July 29 (Bloomberg) -- The U.S. reconstruction of Iraq's oil and electricity systems failed to lift energy production above pre-war levels as of May of this year, the U.S. Government Accountability Office said in a report.

Some funds intended for power system reconstruction have had to be diverted ``to meet immediate needs in security and economic development and to fund smaller, more visible reconstruction projects,'' the congressional agency said in a report released yesterday.

As a result, the agency said, Iraq's crude oil production and export capacity in May was lower than in March 2003, before the U.S. invaded Iraq and toppled Saddam Hussein's regime. Electrical power generation only late last month exceeded pre-war levels, the report said.

Of about $24 billion the U.S. has provided since 2003 for reconstruction, about $9 billion has been spent, including on fixing power generation and water treatment systems, equipping security forces and paying administrative costs, the report said.

While ``the U.S. program has accomplished activities focused on restoring basic essential services,'' the report said, ``reconstruction efforts continue to face challenges, such as rebuilding in an insecure environment.''

The attempts to restore Iraq's electrical infrastructure underscore the challenges, GAO wrote. The restoration has been slower than anticipated due to insurgent sabotage, lack of fuel to run generators and ineffective management of electrical generation.

`Slower Than Planned'

Some activities ``to restart Iraq's oil production and export have been completed,'' the report said. Still, ``implementation of the program to assist in restoring and sustaining to pre-March 2003 capacity of 2.6 million barrels a day has been slower than originally planned,'' GAO said.

Of $2.7 billion in U.S. tax dollars set aside for the oil industry, $1.1 billion had been paid out as of March 31. Initial production and export targets were hit in 2003 through early 2004 because of a focused U.S. effort, said GAO.

Since November 2004, however, insurgent pipeline attacks and the cumulative effects of years of improper management dropped production and export levels to below March 2003 levels, GAO said.

Daily oil production between December 2004 and May remained constant at 2.1 million barrels per day. The Iraqi target for December is to reach 2.8 million barrels per day in production.

The GAO, in a separate report on Afghanistan reconstruction, said the U.S. didn't meet all its targets because of security and other obstacles. For example, the U.S. Agency for International Development intended to rehabilitate or build 286 schools by the end of 2004. Because of poor contractor performance and security problems, only eight were completed by September 2004.

The report said the development agency lacked a comprehensive strategy to direct its efforts, didn't consistently require contractors to fulfill contract provisions and didn't systematically collect info needed to assess progress of major projects.

The development agency said in response that it has made progress in improving its strategic planning in Afghanistan, according to the report.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

Last Updated: July 29, 2005 00:05 EDT