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