US embassy cable - 04KUWAIT928

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000928 
 
SIPDIS 
 
PENTAGON PASS TO DESC 
 
E.O. 12958: DECL: 03/14/2014 
TAGS: ENRG, ETRD, EINV, EWWT, PREL, MARR, KU, IZ, SA, QA, IR 
SUBJECT: (C) KUWAIT PETROLEUM COMPANY:  UNCOMPROMISING ON 
FUEL TRANSPORT SCHEME BUT SUPPORTIVE ON PORT SPACE 
 
REF: A) MULLORI-CARRIG EMAIL 8 MARCH B) 
 
     ROBINSON-CARRIG TELECON 9 MARCH C) 
     PRINGLE-CARRIG EMAIL 10 MARCH D) KUWAIT 786 
 
Classified By: (U) CHARGE FRANK C URBANCIC REASON 1.4 (b) 
 
1.  (SBU)  Summary. On 9 March Embassy and US Military 
officials from OMC-K and the 143rd Transportation Unit met 
with Kuwait Petroleum Company (KPC) Deputy Chairman Nader 
Sultan to discuss the current status of the Iraq humanitarian 
fuel contract and the US military's future land needs at the 
port facility.  Sultan told USG officials in the clearest 
language to date that KPC could not support a further 
relaxation of safety requirements for fueling tanker trucks 
involved in the humanitarian delivery of fuel to Iraq.  This 
stand on safety may provide a logistical challenge with 
regards to the new fuel contract set to begin in April. 
Similarly, Sultan also was not immediately supportive of a 
Defense Energy Support Center (DESC) proposal to import fuel 
into Kuwait for transit to Iraq.  He was, however, more 
accommodating to US needs regarding adequate staging space 
for the US military at the Shuaiba port facility, but said 
the details would still need to be worked out.  End Summary. 
 
(SBU) Background:  Fuel Contract 
-------------------------------- 
 
2. (SBU)  The new USG contract for the delivery of 
humanitarian fuel from Kuwait to Iraq which is set to begin 1 
April replaces the crrent KBR-led effort.  The new program 
will be administered by the Defense Energy Supply Center 
(DESC) (Ref D). The contract will run until at least 30 June 
and be perhaps renewable on a monthly basis thereafter in 
anticipation of post-CPA Iraq's assumption of responsibility 
for this effort.  One of the logistical challenges of the 
current operation is finding enough tanker trucks properly 
fitted for the task of delivering fuel to Iraq.  With the 
exception of the Shuaiba fuel depot, all fuel facilities in 
Kuwait load fuel into trucks using the safer, but more 
expensive, bottom loading method.  Top loading is considered 
more dangerous due to the possibility of an explosion caused 
by static electricity.  The cost to convert DESC contractor's 
top loading trucks to bottom loading trucks would exceed 
$10,000 per vehicle. 
 
(C) KPC Uncompromising on Safety 
-------------------------------- 
 
3. (C)  At DESC's request (ref B and C), Econcouns asked if 
KPC would be amenable to gradually phasing in the use of 
bottom loading fuel tankers involved in transporting the fuel 
to Iraq.  Sultan said safety is the primary concern of KPC 
and its affiliates and there could be very little compromise 
on this issue.  "If the Kuwait National Petroleum Company 
(KNPC--the fuel delivery agent for GOK) were to come to me 
for my opinion on the issue, I would tell them safety comes 
first," said Sultan.  He added that KNPC had suffered from 
two major accidents four years ago that killed ten people; 
its facilities and reputation have been under repair ever 
since, he said.  Sultan stressed that Kuwait and KPC in 
particular have been very helpful to the USG with its Iraqi 
humanitarian fuels mission, saying "we bend over backwards to 
help you," but KPC "would have little credibility if we 
compromise on safety."  Sultan said he was willing to 
compromise on commercial terms but was more rigid when it 
comes to the safety of KPC's "property, people, or 
procedures."    He also suggested that it was a bad idea for 
the USG to compromise on safety as well, saying "If I were 
the US Government, I would not sacrifice it."  Volunteering 
his knowledge that DESC officers were at that same hour 
meeting with KNPC regarding safe fuel loading procedures, 
Sultan concluded by noting Kuwait would do whatever it could 
to "accommodate without compromise."  (Note:  DESC officers 
meeting with Econcouns on 14 March reported that KNPC 
officials with whom they had conferred on 9 March apparently 
proved more accommodating than would Sultan if the safety 
issues were left to his care.  DESC reports receiving a fax 
from KNPC on 14 March which indicates KNPC was willing to 
work with DESC in a staged deployment of safety standards 
(compliant bottom loading fuel transfers). 
 
(SBU) Fuel Transiting Kuwait for Iraq 
------------------------------------- 
 
4. (SBU) On a related issue, should fuel shipments to Iraq 
originate in Saudi Arabia, Sultan said the tanker trucks 
would need KPC permission to pass through customs and transit 
Kuwait.  He said authority to grant such permission had been 
delegated to KPC from the Council of Ministers and Minister 
of Energy and the issue could be considered were DESC to make 
a formal request.  He noted, however, that it would be "most 
difficult" to handle tanker ships delivering fuel to Iraq via 
Kuwait ports.  He observed that Kuwait is principally 
involved in the export, not import, of hydrocarbons.  Due to 
damage from the first Gulf War, Kuwait still does not have 
sufficient storage facilities to handle the importing of 
fuels in such quantities.  The process would be a "logistical 
nightmare", Sultan said.  Abdullatif Al Houti, KPC's 
Executive Assistant Managing Director for Corporate Planning 
and who also attended the meeting, added that the occupancy 
rate of berths at the port facility is very high, estimating 
it was 55-60% occupancy for oil tankers.  As a result, there 
would be very little berth space for ships importing fuels, 
he said. 
 
(C) Finding Space at the Shuaiba Port Facility 
--------------------------------------------- 
 
5. (C)  With regards to finding adequate staging space for 
the US military for its future operations of loading and 
unloading equipment from ships, Sultan was much more 
sanguine.  "Everything has a solution," he said, inviting the 
military to "stay as long as you want."  The military 
currently has one million square meters within the area but 
will need to relinquish this land over the next several years 
so KPC subsidiaries can begin developing the area.  The 
military estimates it will need only half the amount of land 
it currently occupies, or 500,000 square meters, for its 
future loading and unloading operations. 
 
6. (C)  Al-Houti, who used to manage KPC's Shuaiba facility, 
was a bit more cautious, stressing that there were safety and 
access concerns.  Al-Houti said the land the US military is 
considering using in Shuaiba is crisscrossed with pipes 
feeding the export facility and a nearby gas-fired power 
plant.  He said these pipes vary in depth from ground surface 
to three meters, and many of the pipes are nearly 40 years 
old.  He stressed that if this property were provided to the 
US military, an agreement would need to be reached regarding 
access, maintenance, servicing and metering of the pipes. 
Both Sultan and Al-Houti agreed that the USG should discuss 
the specific land area and access concerns directly with 
Kuwait Oil Company (KOC), the subsidiary responsible for the 
land in question. 
 
(C) Comment 
----------- 
 
7.  (C) Sultan's remarks regarding Kuwait's assistance to 
date in the Iraq reconstruction effort suggest that although 
the GOK hydrocarbon industry is fully supportive of Coalition 
efforts in Iraq, there maybe externally imposed practical and 
safety limits to what it can do.  Sultan noted that as a 
corporation operating in an international market, KPC must 
strictly protect its record on safety and standards in order 
to compete successfully.  Although the KNPC fax reported by 
DESC indicates that some initial objections to relaxed 
standards may be overcome, contractors' compliance with 
KNPC's safety requirements will need to be closely monitored 
by the contracting authority.  It is important to keep in 
mind that the GOK views these contracts as bilateral 
agreements with the United States Government for the effort 
in Iraq, not/not as individual private deals between 
corporations.  Where he could help--turning over 
KPC-controlled land at Shuaiba Port for Coalition use--Nader 
Sultan was accommodating. 
 
8. (U) Baghdad minimize considered. 
 
 
URBANCIC