FINANCE MINISTER ON GE PAYMENTS, SONS OF IRAQ,

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 000911 SIPDIS E.O. 12958: DECL: 03/28/2014 TAGS: EFIN ECON PREL IZ SUBJECT: FINANCE MINISTER ON GE PAYMENTS, SONS OF IRAQ, BUDGET REF: BAGHDAD 766 Classified By: EconMin Marc Wall for Reason 1.4 (b). ¶1. (C) Summary. Finance Minister Bayan Jabr told EMIN on March 30 that he had directed Trade Bank of Iraq (TBI) to make $400 million in loan proceeds available to the Minister of Electricity to pay some of the $580M arrearage due to General Electric (GE) on March 29 Jabr further discussed his payment to fund the salaries of the Sons of Iraq (see CJ9 update to Charge,),the unusual arrangements with the Council of Representatives (CoR) and Presidency Council for expediting the finalization of the 2009 budget law, as well as the looming prospect of a rescission budget in June or July if oil prices and production fail to climb. End Summary. GE Gets Half a Loaf -------------- ¶2. (C) During a meeting in his Adnon Palace office with EMIN on March 30, Minister of Finance, Bayan Jabr, explained how, despite the absence of a national budget and against the advice of his advisors, he sought Cabinet approval for a $400 million loan from TBI to pay part of the delinquent installment due to GE under the December 2008 gas-turbine purchase and another $34 million to pay the salaries of the Sons of Iraq. The Cabinet approved the loans on March 29. Although, not yet received by GE, Post was told by GE on April 1, that it was satisfied that payment had been transmitted. Also participating were Treasury Attache, James Wallar and CJ9 CO MG David Perkins. ¶3. (C) Jabr acknowledged receiving calls from the office of the Centcom commander urging him to pay GE the delinquent first installment payment (396 Million Euros/$580 million) of the "Mega Deal" gas-turbine purchase. This payment had just been renegotiated March 19-20 in Washington by the Minister of Electricity (ME),who had agreed to pay GE no later than March 29. In response, Jabr received Cabinet approval and instructed the President of TBI to work out the details with the ME. Jabr told EMIN that he heard there was some confusion over the method of payment, but that as far as he was concerned "the money is available." How Much? How Fast? -------------- ¶4. (SBU) According to Jabr, there are two methods for Getting the funds to GE: a wire transfer through the SWIFT process, which requires a letter of guaranty from GE, or by ;opening a Letter of Credit (LOC). Jabr said the ME insisted that the GE contract required an LOC which, curiously to Jabr, the ME only wanted to fund up to $250 million, $150M less than the authorized amount and well short of the full arrearage. Subsequent to this meeting, Embassy Baghdad confirmed that the ME had requested only a $400 million loan to fund both the GE and the Siemens gas-turbine purchases, which may have accounted for the ME,s wish to open the GE LOC for only $250 million. By COB March 30, however, the Minister informed the Embassy that, before leaving for several days in Jordan, he had directed his DG of Accounts to make the entire $400 million available to GE in the manner most convenient to GE. If GE provided the guaranty, the SWIFT transfer could take place almost immediately. The ME claimed even an LOC would make funds available at JP Morgan Chase in "just a couple of days." ¶5. (SBU) Jabr said that, after the final enactment of a budget, he would be able to add $1.3 billion (1.7 trillion ID) to the Ministry of Electricity's capital budget based upon the budget passed by the CoR or by cutting the Qupon the budget passed by the CoR or by cutting the investment budgets of other ministries by around 14%. Money for SOI to Avert A Crisis -------------- ¶6. (C) Jabr further stated that he had directed the deposit of 31.5 billion IQD (approximately $34 million, or one month's pay) for the Ministry of the Interior's disbursement to the Sons of Iraq. This he said he did over the unanimous objections of his financial advisors, who argued that, because there was no budget it might be held BAGHDAD 00000911 002 OF 002 by the auditors to have been an illegal transfer of funds. To that, Jabr said, "Iraq is in a crisis and I have to act to relieve the crisis." While MOF Directors General would not assume responsibility for the allocation of funds to make this salary payment for fear of an audit, Jabr boldly stated, "I put this on my shoulders." Jabr Offers CoR a Prix Fixe Menu of Budget Options -------------- ¶7. (SBU) Jabr explained to EMIN that, contrary to our belief that a budget could not be passed until the CoR returned on April 14, the budget law has already been passed and signed by the Presidency Council. What remains to be finalized is the schedule of funds allocations among GOI receiving and granting entities. According to Jabr, the budget law was already passed and signed, but without an acceptable schedule of allocations. All that is needed to publish the budget is to attach the tables after the available CoR Finance Committee members approve. More Budget Peculiarities -------------- ¶8. (SBU) Jabr said that his staff is still revising schedules based on feedback from CoR Finance Committee members. These parliamentarians said that the "original budget," that had no cuts in it should be attached to the CoR passed bill, a position with which Jabr disagrees. Jabr insisted that a schedule that contained across-the-board cuts of 28%, including cuts to the CoR,s budget is proper. The Finance Committee objects and now they and Jabr are in a stand-off, with Jabr arguing that the budget law clearly mandates that he cut all GOI entities, including the CoR. Jabr told EMIN that, rather than prolong the fight, he was sending the Finance Committee Chairman a copy of the budget law and three separate schedules: the original schedule, a schedule reflecting an across-the-board cut and one with the CoR exempted from cuts; all with a letter telling him to "choose one." Jabr asserted that the Finance Committee Chair can, without waiting for the return of the full CoR, choose a schedule, and send it to the Presidency Council for review and publication in the official Gazette. According to Jabr, GOI could have a budget in 10-14 days. Possible Budget Reductions -------------- ¶9. (SBU) Prompted by the EMIN, Jabr also offered that, by June or July, he would likely be presenting a supplemental "reduction" or rescission budget because of declining oil production and low oil prices. Jabr did not expressly respond to a question whether he would consider salary cuts as a means of reducing expenditures. He was more focused upon revenue enhancements, suggesting that tax and fee increases and tariff hikes might be considered, but not until next year. He said one idea that the Minister of Planning had mentioned was to have oil companies make "down payments" on investments. Other possibilities could be loans from the IMF or World Bank. According to Jabr, Iraq's budget woes derive from the mistakes of the Ministry of Oil. ¶10. (SBU) In response to a question about issuing Treasury bills, Jabr agreed that this is an option to be explored. He revealed that he had received a proposal from the Governor of CBI which he felt was too restrictive. However he pointed out that the budget law, which requires the MOF to seek authorization for each Treasury bill, was also unacceptable. He is hopeful of getting more flexibility, such as a debt ceiling under which the MOF can issue Treasury bills as Qceiling under which the MOF can issue Treasury bills as necessary. BUTENIS