US embassy cable - 05BAGHDAD3989

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003989 
 
SIPDIS 
 
E.O. 12958: DECL: 09/26/2015 
TAGS: ECON, ENRG, EPET, PGOV, IZ, Petrolium, Energy Sector 
SUBJECT: FUEL PRICES TO RISE COUNTRYWIDE 
 
REF: BAGHDAD 3939 
 
Classified By: Economic Minister Counselor Thomas Delare for reasons 1. 
4 (b) and (d). 
 
1.  (C) Summary: Director General of the Oil Products 
Distribution Company Zuhayr Shakir said September 23 that the 
$.08/gallon price rise for regular octane fuel that went into 
effect in Baghdad September 17 will be extended countrywide 
in October.  Zuhayr's company is formally part of the 
Ministry of Oil, but there still has been no formal 
announcement of a change in pricing policy from the Ministry. 
 So far, there also has been no public reaction in Baghdad to 
the September 17 rise.  The Ministry is also quietly raising 
the subsidized price in Baghdad of liquid propane gas (LPG) 
and has introduced the option of fee-based home delivery by 
private distributors into the winter program for distribution 
of kerosene and LPG.  End Summary. 
 
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Softly, Softly 
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2.  (C) Director General of the Ministry of Oil's 
Distribution Company Zuhayr Shakir said September 23 that he 
ordered the approximate $.07/gallon rise on regular octane 
gasoline, initiated September 17 in Baghdad (reftel), be 
extended nationally in October.  As with the Baghdad 
increase, however, we expect no official announcements. 
Septel reports on the Ministry of Oil draft proposal to 
liberalize some fuel imports and downstream petroleum 
distribution. 
 
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Baghdad Non-Reaction a Good Thing 
--------------------------------- 
 
3.  (SBU) Public reaction to the mid-September Baghdad price 
rise (reftel) has been muted, as Baghdad residents had 
already been paying higher prices for fuel on both the black 
market ($.78-$1.04/gallon) and at the mobile gas stations 
($.26/gallon).  This non-reaction appears to have paved the 
way for further MO efforts on fuel prices at the pump. 
 
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Baghdad Winter Distribution Plan Another Step Forward 
--------------------------------------------- -------- 
 
4.  (U) Newspapers the week of September 18 announced MO 
plans for regulating the sale of kerosene and liquid propane 
gas (LPG) during the winter months, beginning in October. 
The program begins first in Baghdad and will be carried out 
through a coupon mechanism based on the Public (Food) 
Distribution System (PDS).  Coupons are transferable.  Under 
the plan, a Baghdad family of five members or less is 
entitled to purchase 7.92 gallons (30 liters) of kerosene per 
month at 5 ID/liter, or just over a penny per gallon. 
Families of six to 12 are authorized to purchase 40 liters 
(10.56 gallons)/month at the subsidized price; families with 
12 members or more can purchase 50 liters (13.2 
gallons)/month.  New in 2005, consumers who request home 
delivery will pay roughly $.07/gallon (1470 ID = $1.00).  Any 
purchases above the allotted amounts will be at the home 
delivery rate of $.07/gallon. 
 
5.  (U) A family of five members or less is entitled to 
purchase three liquid propane gas (LPG) cylinders per month 
at a cost of $.17 per cylinder, up from the current cost of 
$.14 cylinder.  A family with five or less members is 
entitled to purchase three cylinders/month at the subsidized 
price, while families with more than five members are 
entitled to purchase 5 cylinders/month.  As with kerosene, a 
consumer can request home delivery at a higher price of 
roughly $.51/cylinder.  Consumers may purchase more than the 
allotted amount at a cost of $1.02/cylinder. 
 
6.  (C) According to MO DG Zuhayr, the Ministry will license 
kerosene and LPG distributors throughout the country.  These 
individuals are authorized to purchase at the subsidized 
rates (above).  The home delivery rate allows the distributor 
a modest profit once trucking costs are factored in. 
(Comment: We note with concern that the MO is still 
regulating the profit margins of the distributors.  End 
Comment.)  Small businesses and restaurants will also pay the 
higher price for kerosene, according to Minister of Oil 
Ibrahim Bahr al-'Ulum. 
 
7.  (SBU) Comment: The economic impact of these steps will 
probably be virtually nil with petroleum products remaining a 
virtually free good, aside from the often considerable time 
required for queuing.  However, it may be that an important 
psychological step has been taken as Iraqis are exposed to 
higher prices.  DG Zuhayr, a career Ministry employee who 
recently transferred to his position from responsibilities in 
the production arm of the Ministry, strikes us thoughtful and 
genuinely interested in experimenting with new ways to 
rationalize Iraq's fuel situation. 
Khalilzad