SECURITY COUNCIL APPROVES PURCHASE OF OIL-PRODUCTION EQUIPMENT ALLOWING IRAQ TO MEET 'OIL-FOR-FOOD' GOALS

Press Release
SC/6533

SECURITY COUNCIL APPROVES PURCHASE OF OIL-PRODUCTION EQUIPMENT ALLOWING IRAQ TO MEET 'OIL-FOR-FOOD' GOALS

Noting that under existing circumstances Iraq is unable to export petroleum or petroleum products sufficient to produce $5.256 billion worth of oil, referred to in resolution 1153 (1998), the Security Council this afternoon authorized States to export necessary equipment to allow Iraq to meet that sum.

In its unanimous adoption of resolution 1175 (1998), the Council was convinced of the need to continue the "oil-for-food" programme authorized by resolution 1153 as a temporary measure, to provide for the humanitarian needs of the Iraqi people until fulfilment by Iraq of the relevant resolutions. Under paragraph 2 of that resolution, the Council authorized the sale of $5.26 billion worth of oil.

Acting under Chapter VII of the Charter, the Council requested the Committee established by resolution 661 (1990) to approve contracts for the oil-producing equipment needed for each individual project. It also decided that up to $300 million of the escrow account may be used to meet any expenses determined by the Committee related to the export of such equipment.

Also by the text, the Council decided that the expenses directly related to oil exports may be financed by letters of credit drawn against future oil sales. The proceeds of those sales were to be deposited in the escrow account. It noted that the distribution plan approved by the Secretary-General on 29 May, or any new plan agreed by the Government of Iraq and the Secretary-General, distribution plan agreed by the Government of Iraq and the Secretary-General, will remain in effect for each subsequent periodic renewal of the oil-for-food programme.

By the resolution, the Council also requested the Secretary-General to provide for the monitoring of the parts and equipment inside Iraq.

The meeting, which convened at 12:37 p.m., was adjourned at 1:06 p.m.

Council Work Programme

The Security Council met this afternoon to consider the situation in Iraq. It had before it two letters from the Secretary-General. The first letter (document S/1998/330) concerned the need to permit Iraq to import the equipment required to increase export of petroleum or petroleum products. The second letter (document S/1998/446) transmitted the enhanced distributed plan, submitted by the Government of Iraq, for the purchase and distribution of humanitarian supplies for a new 180-day period established by the Council on 20 February 1998 (resolution 1153 (1998)).

The letter dated 15 April from the Secretary-General to the Council President (document S/1998/330) transmits the executive summary of the report of the group of experts established pursuant to the provisions of Council resolution 1153 (1998). By that resolution, the group was asked to determine, in consultation with the Iraqi Government, the current export capacity of oil and petroleum products, and also to assess the potential for increased exports of oil and petroleum products. The group of six experts -- each with a specific oil industry background -- visited Iraq from 12 to 22 March 1998 and were accompanied by two United Nations oil overseers. The full report of the group of experts was being made available to the members of the Council.

After the adoption of resolution 1153 (1998), the Secretary-General states the Government of Iraq claimed it could not guarantee its capacity to increase oil production in order to realize the maximum sum of $5.256 billion indicated in the resolution. According to the Government, assuming that the requirements for spare parts and repairs were met, the new sum would not exceed $4 billion, and it was highly probable that it would be between $3.5 billion and $4 billion. Thus, the Secretary-General recommends that the Council authorize the export to Iraq of the equipment necessary to enable Iraq to increase export of petroleum or petroleum products. The total cost of the spare parts and equipment needed was estimated at $300 million. Of that total, $210 million would be for "upstream" requirements to increase production, and $90 million would be dedicated "downstream" operations. The downstream operation comprises the operation from refinery to consumer.

In order to expedite the approval process for the spare parts and equipment, the Council was also asked to consider authorizing the United Nations oil overseers to approve contracts for spare parts, once the list was reviewed and finalized by the Security Council Committee -- established under resolution 661 (1990) to monitor the implementation of sanctions against Iraq. The procedures used would be the same currently applied for oil contracts. In addition, an effective monitoring of spare parts -- from approval to delivery in Iraq, storage and utilization -- would be ensured. Should the Council accept that recommendation, the Secretary-General would submit to the Security Council Committee details for the monitoring of spare parts inside Iraq.

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The Secretary-General also recommended that the Council decide to authorize States to permit the import of up to $4 billion in Iraqi petroleum and petroleum products in the next 180-day period under the "oil-for-food" resolution 986 (1995). That authorization would be made on the understanding that as and when the increased funds became available, they would be used on a priority basis, according to the approved enhanced distribution plan prepared by the Government of Iraq. In addition, the Council might decide to review the level of the sum authorized during its interim review of the Secretary- General's report, to be submitted 90 days after the start of the new period. The Council could also take into account the progress made in the ordering and arrival of spare parts and repairs.

According to the group of experts, Iraqi oilfields have had their productivity seriously reduced, some irreparably, during the past two decades. The oil processing and treatment facilities, refineries and storage terminals in the country have been damaged and continued to deteriorate. The group of experts strongly doubted that the production profile of 3 million barrels per day, as projected by the Government, would be sustainable for the period envisaged. Without the concurrent expenditure on spare parts and equipment, a sharp increase in production would severely damage oil-containing rocks and pipeline systems, and would be against accepted principles of "good oilfield husbandry".

The experts state that only $3 billion in revenues could be achieved during a 180-day period, starting in June, provided the spare parts required were ordered immediately. That amount was based on the current average price of $10.50 per barrel for Iraqi crude oil, and on the existing export capacity of 1.6 million barrels per day. During a 180-day period starting in December, Iraq could export 1.7 million barrels a day, generating $3.9 billion based on a price of $12.50 per barrel.

The two United Nations oil overseers who accompanied the group of experts agreed that the request by the Iraqi Ministry of Oil for $300 million for spare parts was reasonable and that it reflected only the most essential and urgent needs of the country's oil industry. The group of experts was carrying out a comprehensive review of the list of spare parts provided by the Government with a view to fully verifying the price, delivery time and relevance of all the items concerned. Once the review has been completed, copies of the list, including comments by the experts, would be made available to the Security Council Committee.

One major constraint to increased oil production was that the transportation system and intermediary storage within Iraq were compromised and needed repairs, the experts state. Another constraint was the need for proper coordination of loading schedules at the offshore terminal at Mina Al-Bakr supported by efficient and reliable tugboats and mooring boats. Additional significant issues were the degradation of the 40-inch pipeline and major losses in pumping capability.

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By the letter dated 29 May (document S/1998/446), the Secretary-General transmits the enhanced distribution plan submitted by the Government of Iraq.

The Secretary-General states that he had informed the Government of Iraq of his approval of its enhanced distribution plan for the purchase and distribution of humanitarian supplies for a new 180-day period under the "oil- for food" programme, established by Council resolution 1153 (1998). That new period was to begin at 00.01 hours, Eastern Standard Time, on the day after the Council was informed of the Secretary-General's approval. The implementation of the plan would be governed by resolutions 986 (1995) and 1153 (1998) and the Memorandum of Understanding concluded on 20 May 1996 between the United Nations and the Iraqi Government, and would be without prejudice to the procedures followed by the Committee established by resolution 661 (1990).

The Iraqi eight-part document contains plans for the following sectors: food; medicine and medical equipment and supplies; water and sanitation; electricity; agriculture; education; and oil. In addition, the enhanced distribution plan includes a section on infrastructure support for the food, nutrition, agriculture and health sector and telecommunications plan.

According to the plan, a total of $3 billion shall be available to meet the humanitarian needs of the people of Iraq. The plan allocates $1.113 billion for the food sector. The general food "basket" would be enhanced by an increase in calories and protein. Animal protein, such as dried milk, would contribute 8.4 per cent of total protein, which is an improvement over the last ration.

The Plan allocates $180 million for the food sub-sector for spare parts and equipment, the text states. That would facilitate the storage and transportation of foodstuffs, grainmilling, as well as delivery to the consumers. Of that total, $30 million will be allocated to meet the current needs for the transportation and delivery of the imported goods through the provision of trucks and repairing the railway network.

A total of $308 million is allocated to the medical services sector, the plan states. Of that amount, 60 per cent is for the import of required items for the rehabilitation of hospitals and health centres, and 40 per cent for the import of medicines. The plan also allocates $46 million for the three northern governorates -- Dohuk, Erbil and Suleimaniyah.

According to the plan, the rehabilitation requirements for the water and sanitation system are estimated at over $500 million. Due to limited funds, the plan allocates $210 million for that sector, of which $60 million is for Baghdad, which serves 6 million people. Of the remaining amount, $114.5 million is for the remaining governorates and $35.5 for the three northern governorates.

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To address the minimum requirements of the electricity sector, the plan allocates $411 million, the text states. Of that amount $123.5 million is for the three northern governorates. The amount allocated will be used largely for enhancing power generation.

The plan states that the rehabilitation requirements in the agricultural sector are enormous. That sector will receive $250 million to meet the basic needs, of which $80 million is for irrigation pumps, equipment for drilling wells and the operation and maintenance of irrigation projects. The balance of $170 million will be used for agriculture. The agriculture sector in the three northern governorates would receive an additional $57 million.

The needs of the primary and higher education sectors include the rehabilitation of school buildings, laboratory equipment and other educational supplies, the text states. That sector will receive $100 million.

The settlement rehabilitation programme in the three northern governorates is aimed at those who required immediate support to enable their permanent resettlement, the plan states. A total of $55 million is allocated for that sector.

According to the plan, an estimated 20 per cent of arable land in the three northern governorates cannot be cultivated because of landmines. The implementation of humanitarian programmes are also being hampered by the lack of access to certain areas. The plan allocates $11 million to the mine- clearing programme.

A viable telecommunications systems was integral to the successful implementation of the "oil-for-food" programme, the plan states. A total of $150.5 million is provisionally allocated to that sector, with $10 million of that for the three northern governorates.

The responsibilities of the oil sector include all the stages of production, including conducting and monitoring oil deposits, maintenance, rehabilitation and operation of production and export systems, the plan states. Due to the limited funds available, the need in that sector is reduced to $210 million for minimum requirements. An additional $90 million is allocated to meet the humanitarian needs of the Iraqi people, and to provide urgently needed equipment to power stations.

An annex to the Secretary-General's letter contains a letter dated 29 May to the Representative of Iraq from the Executive Director of the Office of the Iraq Programme, Benon Sevan. Mr. Sevan says the Secretary-General's acceptance of the enhanced distribution plan does not constitute an endorsement of either the budgetary allocation for telecommunications or of the specific items listed in the plan regarding infrastructure support. While there might be a need for telecommunications improvements to facilitate the

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distribution of humanitarian supplies exported to Iraq, the Secretary-General would await the outcome of a joint technical review, by experts from the United Nations and the Government of Iraq, before taking a decision on the proposals concerned.

He goes on to note that a categorized list of supplies and goods to be purchased and imported under the plan contains certain items the export of which to Iraq, are subject to monitoring because of their possible dual use for civilian and prohibited purposes under Security Council resolution 687 (1991) and other relevant resolutions. The approval of the enhanced distribution plan submitted by Iraq does not necessarily constitute an endorsement of all information or statements contained in the plan.

Draft Resolution

The Council had before it a draft resolution (document S/1998/537), sponsored by Costa Rica, Japan, Portugal, Slovenia, Sweden and the United Kingdom, the text of which reads as follows:

"The Security Council,

"Recalling its previous relevant resolutions and in particular its resolutions 986 (1995) of 14 April 1995, 1111 (1997) of 4 June 1997, 1129 (1997) of 12 September 1997, 1143 (1997) of 4 December 1997, 1153 (1998) of 20 February 1998 and 1158 (1998) of 25 March 1998,

"Welcoming the letter of the Secretary-General of 15 April 1998 (S/1998/330) annexing the summary of the report of the group of experts established pursuant to paragraph 12 of resolution 1153 (1998) and noting the assessment that under existing circumstances Iraq is unable to export petroleum or petroleum products sufficient to produce the total sum of 5.256 billion United States dollars referred to in resolution 1153 (1998),

"Welcoming the letter of the Secretary-General of 29 May 1998 (S/1998/446) expressing his approval of the distribution plan submitted by the Government of Iraq,

"Convinced of the need to continue the programme authorized by resolution 1153 (1998) as a temporary measure to provide for the humanitarian needs of the Iraqi people until fulfilment by the Government of Iraq of the relevant resolutions, including notably resolution 687 (1991) of 3 April 1991, allows the Council to take further action with regard to the prohibitions referred to in resolution 661 (1990) of 6 August 1990 in accordance with the provisions of those resolutions,

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"Reaffirming its endorsement, in paragraph 5 of resolution 1153 (1998), of the recommendations of the Secretary-General in his report of 1 February 1998 (S/1998/90) concerning an improved, ongoing and project-based distribution plan,

"Reaffirming also the commitment of all Member States to the sovereignty and territorial integrity of Iraq,

"Acting under Chapter VII of the Charter of the United Nations,

"1. Authorizes States, subject to the provisions of paragraph 2 below, to permit, notwithstanding the provisions of paragraph 3 (c) of resolution 661 (1990), the export to Iraq of the necessary parts and equipment to enable Iraq to increase the export of petroleum and petroleum products, in quantities sufficient to produce the sum established in paragraph 2 of resolution 1153 (1998);

"2. Requests the Committee established by resolution 661 (1990), or a panel of experts appointed by that Committee for this purpose, to approve contracts for the parts and equipment referred to in paragraph 1 above according to lists of parts and equipment approved by that Committee for each individual project;

"3. Decides that the funds in the escrow account produced pursuant to resolution 1153 (1998) up to a total of 300 million United States dollars may be used to meet any reasonable expenses, other than expenses payable in Iraq, which follow directly from contracts approved in accordance with paragraph 2 above;

"4. Decides also that the expenses directly related to such exports may, until the necessary funds are paid into the escrow account, and following approval of each contract, be financed by letters of credit drawn against future oil sales, the proceeds of which are to be deposited in the escrow account;

"5. Notes that the distribution plan approved by the Secretary-General on 29 May 1998, or any new distribution plan agreed by the Government of Iraq and the Secretary-General, will remain in effect, as required, for each subsequent periodic renewal of the temporary humanitarian arrangements for Iraq and that, for this purpose, the plan will be kept under constant review and amended as necessary through the agreement of the Secretary-General and the Government of Iraq and in a manner consistent with resolution 1153 (1998);

"6. Expresses its gratitude to the Secretary-General for making available to the Committee established by resolution 661 (1990) a comprehensive review, with comments by the group of experts established pursuant to paragraph 12 of resolution 1153 (1998), of the list of parts and

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equipment presented by the Government of Iraq, and requests the Secretary- General, in accordance with the intention expressed in his letter of 15 April 1998, to provide for the monitoring of the parts and equipment inside Iraq;

"7. Decides to remain seized of the matter."

QIN HUASUN (China) said the "oil for food" programme should not be a substitute for or a means of delaying the lifting of sanctions on Iraq. The programme was meant to meet the humanitarian needs in the country. The current draft before the Council was only a technical resolution and some parts of it were not necessary. However, in order to speed the import of equipment as soon as possible, his delegation would support the resolution. The import of spare parts should be realized as soon as possible.

CELSO LUIZ NUNES AMORIM (Brazil) said he hoped that the resolution would allow the smooth implementation of the "oil-for-food" programme. It was a balanced text that did not create unnecessarily cumbersome procedures. The draft was meant to address the very serious humanitarian situation in Iraq and it came at a time of enhanced cooperation between the United Nations and Iraq.

BABOUCARR-BLAISE ISMAILA JAGNE (Gambia) said the adoption of the resolution gave authorization for the purchase of the spare parts that would enable Iraq to produce oil in sufficient quantities to meet the shortfall of the target of $5.256 billion. The oil for food programme was designed to alleviate the suffering of the Iraqi people, and it had been, to a large extent, functioning smoothly, and, contrary to the growing fears in some quarters, the programme was conceived as a temporary measure. The approval of the distribution plan already submitted by Iraq, and the subsequent approval for the purchase of the necessary spare parts and other equipment would go a long way towards improving the overall humanitarian situation in Iraq. The exemplary cooperation between Iraq and the United Nations on the oil-for-food programme was very healthy. Gambia would vote in favour of the draft resolution.

NIGUNA MAHUGU (Kenya) said the provisional and temporary nature of the oil-for-food programme was neither in doubt nor being questioned. The programme must come to an end as soon as all provisions of resolution 687 (1991) were implemented. The mechanism for the approval of contracts for spare parts was not fully addressed in the text. The procedure spelled out in the resolution remained cumbersome and might unnecessarily complicate what the Secretary-General intended as a straight-forward procedure to address a severe hindrance to the success of the humanitarian programme. There continued to be a humanitarian crisis in Iraq which must be urgently addressed. Kenya would join in the consensus and vote in favour of the draft resolution in hope that the action would help alleviate the humanitarian situation.

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JASSIM MOHAMMED BUALLAY (Bahrain) said his country supported all measures that would speed efforts to address the humanitarian situation in Iraq. The draft today would not make the oil-for-food solution a permanent one. It was instead a programme to mitigate the suffering of the Iraqi people and the embargo should be removed once Iraq fulfilled its obligations under Council resolutions. The resolution would allow Iraq to update its oil- producing facilities so it could increase production.

ALAIN DEJAMMET (France) said the text was the welcome outcome of difficult negotiations. It respected the principles of the oil-for-food programme and reflected the new spirit of cooperation between Iraq and the United Nations, which was strengthened by the Secretary-General and the Memorandum of Understanding. The humanitarian programme should continue in Iraq until the lifting of the embargo. It was also essential to avoid any danger of there being a gap in the supply of humanitarian goods to Iraq. The objective of the resolution was intended to allow Iraq to increase oil distribution. It was important that no measures be taken that would jeopardize any expansion of the provisions of the "oil-for-food" programme. That expansion was necessary if the Council was to avoid any further deterioration in the humanitarian situation of Iraqis. Humanitarian aid needed to be increased to meet the immediate and essential needs of the Iraqi people. The programme however was only a temporary measure. It was hoped that the new resolution would be followed by a swift lifting of the embargo once the United Nations Special Commission (UNSCOM) decided that Iraq had fulfilled its obligations.

BILL RICHARDSON (United States) said his Government supported the draft resolution before the Council. It authorized the export to Iraq of the spare parts and equipment necessary to refurbish the country's oil infrastructure. The draft text would allow Iraq to increase its capacity to export oil, and was consistent with the Secretary-General's recommendations for humanitarian assistance to Iraq. In addition, it would ensure that the genuine humanitarian needs of all of Iraq's people were met.

He went on to say that the purpose of the draft resolution was to implement the recommendations contained in the Secretary-General's report of 1 February, which was endorsed by Council resolution 1153 (1998). It eliminates the expensive and time-consuming requirement of rewriting the distribution plan every few months. If new distribution plans were required, the resolution ensured that there would be no gaps. Therefore, there would be no more excuses for a lack of oil sales for humanitarian assistance for the Iraqi people. The United States considered the draft resolution a humanitarian victory, and the winners were the people of Iraq.

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Action on Draft

The Council then adopted unanimously resolution 1175 (1998).

SERGEY LAVROV (Russian Federation) said the speeding up of United Nations humanitarian operations in Iraq required the adoption of urgent measures to rehabilitate the Iraqi oil industry. That work must be done in accordance with resolution 1153 (1998) and the distribution plan approved by the Secretary-General. Any additional resolutions must be based on the Secretary-General's recommendations contained in his letter dated 15 April. The humanitarian programme for Iraq was a temporary measure. Permanent measures for the Iraqi people could only be taken after the sanctions against that country were lifted.

It was important to ensure that the resolution did not change existing procedures for approving the distribution plan, he said. For each new phase of the operation, the Iraqi Government must submit a draft for a new plan to be approved by the Secretary-General. That procedure stemmed from the resolution just unanimously adopted by the Council. There was a new spirit of cooperation that existed between Iraq and the United Nations due to the Secretary-General's last visit to Baghdad. The resolution allowed for consideration of an item on spare parts contracts by the Security Council Committee. Although the resolution was not ideal, and constructive work on its improvement might have continued, the Russian Federation had joined the consensus.

STEPHEN GOMERSALL (United Kingdom) said his Government was glad that a consensus had been achieved on the resolution. The support for the resolution reflected a common wish that the objectives of resolution 1153 (1998), which more than doubled the humanitarian programme for the Iraqi people, were met. The resolution provided a basis for an increase in volume and continuous operation of the programme, as long as it was needed. It also fulfilled the wish of the Secretary-General for rapid approval of the contracts necessary to upgrade the Iraq oil programme. The cooperation of the Government of Iraq was vital for the oil-for-food programme to continue. Iraq would hopefully cooperate fully with the Secretary-General to meet the objectives of humanitarian programmes.

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