NINEWA: FUEL DELIVERIES UP, BUT IMPORTS NEEDED TO

C O N F I D E N T I A L SECTION 01 OF 04 BAGHDAD 003349

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/08/2017
TAGS: ECON EPET ENGR PGOV IZ
SUBJECT: NINEWA: FUEL DELIVERIES UP, BUT IMPORTS NEEDED TO
MEET DEMANDS

REF: BAGHDAD 775

Classified By: Ninewa PRT Deputy Leader Jerome Sebastyn for reasons 1.4
(b) and (d).

This is a Ninewa Provincial Reconstruction Team (PRT) message.

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Summary
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1. (C) Ninewa's fuel supplies have increased since the end of
last
winter but remain critically short of the province's needs.
Despite
improvements in kerosene, diesel and gasoline deliveries from
the Baiji
Oil Refinery, Northern Oil Distribution Company (NODC)
General Director
Mohammed al-Zibari said in a meeting with PRT officers
September 30
that supplies to Ninewa cover only about 25 percent of
demand. While
improvements in coordination and delivery at the Baiji
facility could
further boost Ninewa's fuel deliveries, increased imports are
needed to
cover the balance of provincial demand that cannot be met by
domestic
supply, according to al-Zibari and PRT analysis. With
winter's near-
freezing temperatures approaching, resolution of outstanding
fuel
import issues is needed to avoid a repeat of last winter's
fuel crisis,
which resulted in sharply reduced agricultural productivity
and a
reversion to wood-fueled fires for home heating and cooking
(reftel).

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Overall Fuel Delivery Trend is Up
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2. (SBU) Fuel deliveries to Ninewa from the Baiji Oil
Refinery are the
province's only significant legal source of kerosene, diesel
and
gasoline. Deliveries of all three increased from 91,020
cubic meters
in March to 123,372 cubic meters in August, according to
refinery
records kept by Baiji-based Coalition Forces (CF) who have
been
coordinating closely with refinery management. One fuel
truck is
approximately 34.09 cubic meters. This raw increase in the
amount of
fuel delivered to Ninewa also represents an improvement in
the
percentage of the province's ever-changing Ministry of Oil
fuel
allocation that actually gets delivered. As of September,
the province
received between 50 and 80 percent of its allocation in all
three
fuels, compared to between 27 and 50 percent in April.
Broken down by
fuel type and analyzed to compare a three-week period in
April with a
three-week period in September, CF data indicates that Ninewa
received:

- Kerosene: During the April period, CF said the province
picked up
6,068 cubic meters of kerosene, which represented 48 percent
of the
province's 12,600 cubic meter allocation from the Ministry of
Oil.
During the September period, CF said the province picked up
17710 cubic
meters of kerosene, which represented 80 percent of the
province's
22,022 cubic meter allocation. Kerosene for home heating is
particularly important in Ninewa during the winter, when
average
temperatures hover just above freezing.


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- Diesel: During the April period, CF said the province
picked up 9,781
cubic meters of diesel, which represented 27 percent of the
province's
35,880 cubic meter allotment. During the September period,
CF said the
province picked up 19,865 cubic meters of diesel, which
represented 60
percent of the province's 33,222 cubic meter allocation.
Diesel is
crucial to the province's farmers, who need it to run both
their
tractors and their generator-powered irrigation pumps during
the winter
rains planting season.

- Gasoline: During the April period, CF said the province
picked up
11,386 cubic meters of gasoline, which represented 41 percent
of the
province's 28,080 cubic meter allotment. During the
September period,
CF said the province picked up 17,420 cubic meters of
gasoline, which
represented 50 percent of the province's 35,035 cubic meter
allocation.
Gasoline is important for transportation, shipping and
electrical
generators.

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NODC Numbers Lag CF and Provincial Data
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3. (C) When fuel trucks arrive in Ninewa from Baiji,
provincial
officials at the Provincial Joint Command Center in Mosul
count the
incoming deliveries. Those Provincial numbers of incoming
trucks
consistently line up with the CF numbers for fuel trucks that
left
Baiji with the province's fuel. The Northern Oil
Distribution Company,
which is responsible for ultimate distribution to the
province's gas
stations, also reports the amount Ninewa receives from Baiji.
However,
the NODC's numbers tend to be less than the CF and Provincial
numbers,
albeit still representing an increase from the spring. In
the three-
week September period, for example, the NODC reported
receiving only 66
percent of the kerosene, 57 percent of the diesel and 90
percent of the
gasoline that CF and Provincial data said had been picked up
from
Baiji.

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GOI Confronting the Thriving Black Market
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4. (C) Effects of the shortage of supply are seen in the long
lines of
cars waiting for fuel in Mosul. Al-Zibari estimated that
fuel
deliveries from Baiji meet only one-quarter of provincial
demand.
Under these conditions, the black market thrives. According
to al-
Zibari's figures tracking black market prices, a liter of
gasoline is
consistently Iraqi Dinars 1,225 on the black market
(approximately USD
0.98),compared to the official rate of ID 450 per liter,
including
local taxes (approximately USD 0.36). For diesel, the spread
between
official and black market rates is ID 725 per liter
(approximately USD
0.58) versus ID 400 (approximately USD 0.32),compared to a
kerosene
spread of ID 750 per liter (approximately USD 0.60) versus ID
200
(approximately USD 0.16). These NODC black market estimates
roughly

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match CF reporting. Al-Zibari said he is confronting the
black market
through investigations and closures of licensed fuel stations
that sell
at black market rates. The Mosul mayor said he has performed
similar
investigations within the city. Al-Zibari said 20 such
stations had
their licenses suspended in September. Meanwhile, he went on
local
satellite television station Al Mosulia for three hours in
late
September to answer questions and complaints from Ninewa
residents
about the province's fuel shortage.

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Al-Zibari: Baiji Cannot Meet Demand, Imports Needed
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5. (C) Some of the unmet 75 percent of Ninewa demand could be
covered
by increased deliveries from Baiji as CF facilitation
improves
coordination among the NODC, Ninewa liaison officers in Baiji
and
refinery officials, al-Zibari said. However, the full
Ministry of Oil
fuel allocation for Ninewa represents less than half of total
provincial demand, he said. Al-Zibari argued that a
comprehensive
solution to the province's fuel shortage requires increased
imports.
He said three possibilities exist:

- Turkey: Al-Zibari said Turkish companies contracted to the
GOI could
provide the entirety of Ninewa's winter kerosene needs of 4-5
million
liters per day. However, he complained that since 2006 he
had not
received from the Ministry of Oil funds to make such
purchases. This
same issue has festered at the ministerial level since last
winter
(reftel).

- Syria: Fuel imports to Ninewa from Syria under a 2003
agreement have
been sporadic because of Syrian drivers' fears of terrorist
attacks on
their convoys and border security restrictions on trucks
entering Iraq.
Al-Zibari displayed a plan approved September 11 by Minister
of Oil
Husayn al Shahristani to overcome these challenges by
building paired
Iraqi and Syrian depots, connected by a one-kilometer
pipeline, at
their shared border in northwestern Ninewa.

- Private: The Oil Product Import law - "Law Nine" - allows
for the
private importation of fuel, though only the Kurdish Regional
Government currently takes advantage of this opportunity.
Al-Zibari
said private importers could fill some of Ninewa's fuel
shortage but
they fear competing directly with the subsidized prices that
government
stations offer. Private fuel convoy security concerns would
also
hamper private importers just as they affect Syrian truckers
now. Al-
Zibari said no companies have yet applied for private
importation
licenses for Ninewa. Nonetheless, al-Zibari acknowledged
that the
spread in prices between the black market and the government
stations
proves that there is an opportunity for profit that companies
could
successfully exploit.

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Way Forward: Improve Distribution and Imports, Cut Subsidies
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7. (C) Comment: The marginal increase in fuel deliveries to
Ninewa is
welcome news. However, provincial supply is still far below
demand,
particularly in the critical home heating, agriculture and
transportation sectors. Even if Ninewa received its full
Ministry of
Oil allocation, the province would have insufficient fuel.
Further,
the gap between reported fuel deliveries from Baiji and
reported NODC
receipts in Ninewa indicates a need to focus on transparent,
accountable and effective fuel distribution within the
province.


8. (C) Even as the PRT works with CF to address
provincial-level
solutions to fuel supply, a wholesale increase in supply
through
increased imports is essential. Financing for Turkish
imports and
conclusion of a Syrian fuel import arrangement, both of which
must be
pursued at the ministerial level, would be welcome positive
steps to
achieving sufficient provincial fuel supply. Private imports
remain a
possibility for the future, though only in conjunction with
security
improvements and reduced fuel subsidies. While the subsidies
are
politically popular, the current Ninewa black market fuel
prices
approximate world prices and demonstrate that the province's
residents
are already buying much of their fuel at a globally
competitive rate.
Liberalization of the fuel economy through increased imports
and
reduced subsidies would likely not only improve supply but
may also
reduce price as the driving forces of the black market are
eliminated.
End Comment.
CROCKER