C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 001361

SIPDIS

DOE FOR GEORGE PERSON

E.O. 12958: DECL: 05/25/2019
TAGS: EPET ENRG EINV ECON KCRIM IZ
SUBJECT: (C) PRT SALAH AD DIN: MOBILE FUEL STATIONS SELL
FUEL STOLEN FROM BAYJI OIL REFINERY

REF: A. 09 BAGHDAD 546

B. 09 BAGHDAD 412

Classified By: PRT Salah ad-Din Leader Richard Bell, reasons 1.4(b,d)

This is a PRT Salah ad Din reporting cable.


1. (C) SUMMARY: Northern Refineries Company Director General
Ali Obeidi briefed the Salah ad-Din (SaD) Provincial Council
May 13 on improvements in fuel refining and distribution at
the Bayji Oil Refinery (BOR). Provincial Council members
asked Obeidi to hire more workers at the BOR and ensure that
every qada (note: a GOI administrative district below the
province) receives its proper fuel allocation. During the
meeting, Obeidi alleged that mobile fuel stations, a recent
private-sector market innovation that has improved fuel
availability in many areas of SaD, are being used to sell
stolen or misallocated fuel from the BOR (vice fuel imported
legally from Turkey). In a separate meeting with the PRT,
Provincial Investment Commission Chairman Jowhar al-Fahal,
who helped establish the mobile fuel stations, denied that
the mobile stations systematically sell stolen fuel, but he
admitted that he does not yet have the ability to verify that
assertion by testing their product. The PRT will impress
upon the Provincial Investment Council the urgency of
ensuring that the current scheme is not perverted into a
front for "laundering" black market fuel from the BOR. END
SUMMARY.

PC PUSHES BOR DG FOR JOBS, FUEL, TRANSPARENCY
--------------


2. (C) In connection with a May 13 Provincial Council (PC)
meeting on essential services, PC Chairman Ahmed Abdullah
Abid Khalaf (Abu Mazen) requested Ali Obeidi, Director
General of the Northern Refineries Company, to meet with the
PC to answer questions regarding fuel distribution. (NOTE:
As the DG of a national asset, Obeidi was not obligated to
comply with this request; he insisted that Coalition Forces
personnel accompany him to the meeting to ensure that the PC
treated him with respect. END NOTE.) Obeidi opened the

meeting by briefing the PC on improvements in fuel production
and distribution at the refinery. Obeidi said that the BOR
has hired over 3,000 people in the last year, many of whom
are SaD residents.


3. (C) In response, Abu Mazen praised Obeidi for taking
action to improve fuel production and distribution at the BOR
and asked the DG to create more jobs for SaD residents. Abu
Mazen criticized a 2007 decision by the Ministry of Oil to
transfer several distribution managers, who were accused of
corruption, to jobs outside of SaD. Abu Mazen said that
transferring the distribution managers was unfair, since none
of them had been officially charged with corruption or put on
trial. He added that, he too, had been falsely accused of
involvement in fuel smuggling merely because he lived in
al-Hajaj, a village that is widely perceived as being
associated with corruption at the nearby BOR.

MOBILE FUEL STATIONS SELL STOLEN FUEL
--------------


4. (C) Several of the PC members questioned Obeidi about
efforts to curb corruption within the fuel sector in SaD and
complained about the limited availability of subsidized fuel
at government stations in their qadas. In response to a
question from PC member Ali Abdullah Salih al-Ajili of the
IIP about rumors that mobile fuel stations were being used to
sell stolen government fuel allocations, Obeidi said that his
engineers had tested samples from 10 randomly selected
stations to determine where they had been refined (ref B).
QThe tests showed that 8 out of 10 were selling fuel that was
produced at the BOR, while only 2 sold fuel imported from
refineries in Turkey - as all are supposed to do.

PIC DEFENDS STATIONS, SAYS IT LACKS TESTING RESOURCES
-------------- --------------


5. (C) PRT Econ Section Chief met with Provincial Investment
Chairman Jowhar al-Fahal on May 15 and asked him for his
response to the concerns raised by Obeidi (ref A). Jowhar
said he had heard of Obeidi's comments to the PC and
acknowledged that some of the individual station managers may
be selling black market fuel to increase their profits, since
the retail profit margin on stolen or misallocated fuel from
the BOR was much greater than the profit margin from fuel
imported from Turkey. He insisted that most of the station
owners, however, are selling fuel legally imported from
Turkish refineries as mandated by the investment agreement.

BAGHDAD 00001361 002 OF 002


He said that he had requested funding from the National
Investment Commission (NIC) so that he could test fuel at the
mobile stations to ensure that it was not stolen, but that
the NIC had not given him any money for this purpose. He
said he would purchase testing equipment with his own funds
if the NIC did not respond to his request, so as to preserve
the integrity of the investment project. Jowhar added that
if he found evidence that any specific station owners were
selling stolen fuel, he would remove them from the investment
project.

BACKGROUND ON MOBILE FUEL STATIONS
--------------


6. (C) The Salah al-Din (SaD) Provincial Investment
Commission (PIC) negotiated the deal that created the mobile
gasoline stations in November 2008. According to the PIC,
they received the rights to import fuel from refineries in
Turkey and place the mobile stations at over 200 locations in
SaD, which were given as land allocation at no cost by the
Ministries of Agriculture and Finance. The stations, which
comprise 10,000-liter containerized units equipped with fuel
pumps, rapidly became ubiquitous throughout SaD. In the
first few months, the mobile stations produced textbook
free-market outcomes, including a 33 percent reduction in the
price per liter, improvements in fuel quality, and efforts to
add value with the types of motorist services available at
service stations in other countries.

COMMENT
--------------


7. (C) Fuel distribution remains a primarily "grey market"
activity in SaD with many degrees of illegality and criminal
activity. The PIC may believe its claim that the black
market activity is limited to individual owners, rather than
an organized criminal enterprise, but cannot verify it in the
absence of testing. Furthermore, we have heard from many
Iraqi contacts that the mobile stations have made quality
fuel more consistently available in many neglected areas of
SaD. The PRT sees competition in fuel distribution as
serving the public better than a state-run monopoly, and will
impress upon the PIC the urgency of ensuring that the current
scheme is not perverted into a front for "laundering" black
market fuel from the BOR.

HILL