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UNCLAS SECTION 01 OF 04 KUWAIT 001682 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: BEXP ENRG IZ KU KUWAIT IRAQ RELATIONS
SUBJECT: COUSINS' CONSORTIA VIE FOR IRAQ POWER DEAL 
 
REF: A. BAGHDAD 1685 
 
     ¶B. CARRIG/ORFE VOCO 24APR05 
     ¶C. ORFE/CARRIG EMAIL 11APR05 
     ¶D. 2004 KUWAIT 1303 
 
This cable contains sensitive but unclassifed, proprietary 
information; please protect accordingly.  Not for internet 
distribution. 
 
¶1.  (SBU) Summary and Comment.  Two wings of the influential 
Al-Ghanim clan are competing for the sale of electrical power 
to Iraq.  Kutayba Al-Ghanim and Fouad Al-Ghanim recently 
presented similar, Kuwait-based BOT proposals to a visiting 
Iraqi negotiating team.  The two consortia offer 7-10 year 
contract terms on the provision of up to 1000 MW of 
electrical power with 600 MW to be online within two years. 
Both camps would grant substantial discounts on price were 
Iraq to provide natural gas to fire their gas turbine 
systems.  Price ranges from 2.65 cents/KwH to 5.99 cents/KwH 
depending the contractor, the fuel used and the degree of 
infrastructure support required.  Both consortia assert an 
inside track on the purchase of "surplus" Kuwait electricity 
to meet Iraq's needs in advance of a BOT system startup.  GOK 
officials, however, insist little surplus exists given 
Kuwait's own aging power generation system and increasing 
domestic demand.  GOK sources are also pessimistic regarding 
the near-term availability of Iraq natural gas to fuel 
Kuwait-based private sector power projects. 
 
¶2.  (SBU) Comment.  Embassy Kuwait concurs with Embassy 
Baghdad's Ref A call for greater Kuwait-Iraq economic 
dialogue on issues of common interest, to include debt 
reconciliation, asset recovery, development and energy.  We 
will encourage our GOK interlocutors to make available for 
Iraq whatever state-generated power surplus that may exist 
and to facilitate private sector power sales as well. 
Embassy Baghdad may want to consider enlisting ITG support 
for the export to Kuwait of Iraq natural gas.  End Summary 
and Comment. 
 
The Consortia Lineup 
-------------------- 
 
¶3.  (U)  Business managers from two wings of the influential 
Kuwaiti Al-Ghanim clan are competing on a contract for the 
sale of electrical power to Iraq.  Recently, they met in 
Kuwait City with a six-member Iraq Ministry of Electricity 
delegation (listed at para 20) for continued contract 
negotiations.  These meetings follow on earlier sessions in 
Kuwait over the past 18 months and in Amman, Jordan in March 
and April of this year. 
 
¶4.  (U) International Power Corporation (IPC) - Kutayba 
Al-Ghanim (CEO of Al-Amana Investment Company) and his 
brother Bassam Al-Ghanim (Chairman of Gulf Bank) fielded a 
negotiating team headed by Bader Fahed Al-Rezaihan (President 
and CEO of CIC Group, Inc. and Chairman of IPC, which is 
based in the British Virgin Islands).  Khaled Faisal 
Al-Mutawa, General Manager of Gulf Bank, backstopped 
Al-Rezaihan. 
 
¶5.  (U) US-based JHS Associates and Partners (JHS) - Fouad 
Al-Ghanim (CEO of Alghanim International General Trading and 
Contracting Company (AIGT&CC)) and his brothers Ali Al-Ghanim 
(Agent for Dutch Babcock) and Abdullaziz Al-Ghanim (Agent for 
Siemens/Foster-Wheeler) were represented by Mahmoud Emam 
Yaseen, CFO for AIGT&CC and Tarek Eissa, Head of Construction 
for AIGT&CC. 
 
The Proposals - The Consortia Views 
----------------------------------- 
 
¶6.  (SBU) IPC's plan, described in part in an updated MOU 
concluded in Kuwait with the Iraqi delegation on 5 April, 
calls for a 7-year take-or-pay arrangement with gas turbines 
providing: in Stage I, 100 MW of power by February 2006; and 
for Stage II, 600 MW by January 2007.  The firm would also 
install line capacity to carry 400 KV to the Iraqi border. 
The Iraqi delegation reportedly is asking IPC additionally to 
cover the cost of all line development (to include hardware 
and labor procurement/management) within Iraq to carry power 
to the Khor Az Zubayr terminus some 50 kms to the northeast 
of the proposed power station in Kuwait.  IPC would fire the 
turbines with fuel oil pending resolution of a proposed Iraq 
Ministry of Oil commitment to "guarantee" the delivery of 
natural gas to Kuwait to power the plant. 
 
¶7.  (SBU) IPC would bill 5.99 cents/KwH for oil-generated 
electricity, or 4.3 cents/KwH for gas-generated electricity 
if Iraq provides the natural gas (Note: According to IRMO 
(Ref B) this elevated price may reflect IPC inexperience with 
costing power projects).  The IPC negotiators assert that GOK 
has approved their lease of land to base the power station 
and a right-of-way for the power line towers to carry 
electricity to Iraq.  The firm and its associates have no 
experience in power generation; this project would be a first 
for IPC and CIC Group. 
 
¶8.  (SBU) In conversations with EconCouns on 10, 13 and 24 
April, JHS Head of Construction Tarek Eissa and Electrical 
Engineering Department Head Alois Novak presented a similar 
game plan.  JHS sees Iraq as a woefully under-served market 
with an installed capacity of perhaps 10,000 MW of which 
5,500 to 6,000 MW is serviceable in the face of an 8,000 MW 
demand today.  They believe that demand will increase by 
1,000 MW annually.  AIGT&CC has had solid power generation 
experience, most recently when they completed -- in team with 
Siemens -- the Kuwait Al Zour South 1,000 MW power station 
three months ahead of schedule. 
 
¶9.  (SBU) JHS envisions a two-stage approach to Iraq, having 
two gas turbines in place by December 2005, generating 
100-120 MW of power on land, for which, they say, JHS has 
construction rights.  The JHS Stage II plan calls for 600 MW 
of installed capacity by April 2006 provided by a total of 6 
power units, on a 10-year contract.  JHS would offer to pay 
for the installation of power lines all the way to Iraq's 
regional distribution center at Khor Az Zubayr, according to 
Novak and Eissa.  They also promote natural gas as the 
preferred fuel and would ask Iraq to budget $130-$180 million 
to cover gas field development, pipelines and a compressor to 
move the gas to Kuwait.  JHS's prices are contingent on who 
picks up infrastructure costs.  They ask 5.95 cents/KwH for 
oil- and 2.65 cents/KwH for gas-generated electricity if Iraq 
provides that fuel free of charge as well as the gas field 
development, pipelines for delivery of the gas and also the 
power transmission lines bringing energy back to Iraq.  The 
third option would deliver power at 3.5 cents/KwH if Iraq 
picks up the tab for gas delivery and JHS assumes 
responsibility for construction of an electric power 
substation and delivery lines to Iraq. 
 
The Proposals - View from the Government 
---------------------------------------- 
 
¶10. (SBU) Kuwait Ministry of Energy Assistant U/S Hamoud 
Al-Enezi told EconCouns on 12 April that the two consortia 
have "an equal chance" for winning the project.  He thought 
that Iraq would need additional power for at least five years 
and that the governments of Kuwait and Iraq eventually would 
support the proposal for a Kuwait-based power station.  He 
thought the basic idea good and the companies capable with 
sound American and Kuwaiti constituents.  Al-Enezi thought 
the biggest problem areas involved negotiations with the two 
governments rather than any technical or business aspects of 
the proposed project itself. 
 
¶11. (SBU) Al-Enezi noted, for example, that although both 
consortia claim to have reached substantive agreement with 
the Government of Iraq regarding contract terms, neither of 
them could produce a finalized power supply agreement as yet. 
 Moreover, he said, both are still waiting "for the green 
light" from Kuwait's Ministries of Commerce and Energy and 
from the Municipality for a build-operate-transfer (BOT) 
arrangement.  Specifically, and notwithstanding the firms, 
claims to have their land permissions already, they need land 
reportedly to be donated by the Municipality on which to site 
the power station as well as a final easement for a 
right-of-way for power line towers to deliver the electricity 
to Iraq. 
 
¶12. (SBU) Al-Enezi also noted that the firms would need some 
source of power during construction as well as a connection 
to the Kuwait power grid, neither of which is resolved.  The 
biggest problem, he predicted, would be political.  He said 
that any private power arrangement would have to survive 
harsh scrutiny by the National Assembly.  "They will ask," he 
said, "why this project should go to an Al-Ghanim -- any 
Al-Ghanim --rather than the public sector." 
 
Surplus Power - Yes and No 
-------------------------- 
 
¶13. (U) Both consortia imply a meeting of the minds with the 
GOK regarding the sale of "surplus" Kuwaiti electricity to 
Iraq through their good offices.  That supply would precede 
the generated power with the plan being to meet Iraq's 
marginal demand with excess Kuwaiti power until the new 
generating station comes on line completely.  In a 10 April 
meeting with Ambassador, IPC Chief Bader Al-Rezaihan 
suggested that an informal understanding had been reached 
with the GOK Ministry of Energy.  He said that an SAIC study 
of Kuwait's power needs - that study commissioned by IPC -- 
confirmed that a substantial surplus exists, at least for the 
off-peak winter season.  Al-Rezaihan stated that the power 
was available for his consortium to purchase and provide to 
Iraq.  Similarly, JHS's Engineer Novak claimed in his session 
with EconCouns that the Al Zour South facility, which AIGT&CC 
recently completed, ensures excess capacity today. 
 
¶14. (SBU) These assertions run counter to the Ministry's 
official and long-standing position that whatever the surplus 
that may exist, it is transient and not available for sale to 
Iraq by anyone, to include the GOK itself.  Ministry of 
Energy U/S for Electricity Saud Al-Zaid reiterated this point 
in a 20 April conversation with EconCouns, recalling their 
earlier conversation in April 2004 regarding the "surplus" 
power issue (Ref D).  Al-Zaid said the current summer load in 
Kuwait is 8,500 MW and that although the installed capacity 
is in the neighborhood 10,000 MW, the actual maximum load is 
approximately 9,000 MW due to aging facilities.  He noted 
that most Kuwaiti power plants are over 25 years of age and 
even the newer facilities have boiler limitations. 
 
¶15. (SBU) Al-Zaid also contradicted Al-Rezaihan's description 
of the conclusions of the SAIC study.  Saud said he had had 
an opportunity to review the paper but found its methodology 
and findings "puzzling."  He said no one from SAIC had 
contacted the Ministry in the preparation of the work and 
that he was unfamiliar with the baseline data SAIC employed 
in its analysis.  He said the approach taken was more 
"political" and "theoretical" than practical.  He said he was 
amused by an SAIC prediction that one day Kuwait could export 
"surplus" electrical power to Europe via Turkey. 
 
Natural Gas Fuel Source -- Possible But Not Likely 
--------------------------------------------- ----- 
 
¶16. (SBU) Similarly, both consortia posit the use of Iraqi 
natural gas as a lower-cost and more environmentally friendly 
energy source for the power project.  They each speak of 
having had promising discussions with the Iraqis about this. 
However, Kuwait Ministry of Energy U/S for Oil Issa Al-Own 
told EconCouns 20 April that prospects are slim for any early 
use of Iraqi gas to power a Kuwait-based electricity 
generation system for Iraq. 
 
¶17. (SBU) Al-Own said he has been in close contact with his 
Ministry's Iraqi counterparts regarding a plan to export 
Iraqi gas to Kuwait for petrochemical development.  That 
plan, according to Al-Own, remains "contingent on the 
formation of Iraq's ministries and government."  He also said 
he was "unaware of any parallel arrangements," i.e., private 
electrical power generation plans, regarding exported Iraqi 
natural gas.  Moreover, he said that his Ministry had not yet 
negotiated a gas price with its interlocutors. 
 
¶18. (SBU) Under discussion, according to Al-Own, is a 
two-stage proposal on which Kuwait is prepared to "move 
forward immediately."  Stage I, for which GOK already has 
approved a $24 million expenditure, could deliver 38 million 
cubic feet/day (mcf/d) of natural gas to Kuwait as early as 
October 2005.  Kuwait, Al-Own clarified, is prepared to 
advance Iraq its $8 million "share" of production costs for 
Stage I in addition to covering Kuwait's own two-thirds, $16 
million, of the costs.  Stage II of the program would cost an 
additional $700 million to deliver a total of 200 mcf/d, with 
Iraq paying $300 million and Kuwait $400 million of the 
project costs. 
 
¶19. (U) For Stage II as well, Al-Own envisioned the principal 
use of the gas to be for Kuwait's petrochemical industry.  He 
allowed that a second 200 mcf/d could be recovered with a 
proposed Kuwait Foreign Petroleum Exploration Company 
development of Iraq's Seba field.  He said that project "has 
the economics" for development.  Again, however, he cited 
petrochemical development or electric power generation for 
Kuwait's own domestic use as the likely first destination for 
any recovered natural gas. 
 
¶20. (U) Iraqi delegation for 4/5 April meetings in Kuwait 
consisted of  (Ref C): 
 
Haitham Taha Yaseen 
  Advisor, Ministry of Electricity 
George Zayya 
  Advisor, Trade Bank of Iraq 
Riya Saeed 
  Director General, Ministry of Planning 
Hazim Hade Al-Eed 
  Director General, Ministry of Finance 
Amal Aboud Qadouri 
  Director General, Office of Economics 
Abed Ali Hameed Al-Meamar 
  Director General, Legal Affairs 
 
¶21. (U) Baghdad minimize considered. 
 
LEBARON