US embassy cable - 04KUWAIT2873

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 002873 
 
SIPDIS 
 
STATE FOR PM, NEA, NEA/ARP, NEA/NGA 
 
E.O. 12958: DECL: 08/30/2014 
TAGS: MOPS, PREL, EAID, MARR, PGOV, KU, IZ 
SUBJECT: NEGOTIATIONS BEGIN TO ENSURE CONTINUED FUEL 
SUPPLIES FOR IRAQ OPERATIONS 
 
REF: A. KUWAIT 2772 
     B. KUWAIT 02747 
 
Classified By: Charge d'Affaires Matthew H. Tueller, Reasons 
1.4(a) and (d) 
 
1.  (U)  This is an action request; please see paragraph 7. 
 
2.  (C) Initial discussions between the USG and Kuwait 
Petroleum Corporation (KPC) to ensure KPC's continued 
provision of assistance-in-kind (AIK) and Operation Iraqi 
Freedom (OIF) fuel supplies began on August 30.  The KPC 
delegation, led by Chairman Nader Sultan, included Kuwait Oil 
Tanker Company Managing Director (and KPC board member) 
Abdullah Al-Roumi; Executive Assistant Managing Director for 
Supply Khaled Al-Bader; Senior Legal Officer Jeremy Kingsley; 
and Coordinator for Sales, Middle Distillates Department 
Waleed Al-Abduljalil.  The US delegation, chaired by CDA 
Matthew Tueller, included visiting contract specialists from 
the Pentagon and the Defense Energy Support Center (DESC); 
representatives from the Coalition Forces Land Component 
Command (CFLCC); and representatives of the Office of 
Military Cooperation-Kuwait; econoff was notetaker. 
 
3.  (C) Sultan began by expressing his gratitude for the US 
liberation of Kuwait and the two governments' cooperation 
over the past eighteen months.  However,  the Ministry of 
Defense has notified KPC that it has no funding to continue 
paying for AIK/OIF fuel supplies beyond April 1, 2003.   KPC 
was also informed that the Council of Ministers decided to 
terminate gratis OIF fuel effective June 29.   Because KPC is 
a commercial operation with commercial risk and exposure, 
Sultan said, it must have a contract in place specifying the 
duration that fuel supplies will be provided, in what 
quantities, and at what price.  Sultan noted that KPC's 
external auditors have begun questioning their debts to the 
Ministry of Defense.  Given these factors, he said, KPC 
concluded that it must shut off supply as of September 4 in 
the absence of a commercial contract. 
 
4.  (C) As a starting point for negotiations, KPC provided a 
draft agreement modeled on its contract with DESC.   CDA, 
noting that the GOK and USG were engaged in ongoing 
discussions on this issue -- most recently during the visit 
of Secretary Powell -- asked that a discussion of price be 
reserved for a future discussion at the political level. 
When pressed on the timetable for such discussions, CDA said 
that he hoped the meeting would occur by the end of September. 
 
5.  (C) The two teams plan to meet again on September 1 to 
follow up on several issues.   The US delegation agreed to 
research four items: 
 
A.  VISIT OF HIGH-LEVEL NEGOTIATING TEAM.  Sultan stressed 
the need for high-level political negotiations over contract 
price and duration to take place as soon as possible.   The 
US team agreed to try to secure a date for that visit. 
 
B.  ACCEPTABILITY OF DRAFT CONTRACT.  The DOD/DESC contract 
experts identified a few shortcomings upon initial review of 
the draft.  First, the pricing and duration clauses must be 
modified to allow for a deferred political-level decision. 
Second, the contract dispute clause must be modified to 
specify that US law governs dispute resolution, rather than 
British law.  Third, the draft contract includes a 
confidentiality clause, which the US cannot guarantee under 
 
SIPDIS 
the Freedom of Information Act. 
 
C.  DURATION OF CONTRACT.   KPC advised that their contracts 
with DESC are normally for the period of one calendar year. 
CDA noted that the US would likely seek the maximum period 
for the contract's applicability but that this would hinge on 
political discussion re pricing. 
 
D.  SUPPLY SOURCES.  CFLCC provided KPC with projections of 
AIK and OIF fuel needs.  KPC requested that CFLCC break down 
the AIK projections further to indicate the quantities of 
fuel drawn from each of two supply sources, Mina Abdullah and 
KAFCO.  This would allow KPC to tailor the contract to 
specifiy the quantity of fuel that each source would provide. 
 
6.  (C) The Kuwaiti delegation agreed to look into two issues: 
 
A.  SUSPENSION OF SEPTEMBER 4 CUT-OFF.   CDA said that 
Minister of Energy advised him that the September 4 suspense 
date would be nullified if a team were sent  to begin 
negotiations.  Sultan said that he would need to verify this 
with the GOK. 
 
B.  US-MINISTRY OF DEFENSE AIK PROVISIONS.   Sultan 
acknowledged that KPC has not been privy to political 
arrangements between the USG and the GOK regarding provision 
of AIK fuel.   He said that he would need to verify that the 
Ministry of Defense would continue to pay for AIK fuel use in 
Kuwait, and that this arrangement was separate from the 
provision of fuel for OIF. 
 
7.  (C) ACTION REQUEST.  Post requests that Washington 
confirm that we should continue pressing for an agreement 
that leaves the contract price and duration open pending 
high-level political negotiations.  Post also requests that 
Washington provide dates for a senior-level team to conclude 
crucial price agreement as soon as possible, to ensure that 
fuel supplies are not terminated.  END ACTION REQUEST. 
 
8.  (U) Baghdad minimize considered. 
TUELLER