NINEWA: IMPROVED DOMESTIC AND IMPORTED KEROSENE

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002618 SIPDIS E.O. 12958: DECL: 08/17/2018 TAGS: ECON EPET ENRG PGOV PTER IZ SUBJECT: NINEWA: IMPROVED DOMESTIC AND IMPORTED KEROSENE NEEDED TO AVOID WINTER SHORTAGES REF: BAGHDAD 473 Classified By: Ninewa PRT Leader Alex Laskaris: Reasons 1.4 (b) and (d) . This is a Ninewa Provincial Reconstruction Team (PRT) message. ¶1. (C) Summary: Over the last two winters, Ninewa residents suffered from a severe shortage of kerosene, which they use for cooking and home heating in the province's sub-freezing winters. Hoping to avoid the long fuel lines and exorbitant black market kerosene rates of 2006 and 2007, provincial fuel managers have begun planning now for this winter. Improved pick-ups from the Baiji Oil Refinery (BOR) and increased funding for imports would help increase the kerosene supply, squeeze the fuel black market and eliminate a key node that racketeers exploit for terrorist and criminal financing. The PRT plans to work with municipal leaders and fuel management officials to encourage private storage before the winter sets in. End Summary. Domestic Supply Still Insufficient -------------- ¶2. (C) The BOR remains Ninewa province's sole source of refined products, and although fuel deliveries from the BOR have increased since early 2008, scheduled allocations still only cover half of the province's kerosene needs. Of that allocation, the province picks up on average slightly more than half in any three day cycle, which provincial fuel managers blame on mismanagement and lack of supply at the BOR. (Note. Coalition Forces, however, report that kerosene lies uncollected each day at the facility. End Note) ¶3. (C) The lack of kerosene means that each of the province's approximately 496,000 families receives only 50 liters of their 220 liter monthly allocation. Even during the summer months, when kerosene is used only by poor families for cooking, this shortfall has pushed the black market kerosene price to 34 cents/liter, compared to a quoted government rate of about 20 cents/liter. In contrast, at the height of last year's sub-freezing winter kerosene demand spike, when most families use kerosene for home heating, prices rose to 66 cents/liter. Imports Would Help, But Need Funding -------------- ¶4. (C) GOI kerosene imports, under an existing contract with Turkish companies, would help alleviate expected shortfalls. GOI approval for kerosene imports came too late in last year's winter - after the beginning of 2008 - to bring kerosene in to meet Ninewa's consumer needs. The state-run Northern Oil Product Distribution Company (NOPDC) is trying to get a jump on import planning this year, but rising world market prices for kerosene have left it underfunded. NOPDC Manager Mohamed al Zibari, who oversees fuel distribution for Ninewa, Kirkuk and the Kurdish Regional Government, said the Ministry of Oil refused in mid-June to authorize funding for kerosene imports. Zibari added he will not only be unable to meet the 50 percent of provincial kerosene needs from the BOR, but he will also be unable cover the intended 50 percent of kerosene imports without Ministry funding. No Storage Laid Away for Winter -------------- ¶5. (C) Ninewa's fuel depots are capable of storing up to 120 million liters of kerosene, about 10 percent more than the provincial kerosene demand in a typical winter month. However, Zibari said the depots are currently empty, with the NOPDC immediately distributing to consumers all kerosene deliveries arriving from the BOR. In the absence of provincial stockpiling in preparation for the winter, Zibari in June began a public awareness campaign encouraging citizens to store in their homes whatever kerosene they could gather during the summer. However, many families take advantage of warm summer months to sell the coupons that allow them to buy kerosene, foregoing the ability to store the fuel.Q family willing to give up its right to buy fuel in a given summer month can sell its coupons for USD 5, which a wholesaler can then use to buy and store fuel for black market sales in the winter. ¶6. (C) PRT Ninewa is developing a plan to complement NOPDC chief Zibari's initial public awareness campaign by examining a public information effort coupled with provision of BAGHDAD 00002618 002 OF 002 appropriate kerosene storage containers in several villages around the province to encourage early stockpiling of kerosene. Increase The Supply to Drive Down Terrorist Profits -------------- -------------- ¶7. (C) Comment: The gap between the official and black market prices for kerosene offers a profit margin for criminal and terrorist financing, all the more so when kerosene demand and black market prices skyrocket during the winter. Removal of the official price ceiling on kerosene would squeeze the black market. Nonetheless, improved management at the BOR, an increase in the number of provincial delivery trucks and repair of the 16-inch Hammam al Alil pipeline would all help increase domestic supply in the short term. Even if the NOPDC regularly received its full allocation of kerosene, the GOI should fund kerosene imports to fill the gap between domestic supply and demand. Noting the success that the GOI achieved with a centralized kerosene distribution program in Baghdad (reftel),the PRT is developing a proposal for the provincial government and the NOPDC for a small-scale test of a coordinated distribution plan to encourage private home kerosene storage. End Comment. CROCKER