UAE: TALK ABOUT TOWN

1. (U) Classified by Charge d'Affaires Richard A.
Albright, for reasons 1.5 (B) and (D).



2. (U) This is the first in a series of "Talk About Town"
cables that the U.S. Mission in Abu Dhabi and Dubai hopes
to provide on a periodic basis. These cables will report
on local business atmospherics and commercial developments
and, although uncorroborated by UAE officialdom and
anecdotic in nature, should provide Washington audiences
with the information we hear frequently in the majlises and
living rooms throughout the UAE.



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Come Fly The Friendly Skies


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3. (C) Econchief recently attended inauguration ceremonies
for Al-Ittihad Airways -- the so-called "national airline
of the UAE" -- which began commercial operations on
November 12. Abu Dhabi Crown Prince Sheikh Khalifa bin
Zayid has openly acknowledged his patronage of the airline,
which already has 200 crewmembers and 3 leased aircraft and
is wholly owned by the Emirate of Abu Dhabi. Al-Ittihad
initially will fly Abu Dhabi to Beirut, and the company
intends to purchase 6 Airbus aircraft next year and expand
its operations as quickly as possible. Although Al-Ittihad
officials denied to Econchief that the new airline would
take business away from Dubai's Emirates Air or the
regional Gulf Air, it appears that Al-Ittihad will in fact
compete directly with Emirates for prime international
routes to the United Kingdom and Indian subcontinent.
Rumors that Bahrain is lining-up financing to buyout Gulf
Air (currently owned jointly by Bahrain, Abu Dhabi, and
Oman) have fueled speculation that Khalifa will pull Abu
Dhabi's support for the regional airline once he becomes
UAE President.



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Drowning In Good Fortune


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4. (C/NF) The UAEG-owned power plant at Shweihat
reportedly is pumping 100 million gallons of unused
desalinated water a day into the sea, at a cost to the Abu
Dhabi Water and Electric Authority (ADWEA) of nearly 5
million dirhams each day in lost revenue. ADWEA selected
CMS Energy to build and operate the Shweihat power and
water plant two years ago, and while CMS finished
construction of the plant 3 months ahead of schedule -- the
plant began producing desalinated water in September -- the
contract to build the network of pipelines from Shweihat to
Abu Dhabi ultimately (and after several rounds of re-
tendering) was awarded to a French company. This delay in
the award process pushed the construction of the pipeline
network behind schedule by 8-9 months, and FCS specialists
have learned that the pipelines will not be ready until
October 2004.



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Shaykhly Shenanigans


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5. (C/NF) Shaykh Mansour bin Zayid, Director of the
President's Office, reportedly is becoming more active in
Abu Dhabi business circles. Local oil executives say he is
proposed building an artificial island near Abu Dhabi as a
petroleum free zone. "Oil Island" would capitalize on
Dubai's free zone model, but with Abu Dhabi's obvious
appeal as the oil capital of the UAE. Local transportation
companies also are complaining that Mansour recently
manipulated UAE law to win a contract for the transport of
pipes from Mina Zayid to Shweihat power plant. UAE law
states that the 160cm diameter pipes must be transported on
trucks measuring 12 x 3 meters. Mansour's transportation
company owns trucks with wider dimensions, and local
businessmen claim that the UAE law regulating the size of
the trucks was recently altered -- requiring wider trucks
to transport 160cm diameter pipes. Mansour's company
reportedly was the only firm in the running with a fleet of
wide-bed trucks, and outbid the closest competitor by more
than 10 million dirhams.


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Dolphin's Days May Be Numbered


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6. (C/NF) Despite signing long-term gas supply agreements
with the UAE's major power suppliers in October, local
businessmen speculate that the Dolphin project has stalled.
The project has lost steam, reportedly because Qatar signed
a $12.5 billion deal with ExxonMobil to produce and liquefy
Qatari gas and ship it to the United States. The UAE and
the Dolphin project, more generally, have become less
important to the Qatari leadership, which has not yet
finalized the production agreement with the Dolphin
consortium. Dolphin has not secured either upstream
pricing agreements with Qatar or downstream pricing
agreements with customers in the UAE (see Abu Dhabi 4694),
and Dolphin execs privately have said they require $2 per 1
million cubic feet of gas in order for the project to turn
a profit. It is going to be difficult for Abu Dhabi to
reach an agreement on pricing with Dubai (which currently
receives highly subsidized gas from Abu Dhabi) that is also
acceptable to Dolphin's international partners. Adding to
Dolphin's nervousness is the fact that ADNOC also recently
announced in its five-year strategic plan that the national
oil company will shift its short-term focus to gas
production -- an ominous sign perhaps from Abu Dhabi's
leadership that it has little faith the Dolphin project
will ever come to fruition. The Dolphin project is a make-
it-or-break-it deal for U.S. company Occidental Petroleum,
which offered $350 million for a 24.5 percent stake in the
Dolphin project.



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You've Got Mail...But That's It!


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7. (SBU) Some Embassy families were surprised to learn
this week that the local telecom monopoly, Etisalat, has
blocked access to the popular American software and
browser, America Online (AOL). Indeed, Embassy officials
confirmed with Etisalat that the UAE's proxy server (a
firewall providing extra security and restricting access to
certain objectionable Internet content) is now configured
to block the Internet port used by the AOL desktop
software. AOL account users can still access their email
via the web and other browsers, such as Netscape and
Explorer, but have lost the standard AOL features (Instant
Messenger, AOL chat rooms, etc.) accompanying the AOL
desktop software. Working level Etisalat staff could not
explain the change in policy or why AOL desktop software is
objectionable, but noted that the UAE Government -- not
Etisalat management -- would have made such a decision.

Albright