Interior Secretary James Watt notified the government of Kuwait last May that he was "very sympathetic" to its request for authority to buy interests in U.S. energy leases but could not commit himself publicly because it wasn't clear whether it would be legal for Kuwait to gain that authority, according to State Department cables.
Shortly thereafter, the Kuwaitis initiated talks that led to their purchase of Santa Fe International Corp., a U.S. firm that holds $10 million worth of energy exploration leases on federal lands in Oklahoma, Louisiana and Colorado.
The cables, released by a congressional subcommittee, show that Watt was responding to repeated Kuwaiti requests, going back to 1980, for a declaration of mineral-rights reciprocity that would make Kuwait eligible to purchase interests in coal, oil and gas leases on federally owned lands.
On May 15, the State Department notified U.S. Ambassador Francois Dickman that Watt was "very sympathetic both to an affirmative definition for Kuwait and the general idea of promoting investment in firms developing U.S. mineral resources. Without legal standards to apply to the Kuwait determination, and facing the specter of lawsuits challenging Interior's determination, however, Interior concluded that it could not formally announce an affirmative determination at this time."
In the same cable, Dickman was told that if Treasury Secretary Donald T. Regan, then planning a trip to Kuwait, were asked about the reciprocity issue, he could say that it raised "difficult issues" of law but that Watt would seek a resolution favorable to Kuwait.
Through its state-owned Kuwait Petroleum Co., Kuwait has been buying oil exploration and refinery interests in the United States. Under the Mineral Lands Leasing Act of 1920, however, foreign individuals and corporations are not eligible to acquire interests in mineral exploration leases on federally owned land if they are from countries that "deny similar or like privileges" to persons and corporations in the United States.
Kuwait, which has nationalized U.S. oil holdings there, never has been on the Interior Department's list of countries that are reciprocally qualified. Kuwait Petroleum Co., which announced Oct. 5 that it is buying Santa Fe for $2.5 billion, is wholly owned by the Kuwait government and has exclusive rights to energy production in Kuwait.
Rep. Benjamin Rosenthal (D-N.Y.), chairman of the Commerce subcommittee of the House Government Operations Committee, raised the reciprocity issue at hearings on the Santa Fe deal last month.
J. Robinson West, assistant Interior secretary for policy, budget and administration, acknowledged at the hearing that Kuwait was not on the Interior list of reciprocal countries despite its repeated requests for inclusion, but he said that did not necessarily mean it was not a reciprocal nation.
"Until a determination has been made by the department that a particular nation is not reciprocal, there has been no violation of the reciprocity provision," West said. He added that the administration did not want to deny eligibility to Kuwait because it might set a precedent affecting other countries, including Saudi Arabia and Canada, that restrict investment at home but have been buying energy interests in the United States.
The Reagan administration favors foreign investment in U.S. energy resources, he said. An Interior Department review of the reciprocity law, undertaken last summer, "has resulted in the discovery of many uncertainties associated with this provision and the potential for serious economic damage to U.S. interests should the provision be administered indiscriminately," West said.
Aides to Rosenthal, who released the cables, said Watt's encouragement of the Kuwaitis in advance of a resolution of the legal issues amounted to administration favoritism to a member of the Organization of Petroleum Exporting Countries.
Through an Interior Department spokesman, West said yesterday that the cables relayed by State indicated only that "Watt was favorably disposed to foreign investment and would like to oblige. His comments were intended to be of a general nature only, not as a specific okay."