US embassy cable - 05KUWAIT540

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000540 
 
SIPDIS 
 
STATE FOR PM, NEA, NEA/ARPI, NEA/I 
 
E.O. 12958: DECL: 02/07/2015 
TAGS: MOPS, PREL, EAID, MARR, PGOV, KU, IZ 
SUBJECT: ENERGY MINISTER SAYS OIF/AIK FUEL ISSUE IS IN 
MOD'S COURT 
 
REF: A. 2004 KUWAIT 2873 
     B. 2004 KUWAIT 2907 
     C. 2004 STATE 183408 
     D. 2004 KUWAIT 3578 
     E. 2004 KUWAIT 3607 
     F. 2004 KUWAIT 3658 
     G. KUWAIT 539 
 
Classified By: Ambassador Richard LeBaron for reasons 1.4 (a), (b) and 
(d) 
 
1.  (C) Summary.  Ambassador met on 7 February 2005 with 
Minister of Energy regarding a variety of issues, including 
on-going negotiations for fuel used by coalition forces in 
Operation Iraqi Freedom (OIF) and as assistance in kind (AIK) 
for Kuwait-specific activities under the Defense Cooperation 
Agreement.  Minister said the bilateral relationship and 
regional security issues pushed for settlement soon regarding 
volume of and payment for the fuel.  He noted that neither in 
his capacity as chairman of the Kuwait Petroleum Corporation 
nor as Minister of Energy was he authorized to negotiate any 
contract on other than a commercial basis.  The Energy 
Minister said that the Ministry of Defense was responsible 
for covering the cost of AIK fuel and had the lead within the 
GOK in resolving volume and price issues for OIF fuel support 
as well.  End Summary. 
 
2.  (C) Ambassador met on 7 February 2005 with Minister of 
Energy H.E. Shaykh Ahmed al-Fahd al-Ahmed al-Sabah.  This 
cable concerns Kuwait,s provision of fuel for Operation 
Iraqi Freedom (OIF) and assistance in kind (AIK) under the 
Defense Cooperation Agreement (DCA) with the United States. 
OIF fuel is consumed in support of coalition military 
operations in Iraq; AIK fuel is provided under the DCA for 
Kuwait-specific operations. 
 
3.  (C) Ambassador opened the discussion by noting USG 
appreciation for Kuwait's considerable and continuing support 
and USG interest in maintaining a steady supply of fuel for 
U.S. forces under both the OIF and AIK arrangements.  The 
Minister said that the bilateral relationship and regional 
security issues pushed for settlement soon regarding volume 
and payment provisions.  He noted that as Minister of Energy, 
he also serves as the chairman of Kuwait Petroleum 
Corporation (KPC) and that in that latter capacity he 
represents a commercial organization. 
 
4.  (C) The Minister said he was surprised that his Ministry 
and KPC apparently were seen by some as having the lead in 
the ongoing discussion (see reftels) regarding the volume and 
price of fuel provided under the AIK and OIF arrangements. 
These matters, he said, "are not our duty; we will do 
whatever the Prime Minister asks, of course, but we need 
political guidance."  He alluded to the recent visit to 
Kuwait by Principal Deputy Assistant Secretary of Defense 
Peter Flory for meetings with senior officials in the 
Ministry of Foreign Affairs (MFA) and Ministry of Defense 
(MOD) as well as Embassy discussions with KPC officials, 
noting that USG efforts should continue to concentrate on the 
MFA and particularly the MOD as the interlocutors regarding 
concessional fuel sales. 
 
5.  (C) The Minister emphasized that Kuwait's constitution 
and law severely restrict his latitude in such matters.  He 
said it is imperative that he have the "Parliament's 
blessing" for any activity involving energy resources, which 
are the patrimony of the people, not of a ruling family or 
corporation.  He said he would "be in big trouble" if KPC 
continues to provide fuel to U.S. forces without a contract 
in place and payment received.  The Minister explained that 
for the first year that KPC supplied the fuel without 
contract (and at zero cost to USG), his ministry was covered 
by a war appropriations bill.  However, from April until 
December 2004, KPC had had no legal mandate to continue the 
fuel supply absent a contract and payment. 
 
6.  (C) The Minister noted that the contract entered into in 
December 2004 between the Defense Energy Support Center 
(DESC) and KPC provided his ministry cover through 31 
December 2004 but that negotiations continued over the volume 
and payment structure for the period 1 January through 31 
March 2005.  KPC was, he said, back in the same position it 
had occupied from April to December 2004: no contract; no 
legal basis for the fuel deliveries.  He reiterated that the 
fuel had continued to flow "only because of our interest in 
maintaining our relationship" with the United States.  He 
complained that others were trying to shift the 
responsibility for resolving the remaining contractual 
obligations onto KPC rather than MFA and MOD. 
 
7.  (C) The Minister then suggested a means to move forward 
regarding provision of AIK and OIF fuel.  USG officials 
should meet directly with MOD personnel to resolve how much 
fuel was destined for OIF use and how much for DCA AIK use; 
work with the GOK to settle on the OIF share and how it would 
be paid for internally by the GOK.  He said the "correct 
scenario" would have MOD pay for the DCA fuel entirely and 
that the government would decide on an appropriate discount 
(separate from that KPC offered) for the OIF fuel and pay KPC 
the difference.  The Minister cautioned and Ambassador 
seconded that the "concerned parties should work together 
closely" to avoid a disruption in the supply of OIF/AIK fuel. 
 
 
8.  (C) Ambassador noted that indeed KPC had taken the 
initial lead on negotiations and that only after the first 
round and during the PDASD Flory visit had USG received clear 
indication to move on to discussions with MOD.  The Minister 
concurred that that had been the case.  He noted that he 
personally had pushed for the $10/barrel discount from the 
market price offered by KPC to DESC. 
 
9.  (C) Ambassador clarified that we were talking about two 
different fuel uses ) the approximately 880 thousand 
gallons/day agreed to for OIF use and the approximately 215 
thousand gallons/day reserved for AIK fuel under the DCA.  He 
continued that the full allotment of fuel had not been 
received under either understanding.  The Minister suggested 
that "technical difficulties" in supplying the type of fuel 
accounted for some of the shortfall and returned to his 
plaint that others (than KPC or the Ministry of Energy) must 
resolve the issues of volume and price. 
 
10. (C) Comment.  The Energy Minister told us that he and KPC 
are not the negotiators and pointed to the Ministry of 
Defense as now in the lead.  See Ref G for information 
gathered separately at a meeting with the Foreign Minister on 
Monday the 7th in which he also pointed to the Ministry of 
Defense as the lead.  The Council of Ministers has not taken 
up the offer of "production costs" and the GOK is clearly 
indicating that the lead is now with MOD and its proposal. 
End Comment. 
 
11.  (U) Baghdad: Minimize considered. 
 
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LEBARON