Identifier
Created
Classification
Origin
05KUWAIT1682
2005-04-25 13:10:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kuwait
Cable title:  

COUSINS' CONSORTIA VIE FOR IRAQ POWER DEAL

Tags:  BEXP ENRG IZ KU KUWAIT IRAQ RELATIONS 
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UNCLAS SECTION 01 OF 04 KUWAIT 001682 

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: BEXP ENRG IZ KU KUWAIT IRAQ RELATIONS
SUBJECT: COUSINS' CONSORTIA VIE FOR IRAQ POWER DEAL

REF: A. BAGHDAD 1685


B. CARRIG/ORFE VOCO 24APR05

C. ORFE/CARRIG EMAIL 11APR05

D. 2004 KUWAIT 1303

This cable contains sensitive but unclassifed, proprietary
information; please protect accordingly. Not for internet
distribution.

UNCLAS SECTION 01 OF 04 KUWAIT 001682

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: BEXP ENRG IZ KU KUWAIT IRAQ RELATIONS
SUBJECT: COUSINS' CONSORTIA VIE FOR IRAQ POWER DEAL

REF: A. BAGHDAD 1685


B. CARRIG/ORFE VOCO 24APR05

C. ORFE/CARRIG EMAIL 11APR05

D. 2004 KUWAIT 1303

This cable contains sensitive but unclassifed, proprietary
information; please protect accordingly. Not for internet
distribution.


1. (SBU) Summary and Comment. Two wings of the influential
Al-Ghanim clan are competing for the sale of electrical power
to Iraq. Kutayba Al-Ghanim and Fouad Al-Ghanim recently
presented similar, Kuwait-based BOT proposals to a visiting
Iraqi negotiating team. The two consortia offer 7-10 year
contract terms on the provision of up to 1000 MW of
electrical power with 600 MW to be online within two years.
Both camps would grant substantial discounts on price were
Iraq to provide natural gas to fire their gas turbine
systems. Price ranges from 2.65 cents/KwH to 5.99 cents/KwH
depending the contractor, the fuel used and the degree of
infrastructure support required. Both consortia assert an
inside track on the purchase of "surplus" Kuwait electricity
to meet Iraq's needs in advance of a BOT system startup. GOK
officials, however, insist little surplus exists given
Kuwait's own aging power generation system and increasing
domestic demand. GOK sources are also pessimistic regarding
the near-term availability of Iraq natural gas to fuel
Kuwait-based private sector power projects.


2. (SBU) Comment. Embassy Kuwait concurs with Embassy
Baghdad's Ref A call for greater Kuwait-Iraq economic
dialogue on issues of common interest, to include debt
reconciliation, asset recovery, development and energy. We
will encourage our GOK interlocutors to make available for
Iraq whatever state-generated power surplus that may exist
and to facilitate private sector power sales as well.
Embassy Baghdad may want to consider enlisting ITG support
for the export to Kuwait of Iraq natural gas. End Summary
and Comment.

The Consortia Lineup
--------------


3. (U) Business managers from two wings of the influential
Kuwaiti Al-Ghanim clan are competing on a contract for the
sale of electrical power to Iraq. Recently, they met in
Kuwait City with a six-member Iraq Ministry of Electricity
delegation (listed at para 20) for continued contract
negotiations. These meetings follow on earlier sessions in
Kuwait over the past 18 months and in Amman, Jordan in March

and April of this year.


4. (U) International Power Corporation (IPC) - Kutayba
Al-Ghanim (CEO of Al-Amana Investment Company) and his
brother Bassam Al-Ghanim (Chairman of Gulf Bank) fielded a
negotiating team headed by Bader Fahed Al-Rezaihan (President
and CEO of CIC Group, Inc. and Chairman of IPC, which is
based in the British Virgin Islands). Khaled Faisal
Al-Mutawa, General Manager of Gulf Bank, backstopped
Al-Rezaihan.


5. (U) US-based JHS Associates and Partners (JHS) - Fouad
Al-Ghanim (CEO of Alghanim International General Trading and
Contracting Company (AIGT&CC)) and his brothers Ali Al-Ghanim
(Agent for Dutch Babcock) and Abdullaziz Al-Ghanim (Agent for
Siemens/Foster-Wheeler) were represented by Mahmoud Emam
Yaseen, CFO for AIGT&CC and Tarek Eissa, Head of Construction
for AIGT&CC.

The Proposals - The Consortia Views
--------------


6. (SBU) IPC's plan, described in part in an updated MOU
concluded in Kuwait with the Iraqi delegation on 5 April,
calls for a 7-year take-or-pay arrangement with gas turbines
providing: in Stage I, 100 MW of power by February 2006; and
for Stage II, 600 MW by January 2007. The firm would also
install line capacity to carry 400 KV to the Iraqi border.
The Iraqi delegation reportedly is asking IPC additionally to
cover the cost of all line development (to include hardware
and labor procurement/management) within Iraq to carry power
to the Khor Az Zubayr terminus some 50 kms to the northeast
of the proposed power station in Kuwait. IPC would fire the
turbines with fuel oil pending resolution of a proposed Iraq
Ministry of Oil commitment to "guarantee" the delivery of
natural gas to Kuwait to power the plant.


7. (SBU) IPC would bill 5.99 cents/KwH for oil-generated
electricity, or 4.3 cents/KwH for gas-generated electricity
if Iraq provides the natural gas (Note: According to IRMO
(Ref B) this elevated price may reflect IPC inexperience with
costing power projects). The IPC negotiators assert that GOK
has approved their lease of land to base the power station
and a right-of-way for the power line towers to carry
electricity to Iraq. The firm and its associates have no
experience in power generation; this project would be a first
for IPC and CIC Group.


8. (SBU) In conversations with EconCouns on 10, 13 and 24
April, JHS Head of Construction Tarek Eissa and Electrical
Engineering Department Head Alois Novak presented a similar
game plan. JHS sees Iraq as a woefully under-served market
with an installed capacity of perhaps 10,000 MW of which
5,500 to 6,000 MW is serviceable in the face of an 8,000 MW
demand today. They believe that demand will increase by
1,000 MW annually. AIGT&CC has had solid power generation
experience, most recently when they completed -- in team with
Siemens -- the Kuwait Al Zour South 1,000 MW power station
three months ahead of schedule.


9. (SBU) JHS envisions a two-stage approach to Iraq, having
two gas turbines in place by December 2005, generating
100-120 MW of power on land, for which, they say, JHS has
construction rights. The JHS Stage II plan calls for 600 MW
of installed capacity by April 2006 provided by a total of 6
power units, on a 10-year contract. JHS would offer to pay
for the installation of power lines all the way to Iraq's
regional distribution center at Khor Az Zubayr, according to
Novak and Eissa. They also promote natural gas as the
preferred fuel and would ask Iraq to budget $130-$180 million
to cover gas field development, pipelines and a compressor to
move the gas to Kuwait. JHS's prices are contingent on who
picks up infrastructure costs. They ask 5.95 cents/KwH for
oil- and 2.65 cents/KwH for gas-generated electricity if Iraq
provides that fuel free of charge as well as the gas field
development, pipelines for delivery of the gas and also the
power transmission lines bringing energy back to Iraq. The
third option would deliver power at 3.5 cents/KwH if Iraq
picks up the tab for gas delivery and JHS assumes
responsibility for construction of an electric power
substation and delivery lines to Iraq.

The Proposals - View from the Government
--------------


10. (SBU) Kuwait Ministry of Energy Assistant U/S Hamoud
Al-Enezi told EconCouns on 12 April that the two consortia
have "an equal chance" for winning the project. He thought
that Iraq would need additional power for at least five years
and that the governments of Kuwait and Iraq eventually would
support the proposal for a Kuwait-based power station. He
thought the basic idea good and the companies capable with
sound American and Kuwaiti constituents. Al-Enezi thought
the biggest problem areas involved negotiations with the two
governments rather than any technical or business aspects of
the proposed project itself.


11. (SBU) Al-Enezi noted, for example, that although both
consortia claim to have reached substantive agreement with
the Government of Iraq regarding contract terms, neither of
them could produce a finalized power supply agreement as yet.
Moreover, he said, both are still waiting "for the green
light" from Kuwait's Ministries of Commerce and Energy and
from the Municipality for a build-operate-transfer (BOT)
arrangement. Specifically, and notwithstanding the firms,
claims to have their land permissions already, they need land
reportedly to be donated by the Municipality on which to site
the power station as well as a final easement for a
right-of-way for power line towers to deliver the electricity
to Iraq.


12. (SBU) Al-Enezi also noted that the firms would need some
source of power during construction as well as a connection
to the Kuwait power grid, neither of which is resolved. The
biggest problem, he predicted, would be political. He said
that any private power arrangement would have to survive
harsh scrutiny by the National Assembly. "They will ask," he
said, "why this project should go to an Al-Ghanim -- any
Al-Ghanim --rather than the public sector."

Surplus Power - Yes and No
--------------


13. (U) Both consortia imply a meeting of the minds with the
GOK regarding the sale of "surplus" Kuwaiti electricity to
Iraq through their good offices. That supply would precede
the generated power with the plan being to meet Iraq's
marginal demand with excess Kuwaiti power until the new
generating station comes on line completely. In a 10 April
meeting with Ambassador, IPC Chief Bader Al-Rezaihan
suggested that an informal understanding had been reached
with the GOK Ministry of Energy. He said that an SAIC study
of Kuwait's power needs - that study commissioned by IPC --
confirmed that a substantial surplus exists, at least for the
off-peak winter season. Al-Rezaihan stated that the power
was available for his consortium to purchase and provide to
Iraq. Similarly, JHS's Engineer Novak claimed in his session
with EconCouns that the Al Zour South facility, which AIGT&CC
recently completed, ensures excess capacity today.


14. (SBU) These assertions run counter to the Ministry's
official and long-standing position that whatever the surplus
that may exist, it is transient and not available for sale to
Iraq by anyone, to include the GOK itself. Ministry of
Energy U/S for Electricity Saud Al-Zaid reiterated this point
in a 20 April conversation with EconCouns, recalling their
earlier conversation in April 2004 regarding the "surplus"
power issue (Ref D). Al-Zaid said the current summer load in
Kuwait is 8,500 MW and that although the installed capacity
is in the neighborhood 10,000 MW, the actual maximum load is
approximately 9,000 MW due to aging facilities. He noted
that most Kuwaiti power plants are over 25 years of age and
even the newer facilities have boiler limitations.


15. (SBU) Al-Zaid also contradicted Al-Rezaihan's description
of the conclusions of the SAIC study. Saud said he had had
an opportunity to review the paper but found its methodology
and findings "puzzling." He said no one from SAIC had
contacted the Ministry in the preparation of the work and
that he was unfamiliar with the baseline data SAIC employed
in its analysis. He said the approach taken was more
"political" and "theoretical" than practical. He said he was
amused by an SAIC prediction that one day Kuwait could export
"surplus" electrical power to Europe via Turkey.

Natural Gas Fuel Source -- Possible But Not Likely
-------------- --------------


16. (SBU) Similarly, both consortia posit the use of Iraqi
natural gas as a lower-cost and more environmentally friendly
energy source for the power project. They each speak of
having had promising discussions with the Iraqis about this.
However, Kuwait Ministry of Energy U/S for Oil Issa Al-Own
told EconCouns 20 April that prospects are slim for any early
use of Iraqi gas to power a Kuwait-based electricity
generation system for Iraq.


17. (SBU) Al-Own said he has been in close contact with his
Ministry's Iraqi counterparts regarding a plan to export
Iraqi gas to Kuwait for petrochemical development. That
plan, according to Al-Own, remains "contingent on the
formation of Iraq's ministries and government." He also said
he was "unaware of any parallel arrangements," i.e., private
electrical power generation plans, regarding exported Iraqi
natural gas. Moreover, he said that his Ministry had not yet
negotiated a gas price with its interlocutors.


18. (SBU) Under discussion, according to Al-Own, is a
two-stage proposal on which Kuwait is prepared to "move
forward immediately." Stage I, for which GOK already has
approved a $24 million expenditure, could deliver 38 million
cubic feet/day (mcf/d) of natural gas to Kuwait as early as
October 2005. Kuwait, Al-Own clarified, is prepared to
advance Iraq its $8 million "share" of production costs for
Stage I in addition to covering Kuwait's own two-thirds, $16
million, of the costs. Stage II of the program would cost an
additional $700 million to deliver a total of 200 mcf/d, with
Iraq paying $300 million and Kuwait $400 million of the
project costs.


19. (U) For Stage II as well, Al-Own envisioned the principal
use of the gas to be for Kuwait's petrochemical industry. He
allowed that a second 200 mcf/d could be recovered with a
proposed Kuwait Foreign Petroleum Exploration Company
development of Iraq's Seba field. He said that project "has
the economics" for development. Again, however, he cited
petrochemical development or electric power generation for
Kuwait's own domestic use as the likely first destination for
any recovered natural gas.


20. (U) Iraqi delegation for 4/5 April meetings in Kuwait
consisted of (Ref C):

Haitham Taha Yaseen
Advisor, Ministry of Electricity
George Zayya
Advisor, Trade Bank of Iraq
Riya Saeed
Director General, Ministry of Planning
Hazim Hade Al-Eed
Director General, Ministry of Finance
Amal Aboud Qadouri
Director General, Office of Economics
Abed Ali Hameed Al-Meamar
Director General, Legal Affairs


21. (U) Baghdad minimize considered.

LEBARON