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Cablegate: Lithuania Seeking Gulf Country Financing For

VZCZCXRO4723
PP RUEHDE RUEHDIR
DE RUEHKU #0338/01 0860829
ZNR UUUUU ZZH
P 260829Z MAR 08
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 1077
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEHEG/AMEMBASSY CAIRO PRIORITY 1093
RUEHBUL/AMEMBASSY KABUL PRIORITY 0352
RUEHVL/AMEMBASSY VILNIUS PRIORITY 0053
RUEHNO/USMISSION USNATO PRIORITY 0105

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

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