Identifier
Created
Classification
Origin
06KUWAIT4561
2006-12-04 08:27:00
CONFIDENTIAL//NOFORN
Embassy Kuwait
Cable title:  

AMIRI ADVISOR DISCUSSES AMIR'S PRIORITIES AND

Tags:  ECON EINV EPET KU 
pdf how-to read a cable
VZCZCXRO5083
PP RUEHDE RUEHDIR
DE RUEHKU #4561/01 3380827
ZNY CCCCC ZZH
P 040827Z DEC 06
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 7764
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 004561 

SIPDIS

NOFORN
SIPDIS

FOR NEA/ARP, EB

E.O. 12958: DECL: 12/03/2011
TAGS: ECON EINV EPET KU
SUBJECT: AMIRI ADVISOR DISCUSSES AMIR'S PRIORITIES AND
KUWAITI ECONOMIC ISSUES

Classified By: Ambassador Richard LeBaron for reasons 1.4 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 004561

SIPDIS

NOFORN
SIPDIS

FOR NEA/ARP, EB

E.O. 12958: DECL: 12/03/2011
TAGS: ECON EINV EPET KU
SUBJECT: AMIRI ADVISOR DISCUSSES AMIR'S PRIORITIES AND
KUWAITI ECONOMIC ISSUES

Classified By: Ambassador Richard LeBaron for reasons 1.4 (b) and (d).


1. (C/NF) Summary: On 2 December, Ambassador met with
Khaled Al-Fulaij, advisor to the Amir and former chairman of
Kuwait Oil Company, to discuss the Amir's economic agenda and
to solicit Al-Fulaij's perspective on current economic and
political issues. Al-Fulaij explained that three of the
Amir's top priorities are: (1) bolstering Kuwait's research
and development capacity, (2) improving education, and (3)
creating better domestic health services to reduce the cost
of subsidizing Kuwaiti citizens for medical treatment abroad.
Regarding the oil sector, Al-Fulaij said that the $8.5
billion Kuwait Project to develop Kuwait's northern fields in
partnership with international oil companies (IOCs) was still
a priority for the Amir although the Energy Minister has been
preoccupied with the problem of power shortages. On
developing Kuwait's newly discovered 35 trillion cu. ft. gas
field, Al-Fulaij said Kuwait Oil Company (KOC) was still
working with IOCs to conduct an assessment, but he added that
long-term prospects of developing gas for both domestic use
and export looked positive. Regarding the recent suspension
and review of several major Build-Operate-Transfer (BOT)
projects, he suggested that few if any of these projects
would be canceled although some companies may incur penalties
for acting without proper government approval. On the recent
regulatory action taken by the Kuwait Stock Exchange against
several companies, Al-Fulaij dismissed rumors that this is
actually about a conflict between the ruling family and
powerful merchant families and said that the matter was more
about enforcement of a long dormant regulation which needs to
be revised. End summary.

Three Priorities of the Amir
--------------


2. (C/NF) In a 2 December meeting with the Ambassador,
Advisor to the Amir and former KOC Chairman Khaled Yousef
Abdulaziz Al-Fulaij laid out three priorities that Kuwaiti
Amir Shaykh Sabah Al-Ahmad Al-Jaber Al-Sabah had asked him to

work on. First was to improve Kuwait's capacity for research
and development. Al-Fulaij explained that the Amir was
disappointed with the performance of the Kuwait Institute for
Scientific Research (KISR) and wanted to bring in outside
experts to participate in a study to map out a "strategic
path for research and development" activity in Kuwait.
Al-Fulaij referred specifically to the Amir's interest in
alternative energy, agricultural science, and water treatment
as examples of prospective areas of focus. Second, Al-Fulaij
mentioned the Amir's interest in improving Kuwait's
educational system but offered no specifics. Third,
Al-Fulaij said the Amir wants to improve the quality of
domestic health services through partnership with respected
international health care providers. Al-Fulaij talked about
creating an international hospital in Kuwait along the lines
of similar centers in Dubai and Qatar. Currently, the GOK
subsidizes many Kuwaiti citizens for medical treatment abroad
at great expense to the national budget.

Oil and Gas Developments
--------------



3. (C/NF) Turning to the energy sector, Al-Fulaij said
getting parliamentary approval of the $8.5 billion Kuwait
Project to develop four of Kuwait's most complex northern oil
fields in partnership with IOCs was still one of the Amir's
top priorities. He said that the current political
environment in which the new Energy Minister is being blasted
by the media and Parliament over power shortages makes
passage of the project difficult. He added that the Energy
Minister still wants to develop a more comprehensive
understanding of the details of the project before bringing
it before the Parliament again. Al-Fulaij said that one
factor working in the Government's favor was that most of the
Members of Parliament on the relevant oversight committees
have not changed and already have an understanding of the
project. He suggested this should make it easier to approve
the project once the political timing is right. On
development of the 35 trillion cu. ft. (est.) Jurassic gas
discovery announced in March, Al-Fulaij said that KOC was
still working closely with IOCs to map the field and come up
with a development plan. Al-Fulaij said that the gas
condensate field which he believes to extend almost from the
northern border all the way to Kuwait City contains sour gas
in the north and sweeter gas in the south. He said that KOC
is currently building temporary facilities to test the
quality, quantity, and pressure of the gas which the
Government would like to produce for domestic use in power
stations and petrochemical plants as well as for export.

KUWAIT 00004561 002 OF 003



Build-Operate-Transfer Projects
--------------


4. (C/NF) Regarding the Government's suspension and review
of several major Build-Operate-Transfer (BOT) projects
including several contracts with Kuwait-based Agility
(formerly Public Warehousing Company),Al-Fulaij said that
few if any of these projects were likely to be canceled.
Instead, he thought it more likely that some of the companies
involved would be forced to pay penalties. (Note: The
Finance Minister announced on 28 November that the Government
had suspended a number of major contracts with private
investors in response to a report from the Audit Bureau
citing large-scale contract violations. Local Kuwaiti press
on 3 December reported that the Commerce Ministry had
announced the termination of three projects with Agility.
End note.) Al-Fulaij said that at the core of the BOT
controversy was the somewhat confusing division of
responsibilities between the Municipality and the Ministry of
Finance. He said that in some cases, companies had proceeded
with projects under the belief that they had obtained the
relevant authorization when, in fact, they had not. He said
in other cases it appeared that some companies had flagrantly
exceeded the authority granted in their contracts. Al-Fulaij
emphasized the Amir still strongly supported BOT projects as
a vehicle to attract private investment. Al-Fulaij said that
the solution was for the Government to establish a single
point of contact to coordinate BOT projects with investors.

Regulation of the Kuwait Stock Exchange
--------------


5. (C/NF) On the recent regulatory action taken by the
Kuwait Stock Exchange against several firms, Al-Fulaij denied
rumors that this is actually about a conflict between the
ruling family and powerful trading families and said that the
matter was more about enforcement of a long dormant
regulation which needs to be revised. (Note: On 19
November, the Kuwait Stock Exchange (KSE) index dropped by
3.5 per cent following a decision by the Market Committee to
withdraw voting rights from stocks held by the Al-Kharafi
Group, a juggernaut of the KSE, in ten listed companies.
Kharafi is also effectively banned from trading its shares in
these companies for six years. The complaint filed with the
Market Committee alleged that the Al-Kharafi Group had failed
to conform with market regulations in its apparent efforts to
acquire a controlling interest in these companies without
making the required disclosure. End Note). Al-Fulaij
explained that according to a rarely enforced regulation,
investors must disclose any ownership stake greater than 5%
in a listed company. He says that in this case, a firm had
acquired more than 5% of several companies by investing
through various subsidiaries but had failed to make the
requisite declaration. (Note: The local press has been
reporting that Kharafi surreptitiously acquired the voting
rights associated with these shares in an effort to force
management changes in some of the companies, especially one
previously controlled by the Al-Sager Group, a long-time
Kharafi rival. End note.) Al-Fulaij said the regulation is
out-of-date and needs to be revised. Otherwise, he
indicated, up to 150 companies could be affected. Al-Fulaij
expressed hope that ongoing efforts by the Ministry of
Commerce, which is being advised by the National Association
of Securities Dealers (NASD) would produce more effective and
more transparent mechanisms to regulate the KSE.

Bigger Government?
--------------


6. (C/NF) Separately, Al-Fulaij mentioned that the Amiri
Diwan was contemplating a proposal to increase the number of
elected Members of Parliament from 50 to 60 and the number of
Ministers from 15 to 20. Al-Fulaij explained that if the
Government were to decide to proceed with this proposal, it
would require a constitutional amendment. (Comment: Article
80 of the Constitution states that "the National Assembly
shall be composed of fifty members." While the amendment
would prevent Ministers from being assigned multiple
portfolios, most MPs and political activists oppose the
proposal, arguing that it would open the door for further
amendments of the Constitution. End comment.)

Bio Note
--------------


7. (SBU) Al-Fulaij was born in 1953. He graduated from the
University of Tulsa with a BA in Mechanical Engineering in

1975. He joined the Kuwait Oil Company in 1975 and remained

KUWAIT 00004561 003 OF 003


with the company until 1992. In addition to his role as
economic advisor to the Amir, he is the Chairman of the
Al-Fulaij United Group and Deputy Chairman of the Heavy
Engineering Industries and Ship Building Company. He is
married and has six children.

********************************************* *
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