Report of the Secretary-General pursuant to paragraph 5 of resolution 1330 (2000)

I. Introduction

1. The present report is submitted pursuant to paragraph 5 of Security Council resolution 1330 (2000) of 5 December 2000, in which I was requested to provide a comprehensive report to the Council 90 days after entry into force of the resolution on its implementation and again at least one week prior to the end of the 180-day period. It also describes developments in the implementation of the humanitarian programme in Iraq pursuant to resolution 986 (1995) since the period covered by my previous report, which was submitted to the Council on 2 March 2001 (S/2001/186). Unless stated otherwise, the cut - off date for the data contained in the present report is 30 April 2001.

II. Revenue generation

A. Oil production and sale of petroleum and petroleum products

2 Since the beginning of the phase IX on 6 December 2000, and as at 30 April 2001, the oil overseers and the Security Council Committee established by resolution 661 (1990) concerning the situation between Iraq and Kuwait, hereinafter referred to as the Committee, have reviewed and approved a total of 159 contracts (including 59 contracts from phase VIII extended into phase IX) involving purchasers from 44 countries (figures in parentheses indicate the number of contracts for that country): Algeria (1); Austria (1); Belarus (4); Brazil (1); Bulgaria (1); Canada (1); China (6); Cyprus (7); Egypt (1); France (9); Greece (2); india (1); Indonesia (2); Ireland (2); Italy (8); Jordan (4); Kenya (1); Lebanon (3); Liechtenstein (3); Malaysia (7); Namibia (2); Nigeria (1); Oman (1); Pakistan (5); Panama (1); Qatar (2); Romania (3); Russian Federation (21); Singapore (1); South Africa (2); Spain (3); Sudan (1); Switzerland (17); Syrian Arab Republic (2); Thailand (2); Tunisia (1); Turkey (6); Ukraine (4); United Arab Emirates (11); United Kingdom of Great Britain and Northern Ireland (3); United States of America (1); Venezuela (1); Viet Nam (1); and Yemen (2).

3 The total quantity of oil approved for export under those contracts amounts to approximately 490 million barrels, with an estimated value of 12.1 billion Euros, or US$ 10.7 billion. However, the volume of oil contracted far exceeds the anticipated export volume of 290 million barrels under phase IX.

4 The estimated total revenue forecast for phase IX (before the deduction for pipeline fees) is 6.5 billion Euros, or $5.7 billion, at current prices and rate of exchange. This is approximately 4.4 billion Euros, or $4 billion, less than that of phase VIII. This is attributable in part to the decline in market prices over the period, but predominantly to the reduced rate of oil exports under the programme during the first part of phase IX, accounting for approximately 2.8 billion Euros, or $2.6 billion, of the revenue that was not made available. Although the rate of export returned to a normal level of above 2 million barrels per day during the latter part of phase IX, the reduced rate of export at the beginning of the phase resulted in the loss of approximately 100 million barrels of crude oil.

5 As at 30 April 2001, 139 loadings totalling 216.7 million barrels, with an estimated value of ,836 million Euros, or $4.293 million, at the current rate of exchange, have been completed.

6 During the course of phase IX, two irregularities in crude oil export operations were identified and reported by the oil overseers to the Security Council Committee established by resolution 661 (1990) (hereafter referred to as the Committee). Both cases involved a potential loss of revenue for the United Nations Iraq account owing to non-compliance by purchasers with the authorized discharge destination. The revenues concerned were, however, recovered and deposited into the United Nations Iraq account. In order to decrease the possibilities for such deviations to occur in the future, on 1 April 2001, the oil overseers initiated the issuance of notifications to ships' masters, advising them of the authorized export destination.

7 The Security Council, in paragraph 15 of its resolution 1330 (2000), requested me, inter alia, to make the necessary arrangements, subject to the approval of the Council, to allow funds up to 600 million Euros deposited in the escrow account to be used for the cost of installation and maintenance, including training services, of the equipment and spare parts for the oil industry which had been funded in accordance with the provisions of resolution 986 (1995) and related resolutions. Accordingly, a team of experts was dispatched to Iraq from 18 March to 1 April 2001, and is currently finalizing its report. I expect to submit my recommendations, together with an executive summary of the report prepared by the experts, to the Council before the end of May. Copies of the full report will also be made available.

Oil exports from Iraq

8 The modus operandi for the inspection of oil exports originating from Iraq has remained unchanged. During the current phase, 14 independent inspection agents from Saybolt were on site, based in Mina al- Bakr and Zakho in Iraq and Ceyhan in Turkey.

Mina al-Bakr

9 Crude oil loadings have continued from the Mina al-Bakr oil platform under the supervision of the Saybolt monitoring team, consisting of six monitors. The total net volume of crude oil delivered to vessels was 101,329,265 barrels, as ascertained by reference to the vessels' calibration charts. This is equivalent to an average of 1,138,531 barrels per day. No improvements in the living conditions, general safety arrangements or transportation facilities on Mina al-Bakr have been reported.

MS-1 metering station, Zakho

10. The transfer of crude oil from Iraq via the Iraq- Turkey pipeline to the Botas terminal in Ceyhan, Turkey, has continued under the supervision of the Saybolt monitoring team, which consists of three members. The volume of crude oil monitored through the metering banks at the MS-1 metering station at Zakho was 59,962,679 barrels. This is equivalent to an average of 673,738 barrels per day.

Botas terminal, Ceyhan

11 The receipt of crude oil from Iraq via the Iraq / Turkey pipeline at the Botas terminal has continued under the supervision of the Saybolt monitoring team, consisting of five members. The volume of crude oil monitored as flowing into the receiving storage tanks at the Botas terminal, ascertained by reference to storage tank calibration charts, was 59,965,486 barrels, equivalent to an average of 673,770 barrels per day. The total net volume of crude oil delivered to vessels was 66,415,249 barrels, as ascertained by reference to the vessels' calibration charts. This is equivalent to an average of 746,239 barrels per day.

Total crude oil exports

12 During the period under review, the total net volume of crude oil exported from Mina al-Bakr and Ceyhan, as monitored by Saybolt, was 167,744,514 barrels, or an average of 1,884,770 barrels per day. Of the total volume exported, 39.6 per cent was exported through Ceyhan and 60.4 per cent was exported through Mina al-Bakr.

13 The United Nations accounts pertaining to the Iraq programme are divided into seven separate funds pursuant to paragraph 8 (a) to (g) of Security Council resolution 986 (1995). As at 30 April 2001, 3,253.8 million Euros had been deposited in the account for phase IX, as authorized under Council resolutions 1284 (1999) and 1330 (2000), bringing the total oil sale revenue since the inception of the programme to $37,333.9 million and 4,833.4 million euros. The allocation of total oil revenue among the various funds and corresponding expenditures, as at 30 April, are reported in annex I to the present report; the number and value of letters of credit pertaining to oil proceeds and humanitarian supplies are reported in annex II.

14 In paragraph 9 of resolution 1330 (2000), the Security Council requested that I take the necessary steps to transfer the excess funds drawn from the account created pursuant to paragraph 8 (d) of resolution 986 (1995) for the purposes set out in paragraph 8 (a) of that resolution in order to increase the funds available for humanitarian purchases. In my previous report to the Council (S/2001/186, para. 25), I reported that a review to identify unencumbered funds under phase VIII of the programme was under way. However, as a result of the substantial decrease in the rate of oil proceeds during the first 90-day period of the current phase, no excess funds were available for redistribution towards the purchase of additional humanitarian supplies during the current reporting period. A further review will be conducted at the end of the current phase and any excess funds identified at that time will be made available for redistribution accordingly.  

B United Nations accounts pertaining to the Iraq programme

III Processing and approval of applications for contracts

15. The Secretariat has regularly brought to the attention of the Government of Iraq the inordinate delays in the submissions of applications. Much to my regret, as at 14 May 2001, the Office of the Iraq Programme had not received a single application in the sectors of health, education, water and sanitation and oil spare parts and equipment under phase IX. While the value of submitted applications for the food basket has exceeded 85 per cent of the revised allocation, the average rate of submissions in other sectors of the distribution plan stands at some 19 per cent of the total allocations for these sectors. Applications submitted under the housing, electricity, transport/telecommunications, food handling and agriculture sectors account, respectively, only for 59.2 per cent, 38 per cent, 30.2 per cent, 27.3 per cent and 14.2 per cent of the revised sectoral allocations.

16 Meanwhile, the Office of the Iraq Programme continued to provide the Committee with regular comprehensive and analytical reports and data regarding applications processing, particularly on programme-related reasons for the lifting of holds placed on applications and the interrelationship among supplies required for given projects and activities. Through providing examples of the detailed specifications normally requested by the Secretariat and the holding missions, the Office of the Iraq Programme has continued to assist the suppliers in preparing the requested information in connection with incomplete and non-compliant applications and those which are placed on hold. The Office of the Iraq Programme, the United Nations Office of the Humanitarian Coordinator for Iraq and United Nations agencies and programmes have assisted the Iraqi institutions in developing the technical details of the contracted items that are currently on hold, or are likely to be subjected to holds. The annual briefing organized by the Contracts Processing Section of the Office of the Iraq Programme, on 10 April, provided a useful forum for over 200 representatives of some 65 Member States and guests from their respective business communities to further acquaint themselves with various aspects of the programme and to discuss all procedural and practical issues arising from commercial activities under the programme.

Processing of applications received under the ESB (59 per cent) account

17 As at 9 May 2001, over $19.5 billion and over 3 billion Euros had been made available under the ESB (59 per cent) account since the start of the programme implementation, excluding the amount of $1.04 billion reimbursed from the ESC (13 per cent) account for supplies procured under the bulk purchase arrangements and delivered by the Government of Iraq to the three northern governorates. Furthermore, some $138 million was paid from the ESC (13 per cent) account for the cost of oil spare parts delivered to Iraq. An additional amount of $881 million has been earned from the interest on the funds in the Iraq account. Therefore, the total funds available for contracting by the Government of Iraq had reached some $24.24 billion, as at 9 May 2001. After deduction of the cost of supplies paid for on arrival in Iraq and the cost of approved applications, as at 9 May, $2.82 billion was still available for new contracts. It should be borne in mind that funds are segregated by the United Nations Treasury only when applications are approved or are "notified" by the Secretariat.

18 As at 14 May 2001, a total of 15,708 contract applications. with a total value of $27.032 billion, had been submitted under the ESB (59 per cent) account, under the distribution plans for phases I to IX. Out of the above total, 1,150 contract applications were subsequently declared null and void either by the contracting parties or as a result of indefinite blocks imposed by Committee members. A total of 12,373 applications, with a value of $21.79 billion, have been approved by the Committee established by resolution 661 (1990), or pursuant to paragraphs 17 and 18 of resolution 1284 (1999) and paragraph 8 of resolution 1302 (2000), "notified" by the Secretariat. In addition, 1,699 applications, with a total value of $3.71 billion, were placed on hold in the Committee. Furthermore, 338 applications, valued at $1.11 billion, which were incomplete or did not comply with either the approved distribution plans or the procedures of the Committee, could not be processed by the Secretariat. Out of the above total, 138 applications, valued at $185 million, were transferred to "inactive" status owing to the lack of response by the suppliers on the required information, corrections or amendments. A further 128 applications, which had been received during the month of May. with a total value of $385 million, were being actively processed.

19 Since the inception of the programme, the rates of submission have varied greatly among different sectors, with the food handling and electricity sectors exceeding the sectoral allocations by 14 per cent and 7 per cent, respectively, and the oil spare parts, education, health, water/sanitation and transport/communications sectors having reached 71.9 per cent, 72.2 per cent, 79.7 per cent, 82.1 per cent and 86.7 per cent of the respective sectoral allocations. 20. Supplies at a total value of $11.1 billion, including oil spare parts and equipment worth over $700 million, had been delivered to Iraq as at 30 April 2001. Additional supplies valued at $10.36 billion, including some $800 million worth of oil spare parts and equipment, were in the production and delivery pipeline.

ESC (13 per cent) account

21. As at 9 May 2001, over $5.3 billion had been made available under the ESC (13 per cent) account since the beginning of programme implementation in the three northern governorates. This amount includes the funds subsequently reimbursed to the ESB (59 per cent) account for supplies of food, medicine and vaccines delivered by the Government of Iraq to the three northern governorates under the bulk procurement arrangements, as well as the funds charged to the ESC (13 per cent) account for the cost of oil spare parts delivered to Iraq.

22 The United Nations agencies and programmes involved in the implementation of the programme have submitted a total of 3,567 applications under the ESC (13 per cent) account, of which 174 applications were subsequently cancelled. A total of 3,334 applications. valued at $1.062 billion, have been approved by the Committee, or pursuant to paragraph 17 of resolution 1284 (1999) and paragraph 8 of resolution 1302 (2000), "notified" by the Secretariat. Two applications, with a total value of $273,495, have been placed on hold, and 45 applications, with a total value of $11.7 million, are currently under processing or evaluation, awaiting further clarifications.

23 I am concerned that there has not been much improvement in the rate of submission of applications by United Nations agencies and programmes, though the reasons for the difficulties encountered in that regard are different from those experienced under the ESB (59 per cent) account. The Executive Director of the Iraq Programme has taken up the matter with the executive heads of the agencies and programmes concerned in order to expedite the contracting of supplies and equipment for the three northern governorates.

Oil spare parts and equipment

24 Against a total of $3 billion authorized by the Security Council for the procurement of oil spare parts and equipment under phases IV to IX, the Office of the Iraq Programme has received a total of 3,506 applications valued at some $2.158 billion. Out of that total, 2,679 applications valued at over $1.52 billion have been approved, including 221 applications valued at $161 million, which were approved by the group of oil experts of the Office of the Iraq Programme pursuant to paragraph 18 of resolution 1284 (1999). A total of 545 applications valued at $442 million have been placed on hold, while 103 incomplete or non compliant applications, valued at $81.5 million, remained idle pending further action, mostly by the suppliers. Forty-seven applications valued at $92 million, which were submitted in May, were actively being processed.

25. With all the efforts made for the provision of funding for oil spare parts and equipment, I can only reiterate my regret expressed in previous reports that there has been no major improvement in the submission of oil spare parts applications. Some five months after the end of phase VIII, the total value of applications received by the Secretariat for oil spare parts and equipment under that phase remains at about one third the authorized allocation. This situation is further compounded by the fact that, with only about three weeks remaining to the end of phase IX, not a single application had been received by the Secretariat under the current phase.

26. I should like to appeal to the Government of Iraq to ensure the submission of applications concerned as expeditiously as possible. I should also like to appeal to the Committee to approve the applications concerned and also to facilitate the implementation of paragraph 18 of resolution 1284 (1999), in order to ensure the attainment of its intended objective. Although the project-based list of oil spare parts and equipment for phase IX was submitted by the Secretariat to the Committee on 20 February, with only three weeks before the end of the phase, the list had yet to be approved.

27 The value of oil spare parts and equipment approved under earlier phases and delivered to Iraq reached a total value of over $700 million as at 30 April 2001, with additional supplies valued at about $800 million still in the production and delivery pipeline.

Incomplete and/or non-compliant applications under the ESB (59 per cent) account

28 I have been concerned over the large volume of incomplete and/or non-compliant applications submitted to the Secretariat as well as the generally slow rate of responses from the suppliers to the requests for additional information, clarifications and/or corrections. The Executive Director of the Iraq Programme brought to the attention of the Security Council Committee, the permanent representatives of 27 Member States concerned, as well as to the Permanent Representative of Iraq to the United Nations the details of applications on which the Secretariat had not received the required responses in excess of six months. The Executive Director advised all concerned that applications for which the required information had not been submitted in excess of 60 days would be declared "inactive". with no further action to be taken by the Office of the lraq Programme. I am pleased to note that the letters expedited responses from the suppliers, leading to some $232 million worth of applications being circulated to the Committee or notified by the Secretariat. Accordingly, the value of the applications that had remained idle for an average period of over six months decreased from $417 million in mid-March to $185 million in mid-May. Applications placed on hold

Applications Placed on hold

29 I am gravely concerned that since my previous report in early March, the total value of holds has increased from $3.1 billion to $3.7 billion, as at 14 May 2001, reaching the level of 17.8 per cent of the value of all applications circulated to the Committee.

30. I welcome the Committee's decision to start a fresh round of technical meetings in order to be briefed, on each sector, by the relevant United Nations agencies and programmes, as well as to review the holds placed on applications in those sectors. On 4 May 2001, the Committee was briefed on the state of the telecommunications sub-sector in Iraq and on issues pertaining to holds placed on applications submitted under the sub-sector. which is the highest relative percentage of holds in any sector. The next technical briefing, scheduled for 8 June, will be on the agriculture sector.

Implementation of paragraph 25 of resolution 1284 (1999)

31 Pursuant to paragraph 25 of resolution 1284 (1999), the Secretariat continued to notify the Committee of all applications containing items subject to the provisions of the export/import mechanism established by resolution 1051 (1996). The additional information obtained by the Secretariat for the above determination is shared with the Committee with a view to reducing the number of holds placed on applications for lack of technical specifications.

32 As at 14 May, there were 218 applications valued at $462 million, on which at least one member of the Committee disagreed with the determination of Secretariat experts that they had not identified in those applications any item included in the "1051-list". Although the above figure indicates a 56 per cent increase during the reporting period, there has been an increase of only about 3 per cent in the value of the applications concerned. Such disagreements are being addressed by the Office of the Iraq Programme through facilitating the exchange of technical information between the experts of Secretariat and the Committee members concerned on the basis of the informal points of understanding reached at a meeting held on 23 January, with a view to improving the flow of information, prioritization of reviews and greater utilization of the United Nations observation mechanism as a condition for approving applications containing items of potential "dual use".

33. As requested in paragraph 19 of resolution 1330 (2001), the Executive Chairman of the United Nations Monitoring, Verification and Inspection Commission (UNMOVIC) and the Director-General of the International Atomic Energy Agency (IAEA) will complete by the end of this period the revision and updating of the lists of items and technologies to which the import/export mechanism approved by resolution 1051(1996) applies.

Approvals and/or releases on the condition of monitoring and observation

34 The further integration and consolidation of observation and monitoring resources of the Office of the Iraq Programme and the United Nations Office of the Humanitarian Coordinator for Iraq, the United Nations agencies and programmes and the independent inspection agents, Cotecna and Saybolt, have significantly helped in the approval and/or release from hold by the Committee of 676 applications valued at $ 1.316 billion, on the condition that special targeted monitoring and observation is carried out. I strongly urge the Committee to place greater confidence in the United Nations observation and monitoring system in order to approve or release from hold the applications containing items that are on the list provided for under resolution 1051 (1996). The Office of the Iraq Programme has established a special database for tracking items approved or released from hold on condition of targeted end -use observation/monitoring, and is working on improving access to it by the Committee members

Notifications and approvals by the Secretariat

35 Pursuant to the relevant provisions of resolutions 1284 (1999) and 1302 (2000), the Secretariat notified the Committee that 2,173 applications, with a total value of $4.69 billion, were eligible for payment,  including 221 applications for oil spare parts and equipment worth $161 million, which were approved by the group of oil experts. The above total amount represents an increase of almost 50 per cent since 28 February 2001, which is mainly attributable to the early submission of the food applications, and partly to the approval by the Committee, in February, of the lists of additional items in the agriculture, education, food and food-handling, health, and water and sanitation sectors, pursuant to paragraph 11 of resolution 1330 (2000). The categorized lists of items for the housing and electricity sectors were submitted to the Committee in February, as requested in paragraph 10 of resolution 1330 (2000). While the housing sector list was revised and approved by the Committee on 27 February, the electricity sector list still remains on hold.

Letters of credit

36 Just as I am gravely concerned over the unacceptably high level of holds placed on applications, I am very much concerned about the delays experienced with the Central Bank of Iraq in taking the necessary measures to expedite the issuance of letters of credit. According to the records of the United Nations Treasury, as at 14 May, BNP-Paribas had issued a total of approximately $20.190 billion worth of letters of credit and had paid the suppliers a total amount of approximately $11.653 billion for the supplies delivered to Iraq. With some 145 letters of credit actively being processed at present, there was no major backlog in the issuance of letters of credit by BNP-Paribas. However, as at 14 May, there was a total of 717 already approved applications valued at $1.151 billion, for which BNP-Paribas had not received requests from the Central Bank of Iraq to issue letters of credit. The above figures represent an increase of over 31 per cent in the number, and over 34 per cent in the value of applications in that category as at 28 February 2001.

37 The Government of Iraq has been kept fully up to date on this unsatisfactory situation and has been repeatedly reminded of the need for a determined effort to address this persistent problem. On several occasions the Central Bank of Iraq has been requested to expedite its instructions regarding the opening of letters of credit soon after the approval of applications and to reduce the time it takes to respond to the requests for clarification by BNP-Paribas. In this connection, I welcome the ongoing visit to New York of a representative of the Central Bank of Iraq to expedite activities related to banking arrangements and to resolve some pending matters. I do wish to express the hope, however, that the current visit of the representative of the Central Bank of Iraq constitutes a first step towards implementing my repeated recommendation that the Government of Iraq deploy to New York a representative of the Central Bank of Iraq, at the appropriate level, as envisaged in paragraph 13 of the Memorandum of Understanding between the United Nations Secretariat and the Government of Iraq (S/1996/356).

Commercial protection

38 There is no sign of a decrease in the estimated number of 1,500 to 2,000 disputes arising annually from commercial malpractice by the suppliers of goods to Iraq under the programme. This is borne out by the comparable number of applications submitted for the export of free - of- charge goods as compensation, warranty or replacement items in return for incomplete shipments and defective or non-compliant items, which provides an indication of the magnitude of the disputed cases, which the contracting parties appear to have resolved through bilateral negotiations. Despite efforts by the Government of Iraq, including measures to avoid intermediaries and delinquent suppliers and to engage only reliable producers and manufacturers, the number of cases where supplies are not delivered in full or do not comply with contractual specifications will increase further, as the volume, variety and complexity of supplies delivered to Iraq continue to increase.

39 As I stated in my most recent report (S/2001/186, para. 60), the useful unilateral measures taken by the Government of Iraq to reduce the number of commercial disputes alone are not a remedy for such cases where a one-time supplier defies its contractual responsibilities and takes undue advantage of the existing vacuum in the commercial safeguards under the programme. Furthermore, bilateral resolution of disputes is effective and useful only if both parties act in good faith in discharging their contractual obligations. Regrettably, this has not always been the case with regard to some suppliers, as evidenced, inter alia, by the large number of unresolved letters of discrepancy filed in connection with the shipments of oil spare parts.

40. Accordingly, it is essential to provide legitimate commercial protection to the Iraqi buyers. 1 regret that. after the much delayed resumption of discussions on the subject in February 2001, these informal discussions of the Committee on the options submitted by the Office of the Iraq Programme in July 1999, concerning payment clauses for the ESB (59 per cent) account, have been suspended once again. I reiterate my appeal to the Committee to accord the highest priority to this matter and to take the measures necessary to protect the ESB (59 per cent) account against commercial malpractice or occasional fraudulent practices.

IV Observation and monitoring activities

A Inspection and authentication of humanitarian supplies

4. The operation of the United Nations independent inspection agent, Cotecna Inspection S.A., has continued at the border entry points to Iraq at Al- Waleed, Trebil, Umm Qasr and Zakho, with the authentication of the arrival in Iraq of supplies procured under the ESB (59 per cent) and ESC (13 per cent) accounts. The sampling, inspection and testing procedures have been further streamlined and the process of authentication and reporting further expedited through the stationing of an additional five staff in the field and the more frequent electronic transmission of data to the Office of the Iraq Programme.

42 There has been some improvement in the logistics and handling conditions in the port of Umm Qasr, where there was considerable congestion as a result of late action by some Iraqi buyers to take delivery of their respective goods and to remove them from the port area, with the consequent delays in authenticating some of the discharged goods. The Office of the Iraq Programme has informed the Government of Iraq of the complaints lodged by many suppliers regarding the ensuing delays in the authentication of and payment for the discharged goods and has urged that the buyers concerned take urgent measures to address those delays. As part of normal monitoring of the agent's compliance and with a view to resolving the recurrent problems in carrying out the inspection mandate, particularly at the port of Umm Qasr, theauthentications expert of the Office of the Iraq Programme is currently touring the four authorized entry points in Iraq.

43 The electronic certification of authentications, which was implemented in February by the Office of the Iraq Programme and the United Nations Treasury, has reduced considerably the time and resources required for finalizing the payment process.

B. Monitoring of oil spare parts and equipment

44 During the period under review, 292 shipments of oil spare parts and equipment were received, of which supplies covered by 327 contracts were confirmed as having been fully delivered and monitored. An additional 72 partial deliveries had been made. The value of supplies delivered during the reporting period is $137.5 million. The total value of deliveries made since phase IV is $701.1 million. There have been no deliveries of oil spare parts and equipment under phase IX.

45 The oil spare parts and equipment monitoring team carried out 782 site visits throughout Iraq. The team is based in Baghdad and consists of six members plus an office manager. Members routinely visit the southern and northern parts of Iraq once a week, covering various warehouses in each area.

46 Owing to the increase in the arrival of oil spare parts and equipment, each monitoring visit to the southern part of the country now takes at least four days to complete, an increase of one day since the period covered in my previous report. Warehouses in the vicinity of Baghdad are covered by the monitors from the Baghdad office and require four days per visit, representing an increase of three days since the previous reporting period.

47 The number of storage locations requiring visits by the monitors has also increased, as original warehouses have reached storage capacity and spare parts and equipment are being increasingly stored on or near end-use sites. The fact that these sites are often located at some distance from one another has placed additional demands on the monitoring team and contributed to the longer time required for monitoring visits. Furthermore, there has also been a greater number of deliveries that require special monitoring and/or end-use or end-user monitoring.

48 In view of the above. consideration is being given to the need for an incremental increase in the number of monitors corresponding to the increase in the rate of oil spare parts and equipment, and the required monitoring activities. Based on current estimates, it is envisaged that an immediate increase of two monitors is necessary. Another four monitors may be required as the rate of arrival of oil spare parts and equipment increases. Further monitors may be required depending on the frequency of follow-up visits under the end-user monitoring scheme.

49 The monitoring team continues to undertake the special operating procedures instituted by the Office of the Iraq Programme with regard to the specialized monitoring of certain contracts. Examples of this include the inspection of ultrasonic equipment imported under a service contract for the Northern Oil Company. An inspection of the equipment in question confirmed that it had arrived and was operating on site. All equipment was tagged with a unique reference number (URN) seal for re-export upon completion of the contract, as per the guidelines for special monitoring procedures. Upon the re-export of such equipment from Iraq, the independent inspection agents, Cotecna, found that all URN seals were intact.

C. United Nations observation mechanism

50 As indicated in my previous report (S/2001/186, para. 70), pursuant to paragraph 3 of resolution 1330 (2000), the recruitment of the full complement of 158 international observers has been completed. In order to meet the needs and concerns of the Security Council and its Committee established by resolution 661 (1990), generalists currently occupying observer posts are gradually being replaced by specialists, with the requisite technical qualifications and experience. The specialist observers from all tiers are pooled in sectoral working groups, which plan, deploy and report as single entities. In addition to tracking and observing the distribution of supplies, the specialized observers have conducted an increased number of assessments on the effectiveness of programme implementation and its impact on the humanitarian situation, including the impact on programme implementation by holds placed on applications, and the adequacy of available resources. A number of these reports have led to an enhanced understanding by members of the Committee of sectoral issues and prioritization by the Committee in the approval of applications for contracts reflecting the most pressing civilian needs of the Iraqi population.

51 One of the major tasks performed by the sectoral working groups during the reporting period was the updating of existing "green lists" and submission of the proposal for new sectoral "green lists" for fast-track approval of contract applications pursuant to paragraphs 10 and 11 of resolution 1330 (2000). The sectoral working groups have also ensured the observation of items approved by the Security Council Committee on the condition of "end-use observation", which has helped in expediting the approval or release from hold of 676 applications (with a total value of $1.316 billion), which constitutes an increase of about 33 per cent since he last reporting period. In this respect, despite occasional difficulties encountered, relating particularly to the collection of statistical data, I am satisfied with the cooperation received from the Government of Iraq.

52 The distribution of observations by sector and type as conducted by the sectoral working groups during the reporting period is reflected in annex III to the present report.