A report by international auditors tasked with keeping an eye on Iraqi oil revenues said "progress has been slow" in installing a metering system throughout the oil sector.

The International Advisory and Monitoring Board report cited improvements in stemming the backdoor flow of oil and fuel, including meters at export terminals and decreasing the fuel subsidy.

The IAMB includes the Iraqi government, Arab Fund for Economic and Social Development, International Monetary Fund, United Nations and World Bank and has since 2003 audited the Development Fund for Iraq -- an account of oil and gas revenue and Saddam-era assets held at the Federal Reserve Bank of New York.

"Because of the absence of an overall comprehensive system of controls over oil revenues, the 2007 audits identified large unreconciled differences regarding oil extraction, producing and reported export sales," the report said.

Millions of dollars a day are lost as oil and fuel is diverted.

"It's in (the Iraqi government's) own interest, they're trying to tighten it up," said Yahia Said, director of Middle East and North Africa for the Revenue Watch Institute.

"They have over the last year installed meters at the main export terminals and work is proceeding to install meters throughout the value chain. There's significant effort under way to curtail criminality in the oil sector," he said. "A lot of oil gets diverted at the refinery juncture and obviously that's where they need to look at next."

Iraqi security forces broke up a smuggling racket, making a number of arrests and catching two tankers filling up with fuel from holes punched in a pipeline between Nasiriyah and Samawa, the al-Mashriq newspaper reports.

State subsidies of fuel encouraged smugglers to purchase cheap and sell on the domestic or foreign black market. "The reduction or almost elimination of fuel subsidies has by itself led to a significant decline in smuggling and black market activity in fuel," Said said. "But of course there remains still a lot to be done."

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Ben Lando, UPI Energy Editor

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(e-mail: blando@upi.com)