IRAN/SWEDEN/NUCLEAR: COLENCO POWER ENGINEERING LIMITED'S ENGAGEMENT WITH IRAN ON DESIGN OF NEW LIGHT WATER REACTOR

S E C R E T STATE 105067





E.O. 12958: DECL: 08/04/2033

TAGS: IR, MNUC, PARM

SUBJECT: IRAN/SWEDEN/NUCLEAR: COLENCO POWER ENGINEERING LIMITED'S

ENGAGEMENT WITH IRAN ON DESIGN OF NEW LIGHT WATER REACTOR



REF: (A) 06 STATE 194734 (B) 06 BERN 2151 (C) 07

STATE 115392 (D) 07 BERN 783 (E) 07 BERN

913 (F) BERN 464



Classified By: EUR/PRA: Anita Friedt, reasons 1.4(b) and (d)



1. (U) This is an action request. Please see paragraph 5.



2. (S) OBJECTIVE: To persuade the Swedish Government to take

the necessary steps to discourage the Sweden-owned and

Switzerland-based firm, Colenco Power Engineering, Ltd., from

continuing its relationship with Iran on designing or

assisting in the design and construction of light water

reactors (LWR).



3. (S//NF) BACKGROUND: Per reftels, in December 2006, the

United States demarched the Swiss Government in response to

information in our possession indicating ties between Colenco

and Novin Energy, an Iranian firm linked to Iran,s nuclear

program (Novin had been designated by the United States for

proliferation reasons in January 2006 and the UN Security

Council (UNSC) designated Novin Energy in UNSC Resolution

1747 in March 2007). At the time, Switzerland pledged to

investigate the matter. In March 2007, during an

intelligence liaison exchange, the Swiss Internal Security

Service (Dienst Fuer Analyze und Praevention, DAP) informed

the United States that although it had uncovered no

connection between Colenco and Novin, Colenco was engaged in

an ongoing business relationship with the AEOI in the design

of a new, 360 MW(e) light water power reactor for Iran. The

DAP noted that the project had been approved by Swiss export

control authorities. In August 2007, the United States again

approached Switzerland to register our significant concerns

with such a relationship, particularly because such a

relationship is inappropriate given Iran's failure to resolve

concerns regarding the nature of its nuclear program and

there is a risk of technology diversion from light water

reactors to UNSC-proscribed heavy water research reactors

(REF C). Per REF E, Switzerland acknowledged the

relationship in diplomatic channels, but maintained that it

is permitted cooperation under UNSCRs 1737 and 1747; that

similar cooperation on heavy water research reactors was

declined by Colenco for fear of contributing to

proliferation; and, that the Government of Switzerland would

ensure that the risk of technology diversion is appropriately

managed. Discussions with Switzerland since that time have

resulted in no change their position. (Note: In August 2007,

Colenco was purchased by a Swedish firm, AB

ANGPANNEFORENINGEN (now called AF AB),though remains

Switzerland-based.) In the September 2007 nonpaper, the

Swiss reiterated arguments on Colenco's dealings with the

Iranian nuclear program. Information regarding Colenco's

dealings with Iran have involved interaction with an

individual (Seyed Hossein Hosseini) who was designated in

UNSCR 1803 for his involvement at a managerial level in the

Arak Heavy Water Research Reactor project, was provided to

the Swiss interlocutors (REF F). The Swiss stated that this

information was new and took note of the name.



4. (S) BACKGROUND CONT: The United States views involvement

in any new nuclear project in Iran, even a LWR-related

project, as sending the wrong signal to Tehran at a very

sensitive time for international diplomacy. Any relationship

with Iran on new nuclear projects risks compromising broad,

multilateral efforts to increase the pressure on the Iranian

regime to comply fully with its NPT, UNSC, and IAEA

obligations. Moreover, the United States continues to

believe that the risk of technology diversion to proscribed

nuclear activities is significant.



5. (S) ACTION REQUEST: Post is requested to deliver the

points in paragraph 6 to host government interlocutors at the

highest possible levels, which include noted IC-cleared

language that must be delivered verbatim. Post should stress

that the United States takes this issue very seriously,

especially in light of Iran,s ongoing defiance of the

international community. Post should encourage host

government to approach the Swiss Government to encourage it

to reconsider its authorization for such cooperation. Post

also should request feedback on Host Government's ability to

effect change in Swedish-owned companies' nonproliferation

behavior in foreign nations. Post may leave the points in

paragraph 6 with host government interlocutor as a

SECRET//REL non-paper, also requesting that an approach to

the Swiss Government be scheduled in several weeks thereby

allowing it to receive and absorb the information.



6. (S//REL SWEDEN) BEGIN APPROVED LANGUAGE:



-- The United States has information that indicates a

Sweden-owned and Switzerland-based firm - Colenco Power

Engineering Limited (also known as simply Colenco) - is

engaged with Iran in the design of a new LWR for Iran.

Through this cooperation, the firm is engaging in

transactions with the AEOI and through Novin Energy.



-- We have information from August 2007 that Colenco was

purchased by a Swedish firm AB ANGPANNEFORENINGEN (now called

AF AB),though it remains Switzerland-based.



-- The United States has engaged with the Government of

Switzerland on this issue on several occasions to highlight

our concerns that the relationship between Colenco and the

AEOI presents a risk of contributing to Iran's proliferation

sensitive nuclear activities. The Swiss Government has

acknowledged Colenco's relationship with Iran, but is of the

view that since the relationship has -- to date -- focused on

light water power reactors, it is of reduced proliferation

concern.



-- The Swiss noted further that Colenco declined a previous

opportunity to work with Iran on a heavy water research

reactor in light of its sensitivity to proliferation concerns.



-- While the UNSCRs do not specifically prohibit cooperation

on LWRs, we continue to believe that though Colenco may not

intend to assist Iran with its proliferation sensitive

activities, especially its Arak heavy water research reactor

project, any assistance given to Iranian entities that have

been designed under UNSCRs carries an inherent risk of

contributing to Iranian proliferation, and such nuclear

cooperation at this time defeats the spirit of the UN

Security Council resolutions.



-- This is particularly the case in light of the fact that

Colenco's dealings with Iran have involved interaction with a

UNSC-designated individual, Seyed Hossein Hosseini. This

individual was designated in UNSCR 1803 for his involvement

at a managerial level in the Arak Heavy Water Research

Reactor (HWRR) project. This interaction continued after his

designation in March 2008.



-- In addition, this activity has involved Novin Energy,

which had been designated by the United States for

proliferation reasons in January 2006 and the UN Security

Council (UNSC) designated Novin Energy in UNSC Resolution

1747 in March 2007.



-- We also have information that Iran has suggested creating

a new company to create separation between this project and

the Atomic Energy Organization of Iran and associated

entities. Such a new corporation would, in Iran's view,

permit Colenco to operate without restrictions placed upon it

by the Swiss Government.



-- In doing so, Iran is demonstrating once again its

proclivity to create front companies to obscure its

involvement in nuclear-related projects.



-- The United States continues to have serious concerns

regarding Colenco,s relationship with Iran, particularly in

light of the fact that it involves cooperation with the

Atomic Energy Organization of Iran.



-- Moreover, Colenco's involvement in such a nuclear project

in Iran sends precisely the wrong signal to Tehran at a very

sensitive time for international diplomacy and risks

compromising broad, multilateral efforts to increase the

pressure on the regime to comply fully with its NPT, UNSC,

and IAEA obligations.



-- We are providing this information to highlight our

concerns that the relationship between Colenco and the AEOI

presents a risk of contributing to Iran,s Proliferation

sensitive nuclear activities.



-- We hope you share our concerns, and urge your government

to take whatever measures you can to halt this cooperation.

We also urge you to inform the Swiss Government that you are

aware of the relationship between Colenco and the AEOI, and

that this activity must be stopped. Due to the sensitivity

of this information, we request that you not inform the Swiss

as to the details we have presented to you today or to

disclose the fact of our Government's engagement on this

issue.



END APPROVED LANGUAGE



7. (U) Post is requested to relay the Swedish Government's

reactions and any substantive replies within one week of

receipt of the demarche. Judee Allen-Close (ISN/RA,

202-736-4686, CloseJA@state.sgov.gov) is the Department,s

POC for this activity. Please slug any replies on this issue

to EUR/CE, EUR/PRA, and ISN/RA.





RICE