FUEL PAYMENT NEGOTIATIONS HIT THE PRESS

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 001160 SIPDIS STATE FOR PM, NEA, NEA/ARPI, NEA/I OSD/ISA FOR A/S RODMAN AND PDASD FLORY E.O. 12958: DECL: 03/20/2015 TAGS: MOPS PREL EAID MARR PGOV KU IZ SUBJECT: FUEL PAYMENT NEGOTIATIONS HIT THE PRESS REF: A. KUWAIT 0762 ¶B. KUWAIT 0540 AND PREVIOUS Classified By: Ambassador Richard LeBaron for reasons 1.4 (a),(b) and (d) ¶1. (C) Summary. Kuwait's daily newspapers have run front-page stories purporting to provide the inside scoop on an allegedly acrimonious disagreement between USG and Kuwait regarding purchase of OIF fuel. The press assert that Kuwait's request for payment of $500 million for post-war fuel deliveries met with a "condescending" letter from SecDef Rumsfeld, putting off payment. GOK public comment has been measured, with government officials noting that payment will be forthcoming and that a "commercial basis" contract is under discussion. Privately, GOK officials have pushed for resolution of the issue for fuel delivered after 1 January 2005; they have put on the table an offer of refined product at $24/barrel. End Summary. The Stories -------------- ¶2. (U) After a local story on 17 March, Kuwait's daily newspapers have run front-page AP, Al-Jazeera and AFP wire stories purporting to provide the background on allegedly acrimonious U.S.-Kuwait AIK/OIF fuel negotiations. The controversy surfaced in Kuwait with a front-page story in the 17 March edition of the "Arab Times." That English language daily quoted a Kuwaiti source "on condition of anonymity" as saying that Kuwait had asked USG for $500 million in payment for fuel supplied to U.S. forces in Iraq following the war. ¶3. (C) That story further quoted the 16 March edition of the London-based pan-Arab paper Al-Hayat in citing its source for the fuel information as Islamist Kuwaiti MP Nasser Al-Sane. Reportedly, Al-Sane had told his supporters in Kuwait some days earlier that before and during the Iraq war, Kuwait had supplied $450 million of fuel free of charge, and that subsequent to the war an additional $500 million was supplied as well. The story continued that Kuwait's request for the $500 million for post-war fuel support met with a "condescending" and "tough-worded letter" of response from U.S. Secretary of Defense Donald Rumsfeld. The "Kuwait Times" characterized the letter as saying that since Washington had "liberated the state from Iraqi occupation in 1991 and because it enjoys a fiscal surplus, there was no need to demand the payment." Papers here also reported that the GOK "summoned U.S. Ambassador Richard LeBaron in protest" regarding the letter (Note: Charge was summoned, in Ambassador's absence, on 20 February; see Ref A). Kuwaiti Response -------------- ¶4. (U) GOK public response to the press reports has been measured. On 17 March, the wire services quoted Energy Minister H.E. Shaykh Ahmed Al-Fahd Al-Sabah as telling their reporters he was "surprised" by press reports of an alleged dispute regarding fuel. He allowed that U.S. forces indeed would start to pay for fuel but said that "this is a commercial issue." He said that Kuwait and the U.S. were involved in discussing a "payment mechanism for future supplies" now that there is "a legitimate government in Iraq." He further announced that a high-level Kuwaiti delegation would go to the United States soon for discussions regarding the fuels issue. ¶5. (C) Comment. In a 19 March meeting with Ambassador, MFA U/S Khalid Al-Jarallah said that he found MP Al-Sane,s comments "really bad" and that GOK officials, to include the Minister of Energy, had made positive public statements to ameliorate the controversy. Privately, however, other GOK sources have been somewhat less sanguine about the fuel issue. In his 7 February meeting with Ambassador (Ref B), Shaykh Ahmed pushed for settlement of the post-1 January 2005 fuel deliveries expeditiously and on a government-to-government negotiated basis. He noted that as Minister of Energy he also serves as the chairman of Kuwait Petroleum Corporation and that in that latter capacity he represents a commercial organization. He indicated clearly that in his opinion the lead for the payment negotiations resides at Kuwait's Ministries of Defense and Foreign Affairs, not with his ministry. Next Steps -------------- ¶6. (C) Our read -- of what clearly must be GOK leaks to members of the National Assembly and the press regarding the on-going fuel purchase controversy -- is that time is running down. We believe our best option would be to close now on a mutually agreed price (including whatever services/equipment barter arrangements DOD has in mind) before the GOK negotiators arrive in Washington. The Kuwaitis have stipulated that their inter-ministerial team may have a mandate to discuss much of what we believe falls exclusively under the DCA. The fewer the options up for discussion, we believe, the better, particularly in light of CENTCOM longer-range plans for very significant burden-sharing by the GOK. End Comment. ¶7. (U) Baghdad: Minimize considered. ******************************************** Visit Embassy Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ******************************************** LEBARON