MFA REPLIES TO 15 FEBRUARY SECDEF LETTER ON

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000762 SIPDIS STATE FOR PM, NEA, NEA/ARPI, NEA/I OSD/ISA FOR A/S RODMAN AND PDASD FLORY E.O. 12958: DECL: 02/19/2015 TAGS: MOPS PREL EAID MARR PGOV KU IZ SUBJECT: MFA REPLIES TO 15 FEBRUARY SECDEF LETTER ON OIF/AIK FUELS REF: A. KUWAIT 540 ¶B. KUWAIT 539 ¶C. 2004 KUWAIT 3658 ¶D. 2004 KUWAIT 3607 ¶E. 2004 KUWAIT 3578 ¶F. 2004 STATE 183408 ¶G. 2004 KUWAIT 2907 ¶H. 2004 KUWAIT 2873 Classified By: CDA Matthew Tueller for reasons 1.4 (a),(b) and (d) ¶1. (C) Summary. While protesting the tone of the recent SecDef letter to MinDef on OIF fuel, MFA told us on February 20 that the GOK will send an interagency team to Washington in March to resolve the fuel issue and "all other issues" related to Kuwaiti support for OIF. MFA made an "official offer" of $24/barrel for OIF fuel under contract. The matter of DCA fuel for use by U.S. forces in Kuwait still rests with the Ministry of Defense. End Summary. ¶2. (C) CDA was called to MFA on February 20 to discuss with Americas Department Director Ambassador Khaled Al-Babtain fuel used by Coalition forces in Operation Iraqi Freedom (OIF) and as assistance in kind (AIK) for Kuwait-specific activities under the Defense Cooperation Agreement (DCA). Al-Babtain opened the meeting by referring to U.S. Secretary of Defense Donald Rumsfeld's February 15 letter to Deputy Prime Minister and Minister of Defense H.E. Shaykh Jabir Mubarak Al-Hamad Al-Sabah. In that letter, SecDef invited GOK to send a delegation to Washington to discuss alternate funding mechanisms for Kuwait fuel support; requested that Kuwait cease threats to terminate the supply of fuel to U.S. forces; requested a response to an earlier USG purchase proposal; and asked that the supply of DCA fuel, stopped in December 2004, be resumed. ¶3. (C) A clearly agitated Al-Babtain said that the GOK was "angry over the tone" of the SecDef letter and "protests the language" in it referring to Kuwait Petroleum Corporation (KPC) pronouncements that fuel would be suspended in the absence of a commercial contract. Al-Babtain said such "language should not have been used at all." "Why speak of a 'threat,' given our cordial relations?" he complained. As Al-Babtain explained it, at issue is the commercial contract that KPC needs to fulfill its legal obligation to account for fuel deliveries. As he put it, "We agreed to sit and discuss; we will continue to supply the fuel as long as we �A;talk; it won't be cut." "Our problem," he repeated, "is that we need a way to cover the fuel in our budget." ¶4. (C) Al-Babtain turned to SecDef's invitation that a delegation visit the United States to discuss the fuel issue. He said Kuwait was in the process of choosing the membership of a team that would be comprised of representatives from the Ministries of Foreign Affairs, Finance, Defense, Energy and Communications. He emphasized that the mandate for that team would go beyond fuel price negotiations and extend to "all services and all other issues," in Kuwait's support of OIF. "This will not just be a price of fuel issue," he concluded. (Note: We infer from Director Al-Babtain's all-inclusive approach that the DCA itself may be subject to discussion in Washington at least with respect to the provision of AIK fuels). ¶5. (C) Al-Babtain then noted that SecDef mentioned in his letter that USG awaited a high-level response to the cost-of-production sales-price proposal raised by PDASD Peter Flory during his January visit to Kuwait. He said he was authorized to make an "official offer" to provide fuel for OIF at a per barrel price of $24 ($3 for refining costs and $21 for product, the price GOK used this year for budget planning). The offer of $24/barrel, according to Al-Babtain, is the price that the inter-ministerial team would be prepared to discuss during their visit, which he proposed for March. He said he would inform Embassy of when the team had been chosen and was ready to travel. "We are in the same boat," he said, "We want to 1) avoid any further confusion and 2) to ensure there is a legal basis for the additional budgeting to cover fuel." "We have paid; we have sacrificed; we still want to help," he concluded. ¶6. (C) CDA assured Al-Babtain of the tremendous good will and appreciation the American people feel toward Kuwait and for the GOK's extraordinary assistance to OIF and also AIK-funded operations in Kuwait. CDA briefly reviewed the price negotiations with KPC thus far, noting that when the matter originally came up in December 2003, USG had worried about it becoming an irritant to the bilateral relationship as indeed it had. He explained that on three occasions, KPC had, in writing, announced a cutoff date for fuel if a commercial contract were not agreed to and on short notice. That is what USG meant by "threat," he said. ¶7. (C) CDA also noted that since the no-cost OIF contract entered into in December 2004 (for the period April 2004- December 2004) U.S. forces had not received fuel covered by the DCA. He stressed that the uncertainty of fuel supply was very disruptive of operations for U.S. forces, requiring commanders to shift supplies and stocks frequently to cover challenging contingencies. Al-Babtain agreed that approximately 215 thousand gallon/day had not been supplied since 1 January 2005. He opined that there likely were no technical problems with supplying the fuel but that the matter rested with the Ministry of Defense, which had been empowered to resolve it. He offered to follow up on CDA's request for clarification of the status of the DCA fuel. Al-Babtain closed on the fuels issues by reiterating that if KPC again spoke of suspending supply, Embassy should call on him personally to resolve the matter. ¶8. (U) Baghdad: Minimize considered. TUELLER