OIL MINISTER UPDATE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002747 SIPDIS SIPDIS E.O. 12958: DECL: 08/17/2017 TAGS: EPET ENRG ECON EFIN PGOV PREL IZ SUBJECT: OIL MINISTER UPDATE Classified By: EMIN Ambassador Charles Ries, reasons 1.4 b and d ¶1. (C) SUMMARY: Minister of Oil al-Sharastani touched on a number of issues in an August 16 meeting. He expressed disappointment that the USG was not providing more aid on the kidnapping case of his Deputy Minister. He was pleased with the results of his trips to Ankara and Moscow. He professed flexibility on resolving the dispute on delivery of fuel from the Kuwait Petroleum Company, although he did not settle upon a way forward among various possible options. He claimed the Ministry of Electricity should not be experiencing problems of fuel delivery, and noted he would be meeting with the Minister to resolve any issues. He concluded with promises of progress on the investment program, despite technical problems with the Finance Ministry. END SUMMARY. DEPUTY MINISTER KIDNAPPING -------------- ¶2. (C) EMIN spoke with Iraq Minister of Oil, Husayn al-Sharastani on August 16. Sharastani began by apologizing for his late arrival, saying that he had just concluded a press conference about the August 14 kidnapping of his Deputy Minister, Abdul Jabbar al-Wagga. He said the kidnapping operation had been quite large -about 100 people had been involved in a 30-car convoy - meaning that the abduction has political overtones in addition to the million-dollar ransom being sought. He told us that local citizens were being very cooperative in the investigation, but he had been disappointed that the MNF, which was operating an aerostat just overhead, had been of no help in producing any video to show even in which direction the convoy had departed. Ambassador Ries assured him of our concern and intention to be as helpful as possible. Sharastani said the GOI had been receiving tips and local police work had resulted in four hostages being found and released earlier that day, but none of those were among the fi ve that had been abducted from the MOO. He mentioned that al-Wagga's family is in Jordan, and he is helping them identify two tribal leaders to act as intermediaries. He said he was surprised that the abductors took al-Wagga, since his father is the head of a Sunni tribe with a particularly ruthless reputation. TURKEY TRIP READOUT -------------- ¶3. (C) Sharastani said that Turkish officials had been keen to have Iraq resume the Turkish export route, and he had signed an MOU. Cooperation at all levels was quite good, and the only piece missing for a restart is to finish the pipeline repairs in Iraq. He has already done the negotiations for the transit fees, and Turkey is amenable to a five-year extension of its existing agreement, with the same fee structure but with payments based on the quantities actually pumped. The old contract obligated a certain level of supply, but supply interruptions make such targets impossible. He said he is pleased with the new agreement. A payment will be made to Turkey for unpaid transit fees from the 1991-2003 period (amounting to around USD 60 million), and one claim from 1990 needs to be reconciled. ¶4. (C) Sharastani said the MoO is working hard to repair the pipeline to Turkey, and added the Oil Protection Force is working successfully with the northern tribes to avert attacks on the pipelines. He hastened to clarify that the outreach to the tribes is being routed through the Ministry with tribal forces being brought on as FPS members, with no direct payments being made to the tribal leaders. He also mentioned that the FPS engaged a few days ago in a major battle with insurgents who had had weapons with a longer range, but commendably the FPS had held its ground, losing only some tents and supplies. RUSSIA TRIP READOUT -------------- ¶5. (SBU) With regard to Russia, the Russians had insisted that Iraq had no right to cancel the LUKOIL contract signed by Saddam Hussein's government, but Sharastani said he had told them that the Russian oil companies will need to compete with all other interested parties. Russians would be welcome to operate in Iraq should they make the best offer in a competitive process. He said that he had pressed Russia to abide by its Paris Club commitments for the Iraq debt cancellation. The Russians had assured him that the paperwork on the debt cancellation would be ready by the time of the next meeting of the joint economic commission, which has now been postponed until September. EMIN explained our sense of urgency, and our efforts to ensure that Russia would abide by its Paris Club commitments to cancel Iraq debt. KUWAITI DIESEL DELIVERY -------------- ¶6. (C) EMIN asked Sharastani about the status of the Kuwaiti BAGHDAD 00002747 002 OF 002 fuel transport company's dispute that is holding up supplies of diesel for Baghdad power plants. Sharastani said USD 9.9 million in demurrage was paid pursuant to the Council of Ministers decision to do so. This leaves the trucking services bill of USD 2.4 million. Sharastani said he does not trust the company, so he does not want to pay the remainder until he gets some sort of guarantee that it will deliver the fuel. He has offered a number of options, such as partial payments upon partial shipments of the 166 truck loads that the company claims are loaded and ready to go. Or, the company could turn the trucks over to the USG at the border, and then he would transfer the money. EMIN asked if perhaps a letter of credit arrangement might make the most commercial sense. Sharastani noted that the 2.4 million fee is for the transport services only; the fuel itself -- for which SOMO has already paid -- has a value of around USD 4 million. Once t he 2006 fuel purchases are delivered, however, Sharastani said he can move quickly on the new purchases of diesel for the Ministry of Electricity SOMO has agreed upon a purchase contract with the Kuwait Petroleum Company. He said he is ready to sign the contract with KPC, since the price and all other terms are agreed upon. ELECTRICITY GENERATION -------------- ¶7. (C) When asked about the Musayyib generator, Sharastani said that the facility should be taking heavy fuel oil (HFO) from the Doura refinery, as much as it needs. At present, Musayyib keeps taking crude oil directly from the pipeline instead, and quite a bit at that. Sharastani produced a document which he said showed Musayyib is taking 37,000 barrels of crude/day. He added that he would be meeting with the Electricity Minister just after the meeting with EMIN to discuss generation issues. ¶8. (C) EMIN also inquired about the lifting of heavy fuel oil from the Bayji refinery by private trucking firms. The USG understands that HFO liftings are inadequate, resulting in backlogs of HFO which can force Bayji to shutdown if all HFO storage is filled. Sharastani reported that the insurgents intimidate drivers from time to time or extort payments from them for passage. The arrangements indirectly fund the insurgency, but there is no other way to move the HFO at present. He noted that shipping by rail lines is even more vulnerable to the insurgents. INVESTMENT PROGRAM -------------- ¶9. (C) On the investment program, Sharastani said he is hoping to sign some contracts for refineries by next week. He has however encountered some problems emanating from the Finance Ministry, which claims to have changed the procedures for letters of credit but so far has failed to put the changes into writing. A letter of credit for a renovation contract for a 70 thousand barrel/day fuel unit for Doura Refinery had to be returned because the Finance Ministry had not funded it. CROCKER# CROCKER