KUWAIT URGES NO CHANGE TO UNCC IRAQI COMPENSATION

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000112 SIPDIS SIPDIS DEPT FOR EEB, IO, NEA E.O. 12958: DECL: 01/28/2018 TAGS: PREL EAID EFIN KU IZ SUBJECT: KUWAIT URGES NO CHANGE TO UNCC IRAQI COMPENSATION PAYMENTS UNTIL ENVIRONMENTAL REMEDIATION CLAIMS ARE PAID REF: KUWAIT 71 Classified By: CDA Alan G. Misenheimer for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY: In a January 28 meeting, Director General of Kuwait's Public Authority for Assessment of Compensation for Damages Resulting from Iraqi Aggression (PAAC) Dr. Adel Asem and MFA International Organizations Department Director Mansour Al-Otaibi told CDA that Dr. Asem would be flying to Geneva on January 29 and then onward to Washington and New York to convey the GOK's position that Iraq's UN Compensation Commission (UNCC) obligations should not be changed for the time being. Dr. Asem explained that any modification or disruption of the current processing of UNCC claims would jeopardize planned environmental remediation projects in Kuwait that depend on contractors being convinced that the UNCC will provide the full funding allocated for these projects on time. (NOTE: The GOI has been lobbying for a reduction or suspension of its UN-mandated obligations which currently call for five percent of Iraq's oil revenue to go to the UNCC Compensation Fund to settle claims related to 1990-1 invasion and occupation of Kuwait. END NOTE). Dr. Asem estimated that, given current oil prices, the environmental claims included in the current phase should be settled by 2010, at which point it would be appropriate for the UNCC Governing Council to consider a change to the payment regime for the third and final phase of claims. CDA recommended that the GOK engage directly with the GOI on this issue and stressed the importance of maximizing the use of Iraqi oil revenue to fund Iraqi reconstruction, promote economic development, and improve stability in the interest of both Iraq and Kuwait. END SUMMARY ¶2. (C) In a January 28 meeting, Director General of Kuwait's Public Authority for Assessment of Compensation for Damages Resulting from Iraqi Aggression (PAAC) Dr. Adel Asem and MFA International Organizations Department Director Mansour Al-Otaibi told CDA and Econoff that Dr. Asem would fly to Geneva on January 29 for meetings with UN officials and then onward to Washington for meetings at State, NSC, and Treasury before attending meetings at UN Headquarters in New York. Dr. Asem reiterated the GOK's position that (1) now is not the time to reduce or forgive Iraq's UNCC obligations, and (2) any future discussions about adjusting these obligations should take place multi-laterally within the UNCC Governing Council (reftel). Dr. Asem noted that in its October 2007 session, the Council refused Iraq's request to reduce the percentage of Iraqi oil revenue going to the UNCC from five percent to one percent since this would negatively impact a number of environmental remediation projects that are part of the UNCC's Follow-up Program. ¶3. (C) According to Dr. Asem, the remaining environmental remediation claims and other individual claims for amounts smaller than USD 500 million covered under the present (second) phase of payments under the Council's Decision 256 of December 2005 amounts to approximately USD 4.8 billion. (NOTE: The first phase of payments to settle the claims of private individuals has already been completed. END NOTE). He said the amounts in the second tranche include payments to Kuwait (approx. USD 3 billion),Saudi Arabia (USD 1.1 billion),Jordan, Turkey, and the United States. If the rate of income to the compensation fund continues at current levels of approx. USD 150 million per month, based on five percent of Iraqi oil revenue, this tranche of claims should be fully settled by 2010. If the percentage were reduced to one percent, it would take until 2020 for the environmental remediation claims to be paid in full. Dr. Asem expressed his concern that any significant doubt surrounding the timing of payments or the fulfillment of Iraq's total obligation under this current round of payments would scare off contractors currently positioning themselves to bid on some of Kuwait's large environmental remediation contracts. Dr. Asem was also concerned that if the UN allowed the mandate of the International Advisory and Monitoring Board for Iraq (IAMB),which manages the Development Fund for Iraq (DFI),to expire at the end of 2008, there would no longer be a transparent mechanism for Iraq's oil revenues to be transferred to the compensation fund. ¶4. (C) Dr. Asem said that after the current phase of claims is settled (in approx. 2010) the final tranche of nine claims, which cover Kuwait's oil sector and government claims, will amount to approximately USD 24 billion. He said KUWAIT 00000112 002 OF 002 at that time, it will be necessary and appropriate for the GOK, in cooperation with UNCC Governing Council, to consider possible adjustments regarding Iraq's settlement of the remaining claims. ¶5. (C) Dr. Asem claimed that after the closing session of the Regional Environmental Remediation Advisory Group (RERAG) meeting held in Kuwait on January 14, Iraq's Deputy Minister of Foreign Affairs clarified that the GOI's request to reduce or suspend the five percent payment was not intended to affect the payment of environmental claims, but rather the larger amounts of unpaid awards to Kuwait's oil sector and larger public sector (i.e. claims to be paid in the next phase, after environmental claims have already been paid). ¶6. (C) Dr. Asem also downplayed the significance of reducing Iraq's UNCC percentage from 5 percent to 1 percent in comparison to other sources of revenue available to Iraq. In particular, he noted that GAO studies have documented an unaccounted loss of oil revenues -- due presumably to internal inefficiency and corruption -- far in excess of the amount Iraq would gain from a UNCC cut from 5 percent to 1 percent. Rather than pressing Kuwait, in effect, to forego UNCC financing of massive environmental remediation necessitated by Saddam's depredations, the international community should press Iraq to clean up its own finances. ¶7. (C) CDA encouraged the GOK to engage directly with the GOI on the compensation issue and acknowledged that domestic political considerations currently make it difficult for the GOK to reduce or suspend Iraq's compensation payments. CDA conveyed that in his January 11 meeting with the Amir, the President acknowledged the GOK's domestic political challenges but encouraged the Amir to continue to give serious consideration to both compensation reduction and debt forgiveness. CDA added that while the GOK's position on environmental remediation projects merits attention, it is in the best interest of the GOK to allow the GOI to invest as much of its oil revenue as possible in reconstruction efforts which will ultimately benefit the GOK by fostering greater stability and better economic conditions on Kuwait's northern border. ¶8. (C) MFA International Organizations Director Al-Otaibi agreed that the GOK and GOI should discuss this issue bilaterally, but he blamed the GOI for making an end run around the GOK in requesting a reduction in compensation payments from the UN. He said, "Iraq has obligations as a country, not as a regime. The Iraqi government must meet these obligations." ********************************************* * 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/ ********************************************* * MISENHEIMER