LITHUANIA SEEKING GULF COUNTRY FINANCING FOR

UNCLAS SECTION 01 OF 02 KUWAIT 000338 SIPDIS SENSITIVE SIPDIS DEPT FOR SCA, NEA/ARP, EUR/NB E.O. 12958: N/A TAGS: EAID ELTN KU AF LH SUBJECT: LITHUANIA SEEKING GULF COUNTRY FINANCING FOR AFGHANISTAN ROAD PROJECT REF: A. MARCH 4 CAMP-MISENHEIMER EMAIL ¶B. MARCH 9 MISENHEIMER-WERNER EMAIL AND SUBSEQUENT ¶1. (U) This cable contains an action request; please see paragraph 10. ¶2. (SBU) Summary: On March 18, a delegation led by Lithuanian Foreign Minister Petras Vaitiekunas met with CDA to discuss the GOL's efforts to raise approximately USD 300 million in funding from the Kuwait Fund for Arab Economic Development (KFAED),other sources within the Gulf Cooperation Council countries, and/or other countries with PRTs in Afghanistan to support a road project associated with Lithuania's PRT in Afghanistan's Ghor Province. Lithuanian officials had previously met with A/S Boucher on February 27 to discuss the same subject. During his visit to Kuwait, the Foreign Minister, who was accompanied by Lithuania's Ambassador to Kuwait (resident in Cairo) and a small business delegation, met with the Prime Minister, the Foreign Minister, the Managing Director of the Kuwait Investment Authority, the Director General of the Kuwait Fund, and the Director General of the Kuwait Chamber of Commerce and Industry. Vaitiekunas said he received a "cautiously positive" response from KFAED. He added that the GOL had already met with representatives from other GCC countries in Riyadh. ¶3. (SBU) In a separate meeting with KFAED on March 17, the Fund's Regional Manager for Central Asian and European Countries told Econoff that before KFAED could allocate any new funds for Afghanistan, the GOA would have to sign an agreement to commit to the repayment, on highly flexible and concessionary terms, of 5.84 million Kuwaiti Dinars (USD 22 million) in arrears from a KD 8.5 million KFAED soft loan to the GOA in 1977 for a sugar project. Once the GOA demonstrates a good faith effort by signing this agreement, KFAED is "eager" to provide further loans for development projects in Afghanistan on "the most generous and flexible terms." End Summary. Seeking funds for Ghor Province road project -------------- ¶4. (SBU) On March 18, a delegation led by Lithuanian Foreign Minister Petras Vaitiekunas and Lithuanian Ambassador to Kuwait (resident in Cairo) Dainius Ginutis Voveris met with CDA to discuss their efforts to obtain approximately USD 300 million for a 750 km road project from Herat to Chaghcharan in Afhanistan's Ghor Province, where Lithuania has a PRT. Lithuanian officials had met with A/S Boucher on February 27 and emboffs from Embassy Vilnius on March 5 to discuss the same subject. Vaitiekunas said he had also spoken with Acting A/S for Political-Military Affairs and former U.S. Ambassador to Lithuania Stephen Mull. The FM said that a feasibility study for the road project was in progress and the GOL had met with representatives from the member states of the Gulf Cooperation Council (GCC) in Riyadh to seek funding. Vaitiekunas said he had received a neutral response from the Abu Dhabi Fund, and a "cautiously positive" response for KFAED Director General Abdulwahab Al-Bader. He said Lithuania was also seeking financial support from other countries with PRTs in Afghanistan such as Italy and New Zealand. ¶5. (SBU) While in Kuwait, the Lithuanian delegation, which included FM Vaitiekunas, Ambassador Voveris, five MFA staffers, and a seven-person business delegation, met with the Prime Minister, the Foreign Minister, the Managing Director of the Kuwait Investment Authority, the Director General of the Kuwait Fund, and the Director General of the Kuwait Chamber of Commerce and Industry. Vaitekunas mentioned that the delegation was also seeking Kuwaiti private and public investment in Lithuania. The business delegation included companies involved in environmental protection, printing, real estate investment, furniture, dairy products, and logistics. According to Ambassador Voveris, Lithuanian exports to Kuwait last year were valued at only USD 2 million. Kuwait Fund "eager," constrained by arrears -------------- ¶6. (SBU) On March 17, the day prior to the meeting with the Lithuanians, Econoff met separately with KFAED Regional Manager for Central Asian and European Countries Waleed KUWAIT 00000338 002 OF 002 Al-Bahar to ask about the current status of KFAED's relationship with Afghanistan. Al-Bahar confirmed that the Government of Afghanistan still owed KD 5.84 million (USD 22 million) in arrears from a KD 8.5 million KFAED soft loan made to the GOA in 1977 for a sugar project, and KFAED is unable to provide any new loans for projects in Afghanistan until the GOA formally agrees to repay these arrears. (Note: This arrears issue is a long-standing obstacle to Kuwaiti assistance for Afghanistan, and there have been a number of exchanges between the GOK and the GOA since the fall of the Taliban government in 2002 to try to resolve it. We understand it was discussed during President Karzai's December 2007 visit to Kuwait. The GOK has consistently argued that all it seeks from the GOK is a good faith effort to make repayments under highly flexible and favorable terms. KFAED and the GOK have thus far been unwilling to consider outright forgiveness of the loan. We have been told that the GOA fears that by committing to repayment of the Kuwait loan, it sets a dangerous precedent, opening the door to significant claims from a number of other sovereign creditors. End note.) ¶7. (SBU) Al-Waleed said that in 2007, Afghanistan qualified under the World Bank's standard as a Highly Indebted Poor Country (HIPC). He explained that this status allows KFAED to offer the GOA exceptionally favorable repayment terms. KFAED would grant a sixteen year grace period with no payments required and would then allow the balance of the loan to be repaid over a period of forty years at an interest rate of only 0.5 percent. Al-Waleed said KFAED had sent a letter and draft agreement outlining these terms to Afghanistan's Finance Minister in January 2008 but received no response. Al-Waleed said KFAED would be willing and even "eager" to provide new soft loans on "the most generous and flexible terms" for development projects in Afghanistan as soon as the GOA signs this repayment agreement. He added that KFAED would be happy to collaborate with other donors, including Lithuania, on development projects, but only after this agreement is signed. ¶8. (SBU) Econoff asked about a USD 30 million grant provided by Kuwait for the Kandahar ring road project and salary payments for GOA employees. Al-Waleed clarified that KFAED sometimes administers grants on behalf of the GOK but neither of these projects were technically KFAED projects. KFAED projects are operated on the basis of soft loans rather than grants. Furthermore, of the USD 30 million in GOK grants, the 15 million for the Kandahar ring road was provided to the World Bank's Afghanistan Reconstruction Trust Fund (ARTF) and the 15 million for salaries was provided to the Asian Development Bank. He said it was conceivable that the GOK could agree to provide additional grants for Afghanistan, but this would be a political decision for the GOK, not a policy decision for KFAED. GOL will lobby GOA to consider repayment agreement -------------- -------------- ¶9. (SBU) FM Vaitiekunas said he had received the same explanation from KFAED. He said the GOL would endeavor to convince the GOA to give serious consideration to signing the KFAED repayment agreement. In the meantime, the GOL will continue to pursue other sources of funding for the Ghor Province road project. Action Request -------------- ¶10. (SBU) Please provide guidance on next steps concerning this issue (e.g. supporting GOK and GOL efforts to encourage the GOA to sign an agreement to repay its outstanding debt to Kuwait, thereby enabling the Kuwait Fund to offer new assistance, or urging the GOK to write off GOA debt despite its clear resistance to debt forgiveness thus far. ********************************************* * 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