(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