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Cablegate: Eprt Al Asad - State-Owned Enterprises in Western Al Anbar

VZCZCXRO7393
RR RUEHBC RUEHDA RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3310/01 2780507
ZNR UUUUU ZZH
R 050507Z OCT 07
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 3700
INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS SECTION 01 OF 03 BAGHDAD 003310

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EMIN IZ
SUBJECT: EPRT AL ASAD - STATE-OWNED ENTERPRISES IN WESTERN AL ANBAR

1. (U) SUMMARY: The State-Owned Enterprises (SOE) in Western Al
Anbar Province are under considerable strain to achieve even modest
production goals. The availability of raw materials, fuel, and
stable electricity are primary factors in lagging production for
products that have a substantial economic impact to the province and
the country. Resuming operation of the Iraqi Railroad (IRR), coupled
with restoration of oil refining operations and distribution at the
K-3 refinery south of Hadithah, would have a significant impact on
the ability of SOEs to increase production. END SUMMARY

The Al Qaim Phosphate Plant
---------------------------
2. (SBU) The Al Qaim Phosphate Plant started construction in 1976
and began operations in 1984. The product from this plant is highly
desired and has significant export potential. Production has been
disrupted since 1991 when sanctions interfered with receipt of
materials and maintenance items. Ensuing conflict and past
instability in the region has continued to depress production
capacity.

3. (U) The Phosphate Plant is actually a combination of several
production facilities all within one compound. These are:
phosphoric acid, sulfuric acid, ammonia, three types of fertilizer,
aluminum fluoride/cryolite, and freon production. Only half of
these are operational, namely the phosphoric acid, sulfuric acid,
and 3 types of fertilizer. For all intents and purposes, fertilizer
(triple sodium phosphate, mono-amino phosphate, and nitrogen
phosphate) is the only remaining product from the plant.

4. (U) The plant purchases most all of its minerals for making
fertilizer. Phosphate rock comes from the Akashat mine, sulfur from
Mishraq and Kirkuk, ammonia and urea from Basrah, and potassium
chloride from Jordan. The inability to use the railroad to
transport raw material is a prime factor contributing to decreased
production. Combined with electrical power shortages (only half the
MWs required are being provided, i.e., 15 versus 30MW) the
productivity is now only 10% - 30% of capacity. While 15MW is
enough for much higher production the shortage of materials is the
main limiting factor at this time.

5. (SBU) The US Army Corps of Engineers will soon finish with
electrical work (substations) that will have the potential to
stabilize much of the power to the plant. While the work will
provide added stability to the supplied power there is not expected
to be a gain in actual megawatts provided until the Hadithah Dam
begins generating more power. The dam must be given higher priority
in terms of GoI funds for capital investment and major maintenance.

6. (U) Special interest is being focused on getting the railroad
lines cleared so that raw materials can be received and finished
product moved to market. Recently, multiple test runs have been
done and a crane is being sought to move 6 derailed cars off the
tracks near Camp Al Qaim. The IRR has stalled on this issue for
more than one year. An operational railroad will give the phosphate
plant access to more raw materials to enhance production but IRR
must cooperate and get the crane out to the area.

7. (U) The viability of the Akashat mine to meet production demands
is questionable as well. The mine (located 150km away) is having
problems. They use a water system in the mining process and the
pressure does not allow full use; they have resorted to manual labor
to jackhammer phosphate rock for extraction. There are apparently
many taps and pressure losses along the pipeline route. While the
water treatment plant that is part of the phosphate plant generates
1,000M3/hr. Half of this is distributed to Karabilah and the rest
to Akashat, New Obeidi, and the T1 pumping station. The system
requires repair to allow the mine to meet production demands. There
exists the possibility of using explosives to disengage phosphate
rock and the Anbari authorities in May 2007 to submit a letter to
the Prime Minister's office requesting cooperation of MNF-I in
acquiring them. The Prime Minister's office forwarded the letter to
MNF-I four months later. It has been retrieved and a response
letter is now in the process of staffing in MNF-I.

8. (U) The plant is operating 24 hours per day but using a limited
workforce given the decreased production levels. Of 4,000 employees
on record only 1,250 are currently working. The remaining employees
are on salary with reduced benefits. With stability in the region
at an all time high it is crucial to move forward with advancements
in the industrial capability so evident in this region.

The Al Qaim Cement Plant
------------------------
9. (U) Not far from the phosphate plant is the Al Qaim Cement
Plant. One of three cement plants in Al Anbar, the Al Qaim plant is
most valued for its highly sulfur resistant cement. The plant was
built by a Romanian construction company and began operations in
1989. The plant has a current staff of approximately 960 personnel.
The plant operates one production line 24 hours per day using three
shifts.

10. (SBU) The plant manager has identified three factors that if

BAGHDAD 00003310 002 OF 003


tackled would result in an increase in production, namely: power,
fuel, and transportation. Currently, the plant is running at
approximately 1/3 capacity but is drawing 10MW out of a requirement
for 20MW at full capacity. While power is fairly regular there are
fluctuations that affect the normal processing of the cement down
the line. Ten days ago power to the plant was reduced and the plant
has shut down operations entirely. This is a critical issue and is
being worked now at MNF-W and the Anbar PRT. Power redistribution
must be coordinated to allow resumption of this vital industry. The
new 400KV station at Camp Al Qaim and three new/reworked 132KV
sub-stations (one of which is at the Phosphate plant) will provide
more power for the SOE but only once more megawatts are pushed from
the dam. The new electrical stations will at least provide more
stable power with less fluctuation in the voltage/amperage.

11. (U) As for fuel; a steady supply of fuel is critical for the
plant to be successful and the requirement is approximately 250K
liters per day. While it is more expensive to truck in fuel the
plant has indicated they are not losing trucks to piracy at this
time. The K-3 refinery must be put back on-line to allow enough
steady fuel to maintain operations. The plant is experiencing
significant cost growth in expenses for transportation as a result
of the rail lines being shut down. Trucking in materials and
trucking out finished product is a high cost of doing business. The
train line must be made functional in order to see a significant
benefit from increased production.

The Kubaysah Cement Plant
-------------------------
12. (U) The Kubaysah Cement Plant is the second of two plants
operating in Western Al Anbar. The factory was built in 1982 by a
Japanese company. Approximately 1,150 workers are employed at the
plant with 950 of these as engineers and technicians.

13. (U) There are two production lines in this factory; each
contains a two step production process: one to break the clay down
and mix it with limestone and gypsum and the other to complete the
final production process of drying and mixing and packaging the
cement. Whereas the plant used to manufacture their own bags, a
shortage of paper has forced them to purchase bags from external
sources. They do not envision restarting this bag making facility.

14. (U) The factory manufactures a type 2 Portland cement. The
factory operates on a design capacity of 2M tons/yr but is currently
only producing 20-30K tons/month or approximately 300K tons/year.
Reasons for the dramatic underproduction are attributed to the
following, in priority order:
a. Electricity shortages. The factory is only getting about
25% of its needed electricity requirement of 50MW. The flow of
electricity is unstable, not continuous and the voltage varies.
b. Fuel. The factory uses about 5 million liters per month of
fuel oil which yields 20 productive days of work. Deliveries can be
sporadic and irregular. The furnaces can operate on the waste oil
products of the K-3 refinery or any other refinery (Baji/Samarra).
Unfortunately, the K-3 refinery is not in operation. At full
capacity the factory will consume about 12 million liters of fuel
per month. Regular fuel deliveries must occur to sustain
production.
c. Spare Parts. The factory has a modest spare parts budget
and this is derived from production sales which have been down.
This has created a significant spare parts problem and resulted in
cannibalization of one production line to help maintain the other.
Both furnaces are long overdue for a complete maintenance overhaul.
One is inoperative and two of four electric motors used to turn the
mixing drums are inoperative. Cost estimates run up to $5M for
standard maintenance and another $5M to purchase 10 new electric
motors; a few of which would be backup motors. Per the plant
manager, if parts and electricity were restored they would be able
to operate the plant at near full capacity without additional
personnel.

15. (U) The Iraqi State Cement Company is the central control point
for all cement plant operations in the province. They set spending
limits for each plant manager for parts, supplies, major repairs,
etc. Their tendency is to be unresponsive to plant manager
requirements. The Company makes all the orders for parts, fuel
deliveries and/or other contract work as needed based on inputs from
the plant managers. Unfortunately, the cheapest possible parts are
usually ordered and this leads to additional maintenance and
breakdown problems downstream.

16. (U) Link to K3 Refinery: If this refinery were running, the
waste fuel would be excellent for use in the furnaces of the cement
plants in Kubaysah and Al Qaim. As such, the plant likely wouldn't
have a fuel problem if, in addition, the IRR were running. As oil
is refined and the useable products like propane, kerosene, benzene,
light oils, etc., are extracted. The residual waste fuel oil is
ideal for use in the furnaces. A synergy exists between the
refinery, the IRR, and the cement factory production process.

COMMENT
-------

BAGHDAD 00003310 003 OF 003


17. (SBU) The SOEs in Western Al Anbar have high potential, not as
the current employer of over 6,000 Anbaris, but as a factor in the
overall economic growth and reconstruction of the country through
fertilizer for agricultural advancement and cement for
infrastructure repairs and new construction. The three crucial
linchpins to increased success in this province will require high
level Iraqi central government action to restore operations at the
K-3 refinery, the Iraqi Railroad, and to implement major repairs to
the Hadithah dam for increased generation of electricity for western
Al Anbar and the SOEs.

18. (U) Drafted by EPRT Al Asad Business Specialist, Jay Cooper.
Coordinated with RCT-2, MNF-W, and the Anbar PRT.

Crocker

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