ABU DHABI ALUMINUM SMELTING PROJECT FOR OMAN

1. (U) Classified by Ambassador Marcelle M. Wahba for
reasons 1.5 (b and d).



2. (C) The UAE Offsets Group (UOG) has under the aegis of de
facto Defense Minister Muhammad bin Zayid Al-Nahyan (MBZ)
become Abu Dhabi Emirate's strategic business development
platform, responsible for many innovative projects serving
both practical and broader strategic objectives. UOG's
best-known venture, the ongoing Dolphin Project to pipe
natural gas from Qatar to Abu Dhabi, was as much about
achieving political reconciliation between the estranged Al-
Nayhan and Al-Thani (hurt feelings derived from President
Zayid giving refuge to the deposed father of the current
Qatari Amir) as it was about meeting the UAE's burgeoning
demand for gas. Similarly, UOG's project to build a 200
million cubic feet per day desalination plant in Fujairah
Emirate (with the water to be pumped to Al-Ain in Abu Dhabi
Emirate), was at first about Abu Dhabi rewarding the well-
regarded leadership of Fujairah with a multi-billion dollar
project. That vision has now expanded to encompass a major
power component at the plant, which will be used to run a
projected two billion USD aluminum smelter at Sohar in
neighboring Oman.



3. (C) The head of the New Ventures Unit at UOG, Khaldun
Al-Mubarak, told Econchief and Econoff March 3 that Offsets,
after having "created value" by envisioning how such a
cross-border joint venture could have both economic and
political benefits for Abu Dhabi, has now turned the
aluminum smelter project over to ADWEA -- the Abu Dhabi
Water and Electricity Authority. ADWEA will work with the
Omani authorities and the private sector (including Aluminum
Canada - ALCAN) to move forward with the project, which
should produce significant revenue and, more importantly for
Oman, jobs. Asked by Econchief how the Dubai Aluminum
smelter firm, Dubal, had reacted to the creation of such a
near-by competitor, Al-Mubarak observed that the Dubai
authorities were not pleased, but had no reason to complain
as they had been offered a chance to participate in the
Sohar project but had declined, claiming that they would
only join in the venture if it were located in Dubai
Emirate. "Perhaps they thought we would not proceed without
them," the UOG official stated, "but they were wrong."



4. (C) Comment: The UAE, as part of its resolution of a
long-running border dispute with Oman last summer, committed
to significant cross-border investment (although the details
that were shared with us focused more on tourism and road
development along the coast between Muscat and Sur). The
Fujairah desal plant, which began life as a means to water
the extensive Al-Ain farms and gardens of the Abu Dhabi
shaykhs, has now morphed -- in a move that is vintage UOG --
to reflect that broader strategic vision. Perhaps equally
interesting is the success with which MBZ has used UOG to
bring into his ambit two of his half-brothers, ADWEA's
Shaykh Dhiyab (whose mother is from the well-connected Al-
Darmaki tribe and whose full brothers include Amiri Guard
Chief Nahyan and Abu Dhabi Seaport head Said) as well as
Hamed -- who as the head of Union Water and Electricity
Company (UWEC) is overseeing the construction of the
Fujairah plant. Hamed also serves as head of the Abu Dhabi
Economic Department, with which UOG is working to create a
development plan for Abu Dhabi's Musafah industrial zone.
Hamed's full brothers include the the de facto Interior
Minister, Shaykh Saif, and Ahmed, who heads the Abu Dhabi
Investment Authority, responsible for managing the
government's huge overseas investments. It is also worth
noting that UOG -- as an Abu Dhabi Emirate institution --
sought participation in the Sohar project from Dubal, but
clearly believed that proceeding to cement ties with Oman
even without such involvement was worth whatever ill
feelings such action might engender in Dubai.

Wahba