BLOOMFIELD DELEGATION MEETS INTER-MINISTERIAL

C O N F I D E N T I A L SECTION 01 OF 04 KUWAIT 000390

SIPDIS

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

E.O. 12958: DECL: 01/31/2014
TAGS: EAID PREL MARR MOPS KU IZ
SUBJECT: BLOOMFIELD DELEGATION MEETS INTER-MINISTERIAL
COMMITTEE

REF: 00243

Classified By: CDA FRANK URBANCIC; REASON 1.4 (A,B,D)


1. (C) Summary. A senior U.S. delegation led by PM A/S
Lincoln Bloomfield Jr. with PDASD/ISA Peter Flory, met on
January 27 with representatives of the Kuwait Ministries of
Foreign Affairs, Finance, Defense and Energy as well as the
Kuwait Petroleum Corporation at the Kuwait Ministry of
Finance (other meetings Septel). The GOK had convened the
meeting to address outstanding assistance-in-kind (AIK) fuel
issues unresolved since May 2003. The Kuwait side had
requested payment of $82 million for fuel supplied during the
period of May 1 through December 1, 2003, and a contract with
a USG entity to cover on-going fuel support for Coalition
forces. They explained that without a contract as the legal
basis for provision of fuel, it would be "very difficult" to
continue the program. The U.S. side secured the GOK team's
agreement to refer USG consumption data and request for a
continuation of AIK, i.e., cost-free fuel support, to their
Ministries, leadership for further consideration. The
Kuwaiti request for a contract remains open. End Summary.


Grateful for Contributions Made Thus Far
--------------


2. (C) A U.S. delegation led by PM A/S Lincoln Bloomfield
Jr., with PDASD/ISA Peter Flory, BG Trautman of CENTCOM and
MG Taguba of CFLCC, met with Kuwaiti officials (delegation
lists at para 19) at the Ministry of Finance on January 27 to
discuss Kuwait,s continued assistance-in-kind (AIK) fuels
subsidy to Coalition forces engaged in Operation Iraqi
Freedom (OIF). In early December, the Ministry of Finance
had presented Embassy a bill in excess of $82 million for
fuel supplied during the period of May 1 through December 1,
2003 and had asked for a contractual arrangement with the
Kuwait Petroleum Corporation (KPC) and a USG entity to cover
all future fuels supplied to Coalition forces (Reftel). The
Bloomfield delegation was charged with ensuring the fuel
supply was not interrupted and that Kuwait understands USG,s
expectation that the AIK fuels would continue at the GOK,s
expense.


3. (C) A/S Bloomfield opened the meeting by observing the
significant role that Kuwait has played both in securing the
defeat of the Saddam Hussein regime and in the on-going
Coalition military stabilization campaign and humanitarian as
well as reconstruction programs for Iraq. He cited the food,
electricity, medical support, telecommunications, use of
bases, ports and airfields, and especially provision of fuel
as critical to our efforts. He noted that in partial
recognition of those efforts, Kuwait would be honored as a
Major Non-NATO Ally (MNNA) at a March ceremony in Washington.
He reported that in meetings earlier that day with the Prime
Minister and Foreign Minister, he had delivered a letter from
the Secretary of State regarding the ceremony and that Mr.
Flory would do the same later with a letter from Secretary
Rumsfeld to the Minister of Defense. He said that his trip
to Kuwait seeking agreement on the continuation of AIK fuels
indicated the critical importance that Washington attaches to
our bilateral relationship and to the Iraq operations it is
supporting.


4. (U) Bloomfield observed that in the coming months, the
largest troop rotation since World War II would see more than
200,000 U.S. military personnel rotating out of and into
Iraq. Those forces, with the support of 34 other nations,
were needed to stabilize Iraq. The 26 million people of Iraq
would not, he said, soon forget the outstanding contributions
of Kuwait.


5. (U) The costs, Bloomfield remarked, indeed are very large
for Kuwait, as they are for the U.S. The United States, he
said, is spending approximately $4 billion a month for
military operations alone in Iraq. Even with a budget
deficit, the Administration had gone back to Congress for
supplemental budget requests the past two years. The latest
supplemental was for $87 billion, with $19 billion of that
earmarked for Iraq's reconstruction. This is an enormous
assistance program that, for example, dwarfs the Camp David
financial commitments. The costs are not only financial.
More than 500 American soldiers have lost their lives in
Iraq. However, and as a result of the Coalition's success in
Iraq and in the earlier liberation of Afghanistan, over 50
million people now are free and at peace with their
neighbors.

6. (U) Bloomfield further acknowledged Kuwait,s
considerable contribution to regional stability, citing the
generous pledge taken at the Madrid Donors, Conference, and
the recent agreement to consider a substantial reduction in
Iraq's debt to Kuwait. These were big and difficult
decisions to take, he said, but clearly were the right
actions to ensure long-run prosperity and stability.


Declining Usage Rate
--------------


7. (C) Following these remarks, CENTCOM personnel provided a
comprehensive update on OIF. They described the nature of
the remaining threat in Iraq, and briefed on operations
undertaken by elements of the 101st Airborne, 82d Airborne
and 4th Infantry divisions. To provide the GOK team a better
understanding of the Coalition's military activities in Iraq,
CENTCOM described four on-going offensive operations as well
as three upcoming operations.


8. (C) Bloomfield said that we anticipate the U.S. military
forces rotating into Iraq will be a lighter force than the
units they replace, and hopefully their tempo of operations
would be allowed to decline over the coming months as
essential services such as the refineries, power generation,
roads, education, healthcare and agriculture are more fully
restored. He noted that the Coalition is training over
200,000 Iraqis now on the payroll as police, border patrol,
facilities protection services and the new Iraqi army. He
said our objective is to empower Iraqi security forces to be
stable, professional and proud to serve but not threatening
to their neighbors. This program, with time, could be
expected to reduce the need for Kuwait AIK fuels; but for now
the Coalition's job is not finished.


9. (C) Bloomfield acknowledged that in 2003 Kuwait had
donated approximately 482 million gallons of fuel, mostly jet
fuel. (Note: That donation accounted for approximately 22
percent of Kuwait,s aviation fuel production, 4.5 percent of
GOK revenue from fuel sales overall and 1.2 percent of
Kuwait,s GDP.) He provided the GOK team with a
CENTCOM-produced projection of fuel needs for 2004, totaling
458 million gallons, noting that in both years, the fuel
needs spiked in March and April -- in 2003, due to the war;
in 2004, due to the troop rotations.


10. (C) Bloomfield said that the charts and CENTCOM briefing
on force structure and deployments illustrated two points of
importance:

a) there remains a significant need for continued military
stabilization operations in Iraq; but

b) with the changes in force structure from relatively
heavy combat units to lighter infantry forces, fuel needs
will trend downward, over time if not immediately.

Bloomfield asked the GOK team to work with USG to try to
overcome the domestic political challenges in obtaining solid
support in the Kuwait Parliament for the continued
uninterrupted supply of fuel as a contribution to the
military operation in Iraq. Noting that the trend line for
fuel use was headed downward even by the conservative CENTCOM
12-month projection, he pledged USG would provide periodic
updates on usage rates so Kuwait might better anticipate the
monthly requirement of U.S. forces and thereby regularize its
production, avoiding present logistical complications in
providing the fuel.


11. (C) Bloomfield concluded by saying that Kuwait was
absolutely entitled to the most accurate accounting of our
fuel utilization requirements, noting that Embassy, Pentagon
and CENTCOM stood ready at any time to explain the basis of
our projected fuel needs. He added that he had volunteered
his own availability to the Prime Minister to re-engage at a
later date should it be necessary to ensure that we remain
good and complementary allies in bringing OIF to its eventual
and successful conclusion. He concluded that continued GOK
support through AIK was "absolutely critical to stabilizing
Iraq."


Kuwait,s Bind: We Need a Contract
--------------

12. (C) Chief of the Kuwaiti delegation Acting Ministry of
Finance U/S Abdullah Al-Mansour came directly to the point.
He said that Kuwait indeed had made a sizable contribution
through AIK fuel and other programs in support of OIF.
However, the size of the contribution was of less importance
than the need for a legal basis for the assistance program.
He noted that it was "very difficult" to continue AIK fuels
without a legal contract with an identified American entity
responsible for accounting for past usage as well as future
usage. He said that representatives of the Ministries of
Foreign Affairs and Defense were present in the room and
prepared to sign a fuels agreement.


13. (C) Al-Mansour explained that the agreement the Ministry
of Finance had arranged between KPC and the Ministry of
Defense (MOD) had expired on January 1, 2004. That earlier
understanding had it that MOD would pick up the tab for the
AIK fuels program until the end of hostilities. The Cabinet
now had defined that date as May 1, 2003. KPC had a legal
requirement to have its delivery of fuels covered by
contract. Al-Mansour said that the issue had been discussed
in the Council of Ministers and the decision taken to
regularize the fuels program.


14. (C) This then was a two-part exercise. First, an
American entity would be named to step into the contractual
position MOD had had with KPC until the turn of the year.
Second, payment would be required for fuel provided since May
of last year and terms arranged for payment for fuel in the
future. Al-Mansour emphasized that the price for the fuel
was negotiable and of lesser importance. The problem KPC and
Ministry of Finance shared was in not having a legal basis
for continued provision of fuel and in accounting for past
supplies. He said that the Parliament and Audit Bureau were
in the process of examining the Ministries, and KPC,s books
on the fuel deliveries.


More and Better Data Offered
--------------


15. (C) A/S Bloomfield reiterated the importance that USG
attaches to our continued reliance on AIK fuels. He
reassured the Kuwaiti side that although we could not answer
all the GOK,s questions on usage rates we certainly could
and would do better than we had in the past. He expressed
full understanding for the internal Kuwaiti requirements for
accountability and legal arrangements with KPC, and asked
that the GOK revisit the issue at upcoming Council of
Ministers, meetings in recognition that all the Coalition
partners were making considerable sacrifices for regional
stability, especially the United States and Kuwait. He asked
whether it would be "bureaucratically possible" to use the
2004 monthly projected usage rates as a vehicle for the
government to contract with KPC so as to continue the supply
of fuel. Usage rates were projected to drop over time, and
he expressed the hope that the Council of Ministers might
consider continuing this vital support. Bloomfield explained
that our information was spotty before but that we now had a
track record, could make better projections, and can point to
factors that will eventually bring down the requirement for
AIK fuels. He emphasized that we are in the middle of a
critical and very serious operation in Iraq; repeated that
the USG,s own "burn rate" for military operations is about
$4 billion a month, not counting reconstruction assistance or
other costs. Just as Kuwait seeks relief from its
contribution, we want to bring our soldiers home as soon as
possible once regional stability is assured and democracy
launched in Iraq. But we are not there yet.


16. (C) PDASD Flory seconded Bloomfield,s thanks for
Kuwait,s considerable efforts to date. He said that the
Defense Department and Secretary Rumsfeld personally
"appreciate everything that Kuwait has done and continues to
do" in support of OIF. Without Kuwait,s support in fuels,
bases and the disruption in the lives of its citizens, the
success in Iraq would not be possible, he said. He continued
that he had visited Kuwait since 1999 and called the GOK/USG
partnership the key to regional stability. That "shared
effort," he said, was critical for success on the long road
ahead. He reiterated the importance we attach to the MNNA
status Kuwait has earned and pledged greater predictability
on future fuel usage rates.

Kuwait Kicks the Can Down the Road
--------------


17. (C) Al-Mansour thanked the US delegation for
understanding the "predicament" KPC, the Ministry of Defense
and Ministry of Finance faced in continuing the supply of AIK
fuels without an agreement. He said, "There is no problem to
reduce the price; but we need a legal contract." He said he
appreciated the US side,s acknowledgement that Kuwait,s
budget process and contracting regulations are similar to
those of the United States and agreed that continued mutual
cooperation and respect were vital to success in Iraq over
the coming months especially.


18. (C) Al-Mansour concluded by agreeing to raise the fuels
projection information with the leadership of the Ministries
represented at the meeting. He said he would work toward
using that data as the basis for a formal agreement. He
repeated that KPC and the Ministries "must cover ourselves
with a contract with someone" to legally provide AIK fuels in
accordance with Kuwait,s government procurement regulations.


19. (U) Delegations:

U.S. DELEGATION

U.S. Department of State
Lincoln P. Bloomfield, Jr.
Asst. Secretary for Political-Military Affairs
Frank C. Urbancic
Charge d,Affairs; Embassy Kuwait
Thomas Williams
Deputy Director NEA/ARP
Stephen Carrig (note taker)
Economic Counselor; Embassy Kuwait

U.S. Department of Defense
Peter C.W. Flory
Principal Deputy Asst. Secretary for Intrnl Security
Affairs
MG Antonio Taguba, USA
Deputy CFLCC
BG George Trautman, USMC
Deputy J-5, USCENTCOM
COL (P) John Mulholland, USA
OMC-K
Commander Peter McVety, USN
OSD Country Director, Gulf

KUWAIT DELEGATION

Kuwait Ministry of Finance
Abdullah al-Mansour
Acting Under Secretary
Maha al-Rsheid
Controller, General Accounts
Tahani al-Mazan
Administrative Researcher

Kuwait Army General Staff Headquarters
BG Abdul Rahman al-Othman
Director, Military Operations
Colonel Kamel Abul al-Awadi
Head of Plans and Programming

Kuwait Ministry of Energy
Ahmad al-Sirafi
Director, Planning & Intrnl Rels Dept

Kuwait Petroleum Corporation
Mohammed al-Qassem
Exec. Asst to MD for Sales

Kuwait Ministry of Foreign Affairs
Ayham al-Omar
Counselor ) America,s Department
Ghanim al-Sager
First Secretary ) Legal Department


20. (U) Assistant Secretary Bloomfield has cleared this
message.


21. (U) Baghdad minimize considered.
URBANCIC