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Report: Iraq windfall soars along with oil prices

  • Story Highlights
  • Iraq is expected to see $70 billion windfall as oil prices rise, U.S. military says
  • Official says oil production is still low, but price has nearly doubled since 2003
  • Congress has OK'd $47 billion for reconstruction since war began, report says
  • Iraq has spent $50 billion on reconstruction projects, inspector-general says
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WASHINGTON (CNN) -- Iraq's government is expected to reap a $70 billion windfall from soaring oil prices, about double the previous projections, the U.S. military's reconstruction watchdog reported Wednesday.

Although Iraq's oil production remains below its pre-war peak of 2.5 million barrels per day, the price per barrel has more than doubled since the U.S.-led invasion in 2003, said Stuart Bowen, the special inspector-general for Iraq reconstruction, in his quarterly report to Congress.

The issue has become a sore spot for some U.S. lawmakers as the war enters its sixth year, with both Republicans and Democrats raising complaints that U.S. taxpayers are footing the bill for reconstruction work in the now-flush nation.

Congress has approved about $47 billion in reconstruction funding since the invasion. About $30 million of that has been spent, the inspector-general's report found, and the country's U.S.-backed government was paying about half the cost of reconstruction projects by the end of 2007, the report states.

But further progress will depend on Iraq's ability to spend what it has budgeted and to keep a lid on a pervasive culture of corruption, which Bowen's office has described as a "second insurgency." Iraqi officials have said they plan to issue a supplemental budget to manage the additional money, according to Wednesday's report.

"This supplemental budget presents an extraordinary opportunity for Iraq to expand its infrastructure investment, but it also heightens concerns about corruption," the report states.

And even when projects have been completed, other problems have prevented them from being fully effective: A $277 million U.S.-funded water-treatment plant in the southern city of Nasiriya, about 200 miles south of Baghdad, was running at about 20 percent capacity because it lacked a reliable power source and trained employees, Wednesday's report stated.

A report this week found that 112 contracts were canceled due to poor performance or delays, and others were scaled back after problems emerged, effectively breaking the deal "without the need to terminate for convenience or default." Scaling back those projects is "an appropriate process," the report found, "but does mask problem projects to the extent they occur."

The reports were released as crude oil futures neared $120 a barrel, driving higher gas prices among an American public already unhappy with the war.

Defense Secretary Robert Gates told the Senate Armed Services Committee that he heard lawmakers "loud and clear" during hearings this month and would cut $171 million that had been slated to build police stations in Iraq.

"We will seek full funding from the government of Iraq for this purpose," he wrote in a letter released Tuesday by the committee's chairman, Michigan Democrat Carl Levin.

Iraq has spent about $50 billion on reconstruction projects, with international aid adding another $16 billion to the total, Bowen's office reported. Though the amount Gates trimmed Tuesday is a small fraction of what U.S. taxpayers have committed, Levin called it an "important first step."

"It's a significant message to the Iraqis that there is a lot of pressure from the American people, from the Congress, to stop spending a lot of money in Iraq for things the Iraqis can pay," he said.

When President Bush launched the invasion of Iraq in 2003, administration officials told Congress that Iraq could finance its own reconstruction with oil revenues. E-mail to a friend E-mail to a friend

CNN's Lisa Desjardins and Ted Barrett contributed to this report.

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