KUWAIT PROJECT STALLED IN PARLIAMENT...AGAIN, KP

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 005266

SIPDIS

SIPDIS

LONDON FOR TSOU
DEPARTMENT OF ENERGY FOR IE
EB/ESC/IEC FOR GALLOGLY, DOWDY

E.O. 12958: DECL: 12/28/2015
TAGS: ENRG EPET ECON BEXP KU OIL SECTOR
SUBJECT: KUWAIT PROJECT STALLED IN PARLIAMENT...AGAIN, KP
OFFICIAL REMAINS HOPEFUL

Classified By: Ambassador Richard LeBaron for reason 1.4 (b)


1. (C) Summary: After reviewing a critical State Audit
Bureau report on the enabling law for the participation of
foreign companies in the development of Kuwait's northern
oilfields (Kuwait Project),the National Assembly's Economic
and Financial Affairs Committee withdrew its previously
submitted report favoring the project. The Assembly vote on
the law, originally scheduled for January 16 and pushed back
to the 23rd, is now on hold. Kuwait Project Executive
Assistant Managing Director Hashem Al-Rifaei remains hopeful
and told Econ Officer on December 26 that he still expects
the law to come up for a vote soon. End Summary.


2. (SBU) In mid-December, Kuwait's State Audit Bureau issued
a report on the proposed law to allow foreign oil companies
to develop and operate Kuwait's northern oilfields (Kuwait
Project). The Bureau criticized a favorable report issued
earlier by the Economic and Financial Affairs Committee of
the previous Parliament. The Bureau's report found fault
with the National Assembly Committee's report for "not
considering the main contracting objectives" and for
exceeding the limits of a contracting agreement. The Audit
Bureau also suggested that any contract to be signed with the
IOCs involved in the Kuwait Project be subjected to the
Bureau's supervision. On December 20, 20 MPs issued a
statement insisting that each part of the Kuwait Project
contract between the GOK and IOCs be ratified by Parliament.
Finally, on December 24, the Economic and Financial Affairs
Committee decided to withdraw its report for further
consideration. A vote on the law, originally scheduled for
January 16 and later pushed back to January 23, has been put
on hold indefinitely.


3. (C) Kuwait Project EAMD Hashem Al-Rifaei told Econ
Officer on December 26 that, despite the Committee's December
24 decision to withdraw its report on the project, he still
expected the enabling law for the project to come up for
discussion and a vote in front of the full Assembly sometime
in January. He said that he had just spoken with someone
from the Council of Minister's office and that the Council
fully supported the project and wanted the vote to take
place. He described the recent moves as "just political
tactics," but he was clearly frustrated by the repeated
delays.


4. (C) By all accounts, the NA Committee decided to withdraw
its report based on the recent publication of an Audit Bureau
report finding a number of problems with the
constitutionality of the enabling law and the proposed
contract with the IOCs. Al-Rifaei said that the Audit Bureau
report was based on the Bureau's review of a May 2005 draft
contract. He said that this contract was no longer valid and
that the Audit Bureau "could no longer be considered an
impartial government body."


5. (C) He said that he expected the measure would still be
discussed by the National Assembly on January 23, and that it
could possibly come up for a vote the same day. (Note: Our
Political Section colleagues are not aware of a session on
January 23 and think it may actually come up on the 30th, if
at all.) Al-Rifaei said that, despite all of the political
maneuvering, he still believed that there are 33 votes in
favor of the project, which gives it enough to pass. The one
obstacle they do face, he said, is that "time is against us"
and that other pressing matters could move the Kuwait Project
vote to the back-burner. "The political situation...," he
sighed, "...it's murky."


6. (C) He explained that the new Committee was not as
supportive of the project as the old Committee, and needed a
lot of attention and "tutoring" in order to help them
understand the project. He said that he had spent four hours
the previous evening at the home of an unidentified National
Assembly member and member of the Economic and Financial
Affairs Committee, explaining "the ABCs of oil," as he put
it. He said that this was the case not only with a few of
the new members of the Committee but with many members of the
NA, that they just did not understand anything about oil or
the oil business.


7. (C) Al-Rifaei said that he was hoping to see an immediate
public response from the Ministry of Energy to the Audit
Bureau's report, but that it had to wait because the Minister
has been in China and Russia over the past few days. He said
that he was at that moment preparing a fax to send to the
Minister's plane so that Minister of Energy Shaykh Ahmed Fahd
Al-Ahmed Al-Sabah could have a press conference immediately
upon his return to Kuwait, in order to refute the Audit
Bureau report and to support the project and urge for a vote.
He said that he was a bit disappointed that Kuwait Petroleum
Corporation CEO Hani Hussain has not come out strongly for
the project in public and that he has had numerous
opportunities to do so.


8. (C) Al-Rifaei said that, if the enabling law did get
voted on and passed, he expected it to be about 3 months
later that KOC would be able to present a bid package to the
IOCs. He said that this would actually consist of about two
months of internal GOK processes, and one month for his
division to update the project data and prepare the bid
package. He then expected the IOCs to be given 2-3 months to
respond, and that his group would take about 2-3 months to
review the responses. He said that the IOCs would be
expected to submit their response in two separate packages:
one envelope would contain their technical qualifications;
and the second would contain their bid amount. The technical
qualifications would be analyzed by his group and whoever was
qualified would then have their bid envelope opened up,
preferably on Kuwaiti national television. He said that his
group had run this idea past Transparency International and
that the organization told them that they could not think of
a better way to do it to avoid any charges of corruption in
the bid process.

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LeBaron