INDIAN PEACOCK DOES MATING DANCE FOR VISITING

C O N F I D E N T I A L SECTION 01 OF 04 NEW DELHI 000541

SIPDIS

SIPDIS

DEPARTMENT FOR EEB PHAYMOND, BHAENDLER, MMCMANUS
DEPARTMENT FOR EEB/CIP DAS DGROSS, MSELINGER, EYEE
DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, SJOHNSON,
GBISCONTI

E.O. 12958: DECL: 02/21/2018
TAGS: PGOV PREL MARR MASS EAGR EPET ENRG TRGY ECPS
KNNP, RS, IN
SUBJECT: INDIAN PEACOCK DOES MATING DANCE FOR VISITING
RUSSIAN BEAR

REF: A. NEW DELHI 04924

B. MOSCOW 05512

C. NEW DELHI 00474

D. NEW DELHI 440

E. NEW DELHI 2315

Classified By: POLCOUNS Ted Osius for reasons 1.4 (a,b,d)


1. (C) SUMMARY: Three months after Prime Minister Singh's
visit to Moscow, Prime Minister Zubkov of the Russian
Federation visited New Delhi February 12, accompanied by
Russian Trade Minister Elvira Nabiullina and approximately
125 senior executives representing Russian industry and
business. Russia and India have publicly finalized and
privately initialed their civil nuclear agreement to expand
upon the existing Kudankulam agreement, but will wait for
IAEA and NSG approval before signing it. The two countries
struck an agreement whereby Russia will invest millions of
its rupee debt holdings into construction of a jointly owned
titanium plant in Orissa, and Moscow is exploring an Indian
offer to use more of those funds for uranium mining in
Jharkand. GOI petroleum officials reportedly pleaded with
Russia for expanded stakes in the Russian Far East's Sakhalin
oil and gas fields. After private meetings with President
Patil, L.K. Advani and several senior Ministers of State,
Zubkov and Singh presided over an evening gala celebration at
Purana Qila to officially commemorate 2008 "The Year of
Russia in India," a gesture agreed upon during President
Putin's 2007 visit. Two minor memoranda of understanding
were signed: one dealing with law-enforcement cooperation
and another with archival agency cooperation. The business
delegation's visit is a good step towards trying to boost the
two countries' bilateral trade and investment, which is a
miniscule portion of each country's commercial flows.
However, several stiff hurdles in Russia's business and
regulatory environment work against significantly higher
trade anytime soon.

-- NUCLEAR PLANTS, URANIUM MINING DISCUSSED --


2. (C) First Secretary Valery Khodzhaev of the Russian
Embassy of New Delhi told Poloff February 15 that the
Russians and Indians used the occasion of PM Zubkov's visit
to privately initial the text of their civil-nuclear
cooperation agreement, while in public the two Prime
Ministers announced they had "finalized" the text. Khodzhaev
stressed not to divulge that the text had been initialed. He
noted that the two sides had finalized text in December,
when Prime Minister Singh visited Moscow, but the Indians
decided to delay the initialing. This time, Khodzhaev said,
the Indians gave the go ahead with the initialing at very
short notice. (Refs A and B). Khodzhaev reiterated that the
agreement was conditional on the consent of the IAEA and
NSG, and would be conducted within the confines of Russia's
own domestic legislation. Zubkov discussed the nuclear
agreement with External Affairs Minister Pranab Mukherjee,
who underlined the Indian commitment to finishing the IAEA
and NSG steps and completing the initiative. "He demonstrated
that India is committed to accomplishing the IAEA and NSG
actions," said Khodzhaev, who participated in the meeting
(Ref C).


3. (C) Indian media reports surrounding Zubkov's visit
alleged that Russia and India are exploring collaboration on
uranium mining and enrichment in Jharkand state. Jharkand
state authorities reportedly expressed interest in seeking
Russian help to conduct geological surveys to determine the

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feasibility of this proposed project. Khodzhaev confirmed
that the Russian delegation had discussed funding uranium
mining with its rupee debt holdings, but that this
discussion had not advanced very far.

-- INDIA THIRSTS FOR RUSSIAN OIL --


4. (SBU) According to Indian media, Petroleum and Natural
Gas Minister Deora used a one-on-one meeting with Zubkov to
plead India's case to gain a major stake in Russia's
Sakhalin III and other major oil and gas projects in the
Russian Far East. Deora previously made this pitch when he
visited Moscow in November 2007, but was told by Zubkov to
wait until his visit to India for a detailed discussion.
Deora reportedly also urged Russian companies to invest in
Indian oil and gas projects, specifically in the field of
Liquefied Natural Gas (LNG) re-gasification terminals, and he
offered investment opportunities in the Mangalore Refineries
and Petrochemicals Limited's proposed LNG terminal. India is
seeking long-term sources of oil and gas since it currently
relies on imports for over 70% of its crude oil consumption
and for about 23% of its natural gas consumption, with those
shares expected to rise steadily.

-- RUSSIA, INDIA TRY TO STRENGTHEN BUSINESS CONNECTIONS --


5. (C) Zubkov was in New Delhi in part to preside over the
second meeting of the Indo-Russian joint forum for trade and
investment, the first one having taken place February 2007.
Over 125 Russian businessmen accompanied Zubkov to New
Delhi, including the heads of the Sistema Group, Siberian
Ural Energy Group (SUEK) and the President of Russia's Union
of Manufacturers and Businessmen. Zubkov also inaugurated a
branch of the Vneshtorgbank in New Delhi during his visit,
which is the second largest public sector bank of Russia.
Zubkov met with Finance Minister Chidambaram, revealed
Khodzhaev, and the Prime Minister observed that a new
generation of Russian businessmen has started focusing on
India for opportunities. Zubkov discussed how the Russians
could use their rupee debt of USD 80 million to invest in
different projects in India, said Khodzhaev, adding "all
technical issues have been finalized" to begin construction
of a jointly owned and operated titanium plant in Orissa, the
first such project to be financed by the rupee debt.
(Comment: the technical issues could be a reference to Indian
media reports in December 2007 that the joint venture ran
into raw material sourcing problems and potential new
competition in the state. End comment.) According to Indian
media, Russia will invest up to USD 160 million (a 54
percent share) towards building this plant in Gopalpur in the
state of Orissa.


6. (C) In the lead-up to Zubkov's visit, Indian media
reported that Sistema Group was using the visit as the
occasion to announce the opening of an office in New Delhi,
and expected to gain a nation-wide, cell-phone operator,s
license through its joint venture with Shyam Telelink group.
India media reported that the telecom agreement could
involve a USD 5 billion investment by Sistema over the next
three years. Khodzhaev denied these reports, stating that
Sistema had signed no deals during Zubkov's visit. (Note:
Total Russian investment in India from 2000 to November 2007,
the latest available government data, was only $54 million.
These investments, if realized, would significantly raise the
investment flow in a relative sense. Indian media report
that Sistema's investment in Shyam, from November 2007 to
January 2008, was roughly $60 million, already more than the

NEW DELHI 00000541 003 OF 004


past seven years, but still less than 1 percent of investment
into India in the last year. End note).


7. (C) The leaders took the opportunity of Zubkov's visit to
restate the mutual objective first expressed in late 2006 of
increasing bilateral trade between the two countries to USD
10 billion by 2010 (Ref D). Khodzhaev clarified that the two
sides had expressed mutual hope to keep the pace of a 30
percent increase in trade every year, at least through 2010.
(Note: Bilateral trade at the end of Indian Fiscal Year
2006-2007 was just $3.3 billion. At 30 percent annual
increase, bilateral trade would be just $7.25 billion by
March 2010. End note.) Prime Minister Singh stated in an
official press conference February 12 that that Russia and
India will "operationalize" a joint task force to study the
economic arrangements between the two countries and to
consider the implementation of a Comprehensive Economic
Cooperation Agreement (CECA). Commerce and Industry Minister
Kamal Nath remarked to media that Russian business is
specifically interested in investing in Indian engineering,
metallurgy, automobile, aircraft construction and
infrastructure.

(A BEETLE IN THE OINTMENT


8. (C) Indian officials reportedly complained to Russian
officials in Zubkov's entourage about the comprehensive ban
the Russian government slapped on Indian agricultural
imports, historically an important part of bilateral trade,
on January 28, after discovering a live "Khapra" beetle in a
shipment of Indian sesame seeds headed for Russian markets.
The Russians had worried that the beetle could have
proliferated throughout Russia, and if one larva survived the
winter, it would be a "catastrophe," said Khodzhaev. He
confirmed that the agricultural ban was still in place, and
AgOffs have ascertained that Russia has relaxed the ban on
bulk tea, coffee and spices, with strict packaging
conditions.

-- DEFENSE SALES CONTINUE TO BE AN IRRITANT --


9. (C) The benighted Russian aircraft carrier Gorshkov
continues to be a painful thorn on the rose of Indo-Russian
defense relations, as the dispute over how much the Indian
government should pay to take delivery of the ship simmers
on. Indian media reports that Defense Secretary Vijay Singh
will lead a high-powered team to Russia February 19 to
continue the price negotiations, which have been grinding
along ever since April 2007, when Russia began hiking the
cost of refurbishing the vessel far beyond the contracted
amount. Russia is now demanding USD 1.2 billion more on top
of the USD 1.5 billion price agreed upon in 2004 (Ref E).


10. (C) Another recent irritant in the defense relationship
surfaced into public scrutiny in January when it was
revealed that the Indian navy has pointedly refused to take
delivery of the Kilo-class submarine INS Sindhuvijay, which
was extensively refitted at the Zvyozdochka shipyard, due to
its multiple failures to launch Klub-S cruise missiles as
expected. This submarine was just the first of six-Kilo
class vessels planned for refitting by Russia in USD 211
million deal struck in 2005.

-- MEMORANDA OF UNDERSTANDING SIGNED: NOT VERY SUBSTANTIVE
DELIVERABLES --


11. (SBU) The Russian and Indian governments signed two

NEW DELHI 00000541 004 OF 004


Memoranda of Understanding during Zubkov's visit, one an
agreement facilitating closer law-enforcement and customs
agencies cooperation to combat smuggling of contraband, drugs
and dual-use items, and the second, an agreement for
cooperation between the archival agencies of the two
countries. (The complete text of these agreements can be
found at: www.mea.gov.in, under "press releases.")

-- COMMENT: NUKE DEAL STILL CONTINGENT UPON OTHER
COMMITMENTS --


12. (C) COMMENT: India and Russia have settled on a civil
nuclear holding pattern similar to what occurred with the
French. The difference, of course, is that the Russian
agreement actually names a site (Kudankulam) and a number of
reactors (four) because it is technically an amendment to
the existing Kudankulam agreement, as opposed to the French
agreement, which is a framework agreement like the 123.
However, like the French, the Russian agreement is
conditional on NSG and IAEA actions. The Russians are
visibly putting a stronger emphasis on their
business-to-business relationship with India in an attempt to
turn back the 15 years of neglect that have cast a pall over
Indo-Russian trade since the collapse of the Soviet Union.
Defense sales to India, which had been the only remaining
trade linchpin between the two countries throughout the 90s,
are now floundering in a sea of mutual mistrust and bad
blood, fueled by Indian accusations of shoddy goods and
price-gouging. The old guard in Moscow and New Delhi, who
have nostalgic reasons for preserving the historical
friendship, seem to have woken up to the fact that defense
sales alone will no longer sustain Indo-Russian economic
ties, and are seeking to diversify the relationship through
increased mutual investments in civilian nuclear technology,
oil, banking and telecommunications. However, these are not
easy sectors in India to move into and increasing Russian
participation may take time. Further, the visit did not
appear to address the hurdles to trade between the countries,
making real progress there difficult. END COMMENT.
MULFORD