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Iraq to phase out all subsidies: planning minister

BAGHDAD, Oct 23 (AFP) - The Iraqi government plans to phase out slowly subsidies on basic products, such as oil and electricity, which comprise 50 percent of public spending, equal to 15 billion dollars, the planning minister said on Saturday.

Unveiling a three year economic plan, compiled by in cooperation with the World Bank and the International Monetary Fund, Madhi al-Hafez pledged "a progressive programme to suppress subsidies... (which) constitute a significant burden on public finances."

Most Iraqis relied on subsidised fuel, electricity and food rations under a United Nations-sponsored oil-for-food programme during the regime of Saddam Hussein.

After Saddam's overthrow, the interim government adopted the system which still provides a vital lifeline for a large portion of Iraq's population, many of whom are unemployed or earn only a meagre wage.

Seeking to soften the blow, the minister promised that the government would cancel subsidies slowly to ensure a minimal impact.

"They will progressively be reduced over the coming years," Hafez stated.

Direct and indirect oil subsidies cost Iraq eight billion dollars -- 2.4 billion of which are spent on imports to satisfy the local market, according to ministry figures.

The price of a barrel of oil sold to local refineries is 300 dinars (0.2 dollars) and some 550,000 barrels are sent to the refineries daily to satisfy domestic need.

At petrol stations, fuel is sold at between 0.01 and 0.025 dollars-per-litre -- underscoring the huge expense shouldered by the government.

Oil in the financial year 2005 is expected to comprise 93 percent of the country's revenue, at some 18.1 billion dollars.

Iraq itself is predicted to generate revenues of 19.4 billion dollars which, coupled with external aid, will bring total revenues to 23.7 billion dollars.

But the budget is seen at 30.4 billion dollars, meaning a deficit of some 6.7 billion dollars, including foreign help, and 11 million dollars without.

The 2005 budget is based on a price of oil of 26 dollars-per-barrel -- a hugely conservative estimate, considering the price of oil, which ended the week at a record 55.50 dollars a barrel.

"We have put very conservative figures on oil prices and if it continues to rise we might be able to cover the deficit," said Hafez.

Turning to the impact of a raging insurgency on reconstruction efforts in Iraq, Hafez said his request that more local companies are involved in the contracts -- that were typically handed out to US and British firms -- was well received by the international community at a donor conference last week in Tokyo.

"Iraqi companies are starting to participate, to take sub-contracts from foreign companies," he added.

After the two-day gathering in the Japanese capital that ended on Thursday, a joint statement by the 57 countries and institutions vowed faster aid to Iraq, as much of the pledged assistance has been held up because of the widespread violence.

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