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United Nations




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 Iraq’s 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