Cablegate: Karbala Prdc Process Overview and Issues

DE RUEHIHL #0040/01 0980915
R 070915Z APR 08




E.O. 12958: N/A

1. (SBU) SUMMARY: The Governor of Karbala Province has asked
the PRT for greater Iraqi control over the PRDC process by which
most U.S. funded projects in the Province are executed. The PRT
sees substantial benefits to the overall U.S. mission that could
be obtained from increased Iraqi control of U.S. funds allocated
for construction in the province, provided that increased Iraqi
control of U.S. funds is coupled with increased PRT involvement
in the Iraqi budget execution process. The PRDC process as it
now operates in Karbala Province does little to support the key
U.S. objective of developing Iraqi capacity to execute the Iraqi
budget. The PRDC process is focused on proper execution of U.S.
funded projects and offers limited means to impact the Iraqi
provincial budget execution process. The PRT would like to
leverage increased Iraqi involvement in U.S. funded projects to
enable the PRT to obtain a degree involvement in the Iraqi
capital budget execution process. As a way to achieve this, the
PRT suggests conditional monetary grants to the Provincial
Government under terms that would require PRT participation in
the Provincial capital budget execution process. (End Summary)

2. (SBU) In mid-March, Karbala Provincial Governor Aqeel
Al-Khazaely visited with the PRT TL at REO Hillah. The Governor
presented the PRT with a list of complaints regarding the PRDC
process. The key points mentioned in the Governor's two page
list of issues include his requests for: Iraqi involvement in
the approval of contractors allowed to bid on U.S. funded
projects, Iraqi involvement in the bid selection process; Iraqi
approval of any progress payments on U.S. funded projects; and
inclusion of Iraqi contract terms that will allow the Iraqis to
pursue Iraqi contractors in Iraqi courts for deficient
performance on contracts.

3. (SBU) In response to the Governor's concerns, the PRT
conducted a review of the PRDC process in Karbala Province. PRT
Offs who attended Karbala PRDC meetings met with the Iraqis
involved in that process, local and regional representatives of
the U.S. Army Corps of Engineers (USACE) who oversee that
process, and USACE representatives who have extensive, personal
experience in working that process in Karbala Province.

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4. (SBU) The PRDC process varies to some extent throughout
South Central Iraq as to both the participants and the process.
These differences appear to be primarily a result of Iraqi
preferences and capabilities. PRDC meetings in the South
Central Provinces tend to occur about once every two weeks. The
attendees vary. For Karbala, the PRDC attendees usually include
the Governor's Assistant for Technical Affairs ("TA"),
representatives of the directorates as selected by the TA, and
an occasional appearance by a provincial council representative.
Until September of 2007, the PRDC meetings alternated with
Sector Coordination Team (SCT) meetings. The SCT meetings
differ from the usual PRDC meetings in that the SCT focus is on
technical issues related to ongoing projects. Where the SCT
process remains in use in South Central, the PRDC engagements
relate primarily to the selection of new projects and similar
policy issues as opposed to the project management efforts
undertaken in the SCT meetings. Beginning in about September,
2007, the Karbala Governor's office began to exert greater
control over DG involvement in PRDC and SCT meetings to the
extent that SCT meetings were abandoned and all decisions, both
policy and technical, are now controlled by the TA at the PRDC
meetings. The Governor himself has requested in writing that
all PRT and USACE communications regarding USACE managed
projects be directed to the TA and not to the Directorates or
local Iraqi officials.

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5. (SBU) The Provincial Government's request for greater
involvement in and even control over US funded projects does not
at the present translate to greater US involvement in the Iraq
funded projects. The Iraqi process remains largely hidden from
both the US and the Iraqi public. At a recent PRT sponsored
local media conference, a key complaint voiced by the Karbala
media was the complete lack of transparency in the development
and execution of the Provincial Capital Budget.

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6. (SBU) PRT Offs see significant potential benefits to
increased Iraqi control of US funded capital projects provided
that control can be leveraged by the PRT to obtain US access to
the Iraqi systems. The cloak of invisibility that currently
precludes PRT involvement in the Iraqi process is a major
impediment to the PRT's efforts to enhance provincial budgetary

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7. (SBU) While the potential benefits of greater Iraqi
involvement in the US contracting process are appreciated by the

HILLAH 00000040 002 OF 002

PRT, PRT Offs are concerned about the motivation behind the
Iraqi's request. PRT Offs have received numerous reports of
corruption in the Iraqi capital budget execution process. These
reports come from the directorates, Iraqi contractors, media,
elected officials, NGOs, and Iraqi citizens. The general
consensus appears to be that Iraqi control of any aspect of the
contracting process expands the likelihood for extortion that
undermines contract execution and construction quality by
contractors forced to cut corners to make up for funds lost to
bribes. It also allows the Iraqi overseers to compel
contractors to accept terms not included in the original
contract terms and thereby undermines the willingness of
qualified contractors to participate in the bids.

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8. (SBU) PRT Offs recognize that at this stage of the US effort
in Iraq, the emphasis must be on developing the Iraqi capacity
rather than on actual construction. PRT Offs have discussed
with USACE the possibility of allowing some degree of Iraqi
involvement in the US contracting process in exchange for
greater US involvement in the Iraqi process. It appears that
Iraqi involvement in the bid solicitation and bid selection
processes is not possible under US law for the projects managed
by USACE. The current process does allow for Iraqi input
before progress payments are made. Complaints presented to the
PRT or USACE at PRDC meetings can be factored into USACE's
decision to make progress payments, make final payment, or to
blacklist a specific contractor. The Iraqis, however, seek a
level of control over the U.S. funded projects and not mere
input. The Iraqis seek monetary grants rather than completed

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9. (SBU) The PRT's primary interest in extending Iraqi
participation in the U.S. funding process is to leverage US
contributions to gain access to and influence the Iraqi budget
execution process. If possible, PRT Offs would prefer to
process certain U.S. funded projects through the Iraqi systems
of bid solicitation, bid opening, bid evaluation, contract
award, contract management, and contract oversight. (The
relevant Iraqi processes are established by written Regulations
issued by the Iraq Minister of Finance and the Ministry of
Planning and Development.) In exchange for the Iraqi control,
the PRT would require PRT oversight at each stage of that
process as a precondition to US financial commitment to the
projects. That oversight would be used to gain greater PRT
understanding of, involvement in, and influence over the Iraqi
budget execution process. Unconditional capital project grants
have in the past been allocated to the province. Unfortunately,
without conditions to encourage transparency and legitimacy in
the Iraqi process, such grants appear to further reinforce the
existing, non-transparent Iraqi process.

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10. (SBU) The PRDC process in Karbala does not currently
support improvements in either the legislative or executive
processes of Holy Karbala Province. Absent any changes in the
U.S. project funding process, the PRT will attempt to influence
the provincial legislative process by requiring that all PRDC
related projects be submitted for review and vote by the entire
provincial council, with the independent media present at such
meetings, and distribution of the record of that meeting to each
District and Sub-district Council. The PRT will also continue
to talk to the Governor to encourage some level of PRT
involvement in the Provincial budget execution process.

11. (SBU) COMMENT: The PRDC Process as it currently exists in
Karbala Province is not capable of sufficiently enhancing the
Iraqi capital budget execution processes. The PRDC process
appears to provide an excellent tool for the employment of US
funds to further develop Iraq's infrastructure. In its present
state, however, it appears to do little to enhance the Iraqis'
ability to use Iraqi money to rebuild Iraq. It would be helpful
if U.S. funds directed to the provinces could be allocated in
the form of conditional grants that would allow the PRT
sufficient leverage to influence the Iraqi budget execution

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