VZCZCXRO9089
PP RUEHBC RUEHDE RUEHIHL RUEHMOS
DE RUEHKUK #0046/01 0571906
ZNY CCCCC ZZH
P R 261906Z FEB 06
FM REO KIRKUK
TO RUEHGB/AMEMBASSY BAGHDAD PRIORITY 0498
RUEHC/SECSTATE WASHDC PRIORITY 0535
INFO RUCNRAQ/IRAQ COLLECTIVE
RUEHKUK/REO KIRKUK 0562

C O N F I D E N T I A L SECTION 01 OF 02 KIRKUK 000046 
 
SIPDIS 
 
SIPDIS 
 
BAGHDAD FOR ECON, POL, POLMIL, NCT, ROL COORDINATOR, IRMO 
 
E.O. 12958: DECL:  2/26/2016 
TAGS: PGOV KCOR EPET ECON PINS IZ
SUBJECT: (C) ORGANIZED, WIDESPREAD CORRUPTION IN FUEL DISTRIBUTION 
 
REF: (A) KIRKUK 1, (B) KIRKUK 35 
 
KIRKUK 00000046  001.2 OF 002 
 
 
CLASSIFIED BY: Scott Dean, Regional Coordinator (Acting), Reo 
Kirkuk, Department of State . 
REASON: 1.4 (b), (d) 
 
 
 
¶1.  (C) INTRODUCTION AND SUMMARY:  A highly organized corruption 
ring is running a black market for fuel in Kirkuk, manipulating 
fuel prices, and siphoning fuel to Iran and Turkey for profit. 
The organization parallels KDP and PUK party, Peshmerga and 
Asayish structures.  Attempts to cover up its activities led to 
the January 1 protest in Kirkuk that turned violent and resulted 
in at least three deaths (ref A).  (NOTE:  POLOFF obtained the 
information in this cable from a variety of sources -- including 
Arab and Christian leaders, but most specifically from two 
Kurdish "whistleblowers" who were part of the scheme and who 
possess extensive documentary evidence.  END NOTE.)  END 
INTRODUCTION AND SUMMARY. 
 
 
(C) WIDESPREAD CORRUPTION ALLEGED IN FUEL DISTRIBUTION 
--------------------------------------------- --------- 
 
¶2.  (C) The two dominant Kurdish political parties, the 
Kurdistan Democratic Party and Patriotic Union of Kurdistan, 
along with Peshmerga and Asayish security services, are 
controlling the black market for fuel in Kirkuk in a coordinated 
effort to maximize profitability and prevent discovery.  A 
system of so-called "trade" gas stations exists, often alongside 
the government-regulated stations.  The fuel prices are three 
times as high at the trade stations, but the supply is so 
minimal at the government stations that "you often have to wait 
a full day or more in line," forcing most locals to resign 
themselves to paying black market prices.  A significant amount 
of the fuel meant for government-regulated stations (25 - 50%) 
is siphoned off for profit on the local black market or exported 
by large tanker trucks to neighboring countries where fuel 
prices are higher. 
 
¶3.  (C)  Our sources point out that this level of coordination 
for distribution and security requires political complicity at 
"high levels."  While many sources were uncomfortable naming 
names, one fuel depot assistant manager said, "this goes to the 
top - Kosrat Rasul (Executive Secretary of the Patriotic Union 
of Kurdistan's Politburo and the PUK's nominee for KRG Vice 
President) appointed these people."  Another source noted: "one 
must look at who controls distribution and security.  How can 
such large tankers go through all those checkpoints?"  While a 
third said: "it is simple: follow the money.  How can the 
Director of the OPDC (Oil Products Distribution Company - the 
national Ministry of Oil's company responsible for fuel 
distribution) who lived in a rented house and one year later own 
a $2.5 million house?"  (Note:  The PUK and KDP control security 
checkpoints, local Oil Ministry offices, and fuel distribution 
networks.  End Note.) 
 
 
(SBU) THE PROCESS - HOW IT'S DONE 
--------------------------------- 
 
¶4.  (C) Large tanker trucks from Turkey deliver refined fuel 
products to Kirkuk.  Official stamps and paperwork from the 
authorized government office facilitate the distribution 
process.  One source who claimed to have worked in this area 
said that falsified paperwork from the local oil ministry office 
normally costs $2500.  These trucks, on their way to Kirkuk, 
stop approximately three kilometers outside the city where 
several 36,000-liter tanks have been placed.  A quantity of the 
high quality gasoline from the trucks is then transferred to the 
tanks were it is diluted in a 40/60 mix with lower quality 
gasoline and several different batches are produced.  Much of 
the high quality fuel is then re-directed towards Iran or back 
to Turkey.  The lower grade fuel gets distributed to government 
stations, sold on the black market, or distributed to preferred 
groups on a prearranged volume basis (e.g., police, army, and 
other government agencies receive a set quantity each month). 
The corruption extends beyond petrol to include all types of 
fuel.  A reliable contact, under current threat from smugglers, 
revealed that 10 million liters of kerosene were given to the 
PUK "on credit."  This kerosene was then sold to Iran.  He noted 
that: "the party accumulates huge profits, while citizens under 
PUK control continue to complain of kerosene shortages."  (NOTE: 
Kerosene is the main heating fuel.  END NOTE.) 
 
 
(C) VIOLENT DEMONSTRATION - A COORDINATED PLAN 
--------------------------------------------- - 
 
¶5.  (C) All sources quoted above and local police contacts agree 
 
KIRKUK 00000046  002.2 OF 002 
 
 
that the violent demonstration in Kirkuk January 1 (ref A) was 
politically planned and synchronized as a distraction to conceal 
torching records and stealing thousands of petrol coupons in two 
specific areas of the local Oil Directory offices.  The 
arsonists targeted only the area of the office that dealt with 
information on the Turkish tanker trucks and related 
distribution records. 
 
 
(U) COMMENT 
----------- 
 
¶6.      (C) Government fuel prices have risen.  However, it is the 
low supply at government stations and the high black market, 
rather than government fuel price hikes, that are sparking 
popular discontent.  More broadly, widespread corruption is 
fueling popular frustration and disillusionment. 
DEAN