Statement by Benon v. Sevan Executive Director

Office for the Iraq Programme
September 25, 2002

This is an excerpt regarding revenues and oil pricing. To read full statement

Mr. President,

We have already made available to the members of the Council, last Friday, a Note by the Office of the Iraq Programme, dated 19 September 2002, which reviews and describes developments in the implementation of the humanitarian programme in Iraq pursuant to resolution 986 (1995), since the last Note, dated 24 May 2002, which I presented to the Council on 29 May 2002, covering Programme implementation under phase XI. The present Note is being submitted, as agreed by the Council at its informal consultations on 29 May 2002, in lieu of the written 90-day report pursuant to paragraph 1 of resolution 1409 (2002) of 14 May 2002.

In view of the information provided in the Note, describing developments in the implementation of the Programme, I should like today to focus on the serious difficulties faced in the effective implementation of the programme due to the growing revenue shortfall. I should also like to provide the Council with an update on the implementation of the revised procedures for the review and approval of applications for humanitarian supplies and equipment pursuant to resolution 1409 (2002).


I should like to reiterate what I said during my briefing to the Council at its informal consultations held on 29 May 2002: "Irrespective of improvements in procedures, including those recently adopted by the Council in resolution 1409 (2002), without the necessary funds available in the escrow account it will be impossible to implement the humanitarian programme effectively."

The effective implementation of the Programme during the past year has continued to face a number of difficulties, foremost, a growing revenue shortfall as a result of substantial reduction in Iraqi oil exports under the Programme. The level of oil exports has dropped from an average of over 2 million barrels per day in the year 2000, to under one million barrels per day in recent months. Assuming a sustainable rate of export of 2.1 million barrels per day, between 1 June and 15 September, $3.2 billion in revenue has been lost, as a result of reduced levels of oil exports in this phase alone.

The Government of Iraq has budgeted the humanitarian programme for the current phase XII at over $5 billion. In order to make that amount available to the Programme, after the necessary deductions pursuant to relevant resolutions of the Security Council, Iraq would have to export about $7 billion worth of oil during the present phase. Unless there is a substantial increase in the level of oil exports, it is now estimated that total revenue during the current phase would be at about $4.2 billion. After the deductions pursuant to the relevant resolutions of the Security Council, only about $3.01 billion will, therefore, be made available for the implementation of the Programme, thus further compounding the dire funding shortfall.

The situation is further exacerbated by the cumulative revenue shortfall from earlier phases, which has left over $2.3 billion worth of contracts for various humanitarian supplies approved by the United Nations, for which no funds are available. Based on the above estimates, accordingly, about $700 million would be available during the current phase, ending on 25 November 2002, to finance additional humanitarian contracts. Currently, $834 million is available in the United Nations Iraq Account, of which $734 million is reserved to fund applications for special allocations and $100 million for oil industry equipment.

Several factors have contributed to the drop in the volume of Iraqi oil exports under the Programme, including, inter alia: Iraq's periodic unilateral suspension of its oil exports - such as the suspension of oil exports for 30 days during the previous phase, which resulted in over $1.2 billion in lost revenue – and the continued absence of an agreement between the Government of Iraq and the Security Council Committee (the 661 sanctions committee) on the manner in which the price of Iraqi crude oil is set - the Committee has been pricing Iraqi oil retroactively amidst market reports of Iraq's demands for surcharge payments from its buyers – as well as concerns by traders over the reliability of uninterrupted Iraqi oil supplies and/or possible disruptions as a consequence of political developments.

Programme implementation under the ESB (59 per cent) account is further compounded by the failure of the Government of Iraq to make the necessary adjustments to the budgetary allocations contained in the distribution plans more realistically in line with available oil revenues during each phase. The Office of the Iraq Programme has repeatedly recommended to the Government of Iraq to keep under constant review the funding levels and revise downwards the allocations contained in the distribution plans, ensuring as well the availability of necessary funds to various sectors. Regrettably, instead of revising downwards, the Government has continued to revise upwards the allocations contained in distribution plans, even during the present phase, mostly in favour of sectors, which are already fully funded.

Annex I to the text of my present statement provides information on the comparative sectoral funding allocations for phases I to XII, as at 20 September 2002.

An encouraging development during the past week, ending 20 September, has been the notable increase in the level of oil exports to the average of 1.9 million barrels per day, as compared with the average of about 371,000 and 910,000 barrels per day, respectively, during the week of 31 August to 6 September 2002 and the week of 7 to 13 September, amid industry reports that the surcharge has been removed. The average rate of oil exports during September to date is 1.09 million barrels per day, compared with the average rate of 778,000 barrels per day in August.

Assuming a rate of about 1.1 million barrels per day until the end of the present phase on 25 November 2002, the level of the total revenue could reach $4.6 billion, at current prices. Should the rate of exports increase to 1.5 to 1.8 million barrels per day, the total revenue could reach between $5.3 billion and $5.8 billion. Even with a rate of exports of 2 million barrels per day until the end of the present phase, the revenue generated would reach only $6.1 billion, which would still be insufficient to fund all the requirements envisaged in the distribution plan for the present phase.

It is our understanding that the major traders are focusing their attention on the future of what has come to be known as the retroactive pricing of Iraqi oil. Accordingly, I should like to reiterate my appeal to the Government of Iraq to be forthcoming in order to resolve the continuing disagreement over the pricing of Iraqi oil in order to resolve the difficulties encountered in improving the critical funding situation. I should also like to reiterate my appeal to the members of the Security Council Committee to be forthcoming and take the necessary and appropriate actions, in response to positive measures, which the Government of Iraq may take in that regard.

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