NEW ENERGY MINISTER ADDRESSES OIL SUPPLY ISSUES

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 007299

SIPDIS

PASS TO TDA FOR FOR CYBIL SIGLER/HENRY STEINGASS

E.O. 12958: DECL: 11/05/2013
TAGS: EPET ENRG EINV PREL JO IZ
SUBJECT: NEW ENERGY MINISTER ADDRESSES OIL SUPPLY ISSUES

REF: A. AMMAN 6621

B. FLOWERS-SCHEDLBAUER E-MAIL 10/29/03

Classified By: Ambassador Edward W. Gnehm for reasons 1.5 (b) and (d)


1. (C) SUMMARY: Newly appointed Jordanian Minister of Energy
Azmi Khreisat told the Ambassador on November 5 that Jordan
has agreed to purchase three million barrels of Iraqi oil
before the end of the year. He expressed optimism about the
six-nation power grid initiative and the Egyptian gas
pipeline, said that large-scale oil smuggling over the
Jordanian-Iraqi border was unlikely, and discussed upcoming
electricity sector privatization and projects. END SUMMARY.

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OIL SUPPLIES
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2. (SBU) Upon the Ambassador's questioning, Khreisat
elaborated on press reports that the GOJ had reached a deal
with the Iraqi State Oil Marketing Organization (SOMO)
providing for Iraqi crude oil exports to Jordan. The GOJ has
arranged with SOMO to purchase three million barrels of Iraqi
oil between now and the end of the year. It will be
delivered by tanker to Aqaba in three, one-million-barrel
shipments, the first of which is scheduled to arrive in Aqaba
November 14. The GOJ will pay SOMO for the oil by letter of
credit at an American bank. The oil will be purchased at
current market prices (a press statement by the Ministry of
Energy Secretary-General gave the price for the first
shipment as $26-27 million dollars). In the long term, the
Minister would prefer to receive oil on land by truck, and
eventually by pipeline due to limited port capacity. The
latter project, begun before the war, has been in suspense
since then - the Iraqis are not building toward Jordan from
their end, and the Jordanians are not building toward Iraq.
Khreisat said that when work on the pipeline resumes, he
hopes to be able to turn it over to the private sector. He
does not expect the private sector to be interested unless
the correct laws are in place in Iraq.


3. (SBU) Khreisat noted that the Saudi commitment was to
supply free crude (Jordan must pay transportation costs)
through the end of the year, though the GOJ is continuing its
effort to get an extension. (NOTE: We understand separately
that there has been a political commitment through March 2004
that has yet to be translated into a final arrangement. PM
Al-Fayez has told the Ambassador he would travel to Saudi
Arabia soon in order to try to review the deal for another
year.) Khreisat seemed confused about the status of the
Kuwaiti and UAE contributions, which he said might have
already ended or might continue through the end of the year.
(NOTE: The King traveled briefly to Kuwait on Nov. 5, and oil
undoubtedly figured in his talks there.)

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6-NATION POWER GRID
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4. (SBU) Khreisat believes the six-nation power grid presents
great potential to help fill Iraq's power needs. He says
that both Syria and Turkey have substantial extra power to
sell and is optimistic about a plan to extend Jordan's power
grid to connect with the Iraqi grid at Rutba. (NOTE:
Khreisat's assessment of the six-nation power grid's
near-term potential is in line with the assessment of the
previous Minister Bataineh (ref A),but not with that of his
Secretary-General or the electricity sector within his

SIPDIS
ministry (ref B). The latter say that the low-volume nature
of existing and proposed connections would make any
contribution to Iraqi power made by the six-nation grid
marginal at best, at least in the short term.)

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NATURAL GAS PIPELINE
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5. (SBU) Khreisat said that the Egyptian consortium EPEG is
still arranging financing for the second phase of the natural
gas pipeline, which will run from Aqaba to the power plant at
Rihab near the Syrian border. He believes that financing
will likely take a few more months to complete, but that the
line should be completed by late 2005 or early 2006. Once
the line is complete, the Rihab power plant would switch over
to natural gas. He noted that the switchover of the Aqaba
power plant to natural gas, which is still incomplete (three
of five turbines have switched over with the other two to be
switched this month),had left the Zarqa refinery producing
1,000 tons of fuel oil per day for which there was no demand
in Jordan and which the refinery was exporting.

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OIL SMUGGLING
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6. (C) The Ambassador raised the reported smuggling of oil
by truck from Iraq to Jordan. Khreisat claimed that it was
not a big issue from Jordan's perspective. He believes that
some small-time smuggling might take place through the
border, likely of finished products rather than crude. The
Minister recalled that there had been an agreement right
after the war to provide Iraq with some limited quantities of
gasoline in exchange for crude, but that was long since
completed. He noted that there were a few tanker trucks
still coming back from Iraq, as the Khawan family had
recently imported a shipment of diesel into Iraq through
Jordan per contract, but he assumed they are being checked at
the border. He raised the possibility of oil being imported
into Jordan by Iraqis who had been paid in kind for services,
but suggested that if this were the case, CPA would likely
have known about it and given approval. He did not mention
receiving a letter from SOMO or of any other request for
support from the GOI in connection with smuggling allegations.

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UPCOMING ENERGY PROJECTS
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7. (SBU) The petroleum refinery in Zarqa (which Khreisat ran
before being appointed Minister) is a real headache for the
government of Jordan, Khreisat said. At present, it requires
3,000 tons of diesel per day to run the refinery, all of
which is being imported through tendering into an already
crowded port of Aqaba. The proposed USD 600-700 million
renovation of the refinery should help solve some of these
problems, allowing the refinery to produce
environmentally-friendly products more efficiently. The
financing of this project will be a major hurdle, however.


8. (SBU) The Ministry of Energy is also beginning to issue
tenders for the privatization of the electricity sector.
Khreisat asked what could be done to increase U.S. investor
interest in the sector, and what role USTDA could play in it.
Told that USTDA could finance consultants to help the
ministry with the privatization process, Khreisat said that
U.S.-based consultuing firms had already been contracted to
help in this way, including Kellogg, Brown, and Root and K&M,
which is consulting on the combined-cycle project.


9. (SBU) While the Al Samra independent power project (IPP)
in northern Jordan appears dead, the GOJ has begun tendering
for a traditionally-financed power project and will be
receiving bids next month. The GOJ still plans to tender for
another IPP in 2007-8.

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COMMENT
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10. (C) Khreisat's prior experience in the Ministry of Energy
and at the refinery gives him a good working knowledge of the
issues that he will confront as minister. His interest in
involving American investment and supply in upcoming
Jordanian projects should make him a good partner for the
Embassy. His interest and involvement in the six-nation
power grid and the Iraqi oil purchase deal appears to signal
a desire to be just as good a partner for Iraq, in line with
the King's strategic direction. The oil-purchase deal
between GOJ and SOMO, which will have no effect on the price
Jordan pays or on relieving the congestion at Aqaba port,
shows this minister's focus on the long-term Jordanian-Iraqi
energy relationship.
GNEHM