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Cablegate: Draft Law Liberalizing Fuel Imports And

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 BAGHDAD 003988

SIPDIS

SENSITIVE BUT UNCLASSIFIED

E.O. 12958: N/A
TAGS: ENRG ECON EPET ETRD PGOV IZ
SUBJECT: DRAFT LAW LIBERALIZING FUEL IMPORTS AND
DISTRIBUTION

REF: BAGHDAD 03939

1. (SBU) Summary: Post has obtained a draft of a proposed
GOI law to liberalize the import and distribution of refined
fuel products (text in para 4). If adopted and implemented,
the draft law will END the State Oil Marketing Company's
monopoly on fuel imports. The law is ambiguous, however, as
to whether the state will retain at least some price
regulating authority. End Summary.

------------------------
Breaking SOMO's Monopoly
------------------------

2. (SBU) The Embassy informally has translated a draft law
to liberalize the import and distribution of fuel in Iraq.
If adopted and implemented, this law will break up the State
Oil Marketing Organization (SOMO)'s current monopoly on the
import of some fuel products. Specifically the law will:
- Allow private companies to import and sell premium
grade fuel (92 octane or higher), low-sulphur diesel, and
lubricants;
- Exempt these companies from paying taxes on the
imported products for two years;
- Allow private companies to distribute their product
via gas stations, which they may either lease or build.

The Ministry of Justice is currently examining the draft
law. Minister of Oil Ibrahim Bahr al-`Ulum told us
September 17 (reftel) that he expects it to be presented to
the TNA in October. (Comment: The chapeau of this law
suggests that it would be issued as a decision with the
force of law by the Ministries Council, but Post's
understanding is that this authority expired with the stand-
up of the ITG. Post will clarify with the Ministry the
process by which it intends this draft to become law. End
comment.)

---------------------------
Some Price Controls Remain?
---------------------------

3. (SBU) Whether or how far the law will liberalize the
price at which these new firms may sell the products they
import, however, is not clear. Article 4 provides that
importing companies have the right "to determine the sale
prices for the refined petroleum products, without regard
for prices issued by the Ministry of Oil." In a cover memo
to the Council of Ministers, however, Minister of Oil
Ibrahim Bahr al-`Ulum states that, although one of the law's
goals is to increase involvement of the private sector, the
Ministry of Oil intends to "gradually amend the price of
fuel products and reduce subsidies." Moreover, Article 8 of
the draft law reserves the right of the GOI Economic
Committee (whose members include the ministries of Trade,
Finance, Oil, and the Central Bank of Iraq [CBI]) to
"determine the prices of the refined petroleum products
mentioned in a manner that will rationalize the cost
elements of production, refining, and importation, as well
as improving the level of services provided to the
citizens." This article does not differentiate between
imported and domestically produced products, thereby causing
tension, if not a direct conflict, with Article 4's grant of
authority to companies to set their own sales prices.

4. (SBU) Comment: Earlier discussions with the GOI and MO
in particular had indicated that the price of imported fuel
would be unregulated, with the GOI only gradually
relinquishing control over the price of domestically
produced products. While this may still be the GOI intent,
Article 8 does not specify. Oil Minister al-`Ulum's
confidence that this order will be adopted "easily" in
October may be based upon in part upon this ambiguity.
Embassy will clarify this critical point as soon as
possible. End Comment.

5. (SBU) BEGIN TEXT OF EMBASSY INFORMAL TRANSLATION:

Order Number:
Date:

Based on the rules of Article 2 (B-1) from the Iraqi State
Law for the transitional period (TAL), and the second
section of its addition, and based on the authorization of
the President's Assembly, the Council of Ministers decided
the following:

Number ( )
Exemptions from the rules of benefits of Petroleum Law
Number (49) for the year 1970, and its amendments.
Article 1: Private sector companies have the right to
import, store and sell for domestic consumption, directly or
through authorized agents, the refined products mentioned
below:
- Automobile gasoline with 92 octane or higher;
- GasOil under the condition that its sulphur content
does not exceed 1 percent;
- Motor oil and all types of lubricating agents.

Article 2: Refined Petroleum Products are exempt for two
years from the date the issue of this order from taxes,
import fees, max-fees (sic) and the tax for the
Reconstruction of Iraq. Review of this exemption shall
continue in light of market developments.

Article 3: In addition to the right to import fuel,
companies also have the right to build (as governed by
existing laws and Ministry of Oil regulations) or lease gas
stations for the sale of imported or domestically produced
fuel. Companies may construct storage facilities only if
they are not involved in the sale of fuel products.

Article 4: The importing companies have the right to
determine the sale prices for the refined petroleum
products, without regard for prices issued by the Ministry
of Oil.

Article 5: The owners of the gas stations that currently
have contracts with the Ministry of Oil or SOMO are allowed
to terminate their existing operating and preparation
contracts and enter into new contracts with importing
companies.

Article 6: The Ministry and the Central Apparatus of Control
and Measurements, in addition to other ministries as
necessary, have the responsibility to monitor companies'
compliance with relevant safety and environmental
regulations.

Article 7: Companies or their authorized agents found guilty
of selling domestically produced refined petroleum products
shall be fined 10 million Iraqi dinar. Should the activity
continue, the fine will increase to 50 million Iraqi dinar
and the company's operations may be suspended.

Article 8: The Economic Committee, based on a suggestion
from the Ministry of Oil, is authorized to determine the
prices of the refined petroleum products mentioned below in
a manner that will rationalize the cost elements of
production, refining, and importation, as well as improving
the level of services provided to the citizens.
- Benzene (both regular and premium)
- GasOil (diesel)
- White gas (kerosene)
- Liquid propane gas (LPG)

Article 9: Ministry of Oil is to issue orders to execute
the rules of this decision.

With respect to the increase in demand on refined petroleum
products, and the limitations of production capacities of
the refineries currently, which require securing additional
amounts to facilitate the ability for the citizens to
acquire these refined products, and improvement of services,
and opening the way to the private sector to support this
activity...Issuing of this order has been decided.
END TEXT OF EMBASSY INFORMAL TRANSLATION.

Satterfield

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