US embassy cable - 03AMMAN7299

C O N F I D E N T I A L SECTION 01 OF 02 AMMAN 007299 
 
SIPDIS 
 
PASS TO TDA FOR FOR CYBIL SIGLER/HENRY STEINGASS 
 
E.O. 12958: DECL: 11/05/2013 
TAGS: EPET, ENRG, EINV, PREL, JO, IZ 
SUBJECT: NEW ENERGY MINISTER ADDRESSES OIL SUPPLY ISSUES 
 
REF: A. AMMAN 6621 
     B. FLOWERS-SCHEDLBAUER E-MAIL 10/29/03 
 
Classified By: Ambassador Edward W. Gnehm for reasons 1.5 (b) and (d) 
 
1. (C) SUMMARY: Newly appointed Jordanian Minister of Energy 
Azmi Khreisat told the Ambassador on November 5 that Jordan 
has agreed to purchase three million barrels of Iraqi oil 
before the end of the year.  He expressed optimism about the 
six-nation power grid initiative and the Egyptian gas 
pipeline, said that large-scale oil smuggling over the 
Jordanian-Iraqi border was unlikely, and discussed upcoming 
electricity sector privatization and projects.  END SUMMARY. 
 
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OIL SUPPLIES 
------------ 
 
2. (SBU) Upon the Ambassador's questioning, Khreisat 
elaborated on press reports that the GOJ had reached a deal 
with the Iraqi State Oil Marketing Organization (SOMO) 
providing for Iraqi crude oil exports to Jordan.  The GOJ has 
arranged with SOMO to purchase three million barrels of Iraqi 
oil between now and the end of the year.  It will be 
delivered by tanker to Aqaba in three, one-million-barrel 
shipments, the first of which is scheduled to arrive in Aqaba 
November 14.  The GOJ will pay SOMO for the oil by letter of 
credit at an American bank.  The oil will be purchased at 
current market prices (a press statement by the Ministry of 
Energy Secretary-General gave the price for the first 
shipment as $26-27 million dollars).  In the long term, the 
Minister would prefer to receive oil on land by truck, and 
eventually by pipeline due to limited port capacity.  The 
latter project, begun before the war, has been in suspense 
since then - the Iraqis are not building toward Jordan from 
their end, and the Jordanians are not building toward Iraq. 
Khreisat said that when work on the pipeline resumes, he 
hopes to be able to turn it over to the private sector.  He 
does not expect the private sector to be interested unless 
the correct laws are in place in Iraq. 
 
3. (SBU) Khreisat noted that the Saudi commitment was to 
supply free crude (Jordan must pay transportation costs) 
through the end of the year, though the GOJ is continuing its 
effort to get an extension. (NOTE: We understand separately 
that there has been a political commitment through March 2004 
that has yet to be translated into a final arrangement.  PM 
Al-Fayez has told the Ambassador he would travel to Saudi 
Arabia soon in order to try to review the deal for another 
year.)  Khreisat seemed confused about the status of the 
Kuwaiti and UAE contributions, which he said might have 
already ended or might continue through the end of the year. 
(NOTE: The King traveled briefly to Kuwait on Nov. 5, and oil 
undoubtedly figured in his talks there.) 
 
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6-NATION POWER GRID 
------------------- 
 
4. (SBU) Khreisat believes the six-nation power grid presents 
great potential to help fill Iraq's power needs.  He says 
that both Syria and Turkey have substantial extra power to 
sell and is optimistic about a plan to extend Jordan's power 
grid to connect with the Iraqi grid at Rutba. (NOTE: 
Khreisat's assessment of the six-nation power grid's 
near-term potential is in line with the assessment of the 
previous Minister Bataineh (ref A), but not with that of his 
Secretary-General or the electricity sector within his 
 
SIPDIS 
ministry (ref B).  The latter say that the low-volume nature 
of existing and proposed connections would make any 
contribution to Iraqi power made by the six-nation grid 
marginal at best, at least in the short term.) 
 
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NATURAL GAS PIPELINE 
-------------------- 
 
5. (SBU) Khreisat said that the Egyptian consortium EPEG is 
still arranging financing for the second phase of the natural 
gas pipeline, which will run from Aqaba to the power plant at 
Rihab near the Syrian border.  He believes that financing 
will likely take a few more months to complete, but that the 
line should be completed by late 2005 or early 2006.  Once 
the line is complete, the Rihab power plant would switch over 
to natural gas.  He noted that the switchover of the Aqaba 
power plant to natural gas, which is still incomplete (three 
of five turbines have switched over with the other two to be 
switched this month), had left the Zarqa refinery producing 
1,000 tons of fuel oil per day for which there was no demand 
in Jordan and which the refinery was exporting. 
 
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OIL SMUGGLING 
------------- 
6. (C)  The Ambassador raised the reported smuggling of oil 
by truck from Iraq to Jordan. Khreisat claimed that it was 
not a big issue from Jordan's perspective.  He believes that 
some small-time smuggling might take place through the 
border, likely of finished products rather than crude.  The 
Minister recalled that there had been an agreement right 
after the war to provide Iraq with some limited quantities of 
gasoline in exchange for crude, but that was long since 
completed.  He noted that there were a few tanker trucks 
still coming back from Iraq, as the Khawan family had 
recently imported a shipment of diesel into Iraq through 
Jordan per contract, but he assumed they are being checked at 
the border.  He raised the possibility of oil being imported 
into Jordan by Iraqis who had been paid in kind for services, 
but suggested that if this were the case, CPA would likely 
have known about it and given approval.  He did not mention 
receiving a letter from SOMO or of any other request for 
support from the GOI in connection with smuggling allegations. 
 
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UPCOMING ENERGY PROJECTS 
------------------------ 
 
7. (SBU) The petroleum refinery in Zarqa (which Khreisat ran 
before being appointed Minister) is a real headache for the 
government of Jordan, Khreisat said.  At present, it requires 
3,000 tons of diesel per day to run the refinery, all of 
which is being imported through tendering into an already 
crowded port of Aqaba.  The proposed USD 600-700 million 
renovation of the refinery should help solve some of these 
problems, allowing the refinery to produce 
environmentally-friendly products more efficiently.  The 
financing of this project will be a major hurdle, however. 
 
8. (SBU) The Ministry of Energy is also beginning to issue 
tenders for the privatization of the electricity sector. 
Khreisat asked what could be done to increase U.S. investor 
interest in the sector, and what role USTDA could play in it. 
 Told that USTDA could finance consultants to help the 
ministry with the privatization process, Khreisat said that 
U.S.-based consultuing firms had already been contracted to 
help in this way, including Kellogg, Brown, and Root and K&M, 
which is consulting on the combined-cycle project. 
 
9. (SBU) While the Al Samra independent power project (IPP) 
in northern Jordan appears dead, the GOJ has begun tendering 
for a traditionally-financed power project and will be 
receiving bids next month.  The GOJ still plans to tender for 
another IPP in 2007-8. 
 
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COMMENT 
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10. (C) Khreisat's prior experience in the Ministry of Energy 
and at the refinery gives him a good working knowledge of the 
issues that he will confront as minister.  His interest in 
involving American investment and supply in upcoming 
Jordanian projects should make him a good partner for the 
Embassy.  His interest and involvement in the six-nation 
power grid and the Iraqi oil purchase deal appears to signal 
a desire to be just as good a partner for Iraq, in line with 
the King's strategic direction.  The oil-purchase deal 
between GOJ and SOMO, which will have no effect on the price 
Jordan pays or on relieving the congestion at Aqaba port, 
shows this minister's focus on the long-term Jordanian-Iraqi 
energy relationship. 
GNEHM