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Forward: letter from Kofi Annan to Security Council about oil spare parts



Letter from the Secretary-General to the President of the Security
Council pursuant to resolution 1210 - regarding provision of oil spare
parts and equipment to Iraq.

NOTE: In January, spare parts for oil were accepted (see previous e-mail
- imports and exports under Phase V).

Extracts:

'The group of experts estimates that approximately 20 per cent of those
wells are irreparably damaged.' 

'The implementation of the humanitarian programme has also been
adversely  affected by the substantial drop in the price of oil in
recent months, resulting in a shortfall of over $1 billion out of the
$3.1 billion required for the  implementation of the distribution plan
under phase four.'

http://www.un.org/Depts/oip/reports/sgoil.html#S/1998/1233
for more info on the humanitarian programme see:
http://www.un.org/Depts/oip/

------------------------
S/1998/1233
29 December 1998

His Excellency
Mr. Jassim Mohammed Buallay
President of the Security Council
New York

Dear Mr. President,

Pursuant to paragraph 9 of Security Council resolution 1210 (1998) of 24
November 1998, I have the honour to submit a detailed list of parts and
equipment necessary for the purpose described in paragraph 1 of
resolution 1175 (1998).

In order to help prepare the above-mentioned list, I dispatched a group
of four experts to Iraq. The experts were provided by Saybolt Nederland
BV. which, under a contract with the United Nations, has been providing
independent oil inspection agents since the beginning of the
humanitarian programme in Iraq pursuant to resolution 986 (1995). The
group visited Iraq from 13 to 16 December 1998 to review the situation
on the ground and, in consultation with the Government of Iraq, to
prepare the list of spare parts and equipment necessary 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). The report of the group is also enclosed for
your information.

As stated in my letter dated 15 April 1998 addressed to the President of
the Security Council (S/1998/330) submitting the executive summary of
the group of experts established pursuant to paragraph 12 of resolution
1153 (1998), as well as in my subsequent reports, including the most
recent one submitted on 19 November 1998 (S/1998/1100) on the
implementation of the humanitarian programme under resolution 986
(1995), the oil industry of Iraq continues to be in a lamentable state.

It may be recalled that the group of experts had stated then that
existing oil fields in Iraq have had their productivity seriously
reduced, some irreparably, during the past two decades. They had also
stated that a sharp increase in production without concurrent
expenditure on spare parts and equipment would severely damage
oil-containing rocks and pipeline systems, and would be against accepted
principles of "good oilfield husbandry".

The report now submitted by the group of experts describes the further
deterioration in Iraq¹s capacity to produce and export oil. Since the
visit of the previous group of experts to Iraq in March 1998, the
predicted decline in the overall oil production capacity of Iraq has
continued at an estimated annual rate 4 to 8 per cent. A significant
number of wells have ceased production, both in the north and in the
south, due to the lack of water-removal facilities. The group of experts
estimates that approximately 20 per cent of those wells are irreparably
damaged. The remaining wells, in their view, could be returned to
production should appropriate spare parts be made available on a timely
basis, thereby recovering approximately 100,000 barrels per day in
production capacity. According to the group of experts, there is a
possibility of a net increase in production capacity during the next six
months, subject to the timely arrival of critical spare parts. They
consider that the list of spare parts and equipment provided by the
Government represents a pragmatic approach to sustaining, and eventually
increasing, current production levels, albeit reflecting a continued
reliance on outdated oil field development concepts.

By its resolution 1153 (1998) the Security Council authorized a
substantial increase in exports of petroleum and petroleum products from
Iraq and, subsequently, by its resolution 1175 (1998), the Council
authorized an amount of $300 million for the purchase of oil spare parts
and equipment under phase four of the humanitarian programme. However,
the pace of approval of applications for spare parts and equipment has
been slow. Unless Iraq is expeditiously provided with the essential oil
spare parts and equipment, it may be difficult to sustain even the
current level of production and export of oil. The implementation of the
humanitarian programme has also been adversely affected by the
substantial drop in the price of oil in recent months, resulting in a
shortfall of over $1 billion out of the $3.1 billion required for the
implementation of the distribution plan under phase four.

As at 28 December 1998, 447 applications, with a total value of $243.2
million, for spare parts and equipment for the Iraqi oil industry have
been received, of which 392, with a total value of $182.7 million, were
circulated. Of the total number of applications circulated, 238, with a
total value of $133.6 million, have been approved by Security Council
Committee established by resolution 661 (1990), and 133, with a total
value of $43.6 million, have been placed on hold. There remain 48
applications, with a total value of $60.5 million, which have not yet
been circulated because of insufficient information provided by the
applicants or require amendments to the distribution plan.

As indicated by the group of experts, the list of spare parts and
equipment submitted to the Council is "reasonable" and covers the most
essential requirements of the deteriorating Iraqi oil industry. It would
be helpful, therefore, if the Council could request the Committee
established by resolution 661 (1990) to proceed as expeditiously as
possible in its consideration and approval of applications for oil spare
parts and equipment submitted under phase four and phase five and to
also review further all applications placed on hold. In this connection,
it may be recalled that most of the spare parts and equipment requested
require long delivery periods as they are not immediately available "off
the shelf". The Office of the Iraq Programme stands ready to assist the
Committee in providing any additional information, including technical
advice, that may be required.

Please accept, Mr. President, the assurances of my highest
consideration.

Kofi A. Annan
------------------------


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