VZCZCXRO5956
RR RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #3166/01 2751154
ZNY SSSSS ZZH
R 011154Z OCT 08
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 9726
INFO RUCNRAQ/IRAQ COLLECTIVE

S E C R E T SECTION 01 OF 02 BAGHDAD 003166 
 
SIPDIS 
 
E.O. 12958: DECL: 10/01/2018 
TAGS: PGOV PREL KCOR PTER PINS IZ
SUBJECT: BAYJI OIL REFINERY DG TAKING ACTION AGAINST FUEL 
SMUGGLING 
 
Classified By: PRT Team Leader Rick Bell, reasons 1.4 (b,d). 
 
¶1. (U) This is a PRT Salah ad Din reporting cable. 
 
SUMMARY 
------- 
 
¶2. (S) In a September 18 meeting Bayji Oil Refinery (BOR) 
Director General Ali Obeidi (protect throughout) told PRT 
and Joint Security Station officers (JSS) that he has made 
progress in shutting down corruption and black market 
profiteering since he assumed control of fuel distribution 
at the plant on September 1.  Obeidi said systemic 
incompetence within the Ministry of Oil (MOO) remained an 
obstacle to improving fuel production and distribution.  He 
reported tensions between himself and local and provincial 
officials, who he claims view the refinery as a source of 
funding or personal gain.  Obeidi said he plans to travel 
to the U.S. with a group of his senior engineers to check 
on the status of equipment contracted for the BOR.  END 
SUMMARY. 
 
(S) DG REPORTS PROGRESS AGAINST BOR CORRUPTION 
--------------------------------------------- - 
 
¶3. (S) In a September 18 Ramadan evening meal at the BOR, 
DG Ali Obeidi told PRT and JSS officers that he has made 
progress in improving the integrity of fuel distribution 
from the plant and plans to institute further improvements 
as the political situation and the necessary technological 
upgrades allow. (COMMENT: Most of the blackmarket 
profiteering at the BOR derives from insurgents or criminal 
gangs acquiring fuel at the government subsidized rate and 
then reselling it at the black market price.  While Obeidi 
is the DG of the BOR, the MOO had not granted him 
operational control over fuel distribution, where most 
theft occurs, until September 1.  END COMMENT.) 
 
¶4. (S) Obeidi said that he has instituted new measures to 
ensure that trucks loading fuel have the proper paperwork 
and authorizations to purchase subsidized fuel.  He 
explained that incidental reporting from security and 
managerial personnel under his authority indicated that 
these measures have met with initial success. 
 
(S) FUEL SHIPMENTS STILL VULNERABLE 
----------------------------------- 
 
¶5. (S) Obeidi conceded that despite the progress with 
improving distribution at the plant, ground transportation 
of fuel products will remain vulnerable to theft and black 
market profiteering until proper fuel tanker tracking can 
be established from the BOR to provincial distribution 
centers.  Obeidi stressed the importance of remaining 
vigilant in the fight against corruption and reported that 
Bayji-based criminal organizations had already used threats 
to try to persuade at least one plant worker to join their 
smuggling operation. 
 
(S) MOO NEEDS MORE COMPETENT LEADERSHIP 
--------------------------------------- 
 
¶6. (S) Obeidi said that the fundamental problem for the 
energy sector in Iraq was the lack of competence and 
technical expertise at the MOO:  "The people running things 
there are not very bright and they aren't oil experts."  As 
an example, Obeidi said the Iraqi State Oil Marketing 
Organization (SOMO)'s September decision to increase the 
export price of Heavy Fuel Oil (HFO) had led Jordan, Syria 
and Iran to cancel their contracts at the very moment when 
surplus HFO buildup was threatening to shut down refining 
at the BOR. (NOTE: HFO is a byproduct of fuel refinement. 
The BOR can only store a limited amount of HFO and must 
shut down when it has no more spare storage capacity.  END 
NOTE.)  As a result, Iraq had no choice but to resume 
injecting surplus HFO into the northern export pipeline, 
which could affect the perceived quality of Iraqi oil in 
the short term.  Obeidi added that the filling of key 
governmental positions along sectarian lines created this 
type of incompetence, and said that he hoped the next round 
of elections would lead to more technocratic leadership at 
the MOO. 
 
(C) BOR AS SOURCE OF PUBLIC FUNDING AND PERSONAL GAIN 
--------------------------------------------- -------- 
 
¶7. (S) Obeidi described difficult relations with municipal 
and provincial leaders, who he claims view the BOR as a 
means to enrich themselves or fund their own initiatives. 
In regard to the Salah ad Din (SaD) Governorate, Obeidi 
said he had chosen to limit his contact with provincial 
authorities since they were "always asking for things."  He 
 
BAGHDAD 00003166  002 OF 002 
 
 
described SaD Governor Hamad Hamood al-Qaisy as honest and 
sincere in his desire to improve conditions in SaD, but 
"many of the people under him are corrupt."  Obeidi 
described difficult relations with Bayji Mayor Hussain 
Ahmad Mojoob al-Qaisy.  Obeidi said that he had persuaded 
the MOO to fund several Bayji municipal initiatives, 
including the construction of a park and several wells, in 
an effort to improve relations with the municipality. 
Obeidi complained, however, that too often the Mayor 
treated the BOR as the funder of first resort:  on one 
occasion Hussein had sent a written request that BOR funds 
be used to purchase 20 chairs for the Mayor's office. 
 
¶8. (S) (COMMENT: The BOR is a national, not provincial 
asset; it is run by officials appointed by the MOO.  Many 
Bayji residents and the municipal leadership, however, feel 
they are entitled to a greater share of the revenue from 
the refining facility.  This feeling is compounded by 
inefficiency and corruption of the fuel distribution 
system, which sometimes causes shortages of fuel in many 
areas of SaD.  END COMMENT.) 
 
(SBU) IRAQI LEADERS NEED TO BE MORE DARING 
------------------------------------------ 
 
¶9. (S) Obeidi repeatedly emphasized the need for decisive, 
daring leadership in Iraq, commenting that "Saddam damaged 
everything, even the people."  Obeidi said that mid-level 
managers at the BOR had repeatedly warned him about taking 
any actions that would upset insurgent and terrorist 
funding networks. As an example of the ways Iraqis are 
cowed by fear of reprisal, Obeidi recounted that not more 
than one year earlier, BOR workers had been fearful of 
removing the Ba,ath Party flag or disrupting smuggling 
networks.  Obeidi cited the Sons of Iraq as a contrasting 
example of other leaders who had taken a courageous stance 
to better the country.  Obeidi expressed optimism that more 
Iraqis would be willing to oppose destructive forces as 
security improves, commenting that "a year ago I had al- 
Qaida people working here at the BOR. Now that is 
finished." 
 
(C) BOR OFFICIALS SEEKING U.S. EQUIPMENT 
---------------------------------------- 
 
¶10. (C) Obeidi said he has received invitations from 
several U.S.-based energy firms that have contracted with 
the MOO to provide equipment upgrades for the BOR.  Obeidi 
shared his plans to travel to the U.S. with a group of 
three senior engineers as soon as visas could be obtained. 
PRT officers offered to assist with this process if needed, 
but Obeidi said the Iraqi MFA will provide the necessary 
documentation for A visas. 
CROCKER