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 -------------- -------------- ¶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