NATIONAL ENERGY COUNCIL PROPOSES WAY FORWARD ON

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000219 SIPDIS SIPDIS E.O. 12958: DECL: 01/23/2016 TAGS: ECON EFIN ENRG EPET MOPS MARR PGOV PREL IZ SUBJECT: NATIONAL ENERGY COUNCIL PROPOSES WAY FORWARD ON ARREARS REF: BAGHDAD 0210 Classified By: Economic Minister Counselor Tom Delare for reasons 1.4 ( b) and (d). ¶1. (C/REL GBR AUS) Summary: The National Energy Council (NEC) agreed January 22 in principle to a plan put forward by Minister of Finance Ali Allawi to pay off Iraq's arrears to Turkish fuel suppliers over time. Deputy Prime Minister Chalabi and MinFin Allawi were both adamant that the State Oil Marketing Company (SOMO) purchase fuel only in accordance with the GOI budget from this point forward. Doing this could lead to politically unpopular fuel rationing rather quickly. Mobile repair teams for pipelines are still not established because of poor communication between MoO and interested applicants. The 22" product pipeline remains interdicted in five places in the area of TharThar; fuel is reaching Baghdad by truck. Repair of electricity lines is hindered by poor coordination, and curfews preclude contracted security personnel from guarding the lines overnight. End Summary. ¶2. (SBU) Deputy Prime Minister Ahmed Chalabi convened a meeting of the National Energy Council January 22. Minister of Electricity (MoE) Dr. Muhsin Shalash, Minister of Finance Ali Allawi, Infrastructure Coordination Cell (ICC) Chief BG Kamal, Iraqi Army Chief of Staff LTG Abadi, Security Advisor to the Electricity Protection Security Service BG Sa'ad, Ministry of Oil (MoO) Director General for Technical Issues Samir Mikel, Director General for the State Oil Marketing Organization (SOMO) Musab al-Dujaili, Ministry of Interior Consultant Dr. Abraham, Pol/Mil Minister Counselor, MNF-I STRATOPS, Deputy Director IRMO and Emboffs attended. -------------- Getting - and Staying - Out of Debt -------------- ¶3. (C/REL GBR AUS) Finance Minister Ali Allawi told the National Energy Council January 22 that, after "paying off" Iraq's debt to Turkish firms (quoted at $870 million by the Director-General of the State Oil Marketing Organization (SOMO),Musab al-Dujaili),Iraq must keep future imports within budget and turn over the bulk of importing over to private companies. Chalabi agreed, adding "we cannot continue like this in the coming weeks." Al-Dujaili said that Iraq would need approximately $350 million/month to keep pace with current consumption, which he places at five million gallons per day and of which gasoline accounted for some two thirds. Allawi stressed the need to come to an agreement with Turkey about both the current debt and on a future payment instrument. Al-Dujaili demurred, saying that he "opposed complex payment systems," but both Chalabi and Allawi were adamant: the Ministry of Oil can no longer incur such debt. ¶4. (C/REL GBR AUS) Samir Mikel reported that one million barrels of crude oil is in Qorage at IT1A and another two million has already moved through the 40" pipeline and is in storage in Turkey (NOTE: the 40" pipeline has subsequently gone offline again. END NOTE). Al-Dujaili said that SOMO is exporting an average of 1.25 million/bpd from the south. Chalabi said that SOMO, for planning purposes, should plan on an average of 200,000/bpd exports from the north. This conservative estimate (the pipeline can move 450,000/bpd) allows for interruptions due to interdictions. Chalabi said his goal was 1.6 million/bpd total exports. -------------- Mobile Repair - Still Only A Concept -------------- ¶5. (C/REL GBR AUS) Director General of the Technical Directorate Samir Mikel reported rapid repair teams for oil pipelines, approved by the NEC several months ago, have still not been formed. Thus the 22" pipeline, interdicted in five places north of the TharThar canal - despite MNF-I forces killing several individuals recently as they attempted to sabotage the line - remains unrepaired because MoO teams are afraid to enter the area. An exasperated Chalabi said that he had identified a number of skilled workers from outside the Ministry who were willing to work on the teams and demanded to know why these men still had not been connected with the Ministry. Minister of Finance Allawi urged the GOI to consider bringing in an experienced foreign firm to study pipeline security and recommend appropriate actions. BAGHDAD 00000219 002 OF 002 ¶6. (C/REL GBR AUS) Samir Mikel said that some 526,000 gallons of gasoline is being sent from Bayji to Kirkuk via the 8" product line and is then being trucked to Baghdad from there. A smaller amount is arriving in Baghdad directly from Bayji. Chalabi said that Baghdad needed just over two million gallons of fuel per day, of which approximately 790,000 gallons is imported. He complained that the truckers are "working for themselves," alleging that corruption is rife. Pol/Mil Minister Counselor stressed the urgent need to repair the 22" line in light of the cut-off by foreign suppliers of fuel imports into Iraq. He also pointed out that, in the longer term, allowing private and foreign companies to import fuel will reduce the burden fuel imports place on the budget as well as the country's reliance on individual pipelines to stave off fuel shortages. Chalabi said that repair and protection of the oil and product pipelines are his number one priorities. He also noted that valves to keep better account of the crude/fuel passing through these pipelines could be most easily installed as repairs to the lines are made. -------------- -------------- Electricity - Problems with Coordination and Curfews -------------- -------------- ¶7. (C/REL GBR AUS) Minister of Electricity Dr. Muhsin Shalash and Chalabi agreed that nighttime patrols - currently prohibited due to an MNF-I-imposed curfew - would be helpful in preventing attacks on transmission lines. Chalabi said that electricity lines are more vulnerable than pipelines, and said that he would speak with CG Casey to allow the local tribesmen with whom MoE has contracted to protect the lines to carry out night patrols. ¶8. (C/REL GBR AUS) The NEC agreed that the Tikrit Provincial Joint Communications Centers (PJCCs) had been ineffective in coordinating repairs on the Baghdad-Bayji West #1 400kV line. While one break in the line was being fixed, it was attacked someplace else; in response to the second attack, the PJCC reportedly told MoE workers that "it could not help" them as they tried to reach the location. Chalabi reiterated the need for nighttime patrols, and instructed MoE to purchase night vision equipment. MoE Shalash said that his people are attempting to repair a large number of towers by the end of January. ¶9. (C/REL GBR AUS) Comment: Allawi told us after the meeting that he already had GOI approval to approach Turkey with his incremental plan to pay off the Turks (Baghdad 0210). He has two problems: the urgent one of paying off the arrears, but also the more intractable one of SOMO. Neither the DPM nor the Minister of Finance have been able to prevent SOMO from making contracts to import refined products - despite repeated efforts to do so. It is not at all clear that their views on controlling future SOMO purchases will prevail even if they manage to pay off the arrears to Iraq's neighbors. KHALILZAD