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. -------------- Summary -------------- ¶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). -------------- Overall Fuel Delivery Trend is Up -------------- ¶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. BAGHDAD 00003349 002 OF 004 - 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. -------------- NODC Numbers Lag CF and Provincial Data -------------- ¶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. -------------- GOI Confronting the Thriving Black Market -------------- ¶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 BAGHDAD 00003349 003 OF 004 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. -------------- -------------- Al-Zibari: Baiji Cannot Meet Demand, Imports Needed -------------- -------------- ¶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. -------------- -------------- Way Forward: Improve Distribution and Imports, Cut Subsidies -------------- -------------- BAGHDAD 00003349 004 OF 004 ¶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