US embassy cable - 05KUWAIT762

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000762 
 
SIPDIS 
 
STATE FOR PM, NEA, NEA/ARPI, NEA/I 
OSD/ISA FOR A/S RODMAN AND PDASD FLORY 
 
E.O. 12958: DECL: 02/19/2015 
TAGS: MOPS, PREL, EAID, MARR, PGOV, KU, IZ 
SUBJECT: MFA REPLIES TO 15 FEBRUARY SECDEF LETTER ON 
OIF/AIK FUELS 
 
REF: A. KUWAIT 540 
     B. KUWAIT 539 
     C. 2004 KUWAIT 3658 
     D. 2004 KUWAIT 3607 
     E. 2004 KUWAIT 3578 
     F. 2004 STATE 183408 
     G. 2004 KUWAIT 2907 
     H. 2004 KUWAIT 2873 
 
Classified By: CDA Matthew Tueller for reasons 1.4 (a), (b) and (d) 
 
1.  (C) Summary.  While protesting the tone of the recent 
SecDef letter to MinDef on OIF fuel, MFA told us on February 
20 that the GOK will send an interagency team to Washington 
in March to resolve the fuel issue and "all other issues" 
related to Kuwaiti support for OIF.  MFA made an "official 
offer" of $24/barrel for OIF fuel under contract.  The matter 
of DCA fuel for use by U.S. forces in Kuwait still rests with 
the Ministry of Defense.  End Summary. 
 
2.  (C) CDA was called to MFA on February 20 to discuss with 
Americas Department Director Ambassador Khaled Al-Babtain 
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 (DCA). 
Al-Babtain opened the meeting by referring to U.S. Secretary 
of Defense Donald Rumsfeld's February 15 letter to Deputy 
Prime Minister and Minister of Defense H.E. Shaykh Jabir 
Mubarak Al-Hamad Al-Sabah.  In that letter, SecDef invited 
GOK to send a delegation to Washington to discuss alternate 
funding mechanisms for Kuwait fuel support; requested that 
Kuwait cease threats to terminate the supply of fuel to U.S. 
forces; requested a response to an earlier USG purchase 
proposal; and asked that the supply of DCA fuel, stopped in 
December 2004, be resumed. 
 
3.  (C) A clearly agitated Al-Babtain said that the GOK was 
"angry over the tone" of the SecDef letter and "protests the 
language" in it referring to Kuwait Petroleum Corporation 
(KPC) pronouncements that fuel would be suspended in the 
absence of a commercial contract.  Al-Babtain said such 
"language should not have been used at all." "Why speak of a 
'threat,' given our cordial relations?" he complained.  As 
Al-Babtain explained it, at issue is the commercial contract 
that KPC needs to fulfill its legal obligation to account for 
fuel deliveries.  As he put it, "We agreed to sit and 
discuss; we will continue to supply the fuel as long as we 
talk; it won't be cut."  "Our problem," he repeated, "is that 
we need a way to cover the fuel in our budget." 
 
4.  (C) Al-Babtain turned to SecDef's invitation that a 
delegation visit the United States to discuss the fuel issue. 
 He said Kuwait was in the process of choosing the membership 
of a team that would be comprised of representatives from the 
Ministries of Foreign Affairs, Finance, Defense, Energy and 
Communications.  He emphasized that the mandate for that team 
would go beyond fuel price negotiations and extend to "all 
services and all other issues," in Kuwait's support of OIF. 
"This will not just be a price of fuel issue," he concluded. 
(Note: We infer from Director Al-Babtain's all-inclusive 
approach that the DCA itself may be subject to discussion in 
Washington at least with respect to the provision of AIK 
fuels). 
 
5.  (C) Al-Babtain then noted that SecDef mentioned in his 
letter that USG awaited a high-level response to the 
cost-of-production sales-price proposal raised by PDASD Peter 
Flory during his January visit to Kuwait.  He said he was 
authorized to make an "official offer" to provide fuel for 
OIF at a per barrel price of $24 ($3 for refining costs and 
$21 for product, the price GOK used this year for budget 
planning).  The offer of $24/barrel, according to Al-Babtain, 
is the price that the inter-ministerial team would be 
prepared to discuss during their visit, which he proposed for 
March.  He said he would inform Embassy of when the team had 
been chosen and was ready to travel.  "We are in the same 
boat," he said, "We want to 1) avoid any further confusion 
and 2) to ensure there is a legal basis for the additional 
budgeting to cover fuel."  "We have paid; we have sacrificed; 
we still want to help," he concluded. 
 
6.  (C) CDA assured Al-Babtain of the tremendous good will 
and appreciation the American people feel toward Kuwait and 
for the GOK's extraordinary assistance to OIF and also 
AIK-funded operations in Kuwait.  CDA briefly reviewed the 
price negotiations with KPC thus far, noting that when the 
matter originally came up in December 2003, USG had worried 
about it becoming an irritant to the bilateral relationship 
as indeed it had.  He explained that on three occasions, KPC 
had, in writing, announced a cutoff date for fuel if a 
commercial contract were not agreed to and on short notice. 
That is what USG meant by "threat," he said. 
 
7.  (C) CDA also noted that since the no-cost OIF contract 
entered into in December 2004 (for the period April 2004- 
December 2004) U.S. forces had not received fuel covered by 
the DCA.  He stressed that the uncertainty of fuel supply was 
very disruptive of operations for U.S. forces, requiring 
commanders to shift supplies and stocks frequently to cover 
challenging contingencies.  Al-Babtain agreed that 
approximately 215 thousand gallon/day had not been supplied 
since 1 January 2005.  He opined that there likely were no 
technical problems with supplying the fuel but that the 
matter rested with the Ministry of Defense, which had been 
empowered to resolve it.  He offered to follow up on CDA's 
request for clarification of the status of the DCA fuel. 
Al-Babtain closed on the fuels issues by reiterating that if 
KPC again spoke of suspending supply, Embassy should call on 
him personally to resolve the matter. 
 
8.  (U) Baghdad: Minimize considered. 
TUELLER