Identifier | Created | Classification | Origin |
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07AMMAN3626 | 2007-08-28 12:52:00 | CONFIDENTIAL | Embassy Amman |
VZCZCXRO2068 RR RUEHDE RUEHDIR DE RUEHAM #3626/01 2401252 ZNY CCCCC ZZH R 281252Z AUG 07 FM AMEMBASSY AMMAN TO RUEHC/SECSTATE WASHDC 0144 INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE RUEHTV/AMEMBASSY TEL AVIV 0746 RUEHDM/AMEMBASSY DAMASCUS 3692 RUEHMO/AMEMBASSY MOSCOW 0180 RUEHGB/AMEMBASSY BAGHDAD 5465 RUEHLB/AMEMBASSY BEIRUT 2702 RUCPDOC/DEPT OF COMMERCE WASHDC RUEATRS/DEPT OF TREASURY WASHDC RHEBAAA/DEPT OF ENERGY WASHDC |
C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 003626 |
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 |