RESIGNATION OF FINANCE MINISTER SETS BACK

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 003626

SIPDIS

SIPDIS

STATE FOR NEA/ELA, EEB

E.O. 12958: DECL: 8/27/2017
TAGS: ENRG EPET ECON JO
SUBJECT: RESIGNATION OF FINANCE MINISTER SETS BACK
RESTRUCTURING PLANS OF JORDAN'S REFINERY

REF: A. AMMAN 3557

B. AMMAN 2442

C. AMMAN 1479

D. AMMAN 1452

Classified By: Ambassador David Hale for Reasons 1.4 (b) and (d)


1. (SBU) Summary: The resignation of Deputy Prime Minister
and Finance Minister Ziad Fariz and the government's decision
to postpone liberalization of fuel prices do not bode well
for the future plans of the Jordan Petroleum Refinery Company
(JPRC),according to Chief Executive Officer (CEO) Dr. Ahmed
Alrefai. With Fariz's support, JPRC had reportedly just
reached an agreement with the Prime Minister to give JPRC one
of four distribution companies and a share of the logistics
company to be created in the upcoming restructuring of the
market (Ref B),but the agreement was still pending the
Finance Minister's signature. JPRC continues to search for a
strategic partner to upgrade the refinery and build a
pipeline from Aqaba. As the end of JPRC's concession in
March 2008 quickly approaches, doubts exist as to whether the
regulatory framework will be in place to open the market,
possibly requiring the Government of Jordan (GOJ) to give
JPRC an interim operating license. JPRC has also been
preparing to meet increased demands in Liquid Petroleum Gas
expected this winter. End Summary.

Doubts on Readiness to Open Up the Oil Market in 2008
-------------- --------------


2. (C) Economic Officers and the Commercial Counselor
discussed on August 23 with JPRC CEO Alrefai the impact of
the Finance Minister's resignation over the GOJ's decision
not to raise fuel prices and the status of plans for JPRC
restructuring (Refs A, C). Alrefai, a free market economist,
said that fuel prices needed to be liberalized in order for
the hydrocarbon sector to be opened up in March 2008, when
JPRC's concession ends. Although a proponent of social
programs for the poor, he was critical of fuel subsidies,
noting that right now the primary beneficiaries are
non-Jordanians, particularly wealthy Iraqis in Jordan whom he
claimed continued to heat their residences when they were
outside Jordan. In addition to the decision on fuel prices,
Alrefai cited as another obstacle to market liberalization
the fact that the draft oil law could only be submitted after
November parliamentary elections and the convening of a new
parliament making it unlikely that the regulatory framework
would be in place by early next year. Alrefai speculated
that the GOJ would license JPRC to continue its production,
importation, refining, distribution and marketing functions,
in essence extending the concession, most likely for an
additional two years.

The Refinery's Plans and Obstacles
--------------


3. (C) Alrefai regretted the Finance Minister's resignation,
explaining that Fariz played a critical role during a long
period of negotiations in persuading the Prime Minister to
see eye-to-eye with JPRC on expansion plans for the refinery
and its role in a restructured market. According to Alrefai,
a letter to the Prime Minister that laid out newly negotiated
terms for JPRC organization had been pending Fariz's
signature. The letter would now need to be reviewed and
approved by the new Minister of Finance, once appointed, as
well as the Minister of Energy and Mineral Resources. In
particular, the letter proposes that JPRC receive ownership
rights of one of four distribution companies that the
government plans to establish after the refinery's concession
ends. Alrefai explained that initially the government was
only going to give JPRC the right to bid on a distribution
company, but he had argued that JPRC would need to own it in
order to make a profit, as the refining margin was minimal.
Additionally, given that JPRC currently has the only storage
tanks in Aqaba, JPRC had proposed that the refinery and the
government share ownership (with the government having the
majority share) of a new logistics company in the initial
phase. JPRC and the government would then sell their shares
to the other distribution companies until each entity would
own 20 percent of the logistics company.


AMMAN 00003626 002 OF 002



4. (SBU) JPRC has been continuing its efforts to find a
strategic partner with the assistance of its consultant
Citigroup (Ref B). The expansion and upgrade project is
estimated at $1.3 billion; there is also a separate,
complimentary project costing approximately $2 - $2.5 million
to build a pipeline from Aqaba to the refinery. Currently,
20 companies have received invitation letters to bid on these
projects by September 3. Since each interested party to date
has tended to specialize in one field - i.e., finance or
construction - rather than being able to supply the whole
package deal, JPRC has suggested a consortium approach. In
regards to recent press reports about the Russian Northwest
Oil Group's plans to bid on the project, Alrefai said it was
the first he had heard of the company's interest in the
refinery, noting that he had only met previously with the
Russian group Gazprom. He added that no American companies
have expressed interest, although he would welcome their
bids.

Responding to the Rise in LPG Consumption
--------------


5. (SBU) Commenting on the crisis in liquid petroleum gas
(LPG) that occurred last winter (Ref D),Alrefai noted that
the gap in prices between kerosene and LPG had caused
consumers to shift to LPG use for home heating. For example,
while LPG consumption in Jordan is usually 1200 tons/day, it
jumped to 2,500 tons/day in January 2007. He confirmed that
transportation problems, due to bad weather and bureaucratic
bottlenecks in allowing a larger 6,000 ton ship to dock in
Aqaba, also contributed to the crisis. When asked about
preparations for the coming winter, Alrefai noted that the
government port authority is now allowing entry to the larger
ships. JPRC also has tenders out for 158,000 metric tons of
LPG, as well as the design, supply and construction of LPG
storage facilities in 8,000 tons capacity mounded vessels.

Visit Amman's Classified Web Site at
http://www.state.sgov.gov/p/nea/amman/
Hale