to guarantee peace and stability in the region, and safety for the American people. The administration welcomes the strong interest of the Congress in this issue and its strong support for the important task at hand. We look forward to working close- ly with the Congress in the months ahead. 23 Bremer—as Administrator of the CPA-oversees and coordinates all executive, legis- lative, and judicial functions necessary for temporary governance of Iraq including humanitarian relief, reconstruction, and assisting in the formation of an Iraqi in- terim authority. The CPA includes representatives from both coalition nations and U.S. govern- ment agencies that are involved in identifying and prioritizing recovery require- ments in Iraq. Ambassador Bremer also is getting substantial input from leaders of the Iraqi people. Agencies or entities outside the CPA can propose requirements, but these must be submitted to Ambassador Bremer for review. For funding from vested or seized assets, the CPA submits its proposed require- ments to the Office of the Secretary of Defense (OSD)-specifically to my office. Re- quests for funds appropriated to DoD are also submitted to my office which, as in all cases, evaluates them and forwards approved requests to the Office of Manage- ment and Budget (OMB). For funding from non-DoD appropriated funds, the CPA submits its proposed requirements directly to OMB. OMB consults with OSD and other appropriate federal offices on policy and program issues. My office has organized a liaison cell to help the CPA fulfill its responsibilities. This cell will be led by my office and includes representatives from outside DoD: OMB, the U.S. Agency for International Development (USAID), and the General Ac- counting Office. Within DoD, the Inspector General, Joint Staff, and several defense agencies will have representatives. The cell will help the CPA expedite coordination and approval of requirements for recovery in Iraq. It will provide on-site expertise on budgeting, financial plan development, costing, accounting, and other needs. Accountability for Iraqi State Assets Controlled by the U.S. The President has directed that the Department of Defense—in consultation with OMB and the Departments of State and Treasury-adopt procedures to ensure that Iraqi state or regime-owned assets are used only to assist Iraqi people and support the reconstruction of Iraq, and are properly accounted for. DoĎ has adopted strong measures to fulfill the President's direction. The Department is using long-standing, proven safeguards for handling and ac- counting for Iraqi state assets. We are emphasizing transparency and rigorous ac- counting and auditing procedures. The process includes on-site audit testing, and the use of signatures and other strong financial and management controls. Towards that objective, on May 21, 2003, Deputy Secretary Wolfowitz designated the Sec- retary of the Army as the DoD Executive Agent for all CPA support. This includes contracting support. All DoD agencies, notably the Defense Contract Audit Agency, are presently supporting all known Iraq contracting requirements, and will fully support the Army as it transitions to a permanent contracting presence in the Iraq theater of operations. To the maximum extent practicable, vested and seized assets are being administered and accounted for under controls that are equivalent to those applicable to DoD appropriated funds. DoD procedures cover the full range of asset handling—from initial seizing of as- sets, all the way through final disbursement of those assets. Safeguards for foreign national assets is not new for the U.S. government and Department of Defense. It is impossible to overestimate the importance of accountability for Iraqi state as- sets under U.S. control. The Iraqi people, the American people, and the inter- national community must be satisfied that these assets are being used only to help Iraq recover, that funds go for the most pressing requirements, and that proper ac- counting is done. Defense Contract Audit Agency (DCAA) Support of Iraq Reconstruction The DCAA mission is to provide all contract audit and financial advisory services related to the Department of Defense acquisition of goods and services. DCAA pro- vides similar services, on a reimbursable basis, to most civilian agencies including the State Department and USAID. In total, DCAA has 3500 contract auditors at 82 field audit offices, and a total of 350 resident DCAA locations. Thirty-six percent of DCAA auditors are licensed CPAs and 21 percent have advanced degrees. DCAA is playing a major audit role in support of Iraq reconstruction and is re- sponding with real time audit assistance for all known Iraq contracting require- ments: • A team of seven DCAA auditors is currently reviewing over 500 United Nations Oil-for-Food contracts for price reasonableness and value received. The review has identified numerous inconsistencies with the contracts and noted significant areas of potential contract overpricing. A total of $11 billion is being evaluated, and a trip will be taken in early June to the United Nations to evaluate UN contract file documentation. 24 • A team of six DCAA auditors is currently evaluating audit documentation and contracting actions by Washington Headquarters Services in support of CPA contract requirements. DCAA is also providing related audit assistance to as- sure that contractor proposal estimates are properly prepared, and that ongoing contract awards are properly priced. • A team of nine DCAA auditors has been deployed to Iraq/Kuwait to support cur- rent mission requirements of the U.S. Army and the Corps of Engineers. • DCAA has selected ten additional auditors who will be embedded with Corps of Engineers, Army Material Command, USAID, and wherever future customer workload dictates. Three of these auditors are now in-theater, with the remain- der going through required training. • DCAA is the contract auditor for USAID in Iraq. There are currently eight USAID contracts valued at $1.0 Billion. Bechtel National Industries has the largest contract, with a total value up to $680 million for road, electricity, power, and bridge reconstruction. • DCAA is a member of a financial oversight cell being deployed to Iraq. A DCAA senior manger will provide the cell with audit and financial counsel. • Finally, DCAA is building an audit universe of all known Iraq/Kuwait related contract requirements, and will brief senior DoD and CPA representatives in mid June. BCAA will use this data for future Iraq planning and staffing re- quirements. I have authorized the DCAA Director to stand-up a DCAA field audit office in Baghdad and Kuwait as soon as practicable. This office will not only service all in- theater reconstruction contracting, but will initiate any assist audit requests at U.S. contractor locations, where most contractors retain the accounting records. With the recent delegation by Deputy Secretary Wolfowitz naming the U.S. Army as the Executive Agent for all Iraq Reconstruction effort, I am confident that the Army will stand-up a highly competent contracting organization to centrally inte- grate all current and future Iraq Reconstruction contracting requirements. I believe that the Deputy Secretary's directive was the one key action needed to assure that there is no duplication of Iraq Reconstruction requirements; and that appropriate financial controls will be established and employed. I will be meeting with the Sec- retary of the Army and his staff to offer my support and assistance throughout this effort. I am absolutely committed to an integrated, well managed contracting process in Iraq-a process that is transparent and the equal of the very best military acquisi- tion centers in this country. All financial and audit issues surfaced by DCAA or other DoD components will be brought to my immediate attention for appropriate action. International Contributions to Recovery in Iraq Contributions from the international community-both cash and in kind—will be critical to recovery in Iraq. I have been designated as DoD coordinator for inter- national assistance to post-conflict Iraq. I work jointly in that regard with my col- leagues at this table, Under Secretaries Larson and Taylor, and with their offices as well as with USAID. We also are working closely with multilateral institutions- notably the UN, World Bank, and IMF—who will play critical roles in facilitating the international assistance to Iraq recovery efforts. Finally, we have daily coordina- tion with the Office of the Coalition Provisional Authority. To date, the international community has publicly offered over $2 billion for hu- manitarian and reconstruction assistance for Iraq. About $800 million of this has been in response to the UN Flash Appeal to meet urgent requirements in Iraq. The remaining $1.2 billion has been offered outside the flash appeal. Examples of these international contributions include: • Japan intends to contribute more than $150 million in emergency humanitarian aid. • Australia has delivered more than $26 million-100 thousand metric tons of wheat, including shipping costs. Australia is also providing expertise in agri- culture. • Canada has delivered more than $41 million (US$), for critical water, sanita- tion, food, shelter, and health requirements. • The United Kingdom has pledged $338 million in humanitarian assistance. Spain has pledged $56 million, primarily in humanitarian supplies. • The Netherlands is contributing $14 million in response to the UN Flash ap- peal. Assistance will be provided to Iraq through Dutch NGOs. 26 railroads, to teach school children, and to help in the payment of other Iraqis. There are other successes, some of which my colleagues have al- ready mentioned. Just since March 20th, $1.7 billion of Saddam's assets have been vested in New York and made available to the Iraqi people. Another $1.2 billion have been newly frozen around the world. We have approximately $1 billion in cash found in Iraq, excluding funds in the Central Bank. Working intensely with the international community, we have achieved the removing of the sanctions on selling Iraqi oil and we have agreement with the international financial institutions to pro- vide needs assessments and provide technical assistance. Later this month, as Under Secretaries Larson and Zakheim in- dicated, there will be a donors conference. It's already scheduled for June 24th, to make plans for international support of the country. I think it's also important to emphasize that we have achieved successes by avoiding catastrophic events that could have occurred, and in fact these were events we were concerned about, events which we took actions to try to prevent. For example, instead of collapsing, as many had feared, the Iraqi currency has recovered from low levels at the beginning of the war. Hyper inflation has been avoided, another concern we had going into this. As has al- ready been mentioned, oil fields have been saved from destruction and there has been no humanitarian crisis. And I should add from the Treasury perspective, that the crip- pling burden of debt service payments has been lifted at least through the end of 2004, so that Iraq can focus on reconstruction needs. I believe these successes are due to the work of experienced and dedicated people and to contingency plans laid out months in ad- vance of the war. We began selecting people for our financial teams back in January. The first wave was deployed to Kuwait in March. These were some of the first people who went into Baghdad in April. We have since sent additional financial experts with exper- tise ranging from budgets to payment systems to monitoring policy. And Peter McPherson has been designated the financial coordi- nator. Peter McPherson is a former U.S. AID Administrator and former Deputy U.S. Treasury Secretary. He is giving advice to Am- bassador Bremer on the ground. He and his team have responsi- bility for working with the Iraqis to get the Central Bank running again, the finance ministry running again, the commercial banks and other institutions up and running. Their very first task on the ground, which has largely been accomplished, was to assess the conditions and evaluate the basic economic infrastructure, includ- ing the payment systems. I am in nearly constant contact with them through telephone, e-mail, providing support and advice with the help of a financial task force set up in Treasury by our Office of Technical Assistance, and of many others stationed here in Washington. I would like to spend just a minute in my opening remarks with a description of the mechanism we put in place to restart pay- ments, because I think it indicates the kind of plans that have been underway and which will continue to be underway. This is the top reconstruction priority, that is, to make emergency payments and 32 cide exactly which donor government will do which sector in which province and which institution. And we work very carefully with these matrixes we develop over a period of time through other emergencies to directionalize this process. And finally, we do pro- gram evaluation to make sure the program is getting on track, or we can get it back on track. The reconstruction itself actually began for AID on the 28th of April when the President declared major combat over, because our contractors, particularly that are doing the reconstruction pri- marily, had provisions in their contracts for insurance purposes that said until the combat was officially over, on a large scale they could not go into the country. So we have been working at this for about five weeks, not in terms of the disaster response which began earlier, but in terms of actual reconstruction. We took control of the port facilities from the British Marines on May 23rd, and with our contractors are now responsible for man- aging the port. We began the preparatory work to upgrade the port to international standards, and we have been working closely with our friends in the World Food Program for the preparation of mas- sive movements of food into the country. They have moved already 440,000 tons of food into the country and began the first national distribution of food on June 2nd. I just came back 2 days ago from Cyprus, where I met with the UN officers there. They have, by the way, their best team I have ever seen in any emergency. They've collected them, put them in Cyprus and Iraq and Kuwait, and I am very pleased with the qual- ity of people who are running this. Romero DeSilva is arguably the best logistician in the international system, and he is in charge of the entire UN effort on humanitarian food assistance side. A million more tons of food will arrive by September and the en- tire system will be up and running. The airport administration will be taken over as well for the international airports only. AID is not responsible for the local air- ports. We are now doing the preparatory work to upgrade them to international standards, and a civil aviation conference is sched- uled for June 14th with other U.S. government agencies for the res- toration of commercial air traffic to international standards. We began, on May 7th, a 24-hour, 7-day a week dredging oper- ation for the port of Umm Qasr. It is now down 9 meters and we can bring in vessels that carry up to 15,000 tons of cargo. In the next few months we hope to remove the four wrecked ships that are at the bottom that we had not known were there until we con- ducted our assessment. We expect that within three months the port will be up to a standard it hasn't been in 20 years. We have completed the engineering work for reconstruction of the boilers at electrical generating plants, the repair of the 400 KVA and 135 KVA high voltage initial transmission repairs, the urban water system in the southern part of Iraq, and 3 bridges which are critical to traffic around the country. Most of this work has nothing to do with the war. This has to do with the lack of investment over a 20-year period towards this infrastructure in a country, by the way, that had western standard infrastructure as late as the mid 1980s. Because of the Iran-Iraq war and the success of destructive things that Saddam did to his 33 country, there was no investment and maintenance of these. For example, Basra right now has better electrical service than it had in 14 years. They have not had, in most of the city, 24-hour elec- trical service. They do now have that. The only remaining problem we're facing in electrical require- ments is in Baghdad and we have made a great deal of progress just in the last week to bring it up to pre-war standards, at least. In water and sanitation, we purchased, for the first time, enough chlorine for all of the treatment plants in the country for 100 days, purchased through UNICEF. The water and sanitation system ex- perts are now coordinating with Bechtel and with UNICEF and the NGO community about local rehabilitation and then longer term reconstruction of those systems. We bought 22 million doses of vaccines and are beginning a mas- sive immunization program. We have established a surveillance system to monitor potential cholera outbreaks—which have not happened yet, but we are watching it—and set up a tracking sys- tem for international medical donations. We have begun our back to school campaign to encourage stu- dents to return to school not only for education purposes, but to get them off the streets. One of the first public safety things we do in any reconstruction effort after a war is to get kids off the streets by opening the schools up as fast as possible. We have already pro- vided enough school materials for 120,000 students in Baghdad during the month of May. We have inventoried 700 schools with the Ministry of Education in Basra, and finalized the purchase of 8,000 school kits for teachers and students for 700 schools in Basra for the opening of school, and we have begun giving grants for the reconstruction of Basra schools which have been neglected for more than 15 years. We have awarded a contract to UNESCO that does high school textbooks for the printing and distribution of 5 million math and science textbooks. We have begun the process with UN agencies to evaluate the textbooks generally, many of which are full of ethnic, racial and religious vitrea against groups, not just the United States I might add—he had a lot of people he hated—and those textbooks need to be revised. UNICEF does textbooks grades 1 through 6, UNESCO 7 through 12, and we want the international system involved in this, so it's not an American only effort we're funding. Senator BIDEN. Mr. Natsios, I apologize, I didn't hear the begin- ning of your statement. Has that process begun? Mr. NATSIOS. Yes, it has begun, and the textbooks in fact are being written now specifically for math and sciences, that's the first category. Senator BIDEN. Thank you. Mr. NATSIOS. We have also begun a call for grants that's been published on our web site for American universities to begin a uni- versity and college partnership program between American univer- sities and colleges and Iraqi institutions, which is being greeted very enthusiastically in the university community in the United States in the areas of health, education, agriculture, and engineer- ing among others. 37 projects currently underway include efforts to repair a school in Umm Qasr; shore up the Mosul Dam; put 16,000 people to work cleaning up garbage and debris in al Thawra; and supplying water testing equipment, refurbishing the fire station, and supplying new furniture and instructional materials to primary school in Kirkuk. In addition, OTT has begun work on repairing ministries and public buildings and supplying them with computers, copiers, communications equipment, supplies and furniture, so that they can resume their normal functions. One of the advantages of this approach is that it allows us to work directly with Iraqi citizens and civil servants on practical every-day matters. Already we have started programs with the Iraqi Ministries of Justice, Irrigation and Finance, as well as the Central Bank, and we are looking at the possibility of doing more. Indeed, we have received proposals for 30 ministries and commissions for just such services. Other OTT projects envision repairing the Courthouse in al Hillah; building con- crete platforms for three radio and television broadcast towers; assessing the needs of fire department throughout the country; and designing more public works projects such as in al Thawra (ex-Saddam City). Infrastructure Restoration Since the President declared an end to major combat operations in Iraq on May 1, 2003, USAID's reconstruction efforts have focused on critical areas that will each contribute to substantial improvements in the lives of the Iraqi people. They are ports, airports, electricity, water, sanitation, health, education, and local govern- ance. Through a contract with Stevedoring Services of America (SSA), we have been up- grading facilities—silos, warehouses, and cranes—at Umm Qasr, Iraq's principal deep water port. Administration of the port was handed over to SŠA by the British on May 23. This is the first reconstruction project in Iraq to be transferred from military to civilian authority. In the days ahead, SSA will phase in over 3,500 local workers as managers, heavy equipment operators, maintenance and other workers and is working closely with the newly elected director general of the Iraqi Ports Au- thority on staff training and port revitalization issues. At the same time, Bechtel is rebuilding port administration buildings and ana- lyzing the adjoining rail system for repair. Meanwhile Bechteľs subcontractor, Great Lakes, has been dredging Umm Qasr since May 7 on a 24-hour, seven days a week basis. This is dangerous and difficult work: some 200 pieces of unexploded ordnance have been removed from the harbor and ten sunken vessels discovered in the har- bor. As a result of the dredging, the channel is now nine meters deep, and two ships, carrying 15,000 metric tons (MTs) of rice and wheat respectively, were un- loaded last week at Umm Qasr. Our goal is for the work to have progressed enough so that the port can handle ships carrying 50,000 MTs of food by the end of this summer. Through our contract with SkylinkUSA, preparatory work to upgrade Basra and Baghdad International Airport to international standards has been done, and we are aiming to have the latter opened by June 15. Restoring electric power is an urgent priority, a task made considerably more dif- ficult by acts of deliberate vandalism. On May 26, for example, two 400 KY towers were torch cut and hauled down, bringing the number of towers that have been damaged since the end of hostilities to 8. In other cases, substations essential to the restoration of power service have been totally destroyed by looters looking for copper wire and other scrap to sell on the black market. In parts of the north and south of the country, however, there is a surplus of elec- tricity. For the first time in more than a decade, Basra has electricity 24 hours a day, a marked improvement in the life of the country's second largest city. At the same time, electrical shortages continue in the center of the country. We are work- ing hard to rectify these problems. Bechtel has completed its assessments and we have approved task orders that will enable them to repair the 400 KVA and 135 KVA high voltage transmission lines. We are also funding new boilers for electrical generation plants. A further prob- lem is that much of the country's power generation depends on natural gas, diesel and bunker oil, which Saddam's regime failed to produce in sufficient quantities. With the lifting of U.N. Security Council sanctions and the gradual restoration of the country's oil field capabilities, this problem should ease. Another way Saddam punished the people of southern Iraq was by withholding chemicals to treat and purify drinking water. This contributed greatly to the unnec- essarily high death and illness rates, particularly among children and other vulner- able groups. USAID has begun addressing this by providing funds to UNICEF to purchase enough chlorine for 100 days of water treatment for the southern 38 governates of Al Muthanna, Al Basra, Dhi Qar, and Maysan. The International Res- cue Committee, acting on another USAID grant, will work to improve the rural water systems in 59 areas in An Najaf Governate. Other infrastructure work includes the restoration of bridges at Ar Rutbah, Al Ramadi, Mosul, and one just southeast of Baghdad. Health, Education, and Agriculture Initial evaluations of the health sector show that services have been disrupted and equipment, medicine, and supplies have been looted from some hospitals and warehouses. While there have been no major outbreaks of communicable diseases, the potential for such outbreaks remains a source of concern. USAID's goal in this sector is to meet urgent health needs as well as normalizing health services rapidly. To this effect, we have worked through UNICEF to supply 22.3 million doses of vac- cines to prevent measles, pediatric tuberculosis, hepatitis B, diphtheria, whooping cough, tetanus and polio. This is enough to treat 4.2 million children under the age of 5 as well as 700,000 pregnant women. We have also established a surveillance system with WHO, UNICEF, and ABT Associates to monitor cholera, worked with the Iraqi Director of Public Health on a diarrhea survey, established a database for tracking and coordinating inter- national medical donations, and helped prepare public service announcements about sanitation and breast feeding. In addition, we have made grants to CARE, Save the Children, the International Medical Corps, and World Vision for emergency health projects in Baghdad, Mosul, Basra, al Nasariyah, Maysan, Wasit, and Ar Rutbah, respectively. Our grant to ABT will enable them to address other medical needs, such as pharmaceuticals and equipment and coordinating donations of medical sup- plies. ABT will also work with the Iraqi Ministry of Health to improve their admin- istration of medical services throughout the country. In the education sector, we have launched a “back to school” campaign with UNICEF and delivered 1,500 school kits that helped 120,000 students in Baghdad return to their classrooms in May. Through a contract with Creative Associates, we have inventoried all 700 schools in Basra with the Ministry of Education, begun making grants to refurbish a number of schools there, and finalized plans to dis- tribute 8,000 school and student kits for Basra schools when the new school year starts in September. The next step is to do the same in Dhi Qar Governate. We are also funding UNESCO to print and distribute 5 million math and science texts on time for the beginning of the school year, and we are in the process of soliciting pro- posals to link U.S. colleges and universities with Iraqi institutions of higher learn- ing on various health, education, agro-industry, engineering, and other projects. A UŠAID technical advisor is also working with the Ministry of Education on ways to deliver sufficient equipment, material, supplies for the new school year. We are also about to launch a competitive procurement for assistance to Iraq's agriculture sector. This program will address issues such as increasing agricultural productivity, rural finance, and reducing water-logging and soil salinity. Stabilize the Population: Refugees, IDPs and Abuse Prevention The emergency humanitarian assistance and early reconstruction work cited above are only one part of USAID's overall strategy for Iraq. Stabilizing the ethnic and religious tensions within the country, resettling TDPs, and ultimately helping resolve some of the complex property disputes created during Saddam's 24 years of corrupt and abusive rule are important goals. Our first step began with the DART, which, for the first time ever, included spe- cialized abuse prevention officers. Our Agency has years of experience in post-con- flict situations. A priority for the DART was to identify key contacts with the U.S. armed forces, civil affairs units, the International Committees of the Red Cross, NGOs, the media, and local leaders and brief them on the kinds of lawlessness and human rights abuse that occur in the immediate aftermath of a conflict so that suit- able responses could be fashioned. As part of this effort, each of our abuse preven- tion officers distributed USAID's Field Guide to Preventing, Mitigating and Re- sponding to Human Rights Abuse, which was designed for just such situations. Another important goal of our abuse prevention officers was to identify mass grave sites. Iraq tragically has plenty of these sites: clerics have told us there are 146 of them in and around Najaf and another 29 in Karbala. The presence of mass graves is an important reminder of the nature of Saddam Hussein's regime. Other mass grave sites have been found near Musayeb, Kirkuk, Basra, Al Hillah, and else- where. Should any of Saddam's immediate circle be tried for major human rights abuse or crimes against humanity, the sites will be prima facie evidence. These abuse prevention officers are also monitoring the situation of IDPs in north- ern cities like Kirkuk, Dohuk, Zamar, and Domiz, where upwards of 100,000 Kurd- 41 Conclusion One of the strengths of USAID is our ability to enlist the American private sector in projects of great importance to the country. Neither we nor any other government agency has the expertise on hand that we have been able to bring on board through our relationships with the private sector in just the past two months. This was a major reason we were able to position enough supplies and technical expertise in the region to deal with a potential humanitarian crisis and start our reconstruction efforts quickly and aggressively. But if we are nearing the end of the emergency phase of our work, we are a long way from completing the reconstruction, for our goal is nothing less than the trans- formation of Iraq into a functioning, stable state that poses no threat to its own citi- zens or its neighbors and serves the interests of the Iraqi people. Rebuilding the physical infrastructure of the country is but one part of this. Helping the Iraqis build the institutions of an honest, democratic state that represents the broad spec- trum of Iraqi society at the local, regional, and nation level and a functioning, trans- parent economy based on the power of the private sector will be at least as impor- tant. We have no illusions that this will be quick or easy. The President and Sec- retary of State have made it clear that the United States is in this for as long as necessary. Thank you. The CHAIRMAN. Thank you very much. Let me just indicate that we will now have a question period in which we will have 7 min- utes on the first round so all can be heard. We may then need to proceed through additional questions. I would just say at the outset that this was an apropos comment made by my colleague Senator Biden as you were proceeding, and I agree with him. He said these gentlemen really mean business; we're getting somewhere. As a matter of fact, the testimony is im- pressive. I would commend to all of our colleagues the four papers you have presented plus the additional information you have fur- nished, because it does have a structural soundness to it, a tactical and strategic emphasis that I believe is very important for all of us to understand and to build upon. Sometimes people feel they are almost being harassed by our insistence. I think that we feel ex- cited that you are proceeding in so many ways and with such suc- cess. Let me just say that each one of you has played a role as part of the administration, and I once again mention Senator Biden's earlier quote about how he found it impressive that the President of the United States was meeting one on one with the leaders of the Arab world, expressing as a matter of fact that we are going to have success with the road map. Now skeptics of that process abound everywhere. They ask, are we really staying the course and is there longevity to this? My own judgment, at least from my knowledge of President Bush, is that there is. People will be sur- prised, as they will be, I think, with Iraq. We are now talking about a successful Iraq down the trail. You're saying we are going to take the time and spend the money and do the planning so that, as a matter of fact, in the war against terrorism, there will not be a nation out here harboring young men who fly airplanes into our World Trade Center or into our Pen- tagon, a nation that has seen a festering mass of difficulty for the last 20 years. As you have explained, the government not only tor- tured its own people and ran down its economy, but from time to time attacked others and used weapons of mass destruction against others. This is a matter of record. Now it's gone, what is coming in its place is what you're trying to describe. 43 ropean countries and countries in the Middle East. Those two things together will provide us with estimates. We also have people on the ground in Iraq going through records to estimate, trying to get a better sense of what the debt is. As soon as that is together, we are going to sit down and try to find a way to have what is necessary, and that is substantial re- duction in the value of the debt, and we will work on that coopera- tively. So far it seems to me that things are going better than I could have expected and it does show cooperation, but there are going to be differences of opinion amongst the various debtors. Dr. ZAKHEIM. Let me start with the answer to your second ques- tion, Senator, and I think Mr. Natsios may want to talk about this as well. In terms of the appropriated funds and how we look at those as opposed to the other funds, clearly there is a sense that if we are not paying monies directly to the Iraqi people, for exam- ple, funds to set up the original Office of Reconstruction and Hu- manitarian Assistance, ORHA, which has now been folded into the CPA, we have already spent or committed $250 million of appro- priated funds to setting up, or covering rather, the operational ex- penses. We spent or committed $175 million of appropriated funds for natural resources risk remediation, that's to remove unexploded ordnance and emergency repairs and so on. So these are the things that we spend money on or contract essentially to help ourselves administer or to do some things that we are really doing. When you then look at payments to Iraqis, for example, it makes a lot of sense not to tax the American taxpayer in effect by using appropriated funds to pay Iraqis when you have Iraqi funds to do so. So that is a general rule of thumb, and as I mentioned earlier, we have spent $195 million, of which we spent about, as I said, $30 million or so, a little less than that, on ministry start-ups. The rest were spent really through salaries, and we requested $258 million, again, overwhelmingly for salaries for Iraqis. The CHAIRMAN. That's very helpful. The business plans for Iraq still are not clear to me, and maybe not to you. You're still forming them, but at least you've put some pieces in, made some estimates regarding the oil revenues, made some decisions as to whether to pump more oil or not, and started to determine how much invest- ment is required for that and other sources of revenue. At some point these funds that are now impounded and have been found are going to be exhausted if they are not recurring, so in an ongoing procedure that goes on for months and years, the cash flow situa- tion here is important. We are trying to figure out for us at least, two people who are going to be voting on appropriations as they go down the trail, what we might anticipate for the American people. Therefore this is still, in my mind's eye, something that I would like to see fleshed out a little bit more. Likewise, the debt situation, as you say, maybe $70 billion, maybe $130 billion, maybe more than that. Some have made esti- mates; everybody is trying to divine what we think is owed there. All I'm saying is that to leave the Iraqi people facing all of that as the rest of us leave and say do your best, would be ridiculous. Having undertaken the responsibility of nation building in Iraq, we're going to have to build the debt structure to end it in one form or another, or there will be no viability after these cash flows that 45 Let me ask one question, Mr. Natsios. You mentioned the success in Basra, and I'm not being a wise guy when I ask this. Did we get the electricity on or was that the Brits? I mean, was it you guys, was it AID who did this, or the Brits? Mr. Natsios. I would like to give you any success story attrib- utable to us; however, it's almost never just one institution. It was the British Marines with their engineers, with UNICEF, UNICEF did some of the work, with AID, and DFID, which is the British aid agency, all worked together on this. Senator BIDEN. So you worked together on this. What I'm trying to get at, again, is expectations. Was the bulk of that led by AID? Mr. NATSIOS. No. It was led by the engineers. What we led with was funding, but that started before Bechtel arrived on the ground and before the contract was activated. They started that very early on and Bechtel has taken over much of that responsibility. Senator BIDEN. Now, let me ask Defense, you have given us a pretty detailed estimate of the resources that we can bring to bear right now to help build Iraq and as I listened I added it up, and it's about $15 billion now roughly, based on your statement, includ- ing congressional appropriations, Iraq assets, UN and international donations, and projected oil revenues. Add them all up in the near term, next 12 months roughly, and you're talking about $15 billion. What I still don't have a sense of from all this testimony here is what are the costs going to be over that same period of time, matching those revenues? Do we have an estimate of the cost? I'm just going to lay it out and any one of you can jump in, if you could speak to this. We're going to have, and I don't want to get into a debate about how long, but at least for the remainder of this calendar year, and my guess is the next fiscal year, we are going to have somewhere over 100,000 American troops in the re- gion and we're going to have probably close to 150,000 troops. I would like to know what the annual cost of maintaining just those troops is, which as I understand it is not being paid for out of any Iraqi assets frozen, any Iraqi assets in the future, any Iraqi assets at all. And although there will be contributions, God willing and the creek don't rise, from NATO forces and others to supplement those forces, there will be no in-kind contribution that I'm aware of to pay for the maintenance of those U.S. forces. So what is the cost of that, of our current deployment? [The following information was submitted by Dr. Zakheim on Au- gust 8, 2003 in response to Senator Biden's question:] Dr. ZAKHEIM. Based on current mobilization levels and projected demobilization schedules, the total estimated cost of maintaining the current mobilization and mili- tary operations now in Iraq is approximately $3.9 billion per month. However, pro- jecting annual costs out into the future cannot be done with any certainty at this point-and it may be misleading to suggest that any such estimate is valid. The drawdown of troops in support of Operation Iraqi Freedom is currently underway and will continue through next year. The U.S. Central Command's stability oper- ation plan for Iraq is still evolving to meet the dynamic situation within the coun- try. The number of troops and the pace of demobilization are still to be determined. Therefore the annual cost of supporting the troops cannot be estimated with any de- gree of certainty. And second, what are the additional cost estimates that we have in the near term, meaning the next 3, 6, 12 months, for all the things that you've talked about, and how do they match to reve- 55 where the water comes from, for the most part. There are also wells, but they're not in good shape either. So we are now in the process of taking the assessment we've done to determine the facilities that need rehabilitation or recon- struction first, and then the ones that are in reasonably good shape, we will do those last. And Bechtel will begin that process in terms of actually doing the reconstruction very shortly. Congress just released to us $234 million last week, and a good portion of that money will go into the Bechtel contract and they can begin construction in this area. We have improved the situation in Basra fairly dramatically over what it was before the war or during the war, but it still is no- where near where it should be. Senator CHAFEE. Thank you very much. You've painted a picture of an extremely impoverished country with no access to good drink- ing water pretty much, so I think that let's us know the magnitude of the task in front of us, what we have as we try to bring some stability and order to this country, starting with that. Moving, if I have the time, to the next precious liquid, the oil, and Mr. Larson, you said that their capacity at peak was 3.5 mil- lion barrels per day. Do we have some kind of goal, I've heard that Iraq has the second largest reserves in the world, known reserves in the world, as to what we want for price per barrel? If we're able to generate close to 3.5 and perhaps more in the near future, would that glut the market? And I suppose there are competing dynamics here. We'd like to have a lower price of gas here and help our econ- omy, but we also want a higher price per barrel to help the Iraqis. Do we have an idea of what we want for a price per barrel on the world market, and can we affect that in the years to come with con- trolling the second largest known reserves in the world? Mr. LARSON. I think in the short run our focus is very much on getting the existing capacity up as quickly as possible. Mr. Ghadhban, who is serving as the CPO, indicated last month that production had reached 800,000 barrels a day and he expressed hope that it could get up to 1.5 million barrels a day by the middle of this month. If so, that would be very good progress. He also said he'd like to see it approaching 2 million barrels a day by the end of the year and then be sustained at that level or somewhat above that level in 2004. We are in the first instance working very hard. The Iraqis and the Army Corps of Engineers are working very very hard to make sure that those sorts of goals can be met. I think that the decisions about whether to increase production well beyond the levels that had previously been possible in Iraq is something that a new representative Iraqi government is going to have to decide. For the purposes of my calculations, I used the fig- ure of $20 a barrel. It's a very rough guess. It represents the fact that Iraq produces a sour crude that sells at a discount of 3 to $4 dollars per barrel under other types of crude oil. I don't think that we should have a goal with respect to the price of oil. I don't think that we can or should try to aspire to be controlling it. There are lots of other factors, shifts in demand in many parts of the world, production from Russia, from Kazakhstan, from Venezuela, from West Africa, that all have a bearing on that. 58 million pledged in Brussels). If other countries do not make additional pledges, our overall share will rise. Senator SARBANES. Now, I would like to ask Mr. Zakheim. Sec- retary Rumsfeld said in a hearing before the Senate Appropriations Committee, and I'm quoting here: “Let me be clear. When it comes to the reconstruction, before we turn to the American taxpayer, we will turn first to the resources of the Iraqi government and the international community.” I'm interested, first of all, in ascertaining what are the resources of the Iraqi government to which he is referring. They are presum- ably seized Iraqi assets and oil revenues, I would like to know the magnitude of those. And secondly, he talks about the international community; what is he referring to? Dr. ZAKHEIM. I think that's right in terms of the Iraqi resources, it is the seized and the vested assets. Senator SARBANES. And how much is that? Dr. ZAKHEIM. As I said, the amount seized is roughly $800 mil- lion, it is actually $798 million right now. That is excluding gold that has been seized, and that is being assayed with the help of the Treasury Department and the U.S. mint, and we will know what the value of that is. In addition, as you heard earlier, the vested assets, that is, the monies that were essentially frozen in this country, total about $1.7 billion. So right there you have approximately $2.5 billion, which is about the equivalent of what the Congress gave us in appropriated funds. That gives you a rough sense of the proportions. Senator SARBANES. And the oil revenues? Dr. ZAKHEIM. That is over and above that, Senator. Senator SARBANES. How much do you have to spend to get the oil on line? I've heard a figure as high as $20 billion. Mr. LARSON. That's very exaggerated, Senator Sarbanes. The CEO of the oil ministry that's working on this is suggesting that it will take in the hundreds of millions of dollars to achieve the goals he set out for this year, that is, to get production up in the range of 1.5 million barrels per day sometime this month, and to 2 million barrels a day by the end of the year. Where you begin to get these very large numbers is when you begin to talk about actually increasing the baseline productive ca- pacity, going beyond where Iraq has ever been in the past. And that's where I believe that one is really talking about how much foreign investment can Iraq attract in order to increase its baseline capacity. Now there's a middle ground between 2 and some significantly larger number, and that is, what would it take to get them back to 3.5 million barrels a day. My testimony quotes Cambridge En- ergy Associates with a figure of $3 billion. It is a figure, I don't mean to endorse it, but it's sort of a reasonable estimate of what it could take to get to 3.5 million barrels a day. Senator SARBANES. My time is up, but I want to pursue just for a moment, Mr. Chairman. 59 There is a story in the Washington Post today entitled, “Iraq Is Ill Equipped To Exploit Huge Oil Reserves.” The story develops, in part, on the basis of a report by the Council on Foreign Relations, spelling out some figures. And this story is sort of miles apart from what we're being told from the witness table. Now, you know, maybe this is all wrong, but somehow we have to get to the point where we have a set of facts that people are more or less agreed upon in terms of being able to evaluate the situation. Mr. LARSON. Senator, I'll make two quick comments on today's story. First of all, with respect to the cost that it will take to get production up to the levels I indicated, 1.5 million barrels per day this summer, 2 million barrels per day by the end of the year, I put my faith in the people who are the ground actually assessing the physical state of the infrastructure. No one knew before they were able to get on the ground and take a look at these things ex- actly what had to be done and exactly what it would cost. Now the numbers that I have quoted to you today may turn out not to be right, but I think they are closer by a considerable degree than any estimates that were done at a desktop in New York. The other piece of this article that I think was confusing is that many of the comments were sourced to the French oil company Total, and they were talking about what needs to be done to get $5 billion or more new investment to develop new capacity. And those are important issues, but they are issues in my judgment that are not today's issues, they are issues that will only really be- come serious issues at the time we have a representative Iraqi gov. ernment that is in a position to decide whether they want to in- crease oil productive capacity beyond what it has ever been in the past. The CHAIRMAN. Thank you, Senator Sarbanes. Senator BIDEN. Can I ask for a point of clarification? Daniel Yergin, from Cambridge that you referred to, he told us in the meeting that you and I attended that it would take $5 billion, not $3 billion, to get to 3.5 million barrels per day. Your statement says $3 billion. We called to check. He said $5 billion, not $3 bil- lion. Mr. LARSON. If we misquoted the Cambridge study, we'll cer- tainly clarify it, but I think Daniel Yergin would agree that any of these estimates are very approximate, there's a range, but if his point estimate is 5, we then we should change our testimony. Senator BIDEN. Yes, but it's a 67 percent increase, or difference, so that's why I raised it. [A follow-up to Secretary Larson's response follows:] UNITED STATES DEPARTMENT OF STATE, Under Secretary of State for Economic, Business, and Agricultural Affairs, Washington, DC 20520-7512, June 11, 2003. Hon. RICHARD LUGAR, Chairman, Committee on Foreign Relations, U.S. Senate. DEAR SENATOR LUGAR: Thank you for allowing me to testify before the Foreign Relations Committee on economic restructuring in Iraq on June 4. As always, it was a pleasure to appear before the committee and to speak with you and your colleagues. I look forward to 29 COALITION PROVISIONAL AUTHORITY Counselors Administrator Chairman International Coordinating Council (CCC) CUTF-7 Military LNOS Deputy CCC Contributing Countries COS Intel (DIA) Director Humanitarian Affairs NGOS Military Aides/Personal Staff Executive Secretariat Operational Support Group Financial Oversight OCPA' CONUS General Counsel (State L) (State L, USAID) UN Specialized Agencies Director Oil Policy Director Civil Affairs Policy Director Security Affairs Director Press & Public Affairs Bremer as the key person in Baghdad. Taylor indicated, Peter McPherson is working with Ambassador Secretary Taylor may be able to amplify, but as Under Secretary Mr. LARSON. I will take the first crack at this and maybe Under is being prepared for Iraq. Who's preparing that budget? recall who, I think it was you, sir, indicated that a national budget Senator BIDEN. I appreciate that. Secondly, one of you and I can't Oil (DoE, DOS/EB, OSD) Information (NSC, OSD) Customs Enforcement (Customs) Immigration (INS) Director Interior Education (USAID) Foreign Affairs (State) Governance (State, UK) Health (USAID) Justice (DOJ, State/INL) Labor and Social Affairs (USAID) Director Director Director Economic AID Operations Policy DART (USAID) Reconstruction Supported (USAID) Commander Agriculture (USAID) Regional Advisors Central Bank (Treasury) Electricity (USAID) Senior Advisors Finance (Treasury) (Governor Housing & Reconstruction (USAID) Level) Industry & Minerals (DOD, CIA, State) GSTS Irrigation (USAID) Planning (State) Public Works (USAID) „Trade (State EB, DOC) Transport and Communication (State/EB, USAID, NSC) Police (DOJ) CMATT LNIC Industrial Conversion (DOD. CIA) Intelligence Conversion (DOD, CIA) MOD Religious Affairs (State/NEA) „Youth Financial Review Board 69 Dr. ZAKHEIM. Prior to the war, there were 23 ministries. As part of the restruc- turing of the Iraqi government, it is anticipated that four of these ministries will be dissolved due to their past history of abuses or misuse. These include the Min- istries of Intelligence, Information, Higher Education and Scientific Research, and the Military Industrialization Commission. Senator BIDEN. Are there ministries that you would consider functioning? Not that we should or shouldn't, I'm just trying to get a sense of what's on the ground. What ministries are up and run- ning now, if any, and which ones are the priorities to get up and running? Agriculture, you said is one. Can you tell us which ones? Mr. TAYLOR. I can tell you the Central Bank is up and running and that's important. These economic ministries we want to move very quickly on. Dr. ZAKHEIM. Regarding the Agriculture Ministry, they are bringing back the civil servants. Obviously the more senior the civil servants, the greater the problem; because these people got to the top as part of their connection to the old regime. Then there is a problem with just getting the buildings up to speed because some of them were destroyed. Senator BIDEN. I'm just trying to get a sense of the time line. January 1st is the date that every witness has basically said from the Defense Department on, that is really the time, though there was a lot of preliminary planning before that, the administration began to really focus on the reconstruction of Iraq after Saddam is gone. And one of the things that we had heard in this committee and in our private conversations at the White House as well as State and other places, was that there was a game plan that exist- ing ministries were going to be able to be preserved, if you will, be- cause there were very well educated civil servants who were com- petent, who were within those various ministries. And once you got rid of the bad apples at the top, so to speak, they would be able to get functioning relatively quickly. Or at least that was the expec- tation in November and December of last year—that we had as- signed counterpart persons from departments in the United States. So there were Department of Education people from the United States named and assigned to help get up and running the Depart- ment of Education, if there is such a department stand-alone in Iraq, and there were going to be some from the Department of Ag- riculture, et cetera. So we were going to take American personnel who were going to be the de facto ministers functioning, getting these agencies up and running. I would like, since my time is up, for the record, to know what ministries there are that you believe that are, that exist in Iraq, what American counterpart personnel by name have been assigned to those ministries, what their functions are, and what the needs that remain are as you're assessing them now, so that we get, or at least I get a sense of how this is going to be stood up, how we're going to deal with this. I know my time is up, but I would also ask Mr. Natsios, for the record, you had identified on February 19th, in a vision statement, benchmarks and a range of sectors in Iraq for reconstruction. If you could update those for us, it would be very very helpful. And I real- ize this does not cover the problem we would all agree is maybe the most important thing that's going to hold it all together, what 70 the transition government is going to be and who is in charge of doing that and how that will be stood up, et cetera. But one of the big pieces is the reconstruction of the justice sys- tem. Who would be the person, if we wanted to get the most knowl- edgeable person in the administration to talk about the state of the existing Iraqi justice system, what plans we have, preliminary or otherwise for reforming or getting that system functioning, who is the person we should talk to? Who do I pick up the phone and call? I'm not being facetious now. I'm trying to get a sense of who is in charge of the justice system, the justice department for Iraq. Mr. NATSIOS. Can I answer your earlier question, Senator? Senator BIDEN. Yes, you can. Does anybody have a name for who that person is? Okay, so we don't have it. Mr. Natsios. Mr. Narsios. There is someone, I just don't know his name. Senator BIDEN. Oh, okay. Mr. NATSIOS. We were asked to make functional, and when I say functional, many of these ministries were looted and so there was nothing there. We were given a list of the five essential ministries, five or six, one of them was the Central Bank, which is not a min- istry. Senator BIDEN. Can you tell me what they are? Mr. NATSIOS. Justice, finance, trade. Now, I will explain why trade is important. Irrigation and agriculture, and the Central Bank. There is, I think one more, I just can't recall from my mem- ory what the other one is. What we were asked to in AID, and we have done, is put to- gether what we call—and we did this is Bosnia, Kosovo, Afghani- stan-ministries in a box. We buy the computers that are put in the network through the whole system, we put up the electric lights. Many of the ministries in Kabul had the roofs blown off, so we repaired the buildings. We bought fax machines, we made the phone system functional, all of the office equipment that you need to communicate. The materials you need, the desks and that sort of thing. We repaired the buildings so people could function in them. And so, that's one thing we did. The second thing we did is through our contracts put in place, if it was necessary, the training of people in certain disciplines. Now, there is a controversy in the education ministry. We went in and said we really are not enthused about the way in which sub- jects are taught in schools, highly authoritarian, very propa- gandistic, a problem with textbooks, the way the teachers were trained. So we went in and said we want to retrain your teacher force, which is one of our benchmarks. The initial response was we don't need any retraining, we like this the way it is. We said well, we don't like it, and we're going to work with you. We had a long debate and once the senior people were removed, the people at the school level said we want the training, help us. So we're now at the point where we're designing a curriculum to retrain the teachers, and the mid-level people who were not really drawn into the Ba'athist party. So that's the capacity building part of our job. We don't appoint the people who run the ministries, that is another division of CPA that Ambassador Bremer appoints, and they report to him, but we 74 to make that our first mass employment program. We employed 16,000 people, I think it was $2 a day, to begin a mass cleanup of the area. It was a huge morale boost for the city, which had been completely neglected for a very long period of time. I think 180 trucks left with the garbage and the trash and the refuse from years on the first day alone, and there has been this very big com- munity uplift that has taken place there. I think we are in four other neighborhoods now of the city, and we will be extending these mechanisms throughout the country in order to get particu- larly younger men off the streets. Senator HAGEL. And this includes former military? Mr. NATSIOS. It does, but it's not the officers. We don't employ those people, and they tend not to want to do a lot of physical labor; I just wanted to say that. Senator HAGEL. Thank you very much. Dr. ZAKHEIM. Senator, just to add and amplify, because of your question, we in fact have in the solicitation phase, which means we are very early on, we are soliciting contracts for retraining and re- shaping the Iraqi military. Now again, it is early, we are just solic- iting the contracts. By the way, in response to an earlier question, while we did have sole source contracts before, the new contracts are all being competed because the kind of FAR regulations that justify sole source as a compelling activity, are not as applicable now. So we are soliciting contracts, we are going to compete on those contracts, and that will include developing, retraining and supplying the army. Obviously it is too soon to determine who will actually be brought in, but there is a process in train that goes hand in hand with what AID is doing. Senator HAGEL. Thank you. The CHAIRMAN. Thank you, Senator Hagel. Senator Sarbanes. Senator SARBANES. Thank you, Mr. Chairman, I just have a cou- ple follow-up questions. I'm glad we clarified this level of the military. I was very much taken aback when I arrived at the hearing to hear Senator Hagel asking you about that and being told that the figure was classified. I take it that means that you were not aware either of Secretary Rumsfeld's statement or those of Deputy Secretary Wolfowitz be- fore this subcommittee; is that correct? Dr. ZAKHEIM. At the risk of saying it is not correct, it is not cor- rect. As I mentioned when I answered the original question, the numbers change. I had seen a number on a classified chart. I did not feel that I could reveal that. I checked that, and the numbers I provided, 146,000 for us and 13,000 for the British, 146,006 actu- ally, are as of yesterday, so that is the most up-to-date number. I wish again to emphasize I was not trying to obfuscate or fail to give a straight answers to straight questions. Senator ŠARBANES. How can we avoid drawing that conclusion when we have both the Secretary of Defense and the Deputy Sec- retary of Defense publicly giving us figures and then have you come in and say that the figure is classified? Dr. ZAKHEIM. Again, because the number I saw, and the numbers do change daily, was on a classified chart. I gave you the number as of yesterday.