State refined products distributor Petrol Ofisi (POAS) will purchase smuggled Iraqi diesel from tanker drivers engaged in cross-border trade with Iraq, says POAS general manager Mehmet Gultekin. POAS will buy the diesel smuggled in border trade which is technically against UN sanctions, and sell it in 11 cities in the southeast, Gultekin added on 2 September, according to the semi-official Anatolia news agency.

The enterprise will build tankage at the country's Habur border gate with Iraq to handle the purchases, Gultekin added, according to Anatolia. Gultekin said the diesel is currently being smuggled across the border at a rate of about 2 million tonnes a year.

Once POAS starts buying the contraband diesel, the treasury will benefit by about TL 75 million million a year from a consumption tax and price support fund levy already applied to licit diesel sales, Gultekin added.

The disclosure by Gultekin of the POAS plan to buy up the smuggled diesel followed a recommendation from a 27 August meeting of the National Security Council that action should be taken to regulate border trade with Iraq.

Despite generally complying with UN sanctions, various Turkish governments since 1993 have ignored the cross-border trade involving an exchange of Turkish food and humanitarian goods for Iraqi refined products, mainly diesel. Tanker and truck drivers are permitted by the Turkish authorities to bring in a maximum of eight tonnes per vehicle on each trip.

Ankara allowed the trade to continue in order to compensate the deprived southeast for the loss of Iraqi trade following the imposition of UN sanctions at the outbreak of the Gulf crisis in 1990. The diesel smuggling technically violates UN sanctions, but has also been tolerated by Turkey's Western allies.

The government is losing about $750 million a year in lost tax revenues from the diesel smuggling, according to a recent study by the Turkish general directorate of petroleum operations and customs.

Gultekin said that profits from the sale by POAS of the diesel will be ploughed back into investments in the southeast.