10 AWB's sales to Iraq before July 1999

10.1 The Australian Wheat Board and its successor AWB have sold wheat to Iraq continuously since 1948.[183]

10.2 Iraq has been a very important market for the two organisations. Because of its consistent purchasing of large amounts, Iraq was considered by AWB to be one of the most strategically important buyers of Australian Premium White wheat.[184]

10.3 For example, during the 1999-2000 season AWB sold a record 2.4 million tonnes of wheat to Iraq. This was by way of direct sales to the Iraqi Grain Board as well as through two trading companies associated with the Russian trade.[185] As a consequence of these sales, that season AWB shipped 98 per cent of the wheat supplied to Iraq.[186] In April 2000, following their visit to Iraq, Messrs Laskie and Emons reported to the Department of Foreign Affairs and Trade that Australian wheat sales to Iraq through AWB accounted for almost 100 per cent of Iraqi wheat imports for the next phase of the Oil-for-Food Programme and placed 'Iraq in the number one slot for our wheat exports'.[187]

10.4 During their visit to Iraq in October 2000 Mr Stott and Mr Hogan were told AWB was the fifth-largest source of imports into Iraq at that time.[188] In a letter to the Minister for Trade, Mr Vaile, following that visit, Mr Flugge noted that Iraq was extremely important to the returns of Australian wheat growers, the market representing annual sales of 2.5 million tonnes, or approximately 15 per cent of Australia's export program.[189] Mr Flugge confirmed that for the 1999-2000 marketing year Iraq was Australia's largest export destination.[190] In April 2001 Mr Borlase reported to Mr Miles at Australia's mission in Amman, 'Iraq last year moved to be AWB's biggest customer on the world stage on a tonnage basis for the first time. Looking to repeat this feat again in 2001'.[191] In June 2002 Mr Hogan reported to Mr Miles that Australia had supplied about 2.35 million tonnes of Australian wheat to Iraq in 2001, with a CIF value of about US$400 million.[192]

10.5 After the Oil-for-Food Programme ended in November 2003 AWB continued to supply wheat to Iraq, initially under the World Food Programme and later directly with the new Iraqi Ministry of Trade.[193]

The Iraqi Grain Board

10.6 Until March 2003 both the Australian Wheat Board and AWB had dealt exclusively with the Iraqi Grain Board.[194] Part of the Iraqi Ministry of Trade, the IGB was the government agency responsible for Iraq's wheat imports[195], for purchasing Iraq's requirements of rice and barley, and for storage and handling of these products.

10.7 The IGB was headed by the Director General, who reported directly to the Iraqi Minister for Trade. Mr Saleh was the Minister for Trade between 1 July 1999 and March 2003. As at 1 July 1999, Mr Daoud was the Director General of the IGB. He had occupied that position for over 30 years and was a long-term and strong supporter of Australian wheat. He left the IGB in January 2000 and became an adviser to the Minister.[196] It was reported to AWB in October 2000 that he had died in a car accident whilst returning from Syria.[197]

10.8 Upon Mr Daoud's resignation in January 2000, Mr Abdul-Rahman was appointed Director General of the IGB. He had previously been the second in charge, under Mr Daoud. Mr Abdul-Rahman remained Director General until the hostilities in Iraq in March 2003. He was subsequently appointed Interim Head of the Iraqi Ministry of Trade[198] and Deputy Minister for Trade.

A US$480 million dollar debt

10.9 At the time of the first Gulf War, in 1990, the IGB owed the Australian Wheat Board US$480.4 million in respect of shipments made during 1989 and 1990. Iraq was unable to repay this debt because its overseas funds held in foreign banks had been frozen and its repayment of debts had been deferred by sanctions imposed by the United Nations.[199]

10.10 Until that time Australian wheat sales to Iraq had been made on credit. The Australian Wheat Board had insured all its credit sales of wheat with the Export Finance and Insurance Corporation (EFIC). The sales had been insured to the maximum amount permitted, which was 80 per cent of the value of the wheat sold.[200]

10.11 As a consequence of Iraq's failure to repay its debt, the Australian Wheat Board lodged claims under its insurance policy with EFIC. The Wheat Board subsequently received from EFIC US$381.2 million in respect of those claims.[201] EFIC thereupon became subrogated to the Australian Wheat Board's interests in the Wheat Board's contracts with Iraq. EFIC's payment to the Wheat Board represented between 70 and 80 per cent of the invoiced value of the wheat sales[202] and was distributed by the Wheat Board to Australian wheat growers.

10.12 The balance of the debt owed to the Wheat Board in respect of the sales, a sum of US$98,147,446, remained unpaid, and in 1999 that debt was assigned to AWBI when the Australian Wheat Board ceased to function as a statutory body.[203]

10.13 In 2004, following the lifting of UN sanctions against Iraq, EFIC asked AWB to assign the residual debt to it so that it could participate in attempts to recover it in the Paris Club.[204] AWB acceded to this request. Nevertheless, pursuant to its rights under the insurance policy with EFIC, AWBI retained the right to receive pro rata payments of any amounts recovered by EFIC in respect of the residual debt.[205]

Further sales to Iraq after the first Gulf War

10.14 Notwithstanding the debt that existed after the conclusion of the first Gulf War, the Australian Wheat Board continued to supply shipments of wheat to the IGB, although no longer on credit. For some of these shipments the cost of the wheat delivered to the IGB was paid to the Wheat Board by third parties, among them BHP Petroleum Limited[206] and Hyundai Engineering and Construction Co. Ltd.[207]

The ' Tigris debt '

10.15 In early 1996 BHP Petroleum Limited paid the Australian Wheat Board US$5 million for 20,833 tonnes of wheat that was shipped to Iraq on the Ikan Sepat in January 1996.

10.16 At the time the shipment was made, it was said to be a donation to Iraq from BHPP.

10.17 However, in September 2000 BHPP purported to assign to The Tigris Petroleum Corporation Limited (Tigris) a 'receivable' said to be the IGB's liability to repay the cost of the shipment. That cost, together with five years' interest thereon, was subsequently recovered by AWB as part of the payments it received from the UN escrow account for the sale of 1 million tonnes of wheat the Iraqi Grain Board agreed to purchase under two contracts of sale concluded in December 2002 as part of the Oil-for-Food Programme. The contracts were A1670 and A1680, both dated 11 December 2002.

10.18 AWB paid interest on the monies recovered. In December 2004 the amount recovered less

and

was paid by AWBI to Tigris, together with an amount of interest earned. The payment was purportedly made pursuant to an agreement between AWBI and Tigris dated December 2004, in which the payment to Tigris was described as a fee for services rendered by Tigris to AWBI. The amount of US$500,000 deducted and retained by AWBI was described as a 'success fee'.

10.19 Chapter 27 provides a more detailed description of the sale of the Ikan Sepat shipment, the subsequent recovery from the Iraqi Grain Board of the cost of the shipment plus interest (the Tigris debt) and the payment of the funds so recovered by AWB less the 'success fee' to Tigris.

Notes