SOMO: Corruption, oil smuggling damaging Iraqi revenues

April 21, 2005
Official corruption, sabotage, and oil smuggling are costing Iraq billions of dollars each year, according to officials from the Oil Ministry and the State Organization for Marketing Oil (SOMO).

Eric Watkins
Senior Correspondent

LOS ANGELES, Apr. 21 -- Official corruption, sabotage, and oil smuggling are costing Iraq billions of dollars each year, according to officials from the Oil Ministry and the State Organization for Marketing Oil (SOMO).

"It seems that there is an implicit alliance between the smuggling and sabotage forces aimed at increasing the rates of exhaustion of the state resources," SOMO Director General Diya al-Bakka said in an interview with Baghdad's Al-Zaman newspaper.

"The smuggling and sabotage operations, among other factors, have hindered the Iraqi plans to rehabilitate and modernize the oil sector in a way that would allow us to reach a ceiling of production of 6 million b/d by 2010," he said.

'Disorders' noted
Al-Bakka confirmed that there are "disorders" in the country's oil industry, saying, "No one can deny or ignore the existence of disorders, some of them inherited, because during the past decades the oil sector did not witness serious construction process, and most, if not all, of its installation reached a pitiful state."

He said that disturbances have increased in the past 2 years.

"It was hoped that we would reach the level of production of 6 million barrels per day in 2010," he said. "However, 2 years after the collapse of the previous regime, in my personal opinion, the delay in forming an elected legitimate government, the fact that the serious projects in the oil sector have not started, the security instability in the country, and the increase in the terrorist attacks—all these have negatively affected the development of the oil sector, have hindered the implementation of the investment plans, and have prevented the polarization of foreign investments with a view to developing new fields."

He said foreign companies "have no serious wish to engage in large-scale investments or to enter into partnership or other agreements to develop the oil wells and fields."

Al-Bakka said, "We hope this year, because of what we said earlier, to overtake the rate of production of 4 million b/d."

Al-Bakka blamed the smuggling of Iraqi oil partly on the government's holding of oil prices below market levels.

Because oil products are "subsidized to an immense extent" in Iraq, he said, their prices are much less than those in neighboring countries. The price difference encourages sales of Iraqi products outside of Iraq.

The solution, he said, is to raise prices in Iraq, "provided that such a measure is coupled with a serious plan and fair mechanisms to compensate the citizens, who will undoubtedly be harmed by the removal of the subsidies."

Workers fired
The oil ministry is reported to have fired more than 450 employees suspected of selling fuel on the black market. The move is reported to be the most recent in a series of measures designed to crack down on corruption within the industry.

The oil ministry's general inspector, Ali Muhsin Ismael, said the government's inability to provide a secure environment was partly responsible, but noted that his ministry accepted some of the blame for the situation.

"There is still corruption in the oil ministry, and this cannot be [completely eradicated]," Ismael told London's Institute for War & Peace Reporting (IWPR).

Ismael said criminals used a number of methods to defraud the industry, including the manipulation of fuel pump gauges and incorrect measurement of tankers' contents—both of which can result in an undeclared surplus that can then be sold on the black market.

An official from the Iraqi army's Border Forces 4th Regiment Command, which controls frontier crossings and the ports, claimed that some government officials had asked the authorities to turn a blind eye to oil smuggling.

"[We were ordered to] allow some citizens of a neighboring country to cross the border with the aim of visiting the holy shrines, without having official documents," the border official said. "It appeared later on that they had something to do with oil smuggling operations."

Abdul Kareem Li'aibi, the oil ministry's fuel distribution project manager, said the government had recently discovered that one of its southern pipelines was peppered with more than 20 illegal taps, allowing tankers to fill up at will.

Li'aibi claims that organized gangs are behind these corrupt practices and blames them for the fact that only 60% of trucks carrying oil products from wells to other areas reach their destination, the remainder being attacked and hijacked.

He also told IWPR that many gas station managers are also selling their products on the black market—sometimes in cooperation with the police.

Yahia al-Rubai, supervisor of Baghdad's al-Khalisa fuel station, said that within days of his taking charge, armed bandits had seized control of gas distribution and started stealing fuel.

"When I confronted them, the bandits tried to attack me with their guns," he said. "The country's economy and security is dependent upon catching those who engage in corruption and the criminals who collaborate with them."