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