Identifier
Created
Classification
Origin
07BAGHDAD2083
2007-06-25 15:30:00
CONFIDENTIAL
Embassy Baghdad
Cable title:  

BAGHDAD SECURITY PLAN - FUEL SUPPLIES FROM KUWAIT

Tags:  ECON ENRG EPET IZ PREL 
pdf how-to read a cable
VZCZCXRO5153
OO RUEHBC RUEHDE RUEHIHL RUEHKUK
DE RUEHGB #2083/01 1761530
ZNY CCCCC ZZH
O 251530Z JUN 07
FM AMEMBASSY BAGHDAD
TO RUEHKU/AMEMBASSY KUWAIT IMMEDIATE 0237
RUEHC/SECSTATE WASHDC IMMEDIATE 1863
INFO RUCNRAQ/IRAQ COLLECTIVE
C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002083 

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/22/2027
TAGS: ECON ENRG EPET IZ PREL
SUBJECT: BAGHDAD SECURITY PLAN - FUEL SUPPLIES FROM KUWAIT

Classified By: Ambassador Ryan C. Crocker, E.O. 12958, Reasons 1.4 (b)
and (d)

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 002083

SIPDIS

SIPDIS

E.O. 12958: DECL: 06/22/2027
TAGS: ECON ENRG EPET IZ PREL
SUBJECT: BAGHDAD SECURITY PLAN - FUEL SUPPLIES FROM KUWAIT

Classified By: Ambassador Ryan C. Crocker, E.O. 12958, Reasons 1.4 (b)
and (d)


1. (C) Summary: Insufficient fuel for electric power
generating units threaten to continue electricity shortages
in Baghdad this summer, thus undermining a top priority of
the Baghdad Security Plan (BSP). The planned completion this
summer and fall of up to 20 additional diesel generators at
Mussaib and Qudus Power Stations exacerbates the problem;
what would normally be a significant success story will be
rendered moot if the generators cannot be brought on line
when ready due to the fuel shortages. The GOI has allocated
$150 million to purchase diesel fuel from Kuwait. Obtaining
this fuel is currently stymied by a commercial dispute
involving arrearages for past fuel contracts and by an
inability at present to bring fuel through either military or
commercial crossings from Kuwait. A short-term solution to
this problem is for the GOI to settle the arrearages and for
the GOK and USG to expeditiously set procedures for fuel
trucks to use the military K-crossing. Long-term, the GOI
and the GOK will have to establish procedures allowing the
fuel trucks to safely transit the only commercial gate at
Abdali/Safwan. End Summary,

--------------
Lack of Fuel for Baghdad Power Stations
--------------


2. (C) A top priority of the Baghdad Security Plan (BSP) is
an increase in public grid electricity supply to Baghdad.
This objective has always been hampered by, among other
things, inadequate fuel to supply Baghdad-area power
stations. In an effort to increase power to Baghdad, USG and
GOI officials have constructed additional generation capacity
near Baghdad. Up to 20 45-megawatt(MW) diesel units will be
added to the grid in the next 6-8 months, with 6 of them due
to come on line before the end of July. While this is a
significant achievement, and normally would provide an
opportunity to publicize a true success story, lack of fuel
could turn a success story into a white elephant.


3. (C) The GOI has allocated an additional $150 million to

purchase imported fuel for Baghdad. The Minister of
Electricity, Dr. Karim W. Hasan, and the head of the State
Oil Marketing Association, Dr. Falah al Amiry, are currently
negotiating to purchase the fuel from Kuwait. Two problems
are impeding the successful negotiation and implementation of
a fuel purchase contract. First, the Kuwaitis will not enter
into new contracts until SOMO settles arrearages with 3
Kuwait-based fuel trucking companies for contracts initiated
in 2006. Second, there is currently no port of entry through
which fuel trucks can pass.

--------------
Arrearages
--------------


4. (C) SOMO routinely purchased fuel from Kuwait until the
GOK and GOI temporarily closed Navistar to civilian fuel
trucks. Subsequently, the GOK and CENTCOM permanently closed
the military gate at Navister and moved coalition traffic to
K-crossing. Fuel tankers had used the military gate because
it was faster and the drivers feared going through the town
of Safwan on the Iraqi side of the Abdari commercial gate and
because, later, the GOK did not want fuel tankers
congregating at Abdari, which is in mortar range of Safwan.
Although we reached agreement with the GOK to reopen Navistar
to fuel trucks, prior to Navistar closing, the trucking
companies involved in the arrearage dispute claim that they
were stuck with many tanker trucks of fuel with no viable
means of delivering it, all due to GOK and GOI actions.


5. (C) Dr. Falah stated there are three carriers that are
seeking payment on old contracts and demurrage for not being
able to deliver their goods to Iraq; AIMs company, Ahmadah
International Logistics Services Company (AIL),and DISCO
(pronunciation, spelling could be different). AIMS has 166
trucks of benzene to be delivered to Iraq. AIMS Company
claims total due is $15.5 Million for demurrage of the
equipment left idle since November of 2006. Falah, in Kuwait
last week, did not see the equipment to verify the demurrage
claim. AIMS did not recognize force majeure in this contract
and wants to file in international court against Iraq for the
opportunity cost of the equipment being idle. AIL Company has
93 trucks of kerosene and claims $700,000 dollars in past due
invoices. They currently have not requested demurrage, but
Dr. Falah believes if the Government of Iraq settles the
demurrage with AIMS that AIL will follow with a law suit.
Falah visually inspected these trucks; all were sealed and
secured. DISCO claims $6.0 Million for past invoices and
demurrage, but Falah claimed $2.5 million was more realistic.


BAGHDAD 00002083 002 OF 002



6. (C) Dr. Falah stated there are two active Kuwaiti
Government officials that are championing the efforts to have
SOMO pay demurrage for the idle equipment: Parliament Member
Khaled Al Adua and Kuwaiti Prime Minister Staff Member Naif
Al Rekabi. Currently, he said, it is unknown how these
individuals have shaped the political arena against SOMO.
(Note: Falah will be in Kuwait June 25-26 and has asked to
meet with Embassy and ARCENT officials.)


7. (C) Minister of Electricity Dr. Karim Hasan has also
unsuccessfully tried to negotiate a fuel contract, but has
been blocked by the arrearage issue. He told emboffs that he
believed that the charges are bogus. He has taken the
problem to PM Maliki for political resolution (presumably
because it involves two ministries) but received no support.
Karim said that Maliki suggested that he contact the
Americans for help, an answer that clearly did not please him.


8. (C) We have consistently told the Iraqis that the American
Embassies cannot become involved in a commercial dispute
between SOMO and the Kuwaiti trucking companies. GOI
officials profess to understand this, but they have suggested
that we propose to the Kuwaiti government that they de-link
the present request for fuel from the arrearages dispute.

--------------
Port of Entry
--------------


9. (U) Two ports of entry currently exist through which fuel
tankers can transit from Kuwait to Iraq. The commercial
crossing at Abdali/Safwan is the proper POE for the fuel
tankers, but has not been used for two reasons. Truckers
have stated that Safwan, on the Iraqi side of the border, is
not safe. Transiting Safwan entails the risk that a convoy
will be attacked, stopped for a shakedown or outright seized.
(Iraqi procedures allow the local border protection
department to keep 40% of the seizures if the truck is found
to be carrying contraband.) The Kuwaiti government also
objects to fuel tankers using this POE because they do not
want fuel convoys queuing at the border facilities at Abdali
(Kuwait side of the border) since it is within mortar range
of Safwan.


10. (U) Use of the military crossing at Kadari avoids the
safety issues at Safwan but requires CENTCOM and GOK
approval. MNF-I and Embassy Kuwait have already initiated
action to obtain those approvals.

--------------
The Solution
--------------


11. (C) Ultimately the GOI needs to negotiate with the GOK
to establish satisfactory procedures, including security, to
send fuel trucks through the commercial gate at Safwan. In
the past year, we have seen no evidence that the GOI has
initiated such action, even when fuel supplies have been
critically low. GOI officials have preferred, as now, to ask
the USG to carry their water. To quickly ensure timely fuel
supplies for Baghdad electrical power stations, Embassy
recommends the following steps:


1. MNF-I and Embassy Kuwait finalize steps with CENTCOM and
GOK, respectively, to open the military K-crossing to SOMO
fuel trucks.


2. While we should reemphasize to GOI officials that we will
not intercede in the commercial dispute with the trucking
companies, they must resolve the arrearages expeditiously.
We should consider encouraging the GOK to use their influence
to also encourage their trading companies to be flexible in
reaching agreement with the GOI.


3. Without prejudicing the outcome of the negotiations, we
recommend that the GOK delink the present request for fuel
from the arrearages.


4. In view of the urgency of Iraq's fuel needs, we will need
to negotiate 607 arrangements with the GOI as quickly as
possible to provide an alternative mechanism for the GOI to
purchase the fuel required.
CROCKER