ROK AND JAPAN AGREE ON KEDO TERMINATION PACKAGE

UNCLAS SEOUL 000769 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: PREL ENRG ETTC KS KN SUBJECT: ROK AND JAPAN AGREE ON KEDO TERMINATION PACKAGE REF: A. 05 SEOUL 5436 ¶B. 05 STATE 233640 ¶C. SEOUL 10 ¶1. (SBU) Summary: On March 9 the ROK passed to us a "Proposed Draft Resolution on the Termination of the LWR Project." The ROK proposes that the Korean Peninsula Energy Development Organization meet on April 10-11 to adopt the resolution and requests a response from the United States as soon as possible. END SUMMARY. ¶2. (SBU) Poloff met on March 9 with Cho Sung-hwan, Special Adviser in the Ministry of Unification's Office of Planning for the Light Water Reactor Project, for a briefing on the outcome of discussions between the ROK and Japan on the ROK's ref A proposal for the termination of the Korean Peninsula Energy Development Organization. Cho passed us a copy of a "Proposed Draft Resolution on the Termination of the LWR Project" (reprinted below in para 6 and faxed to EAP/K) that had been agreed upon by the ROK and Japan on March 8 after two months of negotiations. Cho emphasized that the proposal would impose no new costs on the United States or the European Union, which would remain liable only for administrative costs. ¶3. (SBU) Reviewing the text of the proposed resolution, Cho explained that Japan had agreed to the ROK proposal to transfer all of KEDO's assets to the Korean Electric Power Corporation (KEPCO),but had insisted those assets currently in North Korea should not transfer. Cho noted that this meant the KEDO Executive Board would have to decide what to do with assets still remaining in North Korea. Japan had resisted referring explicitly to its obligation to reimburse JBIC for its losses on KEDO, saying it could not do so until the national budget was submitted to the Diet; there was, however, an understanding that the ROK would be liable for a USD1.4 billion payment to the Export-Import Bank of Korea (KEXIM) and Japan would be liable for a USD400 million payment to the Japan Bank for International Cooperation (JBIC). Finally, in order to clarify that there would be no obligation to transfer equipment to a rogue regime such as Iran, Japan had also insisted upon the inclusion of language in the draft resolution clarifying that transfer to a third country would have to be in compliance with the respective export laws and regulations of the transferring country. ¶4. (SBU) South Korea and Japan also agreed that, in the event KEPCO made unexpected profits from the resale of LWR components, it would consult with KEDO on sharing some of the unexpected gain. The two sides agreed the termination contract between KEDO and KEPCO would include the following language: "KEPCO will report to KEDO the outcome of the future resale or reuse of the LWR components. In the event KEPCO gains by such future resale or reuse excessive profit in view of the profit that is ordinarily expected under general commercial practice, KEDO and KEPCO shall settle through mutual consultation the issue in a fair and reasonable manner." ¶5. (SBU) Reiterating that neither the United States nor the European Union would incur additional obligations under the proposed resolution, Cho urged Washington to respond as soon as possible to the proposed draft resolution. The ROK, he said, proposed that the KEDO Executive Board meet on April 10-11. ROK Proposed Draft Resolution: ¶6. (U) Begin Text: Proposed Draft Resolution on the Termination of the LWR Project The Executive Board of the Korean Peninsula Energy Development Organization (KEDO), Recalling the Statement of the Executive Board of November 14, 2002 and Executive Board Resolutions 2003-4, 2004-13 and 2005-14, Recognizing that recent actions and measures by the DPRK in the nuclear safety field has made it impractical to continue the Light Water Reactor (LWR) Project, ¶1. Decides that KEDO terminate the LWR Project and directs the Secretariat to have consultation with Korea Electric Power Corporation (KEPCO) as soon as possible in accordance with the following conditions: KEDO shall transfer all rights over the LWR equipments, materials and technical documents owned by KEDO and located outside the DPRK (Equipment and Materials) to KEPCO, in accordance with the arrangement to be worked out between KEDO and KEPCO, on the condition that KEPCO shall waive all financial claims to KEDO excluding those relating to the unpaid P&M invoices KEDO shall confirm that KEPCO shall only be responsible for the claims and the termination related costs agreed between KEDO and KEPCO, and shall be indemnified from any and all political and financial claims brought against KEDO, including "those claims" by the DPRK, but excluding those arising from the TKC; and KEPCO will report to KEDO the outcome of the future resale or reuse of the Equipment and Materials. ¶2. (Agrees that the member governments of the Executive Board shall take necessary measures to facilitate the transfer of the Equipments and Materials to KEPCO in compliance with the respective export control laws and regulations.) ¶3. Decides to terminate KEDO as an organization upon completion of all the necessary procedures by the end of 2006 at the latest, and directs the Secretariat to hasten its rationalization in the light of reduced workload. ¶4. Reconfirms that KEDO has the right to require payment of any amounts due and financial losses in connection with the LWR project in accordance with Article 16.2 of the Supply Agreement and reemphasizes KEDO's position that KEDO maintains the right of access to the site, that all KEDO assets at the site remain the property of KEDO, and that the DPRK must allow the repatriation of these assets as soon as possible. ¶5. Continues to consult on the arrangements for KEDO,s due payment of the bank loans, based on the Loan Agreement with KEXIM and JBIC. END TEXT OF DRAFT RESOLUTION. VERSHBOW