OIL, GAS, AND ELECTRICITY FOR IRAQ: ENERGY

UNCLAS SECTION 01 OF 02 AMMAN 006621

SIPDIS

SENSITIVE

PASS TO TDA FOR FOR CYBIL SIGLER/HENRY STEINGASS

E.O. 12958: N/A
TAGS: ENRG ETRD EINV JO
SUBJECT: OIL, GAS, AND ELECTRICITY FOR IRAQ: ENERGY
MINISTER DISCUSSES GOJ OPTIONS AND PLANS

REF: AMMAN 2367


1. (SBU) SUMMARY: Jordanian Minister of Energy Mohammed
Bataineh told DCM on October 14 that little progress beyond
statements of principle has been made in talks on the
provision of Iraqi oil to Jordan. He expressed pride at the
completion of the first phase of the Egypt-Jordan gas
pipeline and conversion of the Aqaba power station to gas,
and was optimistic about the extension of the pipeline and
gas supplies to northern Jordan. He discussed outstanding
and upcoming tenders for the refurbishment of Jordan's Zarqa
oil refinery and the creation of new power generating
facilities. Finally, he alerted Emboffs to the possibility
that the Syrian Minister of Electricity and Turkish Minister
of Energy would be in Jordan next month to discuss the
activation of a six-nation power grid including Iraq - which
would allow Iraq to take excess power from surrounding
Levantine states in larger quantities - and asked for U.S.
assistance in convincing the Turkish Minister of Energy to
support such a reactivation. END SUMMARY.

OIL SUPPLIES


2. (SBU) Bataineh expressed his desire - so far frustrated -
to begin receiving shipments fo Iraqi oil. The post-war
arrangement, in which Jordan is receiving its entire
allotment of crude oil by way of the port of Aqaba, has been
afflicted with constant problems, from bottlenecking at Aqaba
(where there is only one jetty used for offloading crude,
vegetable oil, and sulpho-chemicals) to environmental damage
and road degradation caused by trucks carting fuel north to
Jordan's refinery at Zarqa. (Reftel) The only long-term
solution to this problem would be a switch back to Iraq as
primary supplier or the creation of an Aqaba-Zarqa pipeline,
which would cost a substantial amount and take 2-3 years to
complete. Periodic talks with the Iraqi Oil Ministry - most
recently a meeting yesterday in Amman with Iraqi Minister Dr.
Ibrahim Bahr Al-Uloum - have yielded little beyond a
statement that in principle, Iraq will provide Jordan with
oil by way of a pipeline out of Iraq as soon as it is
practicable to do so.


3. (SBU) Practically speaking, the only current way for Iraq
to export to Jordan would be by way of trucks sent from the
southern fields by way of the highly dangerous Iraqi Highway
1, and Bahr Al-Uloum refused to approve this option based on
the length and danger of the route. Jordan is still
receiving subsidized oil both from Saudi Arabia and Kuwait
(Reftel),and while Kuwait's provision is scheduled to end at
the end of October, the GOJ is negotiating to extend the
provision. Bataineh admitted that he was not sure whether
UAE cash payments that Jordan had been receiving in lieu of
oil during the war were still coming in, though he had heard
Finance Minister Marto complain in a meeting that he had not
received the UAE's payment for September.


NATURAL GAS PIPELINE


4. (SBU) Bataineh called the recently completed gas pipeline
between Egypt's Mediterranean coast and Aqaba "one of the
most successful projects in the region" and proudly projected
that all five turbines of the Aqaba power station would be
using gas by next month (three are already using gas). He
said that the second phase of the project, running from Aqaba
to the Syrian border, would run along the line of the eastern
"Desert Highway," although the Ministry is holding
information on the route closely until all right-of-way had
been purchased from private landholders, to avoid paying
inflated prices. It will be built by the same Egyptian
consortium, EPEG, that built the initial line.


5. (U) EPEG will also receive an 18-year concession to supply
gas to large industries and other major users, but this has
not dampened the enthusiasm of other companies to use the gas
that will be provided. A Kuwaiti company has expressed
interest in using the pipeline to supply a local gas network
for residences in Amman. U.S. contractor Washington Group
International is exploring the construction, with USTDA
support, of a power plant that would supply the 220 MW used
by the Dead Sea-area operations of mining companies.
Bataineh said that both companies will need to negotiate with
the Egyptian consortium supplying the gas to determine the
price that they will pay for it - once the right-of-way is
obtained, GOJ plans to step out of the picture.

UPCOMING ENERGY PROJECTS


6. (SBU) Bataineh bemoaned the poor state of the Jordan
Petroleum Refinery Company's refinery in Zarqa, and said that
the GOJ is looking at two ways of addressing it. He is
currently considering a proposal for a new refinery to be
built near Aqaba, which he says he will only approve if the
final plans place it at least 40 km from the coast and up to
standards of export-quality oil production. More
immediately, the GOJ has consultants conducting a feasibility
study of a USD 500-600 million upgrade of the Zarqa refinery
and the simultaneous divestiture of assets in the Zarqa
refinery complex, such as a shipping service, that are not
directly related to the refining of crude oil. GOJ has
released a tender for the building of a new power station
south of Amman, and is studying the feasibility of a new
independent power project to be begun in 2007.

ELECTRICITY PRIVATIZATION


7. (SBU) Jordan is moving ahead with plans to privatize
portions of its electricity sector, Bataineh said; the
state-owned enterprise that generates power and two power
distribution SOEs will hopefully be ready to be sold off by
April 2004, leaving the GOJ with only the state-owned power
transmission utility. Bataineh regretted that the
post-September 11 investment climate had delayed the
privatization process by scaring off potential buyers of the
companies, but said that consultant Rothschild Associates is
moving ahead with its study of the feasibility of
privatization and should have its findings in soon. He also
noted that the former SOE handling power distribution to the
central portion of Jordan has already been 100 percent
privatized.

POWER FOR IRAQ


8. (SBU) Bataineh raised the subject of power supply to Iraq,
mentioning his regret that Jordan had no direct grid
connections with Iraq and could therefore not supply Iraq
with excess power to make up for its substantial power
shortfall. He said, however, that Iraq does have connections
with Turkey and Syria, and that it had at one point been part
of a six-nation power grid (also including Egypt and
Lebanon). If the grid were to be reactivated, he said, Iraq
would be able to obtain considerable excess capacity from the
five other countries on the grid. At the end of the meeting,
Bataineh received a telephone call, then informed us brightly
that the Syrian Minister of Electricity had agreed to meet
with him and the Iraqis in Amman in November to discuss
reactivating the six-nation grid. In this context, he asked
that we help in getting the Turkish Minister of Energy on
board for the meeting, noting past political obstacles to
"turning on the switch" of the electricity grid between
Turkey and Syria and saying that his participation would be
crucial if the meeting was to achieve anything.

COMMENT AND ACTION REQUEST


9. (SBU) Jordan is proceeding with plans to modernize and
diversify its energy sector, despite the difficulties of
problematic fuel supplies and skittish foreign investors.
Post requests CPA and Department guidance on how to proceed
on the proposed November meeting to reintegrate Iraq into the
six-nation power grid.
GNEHM