KPC GETTING PAID BY SOMO, TRANSPORTERS ARE NOT

UNCLAS SECTION 01 OF 02 KUWAIT 001031 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ARP, NEA/I LONDON FOR TSOU, PARIS FOR ZEYA TREASURY FOR BBALDRIDGE, PLANTIER BAGHDAD FOR LKIMMEL, KTAECKER E.O. 12958: N/A TAGS: ECON EPET KCOR MOPS KU IZ SUBJECT: KPC GETTING PAID BY SOMO, TRANSPORTERS ARE NOT REF: A. KIMMEL - WERBERG EMAILS 03/22/06 ¶B. ANKARA 01392 ¶C. ANKARA 00775 ¶D. BAGHDAD 00936 ¶E. BAGHDAD 00766 ¶F. BAGHDAD 00750 ¶G. KIRKUK 00046 This cable is sensitive but unclassified; please protect accordingly. Not for Internet distribution. ¶1. (SBU) Econ Officer spoke on March 22 with Kuwait Petroleum Corporation EAMD of Marketing Mr. Waleed Al-Hashash regarding SOMO payments to KPC for gasoline and diesel fuels purchased by Iraq from Kuwait (see all reftels for background.) Al-Hashash made the following points: -- KPC is definitely getting paid in full by SOMO for the purchased fuels. -- KPC has a Letter of Credit (LC) that guarantees payment. When the amount is low KPC asks to have it replenished, which it always is. -- There was only one time, last summer, when KPC had a problem getting paid. KPC was instructed by the Kuwaiti Ministry of Energy to continue fuel shipments despite the payment problems, and the payments were resumed shortly after. -- It is Al-Hashash's understanding that SOMO previously had authorization from the Iraqi Government to purchase up to $500 million in imported fuel each month. The cap was recently reduced to $200 million, forcing SOMO to buy less fuel each month. -- Sometimes the money transfers are slow and there are other administrative snafus, but Al-Hashash insisted that KPC is getting paid by SOMO in full. -- He said that it is clear to KPC that there is widespread corruption and mismanagement within SOMO. He also said that KPC is aware that there is a significant amount of smuggling of fuel products out of Iraq, mostly in the north. -- While KPC is getting paid, the companies that are hired to transport, audit, and secure the fuel are not. -- These companies have approached KPC and the Kuwaiti Ministry of Energy, but there is little that Kuwait can do. -- These companies are in a position to stop deliveries to Iraq, and some have already done so. -- Instead of paying these companies what they are owed, SOMO decided to write off these invoices as "bad-debt" and simply hire new companies. -- KPC previously only released SOMO-purchased fuel to two transporting companies authorized by SOMO. These are the companies that have not been paid. -- Last week, three new companies showed up at KPC all saying that they have been authorized by SOMO to accept fuel deliveries from KPC for transport to Iraq. -- The Acting Director of SOMO was in Kuwait last week at the same time, talking with KPC about the transport arrangements. -- KPC told SOMO that it would prefer for SOMO to delegate one "agent" or representative to be responsible for all contact with KPC. KPC does not want to deal directly with all of these transport companies, or to sort out which ones are really authorized to take the fuel. KPC needs to know who it is dealing with, and expects certain safety and security standards to be met by the fuel transporters. -- SOMO "did not like this idea" of the sole representative. -- Al-Hashash said that the joke within KPC is to refer to these new transport companies as "the new victims" because it is likely that they will end up not being paid by SOMO, just as happened to the original transport companies. KUWAIT 00001031 002 OF 002 ¶2. (SBU) The main thing Al-Hashash wanted to convey was that SOMO "needs to have its financial affairs in order, including payments to the transport and security companies," and that it needs to be "very clear about who is authorized" to receive fuel deliveries. He emphasized that, while KPC is getting paid, all of these problems that SOMO is creating by not paying the transport and security companies are making things very difficult for KPC and KPC has no way to secure and transport fuel to Iraq itself if SOMO doesn't make good on the payments to the transporters and they all refuse to make the deliveries. ********************************************* * For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/?cable s Visit Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ********************************************* * LEBARON