US embassy cable - 04KUWAIT1594

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 001594 
 
SIPDIS 
 
CPA FOR AMBASSADOR JONES 
TEL AVIV FOR LEBARON 
RIYADH FOR TUELLER 
 
E.O. 12958: DECL: 05/18/2014 
TAGS: EINV, PREL, BEXP, ETRD, KU 
SUBJECT: KUWAIT WAVERS ON COMMITMENT TO RESERVE AL-ZOUR 
NORTH POWER PROJECT FOR US FIRMS 
 
REF: 03 KUWAIT 2541 
 
Classified By: Charge d'Affaires Frank C. Urbancic, 
Reason 1.4b 
 
1.  (C) SUMMARY.  General Electric and Fluor officials have 
informed post that the Government of Kuwait may have backed 
away from the Amir's 1996 promise to President Clinton that 
US firms would have exclusive rights to build the next major 
electricity generating plant, now anticipated to be the $2 
billion, 2500 megawatt Al-Zour North (AZN) facility. 
Ministry of Energy Undersecretary Saud Al-Zaid told a Fluor 
delegation on May 17 that the Ministry has lowered the 
experience and capacity requirements specified in a bootleg 
prequalification package that has been circulating, and 
confirmed that the bidding process (at least) would be open 
to non-American firms.  The prequalification package and list 
of approved suppliers is due to be released within two weeks, 
and the tendering and awarding process is scheduled to be 
finalized by March 31, 2005.  GOK officials offered industry 
representatives no explanation for the shift away from the 
Amir's commitment.  Fluor representatives -- and their local 
partner -- suspect politics have played a major role.  It may 
be that the Kuwaitis fear that restricting bidding to US 
companies could  allow US companies to conspire to keep 
prices high.  Post will press the Minister of Energy to 
respect the Amir's pledge.  END SUMMARY. 
 
2.  (C) A General Electric (GE) official informed EconCouns 
on May 16 that the Government of Kuwait (GOK) has abandoned 
the Amir's 1996 promise to President Clinton that US firms 
would have exclusive rights to build the next major power 
plant in Kuwait, now expected to be the $2 billion, 2500 
megawatt Al-Zour North (AZN) facility.  According to Gulf 
Region Sales Manager Andrey Tankilevitch (protect), Ministry 
of Energy Undersecretary Saud Al-Zaid said that the US-only 
commitment for AZN was dead and the GOK would "let the best 
(company) win."  In a May 17 meeting with Charge, Fluor's 
Kuwait site manager Robert Midgley (protect) described his 
meeting that day with GOK officials that tended to second 
what Tankilevitch had reported earlier.  Midgley said that 
when a Fluor delegation asked Al-Zaid whether the GOK would 
respect the Amir's pledge, the U/S replied they should "wait 
and see" the prequalification documents.   Al-Zaid also 
indicated that the Ministry has lowered the experience and 
capacity requirements specified in a bootleg prequalification 
package that has been circulating, this suggesting that the 
bidding process (at least) would be open to non-American 
firms. 
 
3.  (C) In his May 12 meeting with GE, Al-Zaid revealed 
additional details about the tender.   Acccording to 
Tankilevitch, Al-Zaid is "certain" that the prequalification 
package and list of approved suppliers will be released 
within two weeks. (Note.  Al-Zaid told Fluor that the 
approved supplier list would be provided to bidders a month 
after the prequalification packet is issued.  End Note.) 
Engineering procurement construction contractors will have 
approximately 90 days to complete their submissions; a 
consulting firm will then evaluate the proposals and present 
their results to the Ministry two months later.   The 
tendering and awarding process is scheduled to be finalized 
by March 31, 2005 -- the end of the 2004-05 fiscal year. 
 
4.  (C) There appears to be some disagreement within the 
Ministry about the minimum number of bidders necessary for 
the project to move ahead.   According to Midgley, Al-Zaid 
informed them that the bid would be cancelled if there were 
fewer than four bidders.  But the Assistant U/S corrected his 
boss to say that according to Central Tender Committee rules 
-- which will govern the tender -- there need only be two 
bidders, as Midgley described it. 
 
5.  (C) Although GOK officials offered no explanation for the 
presumed shift away from the Amir's commitment, the Fluor 
representatives -- and their local partner -- suspect that a 
long-term political struggle (not identified) behind the 
scenes has played a major role.  Although disappointed by 
this development, they said they are not terribly shocked. 
Indeed, Midgley quipped that Fluor would have found it 
"staggering" if a project in the Middle East was restricted 
to a selected group of bidders.   However, the company is 
wondering how this change will impact the project timeline 
and whether it will have a negative impact on American 
bidders. 
 
6.  (C) The Charge expressed his disappointment with the 
GOK's apparent change of position, wondering whether the 
Kuwaitis might be afraid that if they restrict bidding to US 
companies, the companies would conspire to keep prices high. 
A Fluor representative hinted broadly that this might in fact 
be the case.  He said that Fluor has consistently found 
companies from the Far East willing to build such projects at 
almost no profit, while US and other Western companies could 
not bid on a no-profit basis.  He worried that Far East 
competition and pricing might knock Fluor out of the running. 
 The Charge promised to press the Minister to respect the 
Amir's pledge, but acknowledged that if the GOK already has 
moved forward on the project with the intent to permit open 
competition, the Embassy would be hard pressed to stop it 
now. 
 
7.  (C) COMMENT.  Post will seek clarification from the 
Energy Minister about this apparent change of heart.  We are 
hopeful that, even if the bidding is opened up, a US firm 
will eventually be chosen for the AZN project on the basis of 
merit alone. 
 
8.  (U) Baghdad minimize considered. 
URBANCIC