Part 18

--As soon as possible, the U.S. government should provide technical assistance to the Iraqi government to prepare a draft oil law that defines the rights of regional and local governments and creates a fiscal and legal framework for investment. Legal clarity is essential to attract investment.

--The U.S. government should encourage the Iraqi government to accelerate contracting for the comprehensive well work-overs in the southern fields needed to increase production, but the United States should no longer fund such infrastructure projects.

--The U.S. military should work with the Iraqi military and with private security forces to protect oil infrastructure and contractors. Protective measures could include a program to improve pipeline security by paying local tribes solely on the basis of throughput (rather than fixed amounts).

--Metering should be implemented at both ends of the supply line. This step would immediately improve accountability in the oil sector.

--In conjunction with the International Monetary Fund, the U.S. government should press Iraq to continue reducing subsidies in the energy sector, instead of providing grant assistance. Until Iraqis pay market prices for oil products, drastic fuel shortages will remain.

Long Term

Expanding oil production in Iraq over the long term will require creating corporate structures, establishing management systems, and installing competent managers to plan and oversee an ambitious list of major oil-field investment projects.

To improve oil-sector performance, the Study Group puts forward the following recommendations.

RECOMMENDATION 63:

--The United States should encourage investment in Iraq's oil sector by the international community and by international energy companies.

--The United States should assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise, in order to enhance efficiency, transparency, and accountability.

--To combat corruption, the U.S. government should urge the Iraqi government to post all oil contracts, volumes, and prices on the Web so that Iraqis and outside observers can track exports and export revenues.

--The United States should support the World Bank's efforts to ensure that best practices are used in contracting. This support involves providing Iraqi officials with contracting templates and training them in contracting, auditing, and reviewing audits.

--The United States should provide technical assistance to the Ministry of Oil for enhancing maintenance, improving the payments process, managing cash flows, contracting and auditing, and updating professional training programs for management and technical personnel.

6. U.S. Economic and Reconstruction Assistance

Building the capacity of the Iraqi government should be at the heart of U.S. reconstruction efforts, and capacity building demands additional U.S. resources.

Progress in providing essential government services is necessary to sustain any progress on the political or security front. The period of large U.S.-funded reconstruction projects is over, yet the Iraqi government is still in great need of technical assistance and advice to build the capacity of its institutions. The Iraqi government needs help with all aspects of its operations, including improved procedures, greater delegation of authority, and better internal controls. The strong emphasis on building capable central ministries must be accompanied by efforts to develop functioning, effective provincial government institutions with local citizen participation.

Job creation is also essential. There is no substitute for private-sector job generation, but the Commander's Emergency Response Program is a necessary transitional mechanism until security and the economic climate improve. It provides immediate economic assistance for trash pickup, water, sewers, and electricity in conjunction with clear, hold, and build operations, and it should be funded generously. A total of $753 million was appropriated for this program in FY 2006.

RECOMMENDATION 64: U.S. economic assistance should be increased to a level of $5 billion per year rather than being permitted to decline. The President needs to ask for the necessary resources and must work hard to win the support of Congress. Capacity building and job creation, including reliance on the Commander's Emergency Response Program, should be U.S. priorities. Economic assistance should be provided on a nonsectarian basis.

The New Diplomatic Offensive can help draw in more international partners to assist with the reconstruction mission. The United Nations, the World Bank, the European Union, the Organization for Economic Cooperation and Development, and some Arab League members need to become hands-on participants in Iraq's reconstruction.

RECOMMENDATION 65: An essential part of reconstruction efforts in Iraq should be greater involvement by and with international partners, who should do more than just contribute money. They should also actively participate in the design and construction of projects.

The number of refugees and internally displaced persons within Iraq is increasing dramatically. If this situation is not addressed, Iraq and the region could be further destabilized, and the humanitarian suffering could be severe. Funding for international relief efforts is insufficient, and should be increased.

RECOMMENDATION 66: The United States should take the lead in funding assistance requests from the United Nations High Commissioner for Refugees, and other humanitarian agencies.

Coordination of Economic and Reconstruction Assistance

A lack of coordination by senior management in Washington still hampers U.S. contributions to Iraq's reconstruction.

Focus, priority setting, and skillful implementation are in short supply. No single official is assigned responsibility or held accountable for the overall reconstruction effort. Representatives of key foreign partners involved in reconstruction have also spoken to us directly and specifically about the need for a point of contact that can coordinate their efforts with the U.S. government.

A failure to improve coordination will result in agencies continuing to follow conflicting strategies, wasting taxpayer dollars on duplicative and uncoordinated efforts. This waste will further undermine public confidence in U.S. policy in Iraq.

A Senior Advisor for Economic Reconstruction in Iraq is required. He or she should report to the President, be given a staff and funding, and chair a National Security Council interagency group consisting of senior principals at the undersecretary level from all relevant U.S. government departments and agencies. The Senior Advisor's responsibility must be to bring unity of effort to the policy, budget, and implementation of economic reconstruction programs in Iraq. The Senior Advisor must act as the principal point of contact with U.S. partners in the overall reconstruction effort.