By Jonathan Saul and David Brough and Ahmed Rasheed
LONDON/BAGHDAD (Reuters) - Up to 150,000 tonnes of refined sugar is marooned and deteriorating off Iraq's main cargo port Umm Qasr over a trade spat with the government, as the country struggles to untangle bureaucratic turmoil that has dogged its economy.
Trade sources said the problems were believed to be related to a deal agreed by a former top official in the trade ministry, which was subsequently cancelled.
"It seems like the official was sacked and the contracts were not honored by the new person who took over," one Middle East based trade source said. "One or two cargoes had been accepted albeit at very high prices when the previous official was still there."
Two officials with Iraq's trade ministry rejected suggestions that the delays were related to the departure of any official, saying that only the trade minister had the authority to approve or reject deals.
Sources in Iraq said a top official in the food division handling sugar was moved to another position in recent months as a routine procedure.
Endemic graft is seen as a significant threat to Iraq's progress and stability as it begins to emerge from the years of bloodshed unleashed by the 2003 U.S.-led invasion.
Former trade minister Abdul Falah al-Sudany resigned in 2009 amid claims family members made millions in kickbacks from sugar purchases.
Trade sources said some ships carrying refined sugar bound for Iraq have been stranded off the country's coast since March, which was likely to mean big losses for brokers involved.
"The sugar is stuck and importers of the cargoes are taking a big hit," a European trade source added.
Market players said Iraq had detailed specifications for their sugar imports. "Some or all of the sugar does not have Arabic bag marks which means it is very difficult to sell it to the private sector," another trade source said.
One of the officials with Iraq's trade ministry said it had signed a sugar contract with a Jordanian company.
"The sugar cargo was supposed to be supplied by a Jordanian company under a direct purchase contract signed with the trade ministry. But the company had violated the contract terms and failed to deliver cargo at the agreed date," the official said.
Another trade ministry official told Reuters: "The company was supposed to talk to the trade ministry and explain why it was late in delivering sugar. We stuck to the contract terms and rejected the cargo after the delivery time had expired."
Iraq is the world's second largest white sugar importer after the United States. Its annual consumption is estimated in the 2012/13 period at 795,000 tonnes, according to trade group the International Sugar Organization (ISO), with the stranded cargoes accounting for nearly a fifth of its yearly requirement.
At present world refined sugar prices the stranded cargoes would be worth about $90 million, but that would fall if the quality deteriorates.
"The indications of congestion outside Umm Qasr would signal supply problems for Iraq," said ISO senior economist Sergey Gudoshnikov.
Port loading data pointed to at least two vessels stuck off the coast of Umm Qasr close to Kuwait as having arrived in early March. A further four were anchored off Iraq since August.
Trade sources said the two vessels stranded for at least six months were directly affected by the dispute, adding that some form of arbitration was taking place, which would also explain why the cargoes had not been diverted.
"The lineup at Umm Qasr is an ongoing problem," a senior white sugar trader said.
"You cannot discharge until a local supervisor has been on board to check to see if the sugar meets specifications. Most of the sugar that goes in there is ministry of trade business."
Other dealers said the longer the sugar remained stuck off Umm Qasr, the greater the risk its quality could deteriorate.
"If any moisture gets to the cargoes, the sugar could get lumpy," a sugar broker said, meaning it would be harder to sell.
Another added: "There's no doubt that the cargoes have been affected and they may end up being only good as feed stock."
(Jonathan Saul and David Brough reported from London, and Ahmed Rasheed reported from Baghdad; Additional reporting by Suleiman Al-Khalidi in Amman)
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