BAGHDAD SECURITY PLAN - FUEL SUPPLIES FROM KUWAIT

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