KUWAITI OIL MINISTER ON KDOW, FOURTH REFINERY, AND

UNCLAS KUWAIT 000302 SENSITIVE SIPDIS STATE FOR NEA/ARP, EEB/CBA COMMERCE FOR ADVOCACY CENTER E.O. 12958: N/A TAGS: EPET ENRG EINV KU SUBJECT: KUWAITI OIL MINISTER ON KDOW, FOURTH REFINERY, AND UNCC CONTRACTS REF: A. KUWAIT 147 ¶B. KUWAIT 57 ¶C. 08 KUWAIT 1259 ¶1. (SBU) Summary: Caretaker Oil Minister Shaykh Ahmed Al-Sabah told Ambassador that Kuwait's oil sector development plans (including the Al-Zour (fourth) refinery) would go ahead. He welcomed Dow's interest in continuing a partnership, though he cautioned that the K-Dow Joint Venture was "dead." The Minister also confirmed that an environmental remediation tender, won by the U.S. firm Hill, would be retendered, as other competitors had complained about the procedures. With regard to the Fourth Refinery project, he stressed that the government had decided to retender it due to procedural irregularities in the tendering process that had been identified. He also admitted that the effect of recent GoK decisions could discourage foreign investment in the country, but noted that the decisions were an inevitable consequence of democratic processes. End Summary. ¶2. (SBU) On March 24, Ambassador called on caretaker Oil Minster Shaykh Ahmed Abdullah Al-Sabah to discuss Kuwait's future oil sector development plans and to advocate strongly on behalf of U.S. firms as potential partners in that enterprise. Ambassador stressed that the cancellation of the K-Dow joint venture and the Fourth Refinery project had hurt U.S. companies, noting that several U.S. companies had expressed concerns that Kuwait might not welcome foreign investment and partnership. Shaykh Ahmed's initial reply was sharp. "Kuwait welcomes foreign" participation and "if the U.S. won't, others will." He quickly admitted, however, that some of Kuwait's decisions and the political environment in which they were taken would tend to discourage foreign investment, and "makes people afraid to invest in Kuwait." ¶3. (SBU) With regard to Kuwait's future plans, Shaykh Ahmed stressed that "this is only my seventh day in my office, literally," and that he had little opportunity to start discussing Kuwait's plans with his staff. The government's resignation and National Assembly dissolution only complicated the issue, since as a caretaker, he was not in the position to make major long term policy decisions. Speaking "as a responsible official," however, he stated that Kuwait would not stop its development strategy, either upstream or down stream. He also said that he had met with several senior members of parliament before the Amir dissolved the National Assembly and told them that they needed to set priorities rather than hitting him with "ten things" at once. (Note: The sense of his argument was that parliament does have a right to oversee the oil sector, but that it needed to play a responsible role as well. End Note.) K-Dow -------------- ¶4. (SBU) Ambassador thanked Shaykh Ahmed for meeting with Dow CEO Andrew Liveris in Vienna. She told the minister that she had understood from other GoK officials that there was no way the K-Dow deal, as structured, could be concluded in the current economic and political environment. She stressed that Dow had been a good partner for Kuwait and that she hoped both sides would find a way to move that partnership forward. Shaykh Ahmed agreed that the meeting had been positive. He noted that he had asked Liveris directly whether Dow was suspending its litigation efforts and gotten an affirmative reply. He stated categorically "K-Dow is dead" but emphasized that he had told Liveris that he welcomed any other option and suggested Dow explore these other options, especially working with the Kuwaiti private sector, which would limit the political fall out. In fact, he stressed, working with the private sector was Dow's idea. In response to Ambassador's question about whether the private sector had adequate liquidity to partner with Dow, Shaykh Ahmed stressed that Dow didn't have "to start big." The JV refinery in China and KIA's one billion dollar investment in Dow demonstrated Kuwait's interest in the partnership. "We still have other projects," he stressed "don't let this hurt them." Hill International Contract Re-Tender -------------- ¶5. (SBU) Ambassador reminded Shaykh Ahmed of her earlier approach to him on Hill International, a U.S. company that had won a tender to act as program manager for UN Compensation Commission funded environmental remediation efforts. The contract had not been signed for eight months and we were now hearing rumors that the cabinet had decided to retender the contract. Shaykh Ahmed confirmed that the story was true, explaining that there had been objections from some of the other competitors about "irregularities." The government had rightly taken the decision to retender. When Ambassador objected, noting that the Hill bid had passed both Kuwaiti and international scrutiny, Shaykh Ahmed commented "if it was transparent it wouldn,t reach that level," then argued that Hill had not sufficiently clarified whether it was entering as Hill International or Hill U.S. and that the GoK could not obtain a satisfactory answer to that question. Ambassador expressed her deep disappointment with this decision, and noted that one of Iraq's arguments for reducing its payments to the UNCC is that the money is not being spent. 4th Refinery - "It's not you, it's us." -------------- ¶6. (SBU) The Ambassador discussed the reported cancellation of Kuwait's 4th refinery project, noting that this was again hurting a U.S. Company, Flour, which had been told to stop working. Shaykh Ahmed insisted that the project was not being cancelled, but that "the tender" was cancelled, because the State audit bureau had found irregularities in the procedures involved. He stressed that the GoK did not have a problem with Flour, but that the concerns were on the Kuwaiti side. He also stressed that this was a GoK decision, "not mine." Comment -------------- ¶7. (SBU) Shaykh Ahmed was frank and open in his discussion, but did not leave a positive impression that large investments or projects in the Kuwaiti oil sector would get any easier in the near future. He had scheduled eight Ambassadorial meetings in the same day (we followed the Egyptians and preceded the French -- and Total). Curiously, and unlike most Kuwaiti ministers, Shaykh Ahmed did not have a note taker or other ministry employee join him, but scrawled notes on a large legal pad. It's unclear whether that is because he still does not know his staff well enough or because he is still learning his portfolio and wants to be deniable. End Comment. ********************************************* ********* For more reporting from Embassy Kuwait, visit: visit Kuwait's Classified Website at: http://www.intelink.sgov.gov/wiki/Portal:Kuwa it ********************************************* ********* JONES