(C) KUWAIT PETROLEUM COMPANY: UNCOMPROMISING ON

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000928 SIPDIS PENTAGON PASS TO DESC E.O. 12958: DECL: 03/14/2014 TAGS: ENRG ETRD EINV EWWT PREL MARR KU IZ SA QA IR SUBJECT: (C) KUWAIT PETROLEUM COMPANY: UNCOMPROMISING ON FUEL TRANSPORT SCHEME BUT SUPPORTIVE ON PORT SPACE REF: A) MULLORI-CARRIG EMAIL 8 MARCH B) ROBINSON-CARRIG TELECON 9 MARCH C) PRINGLE-CARRIG EMAIL 10 MARCH D) KUWAIT 786 Classified By: (U) CHARGE FRANK C URBANCIC REASON 1.4 (b) ¶1. (SBU) Summary. On 9 March Embassy and US Military officials from OMC-K and the 143rd Transportation Unit met with Kuwait Petroleum Company (KPC) Deputy Chairman Nader Sultan to discuss the current status of the Iraq humanitarian fuel contract and the US military's future land needs at the port facility. Sultan told USG officials in the clearest language to date that KPC could not support a further relaxation of safety requirements for fueling tanker trucks involved in the humanitarian delivery of fuel to Iraq. This stand on safety may provide a logistical challenge with regards to the new fuel contract set to begin in April. Similarly, Sultan also was not immediately supportive of a Defense Energy Support Center (DESC) proposal to import fuel into Kuwait for transit to Iraq. He was, however, more accommodating to US needs regarding adequate staging space for the US military at the Shuaiba port facility, but said the details would still need to be worked out. End Summary. (SBU) Background: Fuel Contract -------------- ¶2. (SBU) The new USG contract for the delivery of humanitarian fuel from Kuwait to Iraq which is set to begin 1 April replaces the crrent KBR-led effort. The new program will be administered by the Defense Energy Supply Center (DESC) (Ref D). The contract will run until at least 30 June and be perhaps renewable on a monthly basis thereafter in anticipation of post-CPA Iraq's assumption of responsibility for this effort. One of the logistical challenges of the current operation is finding enough tanker trucks properly fitted for the task of delivering fuel to Iraq. With the exception of the Shuaiba fuel depot, all fuel facilities in Kuwait load fuel into trucks using the safer, but more expensive, bottom loading method. Top loading is considered more dangerous due to the possibility of an explosion caused by static electricity. The cost to convert DESC contractor's top loading trucks to bottom loading trucks would exceed $10,000 per vehicle. (C) KPC Uncompromising on Safety -------------- 
 ¶3. (C) At DESC's request (ref B and C),Econcouns asked if KPC would be amenable to gradually phasing in the use of bottom loading fuel tankers involved in transporting the fuel to Iraq. Sultan said safety is the primary concern of KPC and its affiliates and there could be very little compromise on this issue. "If the Kuwait National Petroleum Company (KNPC--the fuel delivery agent for GOK) were to come to me for my opinion on the issue, I would tell them safety comes first," said Sultan. He added that KNPC had suffered from two major accidents four years ago that killed ten people; its facilities and reputation have been under repair ever since, he said. Sultan stressed that Kuwait and KPC in particular have been very helpful to the USG with its Iraqi humanitarian fuels mission, saying "we bend over backwards to help you," but KPC "would have little credibility if we compromise on safety." Sultan said he was willing to compromise on commercial terms but was more rigid when it comes to the safety of KPC's "property, people, or procedures." He also suggested that it was a bad idea for the USG to compromise on safety as well, saying "If I were the US Government, I would not sacrifice it." Volunteering his knowledge that DESC officers were at that same hour meeting with KNPC regarding safe fuel loading procedures, Sultan concluded by noting Kuwait would do whatever it could to "accommodate without compromise." (Note: DESC officers meeting with Econcouns on 14 March reported that KNPC officials with whom they had conferred on 9 March apparently proved more accommodating than would Sultan if the safety issues were left to his care. DESC reports receiving a fax from KNPC on 14 March which indicates KNPC was willing to work with DESC in a staged deployment of safety standards (compliant bottom loading fuel transfers). (SBU) Fuel Transiting Kuwait for Iraq -------------- ¶4. (SBU) On a related issue, should fuel shipments to Iraq originate in Saudi Arabia, Sultan said the tanker trucks would need KPC permission to pass through customs and transit Kuwait. He said authority to grant such permission had been delegated to KPC from the Council of Ministers and Minister of Energy and the issue could be considered were DESC to make a formal request. He noted, however, that it would be "most difficult" to handle tanker ships delivering fuel to Iraq via Kuwait ports. He observed that Kuwait is principally involved in the export, not import, of hydrocarbons. Due to damage from the first Gulf War, Kuwait still does not have sufficient storage facilities to handle the importing of fuels in such quantities. The process would be a "logistical nightmare", Sultan said. Abdullatif Al Houti, KPC's Executive Assistant Managing Director for Corporate Planning and who also attended the meeting, added that the occupancy rate of berths at the port facility is very high, estimating it was 55-60% occupancy for oil tankers. As a result, there would be very little berth space for ships importing fuels, he said. (C) Finding Space at the Shuaiba Port Facility -------------- ¶5. (C) With regards to finding adequate staging space for the US military for its future operations of loading and unloading equipment from ships, Sultan was much more sanguine. "Everything has a solution," he said, inviting the military to "stay as long as you want." The military currently has one million square meters within the area but will need to relinquish this land over the next several years so KPC subsidiaries can begin developing the area. The military estimates it will need only half the amount of land it currently occupies, or 500,000 square meters, for its future loading and unloading operations. ¶6. (C) Al-Houti, who used to manage KPC's Shuaiba facility, was a bit more cautious, stressing that there were safety and access concerns. Al-Houti said the land the US military is considering using in Shuaiba is crisscrossed with pipes feeding the export facility and a nearby gas-fired power plant. He said these pipes vary in depth from ground surface to three meters, and many of the pipes are nearly 40 years old. He stressed that if this property were provided to the US military, an agreement would need to be reached regarding access, maintenance, servicing and metering of the pipes. Both Sultan and Al-Houti agreed that the USG should discuss the specific land area and access concerns directly with Kuwait Oil Company (KOC),the subsidiary responsible for the land in question. (C) Comment -------------- ¶7. (C) Sultan's remarks regarding Kuwait's assistance to date in the Iraq reconstruction effort suggest that although the GOK hydrocarbon industry is fully supportive of Coalition efforts in Iraq, there maybe externally imposed practical and safety limits to what it can do. Sultan noted that as a corporation operating in an international market, KPC must strictly protect its record on safety and standards in order to compete successfully. Although the KNPC fax reported by DESC indicates that some initial objections to relaxed standards may be overcome, contractors' compliance with KNPC's safety requirements will need to be closely monitored by the contracting authority. It is important to keep in mind that the GOK views these contracts as bilateral agreements with the United States Government for the effort in Iraq, not/not as individual private deals between corporations. Where he could help--turning over KPC-controlled land at Shuaiba Port for Coalition use--Nader Sultan was accommodating. ¶8. (U) Baghdad minimize considered. URBANCIC