PRT SALAH AD DIN: TRANSPORTATION OF CRUDE OIL VIA

S E C R E T SECTION 01 OF 02 BAGHDAD 000929

SIPDIS

E.O. 12958: DECL: 04/11/2014
TAGS: ECON EPET PGOV ELTN IZ
SUBJECT: PRT SALAH AD DIN: TRANSPORTATION OF CRUDE OIL VIA
RAILROAD BETWEEN BAYJI OIL REFINERY (BOR) AND K3 REFINERY
AND OTHER ISSUES

REF: A. BAGHDAD 217

B. BAGHDAD 302

Classified By: Classified by PRT Team Leader Richard Bell; reason 1.4 (
d).


1. This is a joint reporting cable from PRT Salah ad Din and
PRT Anbar.


2. (C) SUMMARY: PRT and MND-N representatives called on Dr.
Ali M. Al-Obaidi and Iraqi Railroad officials at the Bayji
Refinery on 19 March to discuss issues related to the
movement of crude oil from Salah ad Din Province to Anbar
Province. The consensus was that the railroad will be the
only practical means of crude oil delivery to the K3
refinery located in Anbar Province for the next year or more
due to pipeline unavailability. All parties engaged in the
discussion agreed that movement of crude to K3 was a priority
and all efforts needed to be made to accomplish this within
the next 30 days. END SUMMARY.

Need for Rail Service for Refinery and Distribution
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3. (S) Dr. Al-Obaidi, Director General, North Refineries
Company (NRC) told Mr. Abdul Ghani Abdul Wahab, Anbar
Distribution Director General, Anbar Province Oil Products
Distribution Company, and Wael Kamal al-A'ani, Director,
Bayji Iraq Republic Railroad (BIRR) Station and Repair Depot
on 19 March, 2009 at his office at the Bayji Refinery in
Saleh Ad-Din Province that the Iraqi Railroad (IRR) will be
needed for the next year and possibly for several years to
transfer crude oil to K3 due to the inoperability of the oil
pipeline. Bayji Oil Refinery (BOR) has increased crude oil
loading capability to 80 railroad tank cars per day. This
represents four trains of 20 (twenty) tank cars. The actual
transfer of this amount of crude oil is dependent upon its
availability at Bayji and currently there is insufficient
crude available at Bayji to operate both Bayji and K3 at full
capacity due to a reduction in allocation received from the
NOC by order of the Ministry of Oil. Abdul Ghani wants to
increase railroad delivery of refined fuel products to Anbar
because that is more secure than trucking. In addition, the
railroad offers significantly reduced delivery costs over
trucking, in which sixty percent of the cost of fuel products
is for transportation. Use of railroad for distribution
would cut most of that cost and allow the railroad to
generate revenue for repair of its equipment and
infrastructure.


Increasing Reliability of Rail Transport of Crude Oil
-------------- --------------


4. (SBU) Al-A'ani stated in a meeting with Obaidi and Abdul
Wahab, that the principal problem preventing reliable
delivery of crude oil from Bayji to K3 by railroad is sand
accumulation on the track. Sand can accumulate at a rate up
to one meter in a two-hour period at several points covering
six kilometers of the 169 kilometer distance. The drought
conditions over the past several years have magnified the
problem of keeping the railroad line open. Al-A'ani said he
needed two large front-end loaders and two back-hoes to open
the track and keep it clear. In addition, Hesco barriers
need to be erected as a stop-gap along the six kilometers
along both sides of the track for a total of twelve
kilometers of barriers. He can install the necessary
barriers in 30 days if the equipment can be purchased and he
is allowed to hire 30 temporary employees for this purpose.
He would need permanent equipment operators for the purchased
equipment for continuous maintenance of the track to mitigate
the sand problem. This is a short-term solution that should
Qthe sand problem. This is a short-term solution that should
be followed by planting trees as windbreaks across the
problem areas. Al-A'ani will prepare a letter to the
Director General of the IRR requesting equipment and support.

Loss and Contamination of Crude at K3
--------------


5. (S - REL ONLY: USA, GBR, AUS, NZ, CAN; NO REL: IQ) The
following is very closely held information between Dr.
al-Obaidi and Al-A'ani as provided to Salah ad Din PRT and
cannot be reported to GOI ministry officials. Salah ad Din
PRT made Al-A'ani aware of reports from the NRC that crude
oil deliveries by the railroad to K3 were reported to contain
high levels of water and other fluids, leading to suspicion
that the rail deliveries had been tampered with. Al-A'ani is
confident of railroad security for the deliveries and began
his own investigation in coordination with Dr. al-Obaidi.
Al-A'ani reported to his superior at the Ministry of
Transportation the Ministry of Oil's complaint of loss and/or

BAGHDAD 00000929 002 OF 002


contamination, and his superior authorized him to conduct his
own investigation and report back. He has not reported to
the Ministry how he would proceed in his investigation. The
focus of the investigation is on the off-loading facility and
movement of the crude at the K3 storage facility after it has
left the railroad tank cars. Once the crude oil is
off-loaded from the railroad, it travels through a new direct
line to a new storage tank, but then enters the old system of
pipelines to the refinery itself. The pipeline system is
very old and there are a number of valves and sidelines on
this system. Dr. Al-Obaidi and Al-A'ani found that some
valves appeared to be faulty or left open. It was discovered
that some crude oil had traveled back across the river and
not to the storage facility and that water and other fluids
may have been combined with some shipments due to the
configuration or failure of the valves. Secretly, Dr.
Al-Obaidi is planning to send two engineers to K3 on the next
train to accompany and observe the crude oil transfer from
on-loading through the actual delivery into the storage tanks
to check for loss or contamination. Dr. Al-Obaidi and
Al-A'ani will make a determination on how to proceed once
they have a report from the observers.


Excessive Private Fuel Station Licenses in SaD and Anbar
-------------- --------------


6. (S - REL ONLY: USA GBR AUS NZ CAN; NO REL: IQ) Dr.
al-Obaidi and Abdul Ghani explained the adverse effects of
over-issuance of licenses for private fuel stations on fuel
distribution in Salah ad Din and Anbar Provinces. Baghdad
has about 250 stations serving a population of 6.5 million.
By comparison, Bayji has 169 private fuel stations and the 50
kilometer stretch of road between Bayji and Sharqat has 75
stations. However, many of these licensed stations never
actually open. The situation in Anbar is similar, according
to the PRT there. The majority of the licenses have gone to
tribal leaders who demand fuel first, resulting in shortages
to the government stations and farmers. Dr. al-Obaidi
believes that Bayji, for example, should have about 10
licenses, because the preponderance of licenses not only
adversely affects distribution but increases opportunities
for corrupt diversion of fuel.
BUTENIS