US embassy cable - 05AMMAN1125

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 001125 
 
SIPDIS 
 
E.O. 12958: DECL: 02/08/2015 
TAGS: PREL, ECON, EAID, ENRG, IZ, JO 
SUBJECT: IRAQ WORLD BANK CHIEF ON ASSISTANCE ISSUES 
 
REF: 2004 AMMAN 8107 
 
Classified By: DAVID HALE, CHARGE D'AFFAIRES A.I., 
REASONS: 1.4 (B &D) 
 
1.  (U) This message was cleared by Embassy Baghdad. 
 
Summary 
------------ 
 
2.  (U) The head of the World Bank's Iraq Mission discussed 
with emboff a wide range of Iraq assistance issues, including 
the upcoming February 8-10 World Bank negotiations with the 
IIG, planned FY2005 World Bank (IDA and International 
Reconstruction Fund Facility for Iraq (IRFFI) Trust Fund) 
programs, the need for coordinated donor assistance on 
electricity and gas projects, preparation by the Iraqi 
government of gas and electricity "master plans," and 
emerging World Bank support for infrastructure projects at 
the Iraq-Jordanian border.  End Summary. 
 
IDA Negotiations 
--------------------- 
 
3.  (SBU) The head of the World Bank's Iraq mission, Faris 
Hadad-Zervos, is based in Amman pending improvement in the 
Iraq security environment.  On February 7 he discussed with 
emboff the Bank's upcoming (February 8-10) meeting in Amman 
with an Iraqi government team to be led by the Deputy 
Ministers of Planning and Finance.   Hadad-Zervos said that 
the World Bank has already determined, and the Iraqi 
Strategic Review Board already approved, notional allocations 
of the planned $500 million WB International Development 
Assistance (IDA) loan, and for the approximately $200 million 
in anticipated FY 2005 World Bank-administered IRRFI trust 
fund resources.  Without providing dollar breakdowns, he said 
that the combined FY 2005 World Bank assistance program will 
target the following sectors: water, sanitation, health, 
education, power, environment, and transportation, the latter 
three being new sectoral assistance areas for the Bank. 
 
4.   (C) Since agreement with the Iraqis on the WB FY 2005 
project menu has already been reached, Hadad-Zervos suggested 
that the main task of the February 8-10 discussions will be 
to reach agreement on project implementation modalities and 
creation of a framework for future development in keeping 
with the strategic development plan submitted to donors last 
October in Tokyo.  On modalities, Hadad-Zervos predicted that 
the Iraqis will press hard for revision of current 
procurement procedures under which the Iraqi government 
awards contracts, but the World Bank reviews these and makes 
all contractor payments.  Hadad-Zervos expressed strongly 
that the WB will not amend these procurement procedures, 
which he said are commonly applied by the Bank to countries 
that (like Iraq) are still transiting to a transparent and 
effective financial management system. 
 
Need for Iraq Power Generation "Master Plan" 
--------------------------------------------- ------------- 
 
5.  (C) Hadad-Zervos stressed the Bank,s new initiative to 
require development of Iraqi government "master plans" for 
electricity and gas as well as the power generation sector in 
general.  These will be financed out of the $100 million in 
FY 2005 Bank loans for the Iraqi power sector.  Hadad-Zervos 
stressed that the Bank feels that the Iraqis need to take 
greater control in setting standards for future power sector 
projects, and in enforcing greater coherence and coordination 
into what he depicted as a cacophony of proposed donor 
projects.  He added that development of a comprehensive 
master plan will help improve donor reflection and 
coordination on how best to address Iraq,s 3300-megawatt 
power generation shortfall.   Currently, he claimed, many 
donors are pursuing "micro," localized approaches to the 
power generation issue, addressing local problems without 
considering larger issues like future sustainability, overall 
infrastructure incompatibility, or future budgetary 
implications. 
 
6.  (C) For example, he alleged, one major donor project 
already underway may have the effect of isolating an 
important segment of Iraq from the rest of the Iraqi 
electricity grid.  Another example he cited was alleged donor 
disparities on construction of gas-versus oil-powered 
electric generators: both are being procured, thereby 
creating a possibly needless logistics burden for future 
Iraqi governments.  All of these are problems that the Bank 
expects the master plan to ease.  In a related comment 
Hadad-Zervos also expressed concern that some donors are 
pursuing ambitious and potentially expensive projects (such 
as notional transmission of Egyptian electricity through 
Jordan, or construction of an Iraq-directed power generation 
facility in Kuwait) without adequate consideration or perhaps 
awareness of the technical and regional obstacles involved. 
(Note: A USTDA consultant who has examined this issue from 
the Jordanian side told us recently that due to technical 
obstacles transference of more than 100 megawatts of 
electricity from Jordan to Iraq will require at least $120 
million in (currently unplanned) new Jordanian infrastructure 
investment.  He also advised against the transference of 
lesser amounts of electricity to Iraq through Jordan without 
this investment, due to a high risk of damage to generators 
on the Iraqi side.  End Note). 
 
Jordan,s Role 
---------------- 
 
7.  (C) Noting that Jordan is scheduled to be the host 
country for the next IRFFI conference (tentatively projected 
for next April), Hadad-Zervos commented that the Jordanians 
appear to be hoping for both ministerial-level attendance and 
donor pledging activity, neither of which, he said, is in the 
cards.  Hadad-Zervos touched on Jordan,s laundry list of 
approximately $1 billion in "Iraq reconstruction-related" 
infrastructure projects, all of which have been publicly 
endorsed by the IIG (reftel).  Hadad-Zervos confided that the 
Iraqis have privately told the Bank that they regard all but 
one of these Jordanian proposals (which include an Aqaba port 
upgrade, a Baghdad-Aqaba railroad, and improvements in 
Jordan-Iraq road links) as low priority projects that should 
not be funded out of any currently committed Iraqi 
reconstruction funds. 
 
8. (C) The exception, he related, is a Trebil-Karama border 
infrastructure project costing between $50-65 million 
(Jordanian estimates run higher) intended to streamline 
security and stimulate industrial and other commercial growth 
on both sides of the border.  Hadad-Zervos related that after 
some shuttle diplomacy the Jordanians agreed to an Iraqi 
request to make the project less "Jordan-centric" by shifting 
some of the infrastructure development to the Iraqi side. 
As a result, he said, the GOI has requested that the Bank 
either apply IRRFI trust fund money or find other assistance 
funding for this project.  Hadad-Zervos said that the Bank is 
willing to do this, provided that the two sides first 
harmonize their customs and security procedures in the border 
area.  Hadad-Zervos related that both sides have agreed, and 
that a bilateral Joint Commission is already being set up to 
implement these harmonizations.  Despite what he saw as 
strong good will on both sides, Hadad-Zervos predicted that 
the harmonization process will be significantly delayed due 
to allegedly deep-seated internal inter-agency conflicts 
within both countries, especially Jordan (Comment: The King's 
interest in the border project may make resolution of the 
harmonization issues easier than Hadad-Zervos believes.  End 
Comment).  Nonetheless, he was confident the harmonizations 
will eventually be achieved, thereby "establishing a model" 
for Iraq's other border links. 
 
9  (C) Embassy Baghdad Comment:  We agree with 
Hadad-Zervos,s emphasis on the need for better coordination 
and for the Iraqis to take the lead in this area; both are 
priorities for us.  As for the IRFFI conference, we 
anticipate that it will take place in May rather than April. 
We believe delaying the conference would give the new Iraq 
Transitional Government more time to prepare for the 
conference and to approach donors for new pledges in light of 
the successful January 30 election. 
HALE