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Development Fund for Iraq, Statement of Cash Receipts and Payments, 2003
Development Fund for Iraq (KPMG audit) · 2004-07-14
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Development Fund for Iraq
Statement of Cash Receipts and Payments
For the period from 22 May 2003 to 31 December 2003
(with Independent Auditors’ Report)
This report contains 11 pages
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Development Fund for Iraq
Statement of Cash Receipts and Payments
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
Receipts Notes
UN Oil for Food program transfers 4 $ 5,600,000
Net proceeds from export sales of petroleum 5 3,726,271
Deposits from assets frozen outside of Iraq 6 757,550
Food and Agricultural Organization and World Food Program 7 120,000
Deposits by Iraqi Ministries for payments on their behalf 8 95,271
Interest on overnight deposits 4,348
Interest on US Treasury bills 3,780
Other 274
Total receipts 10,307,494
Payments
Allocated budget to Iraqi Ministries 9 1,375,950
Projects administered by the CPA 10 245,182
Food and Agricultural Organization and World Food Program 7 125,400
Payments on behalf of Iraqi Ministries 8 75,829
Total payments 1,822,361
Excess of receipts over payments 8,485,133
Cash and cash equivalents, beginning of period -
Cash and cash equivalents, end of period 11, 14 $ 8,485,133
This Statement of Cash Receipts and Payments was approved by the Coalition Provisional Authority
on 28 June 2004 and signed on its behalf by:
David J. Nash Bradford R. Higgins Don Davis, Colonel, USAF
Director, IRMO CPA Chief Financial Officer CPA Comptroller,
DFI Fund Manager
The accompanying notes are an integral part of the statement of cash receipts and payments.
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Development Fund for Iraq
Notes to the Statement of Cash Receipts and Payments
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
1. Organization of the Fund
The Development Fund for Iraq (the “Fund” or “DFI”) was established during May 2003 by the
power delegated by the President of the United States of America, pursuant to United Nations
Security Council Resolution (UNSCR) 1483, to the Administrator of the Coalition Provisional
Authority (the “CPA”).
The Fund consists of bank accounts with the Federal Reserve Bank of New York and the
Central Bank of Iraq. In accordance with UNSCR 1483, the proceeds from export sales of
petroleum, petroleum products and natural gas from Iraq are to be deposited in the DFI. In
addition, the surplus funds from the UN Oil for Food program, established by UNSCR 986, are
to be transferred to the Fund. Furthermore, all Member States are obligated to freeze and
transfer funds and other financial assets of the former Iraqi regime to the DFI.
Consistent with UNSCR 1483, the Fund is to be used in a transparent manner to meet the
humanitarian needs of the Iraqi people, for the economic reconstruction and repair of Iraq’s
infrastructure, for the continued disarmament of Iraq, for the costs of Iraqi civilian
administration and for other purposes benefiting the people of Iraq.
In accordance with CPA Regulation 1 issued on 16 May 2003, the CPA is vested with all
executive, legislative and judicial authority necessary to achieve its objectives, to be exercised
under relevant UNSCRs, including UNSCR 1483, and the laws and usages of war. The CPA is
responsible for the temporary governance of Iraq under the authority of the CPA Administrator.
In accordance with CPA Regulation 2 issued on 15 June 2003, the CPA Administrator oversees
and controls the establishment, administration and use of the Fund for and on behalf of the Iraqi
people, and directs disbursements from the Fund for those purposes he determines, in
consultation with the Iraqi interim administration, to be for the benefit of the people of Iraq.
An International Advisory and Monitoring Board (IAMB) for the Fund was appointed in
accordance with UNSCR 1483, to perform functions similar to those of an audit committee.
2. Going concern assumption
On 28 June 2004, the CPA ceased to exist and, in accordance with the UNSCR 1546, the CPA
transferred access to the DFI bank accounts to the new, sovereign Interim Government of Iraq.
The funds will be disbursed solely at the direction of the Government of Iraq, including all
outstanding contractual obligations negotiated by the CPA that will extend beyond 30
June 2004. To complete transition efforts and continue with Iraqi Reconstruction, the Iraq
Reconstruction Management Office was established at that time.
The CPA is currently issuing irrevocable documentary letters of credit to ensure uninterrupted
performance of critical contracts funded by the DFI. For all other contracts, the CPA and the
Interim Government of Iraq will agree and establish procedures for monitoring and disbursing
payments for these contracts to ensure all contractual obligations are met.
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Development Fund for Iraq
Notes to the Statement of Cash Receipts and Payments, continued
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
3. Summary of significant accounting policies
Statement of compliance
The statement of cash receipts and payments has been prepared in accordance with the
International Public Sector Accounting Standard “Financial Reporting under the Cash Basis of
Accounting” issued by the International Federation of Accountants in January 2003. The
effective date for the adoption of this standard is 1 January 2004 with early adoption
encouraged. The CPA elected to adopt this standard for the period from inception
(22 May 2003) to 31 December 2003.
Basis of presentation
The Fund consists of cash held on behalf of the Central Bank of Iraq. These funds are held at
the Federal Reserve Bank in New York in an account entitled “Central Bank of Iraq /
Development Fund for Iraq”, at the Central Bank of Iraq and by Coalition Forces.
The accounting policies have been applied consistently throughout the period.
The reporting date of 31 December 2003 was determined by the IAMB and the CPA.
All amounts are in thousands of US dollars unless otherwise stated.
Receipts
The Fund records receipts when cash is received in bank accounts under the control of the DFI.
Non-cash transactions, including barter transactions, are not recorded.
Payments
A payment occurs when funds are transferred from the control of the CPA to a non-Coalition
Forces recipient (e.g. a contractor or an Iraqi Ministry).
Cash deposits with banks for issued irrevocable documentary letters of credit are also
considered to be payments.
Commitments
The DFI allocates funds for specific budgetary items. These funds are considered to be
committed and are not available for other spending.
Management estimates
Information disclosed in the notes requires the CPA to make estimates and assumptions that
affect the reported amounts of commitments, unrecorded assets and liabilities, and other note
disclosures. Actual results could differ from those estimates.
Cash and cash equivalents
Cash comprises current deposits with banks and cash on hand. Cash equivalents are short-term,
highly-liquid investments that are readily convertible to known amounts of cash, are subject to
an insignificant risk of changes in value and are held for the purpose of meeting short-term cash
commitments rather than for investment or other purposes.
Functional currency
The functional currency is the US dollar.
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Development Fund for Iraq
Notes to the Statement of Cash Receipts and Payments, continued
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
4. UN Oil for Food program transfers
The UN Oil for Food (OFF) program was established by UNSCR 986 and subsequent relevant
resolutions. UNSCR 1483 directed that all surplus funds in the OFF program were to be
transferred to the DFI at the earliest possible time. OFF transfers during the period to 31
December 2003 are as follows:
28 May 2003 $ 1,000,000
31 October 2003 1,000,000
18 November 2003 1,000,000
31 December 2003 2,600,000
$ 5,600,000
Subsequent to 31 December 2003, the United Nations transferred additional amounts of
$2,000,000 on 31 March 2004 and $500,000 on 19 April 2004.
In addition, the United Nations has notified the CPA that approximately $412,000, before
payments of certain liabilities, of the remaining OFF funds are still to be transferred to the DFI.
These liabilities are currently being ascertained and once identified, the remaining OFF funds
will be transferred to the DFI.
According to the United Nations, there are no restrictions, conditions or other covenants over
the funds received from the OFF program. Further, the funds received are not repayable under
any circumstances.
5. Net proceeds from export sales of petroleum
Export sales of petroleum and petroleum products are arranged and invoiced exclusively by the
Iraqi State Oil Marketing Organization (SOMO), the sales arm of the Ministry of Oil. Export
sales of petroleum products were only made through barter transactions. There were no export
sales of natural gas from Iraq, as there is no Iraqi infrastructure for exports of natural gas.
The proceeds of export sales of petroleum and petroleum products are to be deposited in the
“Oil Proceeds Receipts Account” (OPRA) and immediately thereafter, 95% is to be deposited
in the Fund and the remaining 5% is to be deposited in the Compensation Fund. The
Compensation Fund was established in accordance with UNSCR 687 and subsequent relevant
resolutions, as a result of the Iraqi invasion of Kuwait during 1990.
Export sales of petroleum are paid through irrevocable documentary letters of credit with
proceeds received approximately 30 days after the petroleum has been lifted. Export sales and
proceeds of petroleum for the period to 31 December 2003 are as follows:
Total export sales for the period (198,242,690 barrels) $ 5,076,634
Less proceeds deposited in OPRA in early 2004 (1,154,243))
Proceeds deposited in OPRA during 2003 3,922,391
Less amounts transferred to the Compensation Fund (196,120))
Net proceeds deposited in the Fund during 2003 $ 3,726,271
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Development Fund for Iraq
Notes to the Statement of Cash Receipts and Payments, continued
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
As the OPRA account is technically not a DFI account, it has been excluded from the Fund.
Accordingly, only 95% of export sales receipts are included in Receipts.
SOMO also engages in barter transactions (see note 12) for exports of petroleum and petroleum
products. Barter transactions consist of exports of residual fuel oil for light fuel products and
exports of crude oil for electricity from Syria. The value of these barter transactions, as
recorded by SOMO, for the period to 31 December 2003 is $120,907. As these were non-cash
transactions, they are not recorded in the statement of cash receipts and payments.
The CPA believes that an unknown quantity of petroleum and petroleum products was illegally
exported from Iraq (smuggling), especially in the early months of post-hostilities, by-passing
the authorized processes of marketing, sales and cash collection. Despite the internal controls
put in place by the CPA and SOMO, internal control systems over the Iraqi oil industry were
insufficient to ensure that all petroleum and petroleum products were accounted for in the
absence of metering system. The CPA is unable to reliably estimate the amounts of petroleum
and petroleum products that were illegally exported for the period to 31 December 2003.
6. Deposits from assets frozen outside of Iraq
In accordance with UNSCR 1483, all Member States were obligated to freeze and transfer
funds and other financial assets of the former Iraqi regime to the DFI unless those assets were
subject to prior judicial, administrative or arbitral lien or judgment. During the period to 31
December 2003, amounts deposited by Member States into the DFI are as follows:
Switzerland $ 211,077
United States of America 207,945
Great Britain 184,066
Japan 98,088
Jordan 35,000
Tunisia 8,006
Kuwait 6,963
France 4,188
Italy 2,198
Australia 17
Vietnam 2
$ 757,550
During the period from 1 January 2004 to 28 June 2004, Member States transferred additional
amounts totaling $262,921. Other funds and financial assets of the former Iraqi regime are still
held by various Member States, which the CPA, the US Government and regulatory agencies in
Member States are actively pursuing. The CPA cannot reliably estimate the amount of such
funds that may eventually be transferred to the DFI as some of these assets are subject to prior
judicial, administrative or arbitral lien or judgment.
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Development Fund for Iraq
Notes to the Statement of Cash Receipts and Payments, continued
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
7. Food and Agricultural Organization and World Food Program
The Food and Agricultural Organization, the World Food Program and the CPA agreed that the
Iraqi Ministry of Trade should act as the procurer for the 2003 Iraqi wheat and barley harvest.
During the period to 31 December 2003 receipts from these programs amounted to $120,000
and payments to the Ministry of Trade amounted to $125,400. Although these programs were
completed during 2003, a final receipt of $25,879 and a final payment of $20,479 occurred in
2004.
8. Deposits by Iraqi Ministries for payments on their behalf
As the Iraqi banking system does not have the capability to execute wire transfers, the Iraqi
Ministries request the CPA to disburse funds on their behalf to international suppliers. During
the period to 31 December 2003, deposits by Ministries were $95,271 and direct payments to
international suppliers amounted to $10,593.
In addition, cash deposited with a bank, on behalf of the Iraqi Ministries, for issued irrevocable
documentary letters of credit for the period to 31 December 2003 amounted to $65,236, and is
considered to be a payment during the period. The cash is held at the J.P. Morgan Bank until
evidence of the completion of the service or receipt of goods, is received by the Iraqi
Ministries.
Ministry of: Deposits by: Payments for:
Health $ 53,271 $ 8,082
Electricity 30,000 120
Interior 10,704 10,422
Communications 1,275 -
Oil - 45,850
Housing and Construction - 11,304
Other 21 51
$ 95,271 $ 75,829
9. Allocated budget to Iraqi Ministries
The Iraqi Ministry of Finance is partially funded by the DFI. After funds are transferred from
the DFI to the Iraqi Ministry of Finance, funds are re-distributed to other Iraqi Ministries in
accordance with their individual operating budgets. Payments for the period to 31 December
2003 are as follows:
October 2003 $ 433,000
November 2003 392,950
December 2003 550,000
$ 1,375,950
During the period from post-hostilities to September 2003, the Iraqi Ministries were funded by
other sources. These included funds of the former Iraqi regime, frozen in the USA under
UNSCR 687 and subsequently vested under Executive Order 13290 of 20 March 2003 and
transferred before adoption of the UNSCR 1483, monies seized in Iraq under the laws and
usages of war and US appropriated funds.
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Development Fund for Iraq
Notes to the Statement of Cash Receipts and Payments, continued
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
10. Projects administered by the CPA
The CPA administers certain projects and the related payments on behalf of Iraqi Ministries.
Payments for the period to 31 December 2003 are as follows:
Ministry of: Project:
Finance Iraqi banknote purchase $ 116,593
Finance Iraqi banknote exchange 31,154
Finance Iraqi currency exchange 340
Finance OFF – Northern program 13,462
Finance Trade Bank of Iraq 1,100
Oil Import of petroleum products 13,417
Oil Security 12,560
Oil Restoration of oil infrastructure 1,130
Oil Communications 315
Electricity Purchase of electricity from Turkey 11,393
Electricity Reconstruction of power plants 4,919
Electricity Restoration of Iraqi electricity 4,100
National Security and Defense Weapons 2,832
National Security and Defense Equipment 1,278
Trade OFF – Co-ordination centers 25,000
Awqaf (religion) Hajj pilgrimage 5,000
Housing and Construction Security 569
Culture Donation 20
$ 245,182
11. Cash and cash equivalents
Cash and cash equivalents as at 31 December 2003 are as follows:
US Federal Reserve Bank of New York:
Treasury bills $ 3,777,455
Overnight repurchase agreement pool facility 3,115,000
Operating accounts 78
Central Bank of Iraq - operating account 1,432,600
Cash with Coalition Forces 160,000
$ 8,485,133
Cash and cash equivalents include $4,477,176 of cash committed for certain projects (see note
14). In addition, cash includes $84,678 deposited by Iraqi Ministries, which is restricted for use
only in accordance with instructions from the Iraqi Ministries (see note 8).
The return on Treasury bills and the overnight facility ranged from approximately 0.5% to
1.0%.
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Development Fund for Iraq
Notes to the Statement of Cash Receipts and Payments, continued
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
Maturity dates and purchase prices of Treasury bills are as follows:
29 January 2004 $ 697,946
26 February 2004 697,944
25 March 2004 697,515
22 April 2004 697,022
27 May 2004 697,087
17 June 2004 289,941
$ 3,777,455
12. Unrecorded assets and liabilities
The Fund records accounting transactions on a cash basis, but the CPA has also commenced the
process of identifying and valuing major classes of assets and liabilities which would have been
recorded had the Fund presented accrual based financial statements. The identified assets and
liabilities as at 31 December 2003 are as follows:
Assets
Receivable from UN Oil for Food program $ 2,500,000
Net receivables from export sales of petroleum 1,096,531
Amounts due from Ministries for irrevocable documentary letters of credit 65,236
Advance payment to the Ministry of Trade for World Food Program 5,400
Accrued interest from Treasury bills 4,623
$ 3,671,790
Liabilities
Deposits by Iraqi Ministries $ 84,678
Other accruals and liabilities 6,737
$ 91,415
Barter transactions
Barter transactions for petroleum and petroleum products are non-cash transactions. Barter
transactions are not recorded in the DFI statement of cash receipts and payments and are not
considered unrecorded assets or liabilities, as these transactions will not materialize into cash at
any time. Consequently, payments were not made to the Compensation Fund. However, based
on the value of the barter transactions as recorded by SOMO, payments to the Compensation
Fund would amount to $6,045.
13. Related parties
Key management of the Fund consists of the CPA Administrator and CPA Senior Advisors and
their staff, in consultation with the Iraqi interim administration. The Fund is monitored by the
IAMB in accordance with UNSCR 1483. Key management and the IAMB receive no
compensation or fees from the DFI.
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Development Fund for Iraq
Notes to the Statement of Cash Receipts and Payments, continued
For the period from 22 May 2003 to 31 December 2003
(all amounts are in thousands of US dollars)
________
14. Commitments and contingencies
Commitments
The DFI uses commitments as a means of managing cash resources. Commitments may not be
accurate as certain projects are not complete and the final costs are not known. However, the
CPA does not believe that there will be material adjustments to the final costs of these projects.
Cash and cash equivalents less commitments as at 31 December 2003 are as follows:
Cash and cash equivalents $ 8,485,133
Commitments 4,477,176
Amount not committed at 31 December 2003 $ 4,007,957
The uncommitted cash is intended to be used to fund the 2004 Iraqi Budget.
The CPA utilizes irrevocable documentary letters of credit for contractual obligations during
the ordinary course of activities, as requested by contractors and suppliers. As at 31 December
2003, the amount of open irrevocable documentary letters of credit was $65,236 (see note 8).
Litigation
In the normal course of its activities, the Fund is party to various legal claims, actions and
complaints. It is not possible to predict with certainty whether or not the Fund will ultimately
be successful in any of these legal matters or, if not, what the impact might be. However, the
CPA does not expect that the results in any of these legal proceedings will have a material
adverse effect on the Fund’s activities.
Immunity
In accordance with UNSCR 1483, certain Member States have taken legal steps as considered
necessary, to ensure immunity of the petroleum and petroleum products originating in Iraq,
until title passes to the initial purchaser, from legal proceedings against them so as not to be
subject to any form of attachment, garnishment or execution. This immunity expires on 31
December 2007, unless the United Nations Security Council decides otherwise.
Taxation
The Fund is not subject to taxation.
15. Subsequent events
Pursuant to UNSCR 1546 which was approved on 8 June 2004, the proceeds of export sales of
Iraqi petroleum and petroleum products shall continue to be deposited with the DFI and utilized
in a transparent and equitable manner, through the Iraqi budget, until a government is
constitutionally elected. The International Advisory and Monitoring Board shall continue its
activities in monitoring the Fund and shall include an additional full voting member designated
by the Government of Iraq. These provisions can be reviewed at the request of the Transitional
Government to be elected by 31 January 2005, at the latest.
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