(C) ORGANIZED, WIDESPREAD CORRUPTION IN FUEL DISTRIBUTION

C O N F I D E N T I A L SECTION 01 OF 02 KIRKUK 000046

SIPDIS

SIPDIS

BAGHDAD FOR ECON, POL, POLMIL, NCT, ROL COORDINATOR, IRMO

E.O. 12958: DECL: 2/26/2016
TAGS: PGOV KCOR EPET ECON PINS IZ
SUBJECT: (C) ORGANIZED, WIDESPREAD CORRUPTION IN FUEL DISTRIBUTION

REF: (A) KIRKUK 1, (B) KIRKUK 35

KIRKUK 00000046 001.2 OF 002


CLASSIFIED BY: Scott Dean, Regional Coordinator (Acting),Reo
Kirkuk, Department of State .
REASON: 1.4 (b),(d)




1. (C) INTRODUCTION AND SUMMARY: A highly organized corruption
ring is running a black market for fuel in Kirkuk, manipulating
fuel prices, and siphoning fuel to Iran and Turkey for profit.
The organization parallels KDP and PUK party, Peshmerga and
Asayish structures. Attempts to cover up its activities led to
the January 1 protest in Kirkuk that turned violent and resulted
in at least three deaths (ref A). (NOTE: POLOFF obtained the
information in this cable from a variety of sources -- including
Arab and Christian leaders, but most specifically from two
Kurdish "whistleblowers" who were part of the scheme and who
possess extensive documentary evidence. END NOTE.) END
INTRODUCTION AND SUMMARY.


(C) WIDESPREAD CORRUPTION ALLEGED IN FUEL DISTRIBUTION
-------------- --------------


2. (C) The two dominant Kurdish political parties, the
Kurdistan Democratic Party and Patriotic Union of Kurdistan,
along with Peshmerga and Asayish security services, are
controlling the black market for fuel in Kirkuk in a coordinated
effort to maximize profitability and prevent discovery. A
system of so-called "trade" gas stations exists, often alongside
the government-regulated stations. The fuel prices are three
times as high at the trade stations, but the supply is so
minimal at the government stations that "you often have to wait
a full day or more in line," forcing most locals to resign
themselves to paying black market prices. A significant amount
of the fuel meant for government-regulated stations (25 - 50%)
is siphoned off for profit on the local black market or exported
by large tanker trucks to neighboring countries where fuel
prices are higher.


3. (C) Our sources point out that this level of coordination
for distribution and security requires political complicity at
"high levels." While many sources were uncomfortable naming
names, one fuel depot assistant manager said, "this goes to the
top - Kosrat Rasul (Executive Secretary of the Patriotic Union
of Kurdistan's Politburo and the PUK's nominee for KRG Vice
President) appointed these people." Another source noted: "one
must look at who controls distribution and security. How can
such large tankers go through all those checkpoints?" While a
third said: "it is simple: follow the money. How can the
Director of the OPDC (Oil Products Distribution Company - the
national Ministry of Oil's company responsible for fuel
distribution) who lived in a rented house and one year later own
a $2.5 million house?" (Note: The PUK and KDP control security
checkpoints, local Oil Ministry offices, and fuel distribution
networks. End Note.)


(SBU) THE PROCESS - HOW IT'S DONE
--------------


4. (C) Large tanker trucks from Turkey deliver refined fuel
products to Kirkuk. Official stamps and paperwork from the
authorized government office facilitate the distribution
process. One source who claimed to have worked in this area
said that falsified paperwork from the local oil ministry office
normally costs $2500. These trucks, on their way to Kirkuk,
stop approximately three kilometers outside the city where
several 36,000-liter tanks have been placed. A quantity of the
high quality gasoline from the trucks is then transferred to the
tanks were it is diluted in a 40/60 mix with lower quality
gasoline and several different batches are produced. Much of
the high quality fuel is then re-directed towards Iran or back
to Turkey. The lower grade fuel gets distributed to government
stations, sold on the black market, or distributed to preferred
groups on a prearranged volume basis (e.g., police, army, and
other government agencies receive a set quantity each month).
The corruption extends beyond petrol to include all types of
fuel. A reliable contact, under current threat from smugglers,
revealed that 10 million liters of kerosene were given to the
PUK "on credit." This kerosene was then sold to Iran. He noted
that: "the party accumulates huge profits, while citizens under
PUK control continue to complain of kerosene shortages." (NOTE:
Kerosene is the main heating fuel. END NOTE.)


(C) VIOLENT DEMONSTRATION - A COORDINATED PLAN
-------------- -


5. (C) All sources quoted above and local police contacts agree

KIRKUK 00000046 002.2 OF 002


that the violent demonstration in Kirkuk January 1 (ref A) was
politically planned and synchronized as a distraction to conceal
torching records and stealing thousands of petrol coupons in two
specific areas of the local Oil Directory offices. The
arsonists targeted only the area of the office that dealt with
information on the Turkish tanker trucks and related
distribution records.


(U) COMMENT
--------------


6. (C) Government fuel prices have risen. However, it is the
low supply at government stations and the high black market,
rather than government fuel price hikes, that are sparking
popular discontent. More broadly, widespread corruption is
fueling popular frustration and disillusionment.
DEAN