INDIAN NUCLEAR ESTABLISHMENT HIGHLIGHTS REPROCESSING AND

UNCLAS SECTION 01 OF 04 MUMBAI 000479

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EIND EINV ENRG KNNP ETRD IN
SUBJECT: INDIAN NUCLEAR ESTABLISHMENT HIGHLIGHTS REPROCESSING AND
ASSURED FUEL SUPPLY CONCERNS TO VISITING U.S. NUCLEAR SUPPLIER
DELEGATION

MUMBAI 00000479 001.2 OF 004



1. (U) Summary: The U.S.-India Business Council's delegation of
U.S. commercial nuclear energy vendors engaged with the Indian
nuclear energy establishment in Mumbai to discuss the role of
U.S. companies in augmenting India's nuclear energy capacity.
The Nuclear Power Corporation of India, the government-owned
operator of nuclear power plants in India, is preparing the
groundwork for housing 10,000 MW of imported reactor technology
at four coastal sites. The company is also securing around USD
26 billion through debt and equity funding to finance its
capacity expansion plans. However, NPCIL interlocutors and S.
Banerjee, the newly-appointed Secretary of the Department of
Atomic Energy, maintained that commercial co-operation with U.S.
companies is conditioned upon an assured lifetime reactor fuel
supply and the right to reprocess spent fuel for reuse in the
safeguarded reactors. Indigenous manufacturing of reactor
components to reduce production costs and achieve low nuclear
power tariffs was also cited as critical to the success of the
Indian nuclear power program. End Summary.




2. (U) On December 10, the U.S.-India Business Council (USIBC)
brought a delegation of U.S. nuclear technology, equipment and
fuel suppliers to India to engage with the Indian nuclear energy
establishment based in Mumbai. S. Banerjee, the newly-appointed
Secretary of the Department of Atomic Energy (DAE) and the
former director of the Bhabha Atomic Research Center (BARC),
acknowledged the U.S. government's role in opening up global
nuclear energy trade and commerce to India and said that there
was scope for "an even greater involvement of U.S. companies" in
pushing forward India's ambitious nuclear power capacity
augmentation program. (See reftel A for background on
Banerjee.) S.K. Jain, the Chairman and Managing Director of the
Nuclear Power Corporation of India (NPCIL) which is the
government-owned operator of nuclear power plants in India, said
that the Indian public, politicians, and policymakers were
looking for "action on the ground" and were waiting for the
"first nuclear power wattage from a foreign reactor."



Work on Imported Reactors with Total Capacity of 10,000 MW to
Commence by 2017

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3. (U) India currently has 17 nuclear power reactors with a
generation capacity of 4,120 MW. Jain announced that five more
reactors -- three indigenous reactors and two light water
reactors based on Russian technology -- will supply power to the
grid by 2010, increasing India's installed nuclear power
capacity to 6,780 MW. The Indian government has approved the
construction of eight indigenous pressurized heavy water
reactors (PHWRs) of 700 MW capacity each. Jain also announced
the commencement of site work for three fast breeder reactors
and for the 300 MW advanced heavy water reactor. With this,
work on 12 indigenous reactors will commence as projected in the
Eleventh Five Year Plan for 2007-12, he said.




4. (U) Two coastal sites -- Mithirvidi in Gujarat and Kowada in
Andhra Pradesh -- each with a capacity of 10,000 MW, have been
reserved for U.S. companies, General Electric (GE) and
Westinghouse, to build nuclear power parks. The Jaitapur site
in Maharashtra will house another 10,000 MW nuclear power park
based on France's Areva technology. Russian technology will be
used at the nuclear park at Haripur in West Bengal and to build
another four reactors of 1,000 MW at Kundakulum in Tamil Nadu
where two Russian light water reactors of 1,000 MW each are
presently under construction. Jain said that the government has
asked NPCIL to start acquiring land at all these sites. The
company hopes to be in possession of the land at all the sites
within the next eight to ten months after which it will start
the construction of civil works at the facilities. NPCIL plans
to prepare these sites so that work can begin as soon as the
technological-commercial contracts for LWRs are signed with
foreign vendors during the Twelfth Five Year Plan, 2012-2017.

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USD 26 Billion Needed in Near Future to Fund Nuclear Power
Program

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5. (U) Aside from site location and technology, Jain noted that
funding and manpower are two other components to nuclear energy
projects. J.K. Ghai, Director (Finance) of NPCIL, estimated
that around USD 26 billion would be required to fund the
company's plans to build 13,600 MW in the near future. (Note:
This includes eight 700 MW PHWRs and eight 1000 MW LWRs imported
from France, Russia, GE and Westinghouse. End Note). All power
projects have a 70:30 debt-equity ratio. NPCIL's share would be
8 billion USD; with potential investments in uranium mines and
other assets worth 900 million USD, NPCIL's equity requirement
is around USD 9 billion, he said. The remaining USD 18 billion
will be funded through debt, which will be a mix of bank
borrowings, and export credit agency funding, Ghai said. Due to
its AAA rating, the company can secure domestic and
international funding on soft terms and conditions. The
company's average interest rate for loans is 7.25 percent. Jain
added that some of the leading global banks have indicated their
willingness to underwrite debt of USD 4-5 billion to support the
Indian nuclear energy program.




6. (U) The company has internal funds of USD 6 billion which
would finance up to 8,000 MW. Support from the Indian
government, the public issuance of NPCIL shares, or partnerships
with other public sector companies could be used to jointly
finance some nuclear energy projects, Ghai explained. Jain
announced that NPCIL has signed agreements to partner with the
National Thermal Power Corporation, Indian Oil Corporation, and
National Aluminium Corporation -- all government-owned and
capital rich companies -- to increase its financial strength and
capital base. Ghai added that the Andhra Pradesh Electricity
Generation Company, APGENCO, and the Indian Railways have also
expressed interest in partnering with NPCIL. Financial
institutions including Power Finance Corporation and
Infrastructure Development Finance Corporation were also
interested in investing in NPCIL's projects. Ghai admitted that
private sector involvement would greatly increase the project
financing capability, although current legislation does not
allow private participation in nuclear power generation.




7. (U) NPCIL has also been ramping up its manpower requirements
to build multiple reactors simultaneously. (Note: NPCIL is
responsible for the construction, erection, commissioning and
operation of all nuclear energy facilities in India. End Note).
Jain noted that the average age of NPCIL staff is less than 40
and the company can also leverage the technical skills and
knowledge of the Indian industry to support the nuclear energy
program. K.C. Purohit, Director (Projects) of NPCIL, separately
concurred, and noted that the company had managed the
construction of nine nuclear energy facilities of differing
capacities and technologies at the same time. He acknowledged
that the drastic expansion of the nuclear power program which
would require NPCIL to simultaneously work on indigenous and
different imported reactor technologies would be challenging but
nonetheless achievable.



Assure Lifetime Fuel Supply Before Importing Foreign Reactors

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8. (U) Ashok Chauhan, Associate Director (Fuel) of NPCIL,
emphasized that NPCIL is not prepared to commence any
construction with imported reactor technology without an

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assurance for a lifetime supply of reactor fuel. To ensure a
steady and reliable fuel supply, NPCIL requires a sovereign
guarantee from the fuel supplier country, and either a
technology transfer or a joint venture with the fuel supplier to
construct a fuel manufacturing facility in India, he continued.
NPCIL is also open to setting up a fuel manufacturing facility
which could serve as an export hub to supply fuel to nuclear
reactors in other countries or to supply fuel to other light
water reactor vendors who have plants in India, he added. NPCIL
currently has short-to-medium term fuel supply contracts with
Areva, TVEL Corporation and Kazatomprom (KAP).




9. (U) According to Chauhan, NPCIL is looking to source uranium
from different vendors and have offtake arrangements from owners
of uranium mines, take independent equity stakes in uranium
mines and have short, medium and long-term contracts with fuel
suppliers from different geographical locations. Chauhan
explained that NPCIL is also planning to partner with uranium
conversion utilities or to acquire stake in commercial
enrichment plants. India's present enrichment program is not on
an "industrial scale" and is too small to support a 1000 MW
nuclear power station.



Reprocessing Rights Should Predate U.S. Commercial Co-operation

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10. (U) In a speech to U.S. company representatives, DAE's
Banerjee emphasized that commercial co-operation with U.S.
nuclear energy suppliers will not be possible unless India can
reprocess the spent fuel obligated to run the imported U.S.
reactors. Banerjee said that reprocessing facilities will be
located in the exclusion zone around the nuclear energy parks
which are at coastal sites. This will minimize the
transportation of spent and reprocessed fuel between the
reprocessing facility and the reactor, he explained.Anil
Kakodkar, the former Secretary of the DAE and one of the chief
negotiators of the U.S.-India Civil Nuclear Cooperation
Initiative, pointed out that reprocessing of subsequent
generations of spent fuel is critical to grow the capacity and
size of the Indian nuclear power program. There is an integral
link between reprocessing and reactor capacity; limiting one
would constrain the other, he argued. Kakodkar also believes
that reprocessing spent nuclear fuel will soon be inevitable
even for the U.S. as energy demand grows and environmental
concerns for non-polluting energy sources mount.



Cheap Nuclear Power Not Possible Without Localization

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11. (U) All NPCIL speakers and DAE's Banerjee emphasized that
the indigenization of reactor components and nuclear energy
equipment is central to achieving low-cost nuclear power. The
current cost of nuclear power ranges from .02 USD to .06 USD,
with the average cost of nuclear power is .05 USD. (Note:
Nuclear power, like other sources of power in India, is priced
at a cost plus basis to ensure the recovery of fixed and
variable costs and an assured return on equity of 14-15.5
percent. Nuclear power tariffs are determined by the Department
of Atomic Energy in consultation with the Central Electricity
Regulatory Commission. End Note). DAE's Banerjee believes that
increasing local content will reduce fixed costs which will
enable lower tariffs for nuclear power. NPCIL's Purohit
emphasized that involvement of the local industry at all stages
of the nuclear energy project is critical to build an efficient
supply chain which will not only save costs but also ensure
timely completion of nuclear power projects.




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12. (U) Meena Mutyala, Vice President of Westinghouse,
acknowledged that Indian manufacturers are extremely proficient
in high precision heavy engineering that is required to
manufacture reactor components. She, however, pointed out that
speed and timely completion of a project is as important as
achieving low costs. She noted that Indian manufacturers can
play a greater role after they gain the skill and experience to
manufacture reactor components. The initial imported reactors
may therefore have less local content that those commissioned
later, she said. Mutalya claimed that U.S. reactors cost less
than the Russian reactor as they have fewer components. She,
therefore, pointed out that the cost of nuclear power generated
by U.S. reactors could be even cheaper that that generated by
the Russian reactors. She noted that U.S. reactors offer a
combination of cost competitiveness, operational ease and safety.




13. (SBU) Separately, N. Rao, General Manager (Finance) of
NPCIL, confided to Congenoff that NPCIL paid a "high" price for
French reactors from Areva and hoped that the U.S. reactors
would be more competitively priced in comparison. He believed
that GE and Westinghouse would be able to leverage their global
manufacturing presence to offer a cheaper price. Jain noted
that India's first two nuclear reactors that were built by GE
were presently supplying the cheapest nuclear power in the
country and were operating at a 100 percent plus plant load
factor (capacity utilization). He also pointed out that the
first two Russian reactors that are likely to be commissioned in
2010 are expected to generate power more cheaply than some of
the indigenous nuclear power facilities.




14. (U) NPCIL interlocutors also highlighted the potential of
using India's low cost manufacturing capabilities for the global
manufacturing of nuclear equipment. Mutalya concurred and
pointed out that the International Energy Institute had
projected an increase in global nuclear energy capacity from 372
GW to 1280 GW by 2050, mainly concentrated in Asia (particularly
in India and China) and parts of Africa. There is, therefore, a
tremendous opportunity for India to emerge as the global
manufacturing hub to meet the growing worldwide demand for
nuclear power, she said.




15. (SBU) Comment: The U.S. nuclear energy suppliers delegation
was warmly received by the nuclear energy establishment in
Mumbai. These companies are also extremely eager to finalize
some major sales. Indian participants recognized the need to
complete the final steps necessary to implement the Civil
Nuclear Cooperation Initiative, and ensure that commercial sales
can proceed, and there was a sense of impatience - on both sides
- to move forward. Nonetheless, the interactions with NPCIL and
Indian industry's private sector nuclear equipment suppliers
showcased the continued interest and perseverance of U.S.
companies to participate in growing India's nuclear power
generation capacity. End Comment.
FOLMSBEE