IRAQ WORLD BANK CHIEF ON ASSISTANCE ISSUES

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"
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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