FUEL PRICES TO RISE COUNTRYWIDE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003989

SIPDIS

E.O. 12958: DECL: 09/26/2015
TAGS: ECON ENRG EPET PGOV IZ
SUBJECT: FUEL PRICES TO RISE COUNTRYWIDE

REF: BAGHDAD 3939

Classified By: Economic Minister Counselor Thomas Delare for reasons 1.
4 (b) and (d).


1. (C) Summary: Director General of the Oil Products
Distribution Company Zuhayr Shakir said September 23 that the
$.08/gallon price rise for regular octane fuel that went into
effect in Baghdad September 17 will be extended countrywide
in October. Zuhayr's company is formally part of the
Ministry of Oil, but there still has been no formal
announcement of a change in pricing policy from the Ministry.
So far, there also has been no public reaction in Baghdad to
the September 17 rise. The Ministry is also quietly raising
the subsidized price in Baghdad of liquid propane gas (LPG)
and has introduced the option of fee-based home delivery by
private distributors into the winter program for distribution
of kerosene and LPG. End Summary.

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Softly, Softly
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2. (C) Director General of the Ministry of Oil's
Distribution Company Zuhayr Shakir said September 23 that he
ordered the approximate $.07/gallon rise on regular octane
gasoline, initiated September 17 in Baghdad (reftel),be
extended nationally in October. As with the Baghdad
increase, however, we expect no official announcements.
Septel reports on the Ministry of Oil draft proposal to
liberalize some fuel imports and downstream petroleum
distribution.

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Baghdad Non-Reaction a Good Thing
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3. (SBU) Public reaction to the mid-September Baghdad price
rise (reftel) has been muted, as Baghdad residents had
already been paying higher prices for fuel on both the black
market ($.78-$1.04/gallon) and at the mobile gas stations
($.26/gallon). This non-reaction appears to have paved the
way for further MO efforts on fuel prices at the pump.

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Baghdad Winter Distribution Plan Another Step Forward
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4. (U) Newspapers the week of September 18 announced MO
plans for regulating the sale of kerosene and liquid propane
gas (LPG) during the winter months, beginning in October.
The program begins first in Baghdad and will be carried out
through a coupon mechanism based on the Public (Food)
Distribution System (PDS). Coupons are transferable. Under
the plan, a Baghdad family of five members or less is
entitled to purchase 7.92 gallons (30 liters) of kerosene per
month at 5 ID/liter, or just over a penny per gallon.
Families of six to 12 are authorized to purchase 40 liters
(10.56 gallons)/month at the subsidized price; families with
12 members or more can purchase 50 liters (13.2
gallons)/month. New in 2005, consumers who request home
delivery will pay roughly $.07/gallon (1470 ID = $1.00). Any
purchases above the allotted amounts will be at the home
delivery rate of $.07/gallon.


5. (U) A family of five members or less is entitled to
purchase three liquid propane gas (LPG) cylinders per month
at a cost of $.17 per cylinder, up from the current cost of
$.14 cylinder. A family with five or less members is
entitled to purchase three cylinders/month at the subsidized
price, while families with more than five members are
entitled to purchase 5 cylinders/month. As with kerosene, a
consumer can request home delivery at a higher price of
roughly $.51/cylinder. Consumers may purchase more than the
allotted amount at a cost of $1.02/cylinder.


6. (C) According to MO DG Zuhayr, the Ministry will license
kerosene and LPG distributors throughout the country. These
individuals are authorized to purchase at the subsidized
rates (above). The home delivery rate allows the distributor
a modest profit once trucking costs are factored in.
(Comment: We note with concern that the MO is still
regulating the profit margins of the distributors. End
Comment.) Small businesses and restaurants will also pay the
higher price for kerosene, according to Minister of Oil
Ibrahim Bahr al-'Ulum.


7. (SBU) Comment: The economic impact of these steps will
probably be virtually nil with petroleum products remaining a
virtually free good, aside from the often considerable time
required for queuing. However, it may be that an important
psychological step has been taken as Iraqis are exposed to
higher prices. DG Zuhayr, a career Ministry employee who
recently transferred to his position from responsibilities in
the production arm of the Ministry, strikes us thoughtful and
genuinely interested in experimenting with new ways to
rationalize Iraq's fuel situation.
Khalilzad