WILL FRANCE, RUSSIA REAP THE INITIAL COMMERCIAL BENEFITS OF

UNCLAS SECTION 01 OF 05 MUMBAI 001803

SIPDIS

SENSITIVE

SIPDIS
DEPT. OF ENERGY FOR U/S GARMAN, S. JOHNSON, T. CUTLER, A. SCHEINEMAN
DEPT OF COMMERCE FOR U/S F. LAVIN

E.O. 12958: N/A
TAGS: PREL PARM TSPL KNNP ETTC ENRG TRGY PGOV ECON
BEXP, IN
SUBJECT: WILL FRANCE, RUSSIA REAP THE INITIAL COMMERCIAL BENEFITS OF
A U.S./INDIA CIVIL NUCLEAR AGREEMENT?

REF: Mumbai 1375

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Summary and Comment

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1. (SBU) GE and Westinghouse fear that French and Russian
companies may be the first to benefit from the commercial
opportunities created by successful passage of the U.S./India
civil nuclear initiative. The Nuclear Power Corp. of India
(NPCIL) confirmed to us that the GOI has approved two new sites
for nuclear power plants, each of which will house two foreign
reactors. The four reactors will be the first in a series that
the NPCIL hopes to import to meet its ambitious plan to create
40 gigawatts (GW) of generation capacity by 2020. NPCIL project
director S.K. Agrawal told the visiting Commercial Counselor on
September 29 that his company has yet to decide which foreign
reactors to purchase for the two sites, yet we share the U.S.
vendors' fears that France and Russia have a head start in the
race for India's first two "nuclear parks" (reftel) housing
modern foreign reactor technology. The French Consul General
confirmed reports that Areva has already performed, at NPCIL's
request, initial studies for one of the two sites, located in
Maharashtra. The second site is immediately adjacent to the
site in Tamil Nadu where two Russian VVER reactors are currently
under construction. Westinghouse's point man for India told us
that the Tamil Nadu site was specifically approved for
additional VVER reactors, and he doubted the NPCIL's claim that
it would seriously contemplate the construction of differing
reactor types at one site. Whatever facts are now being created
on the ground, we believe that the NPCIL remains strongly
interested in U.S. reactor technology, and will welcome as
substantial a dialog with U.S. companies as is possible under
current U.S. laws and regulations. At the same time, the NPCIL
has an ambitious mandate and will take advantage of those
commercial opportunities available to it. The NPCIL is already
preparing for the opportunities offered by successful passage of
the civil nuclear initiative, and may soon make long term
decisions even before an agreement is finalized. The late
November DOC trade mission will provide an opportunity to
showcase U.S. civil nuclear technology to the NPCIL, and Mission
India will work with Washington to ensure that the interaction
remains well within current U.S. laws and regulations. At the
same time, we feel that the USG must move forward to enable our
companies to compete in the next stage of India's nuclear
future. Otherwise we may have to watch bitterly as third
countries become the first to benefit commercially from the
environment that our diplomacy has created. End summary and
comment.





GOI Approves Sites for Four Foreign Reactors

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2. (SBU) S.K. Agrawal, director of projects at the Nuclear Power
Corp. of India (NPCIL),told the visiting Commercial Counselor
on September 29 that the GOI had recently approved two new sites
for imported foreign reactors. One site is at Kudankulam in

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Tamil Nadu, where two Russian reactors are already under
construction, and the other is at Jaitapur on the western Indian
coast in southern Maharashtra. Agrawal said the NPCIL hopes to
build two 1 gigawatt (GW) reactors at each site, using foreign
technology.




3. (SBU) Agrawal confirmed that the four reactors will be the
first that NPCIL hopes to import in the coming years to meet its
ambitious expansion plans. The NPCIL needs six to eight foreign
reactors to meet its older, pre-July 18 goal of 20 GW of nuclear
generation capacity by 2020, Agrawal conceded. In its planning,
the NPCIL had always assumed that India would some day get
access to foreign nuclear technology, he said. The July 18,
2005 joint statement by President Bush and PM Singh was hence a
windfall for the company, he added. A further expansion to 40
GW by 2020, set out by Prime Minister Singh shortly after July
18 apparently without in depth discussions with India's civil
nuclear community, can only be met through the large scale
import of more foreign reactors, Agrawal told us.



No Decisions Made On What Types of Reactors?

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4. (SBU) Recalling NPCIL Chairman S.K. Jain's recent up-beat
statement (reftel) that India hopes to establish several
"nuclear parks," each using a different foreign technology, we
asked Agrawal whether the NPCIL had already identified foreign
reactors for the new sites. Agrawal denied that this was the
case. No decision had been made regarding the technology at
either site, he said. "As an engineer," Agrawal added, he would
prefer to have a uniform type of reactor at each site, as it
would greatly ease construction and operation of the plants.
Yet neither technical, economic nor other concerns prevented the
NPCIL from selecting, say, American and French reactors at the
same site, he emphasized.



French Already Involved at Jaitapur...

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5. (SBU) Despite Agrawal's remarks we have reason to believe
that the NPCIL is already contemplating French and Russian
technology at each of the sites. In a discussion with the
visiting Science Counselor and ConGen Mumbai, Pramod Joshi of GE
Energy said that the French firm Areva was already present in
Jaitapur and had done initial analysis on the site, a fact
confirmed by Jean Charles Demarquis, the French Consul General,
in a recent discussion with Pol/Econ chief. Areva had engineers
in both Jaitapur and Mumbai who had provided input for the
NPCIL's feasibility studies for the site, Demarquis said. In
fact, he conceded, it was the NPCIL's Agrawal who had initially
asked Areva to perform the preliminary work.



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...And Russian Technology Possibly Foreseen in Tamil Nadu

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6. (SBU) Alexander V. Mantytsky, the Russian Consul General in
Mumbai, told Pol/Econ chief on October 3 that the state-owned
Russian reactor company Atomstroyexport, which has an office in
Mumbai, was currently only involved in the construction of the
two VVER reactors at Kudankulam in Tamil Nadu. Russia was not
currently discussing further sales of reactors to India, he
emphasized, and would not do so until the Nuclear Suppliers
Group provided a new legal framework for doing so. However,
Seoul-based Westinghouse Vice President Timothy Collier, whose
portfolio includes India, told us on October 4 that the
Kudankulam site had been specifically approved for additional
VVER reactors. Collier doubted whether the NPCIL would
seriously consider building generation blocks with U.S. or
French reactors in immediate proximity to the two VVER reactors
now under construction. From an economic and operations
perspective it made no sense for the NPCIL to do so, Collier
argued.



French, Russians Have a Head Start, U.S. Vendors Believe

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7. (SBU) In earlier discussions, the NPCIL had mentioned that it
hopes to get GOI permission for a third site as well, yet we
have no indication that approval is anytime near, nor are we
aware of any in-depth dialog that NPCIL maybe having with a U.S.
vendor along the lines of the apparent discussion with Areva.
GE's Joshi and Westinghouse's Collier told us separately that
the French and Russian nuclear suppliers had long cultivated
relationships with India that U.S. companies had purposely
avoided to ensure compliance with U.S. non-proliferation laws.
(Note: During Collier's last visit to Mumbai, the NPCIL gave
him a car and driver as a courtesy so Collier could make a
scheduled meeting at the U.S. Consulate. The driver, upon
hearing the word "Consulate" took Collier straight to the
Russian Consulate and needed further guidance before he found
the U.S. Consulate compound. End note) U.S. laws and
regulations prevented them from conducting the types of
substantive discussions that the French, and possibly the
Russian, nuclear suppliers were currently having with the NPCIL,
they both claimed. Because of the long planning times involved
in any nuclear project, the NPCIL was now moving forward with
the Russian and French vendors to ensure that they could act as
soon as the NSG creates an enabling environment, both Joshi and
Collier told us.



Liability and Commercial Risks

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8. (SBU) Both GE's Joshi and Westinghouse's Collier mentioned
nuclear liability as the sine qua non that India needs to
address before their companies could seriously contemplate
entering the Indian market. They felt that the French and
Russian firms were comfortable that their respective governments
were willing to shoulder at least some of the liability risks of
their reactors if needed to secure a sale to India. (Note: Jain
told us earlier that India had assumed liability for the
Kudankulam reactors now under construction in a bilateral
agreement with Russia. End note.) Collier also said that both
the French and Russian governments were also ready to underwrite
the major commercial risks associated with the sale of reactors
to India, such as payment and delivery risks.



NPCIL Eager to Meet DOC Delegation

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9. (SBU) The NPCIL's Agrawal said his company was eager to meet
with U.S. nuclear vendors during the DOC trade delegation in
late November. Commercial Counselor and Agrawal agreed that the
U.S. companies would meet with the Department of Atomic Energy,
the NPCIL and with selected Indian companies that supply the
NPCIL's construction activities. Commercial Counselor suggested
that the Indian side brief the U.S. companies on the status of
planned legislation that would limit the liability of foreign
nuclear suppliers, and Agrawal said Indian companies would
welcome a briefing on the current status of U.S. export
licensing requirements towards India.



Comment

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10. (SBU) It would be a bitter pill to swallow if French and
Russian companies were the first to benefit from the enabling
environment created by successful passage of our civil nuclear
deal with India. To date, the absence of an aggressive U.S.
commercial strategy towards the Indian nuclear market
strengthened the credibility of the U.S. in the eyes of many
Indian actors involved in the domestic debate over the nuclear
deal, as it showed that commercial considerations were not the
primary U.S. reason for pursuing the deal. Moving forward,
however, the first fruits of a successful agreement may fall
into the laps of third countries by default if the USG, acting
in tandem with U.S. industry, fails to make clear to India that
we expect U.S. companies to benefit from the first wave of
opportunities created by our diplomatic initiatives, assuming of
course that U.S. firms are interested and able to compete. Our
previous discussions with the NPCIL make us believe that the
company is seriously interested in U.S. nuclear technology, and
will welcome, at any time, as in-depth a discussion with our
vendors as is possible under U.S. law and regulations. However,
the NPCIL has an ambitious target to meet by 2020, and is
already taking advantage of those opportunities for dialog now
available to it. The NPCIL looks forward to interaction with
U.S. companies during the upcoming DOC trade mission. Mission

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India will work with Washington to ensure that the interaction
remains well within current U.S. laws and regulations. At the
same time, we highlight the opportunity costs we incur as long
as the current framework prevents U.S. companies from engaging
in the type of dialog that is necessary if they are to compete
in the next phase of India's nuclear future. End comment.




11. (U) Embassy New Delhi cleared this cable.
OWEN