US embassy cable - 03ABUDHABI3208

S E C R E T SECTION 01 OF 07 ABU DHABI 003208 
 
SIPDIS 
 
NOFORN 
 
STATE FOR E, EB/ESC/ESP, INR/EC, INR/B, NEA/ARP AND NEA/RA 
COMMERCE FOR 1000/OC/ 
COMMERCE FOR 4520/ITA/IEP/ONE 
COMMERCE FOR 4530/ITA/MAC/OME/DGUGLIELMI, 
4500/ITA/MAC/DAS/WILLIAMSON, 
3131/CS/OIO/ANESA 
 
E.O. 12958: DECL: 7/9/2003 
TAGS: ECON, EFIN, EINV, EPET, PINS, PREL, PGOV, TC 
SUBJECT: ABU DHABI'S NEXUS OF ECONOMIC POWER, PART II: THE 
ABU DHABI EXECUTIVE COUNCIL 
 
REF: 02 ABU DHABI 1415 
 
1.  (U) Classified by Ambassador Marcelle M. Wahba, for 
reasons 1.5 (b) and (d). 
 
------------ 
Introduction 
------------ 
 
2.  (C) This is the second cable in a series that focuses 
on the informal, and less visible, power structure of Abu 
Dhabi emirate and -- through the power of the purse strings 
-- the UAE federal government.  The Supreme Petroleum 
Council (see reftel), the Abu Dhabi Executive Council, and 
the Abu Dhabi Investment Authority (ADIA) together form the 
"Iron Triangle" of economic institutions in the UAE.  This 
message attempts to describe the second -- and perhaps the 
most powerful -- leg of that Iron Triangle, the Abu Dhabi 
Executive Council, which oversees all major budgeted 
government expenditures for Abu Dhabi Emirate and the 
federal government.  End introduction. 
 
 
------- 
Summary 
------- 
 
3.  (C) The Abu Dhabi Executive Council determines how Abu 
Dhabi Emirate's oil wealth is spent, approves the federal 
budget, and wields tremendous influence over major 
construction contracts, and multi-year, multi-billion 
dollar expansion projects.  Although some observers say the 
Executive Council is simply Crown Prince Khalifa's rubber 
stamp of approval -- indeed, Khalifa has approved projects 
in advance and presented them to the Executive Council as a 
matter of protocol -- such instances are infrequent. 
Working-level UAE bureaucrats, American businessmen, and 
our Commercial Officers contend that the Executive Council 
members symbolize years of practical experience in running 
local government, as well as their own substantial private 
businesses. 
 
4.  (C) In addition to a handful of royal family members 
and shaykhs, the chairmen of the key Abu Dhabi departments 
also are members of the Executive Council.  Membership 
changes only when a department chair leaves his post, 
usually through retirement or reassignment to a higher 
position.  As in the Supreme Petroleum Council (SPC), the 
Executive Council is chaired by Abu Dhabi Crown Prince 
Khalifa bin Zayid Al-Nahyan and consists of his key tribal 
allies and trusted advisers.  The Bani Fatima -- as the six 
sons of Zayid's wife are known -- are not well represented 
in this key power structure. 
 
5.  (S//NF) The amount of money at the disposal of the 
Executive Council during any given year is unknown, but the 
Abu Dhabi Finance Department estimates that total current 
expenditures for the emirate of Abu Dhabi in 2002 totaled 
more than USD $13 billion.  Indeed, the Deputy Managing 
Director of ADIA speculates that Abu Dhabi Emirate receives 
about 85 percent of the UAE's annual oil revenue (about USD 
$16 billion in 2002) -- with the remaining 10 and 5 percent 
tranches going to top tier royal family members and ADIA, 
respectively. 
 
6.  (C) The Executive Council oversees the formation of the 
Abu Dhabi Emirate budget, as well as influencing the final 
shape of the UAE federal budget.  It's unclear whether the 
Executive Council weighs in on certain big-ticket off 
budget items, such as off budget defense outlays, internal 
security expenditures, social programs supported by Abu 
Dhabi (such as the pension fund and marriage fund), and 
other subsidies and transfers not included in the federal 
accounts.  While the Executive Council may be aware of such 
expenditures, it does not appear that it either deliberates 
or approves the outlays.  President Zayid and Shaykh 
Khalifa retain ultimate veto power for such high profile 
and often personally lucrative projects. 
 
--------------------------------------------- -------------- 
Executive Council Members: Shaykhs, Allies, and Technocrats 
--------------------------------------------- -------------- 
7.  (C//NF) The membership of the Executive Council is 
strikingly similar to that of the Supreme Petroleum Council 
(SPC).  Five of the Executive Council's 16 members also sit 
on the SPC, including Shaykhs Sultan, Tahnoon, and Surour. 
Shaykh Khalifa is without full brothers.  Although the Bani 
Fatima are not represented on the Executive Council, UAE 
Armed Forces Chief of Staff Shaykh Mohammed (MbZ) -- the 
eldest of the Bani Fatima -- has cultivated important 
alliances with Executive Council members Shaykhs Saeed and 
Hamed. 
 
8.  (C//NF) In addition to Crown Prince Khalifa, three of 
Shaykh Zayid's sons sit on the Executive Council, and head 
perhaps the most important and influential offices in the 
Abu Dhabi bureaucracy: 
 
A. Shaykh Sultan bin Zayid Al-Nahyan, who also holds a 
position on the SPC, is the nominal UAE Deputy Prime 
Minister and Deputy Chairman (Vice President) of the 
Executive Council.  Probably more important, he is 
Chairman of Abu Dhabi Public Works.  Crown Prince 
Khalifa's son, Mohammed, is married to Sultan's 
daughter.  Although Sultan is marked by scandal -- 
Post has confirmed that Sultan struggles with alcohol 
and drug addiction -- he has refrained from commercial 
ventures and reportedly is personally repulsed by some 
of his relatives' corruptibility. 
 
B. Shaykh Saeed bin Zayid Al-Nahyan is Chairman of the 
Abu Dhabi Seaport Authority, and formerly held the 
position of Undersecretary at the powerful Abu Dhabi 
Planning Department.  His mother, Aisha Al-Darmaki, 
hails from the very influential and business-oriented 
Al-Darmaki tribe.  Saeed is considered to be an ally 
of Shaykh Mohammed. 
 
C. Shaykh Hamed bin Zayid Al-Nahyan is a young, 
dynamic and Western educated son of Zayid from the 
Bani Muza line.  He received a Masters in Economics 
from the University of Wales in 2000, and -- only in 
his early thirties -- was recently named Chairman of 
the Abu Dhabi Department of Economy.  A number of 
American businessmen here say that Hamed is a 
progressive thinker, and -- in his capacity as 
Chairman of the Board of the General Health Authority 
-- is supportive of privatization of the health 
services sector. 
 
 (Note: Although not an official member of the 
Executive Council, Shaykh Dhiyab bin Zayid Al-Nahyan -- as 
head of the Abu Dhabi Water and Electricity Authority -- is 
a frequent observer to Executive Council meetings.  He is 
Shaykh Zayid's 16th son (born in 1972), and is a full 
brother to Shaykh Saeed.  Dhiyab speaks excellent English 
and graduated from UAE University in 1994.  End note.) 
 
9.  (C//NF) Crown Prince Khalifa deliberately has included 
rival branches of the Al-Nahyan in powerful local 
positions.  Five other royal family members therefore, 
including Crown Prince Khalifa's son and a handful of 
Shaykh Zayid's cousins and nephews, also appear in the 
Executive Council line-up.  Although their presence on the 
Executive Council is clearly a political move -- the second 
largest town in Abu Dhabi Emirate, Al-Ain (the seat of the 
Al-Nahyan), is well represented here -- these shaykhs also 
have years of practical experience in running local 
government.  Most head important Abu Dhabi or Al-Ain 
departments, and maintain private business interests: 
 
A. Shaykh Sultan bin Khalifa Al-Nahyan is the Crown 
Prince's son and President of Crown Prince Khalifa's 
court.  He is also Honorary President of the Abu Dhabi 
Chamber of Commerce and Industry, which suggests his 
avid business interest.  Sultan has significant real 
estate holdings in Abu Dhabi, and is the local agent 
for French jeweler Cartier.  He has been known to 
misuse his royal status to take advantage of 
commercial opportunities in Abu Dhabi and ask for 
kickback payments -- often to his father's chagrin. 
Sultan's uncle, MbZ, reportedly implicated him in a 
corruption scandal circa 1995, alleging that Sultan 
took kickbacks from a private firm for a government 
contract -- he's known as "Shaykh Ten Percent" -- and, 
as a result, Crown Prince Khalifa has since forbidden 
Sultan from representing foreign companies seeking 
government contracts.  More recently, Zayid reportedly 
ordered his grandson to diversify his ownership in the 
lucrative construction of Marina Mall in Abu Dhabi and 
allow other shareholders. 
 
B. Shaykh Tahnoon bin Mohammed Al-Nahyan is the Deputy 
Chairman (Vice President) of the Executive Council, 
and also the President's Representative to the Eastern 
Region (Mayor of Al-Ain).  He is from the Bani 
Mohammed -- the uncles to Crown Prince Khalifa on his 
mother's side (Zayid's only former wife within the Al- 
Nahyan) -- that in the past represented a political 
counterweight throughout Abu Dhabi government to 
Zayid's progeny.  Tahnoon is in his sixties and is a 
respected elder and close adviser to Crown Prince 
Khalifa.  Not surprisingly, he also holds a position 
on the SPC. 
 
C. Shaykh Saeed bin Tahnoon Al-Nahyan has many years 
of experience in Al-Ain government -- currently as 
Head of the Al-Ain Municipality, and formerly as the 
Undersecretary of the Al-Ain Municipality and Town 
Planning Department.  Saeed is the most prominent son 
of Tahnoon bin Mohammed -- who also sits on the 
Executive Council -- and together they form a powerful 
Al-Ain lobby.  Saeed and his father reportedly hold a 
monopoly on all Al-Ain projects; only Shaykh Zayid and 
Khalifa can veto their business activities in the 
Eastern Region. 
 
D. Shaykh Hamdan bin Mubarak Al-Nahyan has worked his 
way up through the ranks of the Abu Dhabi Department 
of Civil Aviation since joining the Department in 
1985, and now acts as Chairman.  He is from Al-Ain and 
is son-in-law and brother-in-law to Executive Council 
members Tahnoon bin Mohammed and Saeed bin Tahnoon, 
respectively.  Ironically, Hamdan told Embassy 
officials several years ago that he has no interest in 
private business.  He is a liberal thinker and 
considered to be pro-Western. 
 
E. Shaykh Surour bin Mohammed Al-Nahyan, who also sits 
on the SPC, holds the largely honorific title of 
Chamberlain of the Presidential Court, but owes his 
position on the Executive Council more to his business 
acumen and many years of experience in Abu Dhabi 
Municipality.  He was formerly UAE Central Bank 
Governor, Chairman of the Abu Dhabi Department of 
Justice, and Head of Purchasing for Abu Dhabi.  Surour 
has many private business interests, including 
significant real estate holdings in the United States, 
and has largely divorced himself from governmental 
responsibilities in recent years.  He is a son-in-law 
of Shaykh Zayid and Shaykha Fatima, and also is 
related by marriage to the Al-Ghurair -- the leading 
merchant family in Dubai. 
 
10.  (C//NF) Crown Prince Khalifa has cultivated close 
relations and business ties with major Emirati families, 
particularly those with roots in other areas of Abu Dhabi 
Emirate, such as Al-Ain and Liwa.  In addition to their 
local prominence on the Abu Dhabi commercial scene, these 
successful businessmen head the major departments in Abu 
Dhabi Municipality and provide invaluable technical and 
financial counsel to Khalifa.  It is interesting to note 
that former Iraqi Foreign Minister and long-time resident 
of Abu Dhabi Adnan Pachachi also once served on the 
Executive Council: 
 
A. Shaykh Mohammed bin Butti Al-Hamed is the 
President's Representative to the Western Region 
(Mayor of Abu Dhabi), as well as Chairman of the Abu 
Dhabi Power and Water Authority and Sewage Projects 
Committee.  Bin Butti reportedly uses his municipal 
position to benefit his private business interests -- 
he chairs the Al-Hamed Group of Companies, and is one 
of 14 shareholders in Al-Ahlia General Trading Co. 
Ltd. (the local agent for BMW).  It is rumored that 
the relatively modest and unassuming Khalifa dislikes 
the corruptible bin Butti, and has sought to remove 
him as Abu Dhabi Mayor.  Earlier this year, more than 
300 employees were fired from Abu Dhabi Municipality, 
reportedly as a warning to bin Butti to reign in his 
excesses.  Bin Butti heretofore has been impervious to 
Khalifa's attacks, probably because of his long 
relationship with Shaykh Zayid.  It also helps that 
three of his daughters are married to sons of Shaykh 
Zayid. 
 
B. Mohamed Habroush Al-Suweidi is a trusted and long- 
time financial adviser to both Shaykh Zayid and Crown 
Prince Khalifa, and has years of experience in both 
emirate and federal-level government.  He currently 
heads the Abu Dhabi Finance Department -- the 
bookkeeper and accountant for Abu Dhabi and the UAE -- 
as well as the National Drilling Company, Islamic 
Development Bank, National Bank of Abu Dhabi, and 
other prominent economic organizations.  Al-Suweidi is 
a member of the SPC by virtue of his position on the 
ADNOC Board of Directors.  In the early days of the 
federation, he held the positions of Minister of State 
for Finance and ADIA Director. 
 
C. Khalfan Ghaith Al-Muhairbi chairs two important 
departments in Abu Dhabi Municipality -- the 
Purchasing Department and the Social Services 
Department -- and therefore holds two seats on the 
Executive Council.  Prior to his appointment to the 
Purchasing Department in 1991, he served as the 
Undersecretary for the Abu Dhabi Finance Department 
for Customs Affairs, and was on the Board of Directors 
for Gulf Air. 
 
D. Ali bin Ahmed Al-Dhaheri is from Al-Ain and has 
been Secretary General of the Executive Council since 
1987.  He reportedly has made millions of dollars 
simply by agreeing to put certain projects on the 
Executive Council's agenda for deliberation.  Al- 
Dhaheri also is Undersecretary of Shaykh Khalifa's 
Office, and reportedly the Crown Prince's personal 
assistant and adviser on the day-to-day administration 
of Abu Dhabi.  He is a member of the SPC and ADNOC 
Board of Directors, and formerly served as a member of 
the Higher Council for Petroleum Affairs.  Al-Dhaheri 
is a private businessman, as well, with interests in 
Al-Ahlia General Trading Co. Ltd., and Emirates 
Company for Insurance. 
 
E. Mohammed Sultan bin Surour Al-Dhaheri represents a 
powerful business family in Abu Dhabi and Al-Ain, and 
serves as Chairman of the Abu Dhabi Department for 
Organization and Management.  His father, Sultan bin 
Surour Al-Dhaheri is Speaker of the National 
Consultative Council and his brother Surour, is 
Chairman of Abu Dhabi Commercial Bank.  Mohammed 
Sultan is a managing partner in the Al-Dhaheri Group 
of Companies -- the most prominent of which is the 
Union Bank of the Middle East.  He worked in the UAE 
Central Bank for many years and formerly served as 
Central Bank Governor. 
 
F. Mohammed Saleh bin Badwa Al-Darmaki is Chairman of 
the Abu Dhabi Customs Department, and a confidant of 
Crown Prince Khalifa.  He formerly was Undersecretary 
to the Ruler's Representative Office in the Eastern 
Region, and remains very close to Shaykh Tahnoon bin 
Mohammed and his sons.  Most observers say that bin 
Badwa is destined for a prominent position in the UAE 
federal government once Khalifa succeeds his father as 
UAE President. 
 
G. Musallam Saeed Al-Qubaisi is Chairman of the Abu 
Dhabi Department of Planning and also Chairman of the 
Electricity Privatization Committee.  The Planning 
Department is perceived by American businessmen to be 
the most corrupt and ill-managed department in Abu 
Dhabi Municipality -- probably because Al-Qubaisi is 
an admitted Francophile who prefers to award Planning 
Department contracts to French firms.  Al-Qubaisi also 
is a member of the Board of Directors for Abu Dhabi 
Islamic Bank, and is a partner in a number of local 
oilfield services companies. 
 
11.  (C) Khalifa trusts some members of the Executive 
Council more than others, and often meets with Council 
members one-on-one to either seek their advice or to 
discuss personal interests in certain projects.  It is 
understood that many Council members use their position on 
the Executive Council to promote projects that are 
personally profitable, but this private stake, we are told, 
is never discussed among the larger group.  Nevertheless, 
the business interest is known to all Council members, who 
do not contest the project in the open forum -- they expect 
quid pro quo treatment at a later date. 
 
(Note: Although not all departments in Abu Dhabi are 
represented on the Executive Council, they include Shaykh 
Zayid's Private Department, the Ruler's Representative in 
the Western Region, the Zayid Bin Sultan Al-Nahyan 
Charitable Foundation, the Court of His Highness the Crown 
Prince, His Highness the Crown Prince's Private Management 
Office, Private Department of Shaykh Hamdan bin Mohammed 
Al-Nahyan, Private Department of Shaykh Tahnoon bin 
Mohammed Al-Nahyan, Private Department of Shaykh Mohammed 
bin Khalid Al-Nahyan, Abu Dhabi Chamber of Commerce and 
Industry, Water and Electricity Authority, Agriculture and 
Livestock Department in Al-Ain, Civil Aviation, the 
Cultural Foundation, Customs Department, Economic 
Department, Finance Department, General Industries 
Corporation, Organization and Management Department, 
Planning Department, Directorate General of Police, Public 
Works Department, Purchasing Department, Seaport Authority, 
Social Care and Children's Affairs Authority, Social 
Services Department, and Sharia Judicial Department.  End 
note.) 
 
------------------------------- 
How The Executive Council Works 
------------------------------- 
 
12.  (C) Executive Council meetings generally are closed 
sessions.  Technical advisers or project managers may be 
admitted from time to time.  Some shaykhs and royal family 
members may also attend if they have a personal stake in a 
project to be discussed by the Executive Council.  One of 
the Executive Council staff tells us that shaykhs sometimes 
will seek Khalifa's approval for a project in advance, and 
attend the Executive Council meetings for the rubber stamp 
of approval. 
 
13.  (C) More frequently, the Executive Council seriously 
deliberates the merits of projects -- but only those funded 
directly by Abu Dhabi and Al-Ain Municipalities, including 
federal projects.  Our working-level contacts within the 
various Abu Dhabi departments say that each office is 
responsible for vetting projects and pitching them to the 
Department Chairman.  The Chairman can authorize projects 
valued up to a set, designated amount, (department budgets 
are usually fungible) but extraordinary multi-billion 
dollar projects must receive final approval from the 
Executive Council.  The Chairman advocates for his 
Department's projects during Executive Council 
deliberations. 
14.  (C) Planning Department personnel tell us that the 
Executive Council may even deliberate the specifics of a 
project, including its budget.  This is particularly true 
of high-profile projects, such as Abu Dhabi's construction 
of a new six-lane Corniche Highway -- carrying a price tag 
of about USD $330 million.  The Chief Engineer of the 
Corniche project told Econoff that he was requested to 
appear before the Executive Council to explain the proposed 
construction in detail, to include artists' renderings of 
the finished product. 
 
15.  (C) The approval process for the Abu Dhabi annual 
budget, and each department's annual allocation, is similar 
to that of major projects.  The Abu Dhabi Department of 
Economic Affairs Manager of Economic Affairs says that each 
department is responsible for developing its own budget, 
and the Chairman presents the proposed departmental budget 
to the Executive Council for approval.  Relying on the 
previous year's budget as a guide, the Executive Council 
either approves or amends the budget. 
 
16.  (C) Most observers say that each of the Department 
Chairmen predictably lobbies for a larger budget each year, 
as well as for approval for pet projects.  Crown Prince 
Khalifa's consensus-driven management style sets the tone 
for discussions, which are non-confrontational and end with 
general agreement.  Our contacts at the working-level of 
the Abu Dhabi Economic Department tell us that department 
heads often seek alliances with each other prior to 
Executive Council meetings -- especially if a project 
involves one or more departments working collaboratively -- 
to approve projects with as few modifications as possible. 
 
------------------------------------------ 
Executive Council Strengths and Weaknesses 
------------------------------------------ 
 
17.  (C) Given the considerable experience of the Executive 
Council's members in both government bureaucracy and 
private sector ventures, decisions undertaken by the 
Council probably are based on a technical and financial 
evaluation of a project, and are in the perceived long-term 
interests of the Emirate.  The consensus-based decision 
making process of the Executive Council ensures that the 
effects of political favoritism are limited.  Local 
businessmen say that Crown Prince Khalifa sets clear limits 
to how much each Council member can personally profit from 
the group's decisions. 
 
18.  (C) The Executive Council, nevertheless, is 
susceptible to outside influence and corruptibility.  The 
fact that most Council members hold high-ranking municipal 
positions as well as head leading local companies is a 
conflict of interest by Western standards.  The most 
powerful business families in Abu Dhabi also are 
represented on the Executive Council, and profit from the 
group's decisions.  It is a frequent complaint among our 
private sector (mostly expatriate) contacts that tendering 
of government contracts in Abu Dhabi is far from 
transparent. 
 
19.  (C) Recently, a lesser Abu Dhabi businessman commented 
to Econoff that Mohammed bin Butti Al-Hamed, the Mayor of 
Abu Dhabi Municipality, gives municipal projects to certain 
local companies and inflates the project costs by as much 
as two or three times -- with the resultant extra dividends 
going to all involved.  Bin Butti also has been accused of 
profiting personally by gouging the municipality on the 
costs of spare parts. 
 
------------------------------- 
Implications for U.S. Companies 
------------------------------- 
 
20.  (C//NF) Many foreign companies have made considerable 
inroads with the Executive Council membership, and use 
those relationships to win multi-million dollar government 
contracts in Abu Dhabi -- often despite a lower American 
bid.  In mid-2002, a French firm beat out American company 
TYCO for the USD $850 million contract to construct the 
Shweihat pipeline.  Although the initial TYCO bid 
reportedly was 20 percent lower than the French bid, the 
French company's sponsor Shaykh Dhiyab bin Zayid Al-Nahyan 
convinced the Executive Council to retender the project. 
21.  (C//NF) U.S. companies, too, have lobbied and received 
contracts from the Executive Council.  Many American firms 
-- particularly those in the construction, public 
utilities, and transportation sectors -- benefit from 
cultivating relationships with key Executive Council 
members.  In 1998, Crown Prince Khalifa and the Executive 
Council awarded American company CMS the contract for the 
first independent water and power project (IWPP) in Abu 
Dhabi in 1998.  Based entirely on its success in managing 
the first IWPP, CMS also won the tender for the second IWPP 
in 2001. 
 
22.  (C//NF) The Executive Council also convenes to mediate 
high-profile business disputes, and to maintain equity 
among the competing business families in Abu Dhabi.  In 
this capacity, American firms have sought partiality among 
Executive Council members in local business disputes.  Most 
recently in mid-2002, the Executive Council overruled the 
Abu Dhabi Planning Department and Abu Dhabi Civil Aviation 
on their decision to grant a $30 million deal to French 
company Airsys, instead of U.S. company Raytheon, for air 
traffic control radars in Abu Dhabi and Al-Ain.  The Abu 
Dhabi Executive Council -- in writing -- exempted Raytheon 
from the Israeli boycott clause in the antiquated, standard 
contract form still used by the Department of Civil 
Aviation.  Using their connections within Abu Dhabi's 
Planning Committee, the French sought to have the Raytheon 
bid disqualified for non-compliance unless the firm 
accepted the boycott provision. 
 
------- 
Comment 
------- 
 
23.  (C) Comment: While the Executive Council from time to 
time may simply provide political cover for decisions taken 
by Shaykh Zayid and Crown Prince Khalifa, it is clear that 
the Executive Council more frequently acts as the key body 
in administering the considerable wealth of the UAE. 
Executive Council members are experienced technocrats and 
businessmen in their own right, and represent the best and 
the brightest that the UAE has to offer.  We will seek 
meetings with some of the lesser-known Executive Council 
members in the coming year to gain further insight into the 
machinations of this powerful, yet low profile, body. End 
comment. 
 
Wahba