NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF

UNCLAS SECTION 01 OF 03 NEW DELHI 004759 SIPDIS SENSITIVE BUT UNCLASSIFIED SIPDIS USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CZAMUDA, RLUHAR DEPT PASS TO USTR DHARTWICK/CLILIENFELD/AADLER DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA/ABAUKOL TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN STATE FOR SCA/INS AND EB/TRA JEFFREY HORWITZ AND TOM ENGLE USDA PASS TO DUS TERPSTRA, FAS/OCRA, RADLER E.O. 12958: N/A TAGS: EFIN ECON SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS FOR THE WEEK OF OCTOBER 22-26, 2007 NEW DELHI 00004759 001.2 OF 003 ¶1. (U) Below is a compilation of Economic highlights from Embassy New Delhi for the week of October 22-26, 2007. EXPANSION PROJECTS AT SOUTHERN AIRPORTS SHOW PROFITS -------------- ¶2. (SBU) The expansion of runways, apron areas and terminals at Chennai, Bangalore, Hyderabad, Coimbatore, Vizagapatnam, Kozhikode and Trivandrum airports brought scaled-up operations and profits to all seven of these South Indian airports in fiscal year 2006-2007, the Regional Director of the Airports Authority of India (AAI) told Consulate Chennai. He said that most of the profit came from carriers servicing domestic routes. He added that the terminal expansion at Coimbatore provided the needed infrastructure to handle international operations, noting that the Singapore-based, low-cost carrier Silk Air, carrier will begin operations there on October 28. Not wanting to rest on the sector's laurels, he said that Chief Ministers from several Indian states will meet in early December to discuss problems faced by the civil aviation sector. EX-IM OFFICIALS DISCUSS INFRASTRUCTURE FINANCING OPPORTUNITIES -------------- ¶3. (U) On October 17, Export-Import (EX-IM) Bank's Senior Vice President John McAdams and General Counsel Howard Schweitzer met with Dr. V. K. Garg, Chairman and Managing Director of the Power Finance Corporation (PFC),to discuss potential for EX-IM to finance the development of energy infrastructure. ¶4. (SBU) Asked about the Ultra-Mega Power Plants (UMPPs),Dr. Garg explained that contracts have already been granted to Tata and Reliance for two UMPPs and that proposals for a third are due on October 24. He said there had been two or three foreign bidders for each of the first two projects, and the process remains open to foreign players. Garg added that the only criteria considered in awarding contracts are the ability to successfully complete a project on the scale of the UMPPs and the eventual tariff the company intends to charge for electricity, though he assured McAdams that companies could win contracts with a tariff that would still yield a good profit. He said that 50 percent of the components for the two UMPPs underway were imported and that there are only four or five manufacturers of the critical technology used in these power plants. For the first two, Tata and Reliance purchased equipment from China, which Garg said had the same licenses and technology as U.S. manufacturers but offered cheaper prices. The PFC is planning to award contracts for two more UMPPs this year and another two in the near future, with the possibility of yet another two down the road. Mr. McAdams notified Garg that EX-IM is interested in financing UMPPs, has a "couple billions dollars" in India now, with no cap, has a AAA rating, and could offer a positive pricing differential if companies use U.S. exporters with EX-IM. He also said that EX-IM would encourage U.S. companies to respond to future tenders. ¶5. (SBU) Turning to other opportunities, Dr. Garg suggested investment in the development of windmills with horizontal blades that could be placed on top of tall buildings. He said that India is the world's fifth-largest harnesser of wind energy but that capital costs are too high to make wind efficient right now. He believes local manufacture of windmills is the key to solving this problem. He also suggested that EX-IM look into the development of one- to three-megawatt power plants that would serve very small areas and operate on vegetable waste like sugarcane stalks and coconut husks. He foresees such plants, which would reduce the costs and inevitable power loss of long-distance transmission, operating on a franchise model, with the PFC getting small amounts of equity from franchisees, offering them training, and connecting them with local experts, such as those at the National Thermal Power NEW DELHI 00004759 002.2 OF 003 Corporation, so they could deal with any problems. ¶6. (SBU) Dr. Garg further expressed his excitement about the prospect of satellite-based solar-energy stations and suggested that EX-IM speak with the Space Island Group (http://www.spaceislandgroup.com/solarsat.htm l),with whom he had met earlier. ¶7. (U) McAdams and Schweitzer also met with the Ministry of Civil Aviation and the Airports Authority of India to discuss EX-IM's interest in financing aviation infrastructure. USTDA - MAKING A DIFFERENCE IN INDIA's ENERGY AND AVIATION SECTORS -------------- ¶8. (SBU) Henry Steingass, new Regional Director of the (reorganized) South and Southeast Asia region of the United States Trade and Development Agency (USTDA),visited Delhi last week to participate in the Asia Pacific Partnership (APP) on Clean Development and Climate Ministerial Meeting on October 15 and hold bilateral meetings. Steingass discussed USTDA grants with key project partners in the energy and aviation sectors. USTDA is likely to provide the new Petroleum and Natural Gas Regulatory Board technical assistance in developing regulatory procedures, methods, and tools. ¶9. (SBU) After two years, the Petroleum Planning and Analysis Cell (PPAC) has approved the draft request for proposal (RFP) for a grant with USTDA valued at USD a USD 690,000 signed in June 2006 for PPAC to undertake a National Gas Grid feasibility study with the Ministry of Petroleum and Natural Gas. The study will help India meet its energy security goals and focus on the following areas: physical interconnections of pipelines and related capacity issues; management and control of the gas grid as an integrating operating system with a high degree of reliability; options for natural gas storage; pipeline integrity and safety from both designs as well as a operations perspective; and gas transportation tariffs and practices, along with related technologies. Through implementation of the study's recommendations, India will be better equipped to meet its increasing energy demands since expanded access to and utilization of natural gas is expected to facilitate economic growth and maintain sufficient energy supplies as demand increases. The recommendations will also help expand the gas market and possibly open the doors for export of U.S. technologies and serices. ¶10. (SBU) USTDA is also working to finalize a USD 503,252 grant with the Airport Authority of India (AAI) for a central navigation systems/air traffic management (CNS/ATM) transition plan. The grant will help upgrade India's CNS/ATM planning and associated systems at India's growing airports. To date, the agreement is pending with the Department of Economic Affairs in the Ministry of Finance for final approval and is likely to be signed within the next few days. U.S. IMAGE SULLIED BY REPORTS AMERICAN COMPANY "DUMPED MUNICIPAL WASTE" ON KERALA -------------- ¶11. (SBU) Recent reports that "municipal waste" from the United States had been "dumped" in the southern Indian state of Kerala figured prominently in the Indian media. The controversy centered on the contents of three shipping containers that arrived at Kochi port in the first week of October. The importer told ConGen Chennai that the containers were supposed to contain sixty-one tons of "brown mix" (old corrugated cartons and other paper products) to be recycled in India. Upon arrival, however, customs officials reportedly discovered "substantial quantities" of plastics and broken glass, used gloves, and rotten food in the containers. A NEW DELHI 00004759 003.2 OF 003 Kochi Customs official told ConGen Chennai that the Kerala Pollution Control Board confirmed the presence of these materials and asked Customs to direct the consignment back to the port of origin. ¶12. (SBU) Predictably, Kerala's ruling Communist Party of India (Marxist) used the opportunity to bash the United States. According to media reports, Kerala Health Minister P.K. Sreemathy said, "We must see this as an attempt to dump waste from the U.S. in India and not merely as something concerning the Kochi Port or Kerala," and that "the government views the matter with utmost seriousness, especially against the backdrop of reports that waste, including biomedical waste, was being dumped in Third World countries such as India and of the outbreak of various epidemics in Kerala in recent times." A popular Malayalam newspaper wrote on October 22: "In these kinds of matters, one has to be very wary of the United States. If it already engages in actions like these, what wouldn't it do against India if we engage in the nuclear deal with that country?" ¶13. (SBU) The Indian company that imported the containers expressed dismay at the turn of events. "We are a small company; we are totally broke. Our reputation is seriously damaged and we don't know what actions the government is planning to take," the Executive Director said. He noted that they had imported other types of material from the American supplier in the past with no difficulty. COMMENT: The Kochi incident appears to be an innocent sorting error on the part of the U.S. supplier. But in Kerala's charged anti-American political environment it provided a convenient opportunity for the Left parties to beat up on American industry and the U.S.-India civil nuclear agreement. Although the media storm quickly died down, it underscores the degree to which an innocent mistake on the part of an American business can impact Indian impressions of the United States. END COMMENT. ¶14. (U) Visit New Delhi's Classified Website: http://www.state.sgov/p/sa/newdelhi Mulford