NEGOTIATIONS BEGIN TO ENSURE CONTINUED FUEL

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 002873

SIPDIS

STATE FOR PM, NEA, NEA/ARP, NEA/NGA

E.O. 12958: DECL: 08/30/2014
TAGS: MOPS PREL EAID MARR PGOV KU IZ
SUBJECT: NEGOTIATIONS BEGIN TO ENSURE CONTINUED FUEL
SUPPLIES FOR IRAQ OPERATIONS

REF: A. KUWAIT 2772

B. KUWAIT 02747

Classified By: Charge d'Affaires Matthew H. Tueller, Reasons
1.4(a) and (d)


1. (U) This is an action request; please see paragraph 7.


2. (C) Initial discussions between the USG and Kuwait
Petroleum Corporation (KPC) to ensure KPC's continued
provision of assistance-in-kind (AIK) and Operation Iraqi
Freedom (OIF) fuel supplies began on August 30. The KPC
delegation, led by Chairman Nader Sultan, included Kuwait Oil
Tanker Company Managing Director (and KPC board member)
Abdullah Al-Roumi; Executive Assistant Managing Director for
Supply Khaled Al-Bader; Senior Legal Officer Jeremy Kingsley;
and Coordinator for Sales, Middle Distillates Department
Waleed Al-Abduljalil. The US delegation, chaired by CDA
Matthew Tueller, included visiting contract specialists from
the Pentagon and the Defense Energy Support Center (DESC);
representatives from the Coalition Forces Land Component
Command (CFLCC); and representatives of the Office of
Military Cooperation-Kuwait; econoff was notetaker.


3. (C) Sultan began by expressing his gratitude for the US
liberation of Kuwait and the two governments' cooperation
over the past eighteen months. However, the Ministry of
Defense has notified KPC that it has no funding to continue
paying for AIK/OIF fuel supplies beyond April 1, 2003. KPC
was also informed that the Council of Ministers decided to
terminate gratis OIF fuel effective June 29. Because KPC is
a commercial operation with commercial risk and exposure,
Sultan said, it must have a contract in place specifying the
duration that fuel supplies will be provided, in what
quantities, and at what price. Sultan noted that KPC's
external auditors have begun questioning their debts to the
Ministry of Defense. Given these factors, he said, KPC
concluded that it must shut off supply as of September 4 in
the absence of a commercial contract.


4. (C) As a starting point for negotiations, KPC provided a
draft agreement modeled on its contract with DESC. CDA,
noting that the GOK and USG were engaged in ongoing
discussions on this issue -- most recently during the visit
of Secretary Powell -- asked that a discussion of price be
reserved for a future discussion at the political level.
When pressed on the timetable for such discussions, CDA said
that he hoped the meeting would occur by the end of September.


5. (C) The two teams plan to meet again on September 1 to
follow up on several issues. The US delegation agreed to
research four items:


A. VISIT OF HIGH-LEVEL NEGOTIATING TEAM. Sultan stressed
the need for high-level political negotiations over contract
price and duration to take place as soon as possible. The
US team agreed to try to secure a date for that visit.


B. ACCEPTABILITY OF DRAFT CONTRACT. The DOD/DESC contract
experts identified a few shortcomings upon initial review of
the draft. First, the pricing and duration clauses must be
modified to allow for a deferred political-level decision.
Second, the contract dispute clause must be modified to
specify that US law governs dispute resolution, rather than
British law. Third, the draft contract includes a
confidentiality clause, which the US cannot guarantee under

SIPDIS
the Freedom of Information Act.


C. DURATION OF CONTRACT. KPC advised that their contracts
with DESC are normally for the period of one calendar year.
CDA noted that the US would likely seek the maximum period
for the contract's applicability but that this would hinge on
political discussion re pricing.


D. SUPPLY SOURCES. CFLCC provided KPC with projections of
AIK and OIF fuel needs. KPC requested that CFLCC break down
the AIK projections further to indicate the quantities of
fuel drawn from each of two supply sources, Mina Abdullah and
KAFCO. This would allow KPC to tailor the contract to
specifiy the quantity of fuel that each source would provide.


6. (C) The Kuwaiti delegation agreed to look into two issues:


A. SUSPENSION OF SEPTEMBER 4 CUT-OFF. CDA said that
Minister of Energy advised him that the September 4 suspense
date would be nullified if a team were sent to begin
negotiations. Sultan said that he would need to verify this
with the GOK.


B. US-MINISTRY OF DEFENSE AIK PROVISIONS. Sultan
acknowledged that KPC has not been privy to political
arrangements between the USG and the GOK regarding provision
of AIK fuel. He said that he would need to verify that the
Ministry of Defense would continue to pay for AIK fuel use in
Kuwait, and that this arrangement was separate from the
provision of fuel for OIF.


7. (C) ACTION REQUEST. Post requests that Washington
confirm that we should continue pressing for an agreement
that leaves the contract price and duration open pending
high-level political negotiations. Post also requests that
Washington provide dates for a senior-level team to conclude
crucial price agreement as soon as possible, to ensure that
fuel supplies are not terminated. END ACTION REQUEST.


8. (U) Baghdad minimize considered.
TUELLER