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09NEWDELHI152 2009-01-23 12:50:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy New Delhi
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DE RUEHNE #0152/01 0231250
O 231250Z JAN 09
					  UNCLAS SECTION 01 OF 06 NEW DELHI 000152 



E.O. 12958: N/A



C. 08 NEW DELHI 2985

1. (SBU) This is an action request; please see paragraph 8.

2. (SBU) SUMMARY. A trade mission co-led by the U.S.-India
Business Council (USIBC) and Nuclear Energy Institute
explored opportunities for civil nuclear cooperation in
meetings with senior political and technical officials in New
Delhi January 11-14 and Mumbai January 14-16, highlighting
several critical implementation issues. India will sign its
Safeguards Agreement with the International Atomic Energy
Agency, but senior officials remained vague on when this will
take place and how they plan to fill in the Agreement's blank
declaration of separated facilities annex. India is ready
"right away" to begin negotiating the reprocessing
arrangement envisioned in Section 6(3) of the 123 Agreement,
and suggested that its conclusion was a prerequisite to
sealing commercial deals. Designating a counterpart to
India's negotiator and signaling willingness to begin this
negotiation could prevent delays harmful to the commercial
prospects of U.S. firms. Indian officials affirmed their
intention to ratify the Convention on Supplementary
Compensation for Nuclear Damage (CSC) and agreed that it
would most likely take place in the next Parliament after
India's general elections, due by April. They shared that
the politically complex process of reactor park site
selection was underway, but that no further announcements
were expected prior to the elections. Several senior
officials reaffirmed India's commitment in its letter of
intent to set aside at least two reactor park sites and to
purchase reactors with at least 10,000 Megawatts (MWe) total
generating capacity from American firms.

3. (SBU) SUMMARY CONTINUED. U.S. industry representatives
expressed anxiety over the uncertain and lengthy U.S. and
Indian licensing requirements, which they felt put them at a
competitive disadvantage and delayed meaningful commercial
engagement. They also expressed concern that Indian law does
not provide patent protection in the nuclear industry.
Department of Atomic Energy Chairman Anil Kakodkar's
statement that he felt "betrayed" by United States policy
supporting a ban on enrichment and reprocessing technology
(ENR) in the Nuclear Suppliers Group (NSG) reminded the
delegation that nonproliferation issues remain highly
sensitive in the context of the emerging strategic
partnership and will continue to require careful management
beyond the conclusion of the 123 Agreement. END SUMMARY.

Trade Mission Probes Opportunities, Reveals Challenges
- - -

4. (SBU) Forty executives representing the U.S. civil nuclear
industry visited New Delhi January 11-14 and Mumbai January
14-16 as part of a trade mission supported by the Department
of Commerce and co-led by the U.S.-India Business Council
(USIBC) and the Nuclear Energy Institute. This thematic
report highlights several of the critical implementation
issues raised during the delegation's visit, drawing from a
dozen meetings with a variety of senior political and
technical officials, including Minister of External Affairs
Pranab Mukherjee; Minister of State in the Prime Minister's
Office Prithviraj Chavan; Department of Atomic Energy
Chairman Anil Kakodkar; and Planning Commission Deputy
Chairman Montek Singh Ahluwalia (full list of meetings para
19). The parallel visit of a U.S. Department of Energy team
to restart the Civil Nuclear Energy working Group (CNEWG) is
reported ref A.

NEW DELHI 00000152 002 OF 006

Safeguards Agreement: Possibly Signed Within A Month
- - -

5. (SBU) Indian officials agreed that the first order of
business should be the signing of India's Safeguards
Agreement with the International Atomic Energy Agency (IAEA),
but they remained vague on when this would take place and how
they would populate the Agreement's blank declaration of
separated facilities annex. Minister Chavan echoed prior
statements from the Ministry of External Affairs that India
had "made very good progress" and expected to sign "very
shortly, even within one month's time." Indian officials
have not shared with Post how they plan to ensure that
India's declaration of nuclear facilities would be consistent
with its 2005 Separation Plan, a prerequisite to the issuance
of the U.S. Presidential certifications necessary to permit
the licensing of U.S. exports mandated by the U.S. Congress
in the 123 Agreement implementing legislation.

Fuel Reprocessing: India Ready to Negotiate Arrangement
- - -

6. (SBU) Indian officials made clear for the first time that
India was ready "right away" to begin negotiating the
reprocessing arrangement in Section 6(3) of the 123
Agreement. Chavan emphasized that "other countries do not
have issues with reprocessing technology" and that India
hoped to resolve this issue "as soon as you are ready."
Mukherjee referred to "technical issues that require
clarification." Kakodkar in particular suggested that India
would not conclude commercial contracts with U.S. firms
without first agreeing to the reprocessing arrangement. He
described the commercial and reprocessing negotiations as
"interlocking" and that he hoped the negotiations could take
place in parallel. In order to prevent the reprocessing
negotiation from dragging on and delaying commercial
opportunities, Kakodkar said he had been "keen to put a
timeline in the 123 Agreement" and he was now "ready and
anxious to start that process right away." (Section 6(3)
requires that consultations on arrangements and procedures
begin within six months of a request by either Party and be
concluded within one year.)

7. (SBU) Kakodkar elaborated on his red-lines for the
reprocessing arrangement negotiation based on his conviction
about the importance of reprocessing. "If Uranium and
derivatives are covered by IAEA safeguards, fine; but if you
say we must ask permission to reprocess, that will be
problematic," he said. Kakodkar felt strongly that
indefinite storage of spent fuel was "not an option in India"
because it was "not sustainable from an energy point of view,
in terms of credible waste management, or on security
grounds." Kakodkar concluded that he was "100 percent
certain that the whole world will move to support
reprocessing," and said he looked forward to the day when
India and the U.S. could collaborate on reprocessing
research. Apart from reprocessing, Kakodkar said provision
of a lifetime fuel stockpile would be a key component of
reactor contracts. These arrangements must be "robust,"
"prevent obstruction," and be "guided by 123 Agreement."
Kakodkar also said fuel supply contracts must permit the
manufacture of fuel in India.

8. (SBU) ACTION REQUEST: India's interest in commencing the
reprocessing arrangement negotiations was muddled in the
exchange of diplomatic notes that brought the 123 Agreement
into force on December 6, 2008. A second Indian diplomatic
note dated December 6 designated Ministry of External Affairs
Joint Secretary for External Affairs Gitesh Sarma, an
assistant secretary-level foreign ministry official posted to

NEW DELHI 00000152 003 OF 006

the Department of Atomic Energy in Mumbai, as "the nodal
point for the Administrative Arrangement to be established
for the effective implementation of the provisions of the
Agreement, pursuant to Article 17," but the note said nothing
about the Reprocessing Arrangement described in Section 6(3).
Post requests that the Department designate Sarma's
counterpart and indicate willingness to begin negotiating the
Section 6(3) arrangements at the earliest opportunity so as
not to delay the commercial prospects of U.S. firms.

Liability Convention: To Parliament After Elections
- - -

9. (SBU) Indian officials expressed their intention to ratify
the Convention on Supplementary Compensation for Nuclear
Damage (CSC) to provide the liability protection required by
U.S. firms to do business in India, and seemed to agree that
it would most likely be done in the next Parliament after
elections due in April-May. Adoption of the Convention
requires an extensive inter-agency review followed by Cabinet
and then parliamentary approval. Mukherjee said the
inter-ministerial consultations had been completed and he saw
"no difficulties getting the legislation passed." He did not
indicate a timeline, saying only that ratification would have
to wait for Parliament to act. (He appeared to have
abandoned the idea of implementing the Convention
"administratively," as reported ref B.) Ahluwalia was less
familiar with the issue, but responded positively to the
suggestion that India needed the Convention to have the
widest possible choices among foreign vendors to meet its
ambitious nuclear power generation goals and Indian private
industry needed it to participate in the global civil nuclear
market. At Ahluwalia's request, a USIBC delegation member
gave him a one-page brief on the Convention and its
advantages for India. Ahluwalia seemed keen to advocate for
early adoption of the Convention.

10. (SBU) Chavan and Kakodkar each said India's work toward a
liability regime had pre-dated the July 2005 joint statement
launching the Civil Nuclear Cooperation Initiative with the
United States, stemming from the Indian government's
realization that civil nuclear power would be required to
fuel India's rapid growth and that achieving its goal of a
three-stage Thorium cycle would be "too big for laboratory
development" and would have to be implemented "in the
commercial domain." They likewise agreed that the draft
legislation to implement the Convention was "in the advanced
stage," according to Chavan, and "almost complete," according
to Kakodkar. Chavan shared that major bills usually go to
committees first, so Parliament probably does not have
sufficient time to enact the measure in the upcoming abridged
February 12-26 session which is mainly aimed at passing a
temporary budget measure (a "vote of account") to allow the
government to function until the new Parliament convenes
after the election. The options of dispensing with
committees and going straight to the floor of Parliament or
taking direct executive action were "theoretically possible,
but practically difficult." Therefore, he did not expect
Parliament to take action prior to elections that must be
held by April. He stressed, however, that Cabinet approval
would constitute "a major task achieved," since a commitment
by the Cabinet was usually not undone, even by successive

11. (SBU) Kakodkar stressed that he understood the importance
of the Convention, observing, "It is clear the world is
converging on the Supplementary Convention as the global
liability standard." He believed the next Parliament would
act on the law and dismissed political concerns, saying the
123 Agreement debate has created "a clear national consensus

NEW DELHI 00000152 004 OF 006

on nuclear power." Kakodkar rejected suggestions that India
might implement an intermediary measure, saying decisively,
"Our law will be 100 percent consistent with the Convention."
(COMMENT: Some NPCIL officials and Indian industry
representatives suggested that the government may implement
intermediary measures to address liability not fully
consistent with the Convention, which caused some alarm among
U.S. industry representatives, but this possibility was not
confirmed by senior Indian officials.) Like the reprocessing
arrangement, Kakodkar again stressed his hope that the lack
of the Convention would not be a "constraining factor" for
U.S. industry in the short term and that India's work on the
Convention should move in parallel with commercial contract
negotiations. (Delegation members expressed concern to the
Indian officials that they may have difficulty engaging in
contract negotiations without the Convention in place.)

12. (SBU) Chavan also elaborated on other upcoming business
before Parliament related to civil nuclear cooperation. The
government is planning amendments to India's Atomic Energy
Act to grant more autonomy to the Atomic Energy Regulatory
Board (AERB). The government is also preparing legislation
to permit a private sector firm to take a minority stake in
the nuclear generation business in joint ventures with public
companies, such as the Nuclear Power Corporation of India
(NPCIL) and the National Thermal Power Corporation (NTPC).
He explained that private firms, including fully-owned
foreign firms, would not be required to enter into a joint
venture for manufacturing or construction in the nuclear
industry, but that this new rule would permit Indian private
firms to take an equity stake in the power generation and
management business.

Site Selection: Will Honor Letter of Intent
- - -

13. (SBU) Indian officials were clear that although
exploratory work on new reactor sites is complete, the
process of site selection and allocation is a politically
complex and that no new reactor sites would be announced or
allocated prior to the next elections. Mukerjee gave away
nothing, saying only that the selection process was
"underway." Chavan recalled that the government had
announced Jaitapur, Maharashtra as the latest site, and that
"shortly we will seek necessary clearances and announce new
sites." He added that the government was looking at multiple
sites and he could not say whether they would be announced
one at a time or all at once. (France is widely rumored to
have a lock on the Jaitapur site.) Chavan shared that
"Everything has been done to select the sites; we are
collecting and analyzing the information." He revealed there
was "intense competition among states" to host reactor park
sites. Kakodkar said the site selection process was a
"technical as well as political process," and that he was
unable to discuss it. He concluded, "What is clear is you
will have two sites."

14. (SBU) Kakodkar and Chavan each reaffirmed the September
10, 2008 letter of intent from Foreign Secretary Menon to
Under Secretary Burns committing India to set aside at least
two reactor park sites and to purchase reactors with at least
10,000 MWe total generating capacity from U.S. firms. Chavan
said, "We stand by the letter of intent and see a major role
for the U.S. industry in India's program." In response to
concern about level playing field and first-mover advantage
of the Russians and French, Chavan replied, "We will not let
U.S. interests suffer; the letter of intent commitment will
be fully met." Kakodkar said, "We have no problem honoring
the letter of intent commitment of 10,000 MWe because our
requirements are so large." India had interests in "diverse

NEW DELHI 00000152 005 OF 006

technologies," according to Kakodkar, so the U.S. "need not
be concerned that we are talking with different countries."
Kakodkar cautioned, however, that the "only condition is that
you must be able to generate energy at competitive rates
because under the Indian system nuclear power must compete
with the alternative sources on a unit cost basis."
(Kakodkar also stressed this point to Nuclear Regulatory
Commission Chairman Dale Klein, ref C.) He argued that the
"best strategy is to team up with Indian firms, which produce
cheaper than some global competitors and can satisfy all
requirements except the ability to make large forgings." He
concluded, "Without Indian partnerships, I'm pretty certain
you will find it difficult to compete on price here."

Anxieties About Licensing and Patent Protection
- - -

15. (SBU) During the course of the visit, U.S. firms
expressed a variety of concerns with U.S. and Indian
licensing requirements that they felt put them at a
competitive disadvantage and delayed meaningful engagement
with the Indian civil nuclear market. Many firms felt the
"Part 810" licensing process -- coordinated by the U.S.
Department of Energy along with the Departments of Defense,
State, and Commerce -- was unclear and protracted. In
particular, they felt the uncertainty of the licensing
process in the Indian context and the time required to obtain
licenses -- likely several months -- constrained firms from
sharing meaningful technical information and commercial
proposals with potential Indian partners. Some Indian
industry interlocutors privately lamented that they had
little reason to engage U.S. firms until they received
licenses permitting them to share information beyond what was
already available in the public domain.

16. (SBU) Kakodkar noted that U.S. firms also had to obtain
Indian licenses from the Atomic Energy Regulatory Board
(AERB). The AERB requires firms to submit detailed proposals
and that firms must already have received an export license
from the country of origin -- in the case of U.S. firms, from
the Nuclear Regulatory Commission (NRC). Thus, the AERB
process cannot begin until after the Part 810 process and the
NRC licenses are issued. According to Kakodkar, "Both the
AERB and NRC processes are detailed and elaborate, but not
identical. They will take time, but the reprocessing
negotiation will take longer, so all these processes should
move in parallel." (COMMENT: In practice, Kakodkar's hope
that these processes can move in parallel discounts his own
sequencing stipulations and fails to recognize the
constraints on U.S. firms: that they cannot engage in
meaningful commercial discussions until the licenses are
issued or make binding commercial decisions until the
liability convention is in place, and that servicing the
Indian industry requires new captial investment with long
lead times before the work can actually begin. In practice,
while no single requirement is unduly onerous, sequencing
issues constrain the prospect of advancing all of these
processes in parallel and cumulatively threaten considerable
delays -- perhaps years -- in the ability of U.S. industry to
execute large projects in India.)

17. (SBU) U.S. firms also expressed concern that India's
Atomic Energy Act did not recognize patents in the nuclear
industry. Kakodkar confirmed that items for nuclear reactors
do not receive patent protection under Indian law. He added,
due to prior experiences with Tarapur, "I think this will
remain until the last bit of the embargo is removed." (Note:
Ministry of External Affairs Joint Secretary for the
Americas Gaitri Kumar later clarified that he was referring
to restrictions on high technology exports to India.) U.S.

NEW DELHI 00000152 006 OF 006

industry representatives noted that without patent protection
they could not collaborate with Indian companies on
developing new technology, and that they were concerned not
only with protecting their own technology, but also had
obligations to protect the intellectual property of their
commercial partners. Kakodkar dismissed the concern, saying
any item on India's control list manufactured in India
required a Department of Atomic Energy license, and U.S.
firms could establish confidentiality arrangements in
commercial contracts between the parties. He noted that
general purpose items that can be used in nuclear power
plants do not receive patent protection. Kakodkar concluded
that General Electric built India's first nuclear reactors
and India never violated patent rights. U.S. industry
representatives agreed their lawyers would explore options.

Nonpro Policy: Acute Sensitivities Remain
- - -

18. (SBU) The meeting with Kakodkar in particular was a
reminder that nonproliferation remains a particularly
sensitive issue in the emerging strategic partnership and
that careful management will be required beyond the
conclusion of the 123 Agreement. Kakodkar opened the meeting
January 15 saying that he felt "betrayed" by U.S. policy
supporting a global ban on enrichment and reprocessing
technology (ENR) in the Nuclear Suppliers Group (NSG), saying
that it looked to be "directly targeting India" by requiring
signature of the Nuclear Non-Proliferation Treaty (NPT). He
added, "The long term relationship we are developing is not
consistent with this kind of negative development."
(COMMENT: The Ministry of External Affairs has been silent
on the reprocessing issue, only asking for a read-out of
Suppliers Group deliberations once they are releasable to
non-participating governments. It appears that while MEA may
understand the U.S. position, Kakodkar felt stung by its
implications for his expansive reprocessing ambitions.
Differences over nonproliferation policy could continue to
affect India's commercial decisions as it tests the limits of
U.S. flexibility in the context of the emerging strategic

List of Meetings
- - -

19. (SBU) This report draws from meetings with the following
government officials: Minister of State in the Prime
Minister's Office Prithviraj Chavan (Delhi, January 13);
Minister of External Affairs Pranab Mukherjee (Delhi, January
13); National Thermal Power Corporation (NTPC) Chairman D.K.
Jain (Delhi, January 13); Planning Commission Deputy Chairman
Montek Singh Ahluwalia (Delhi, January 14); Nuclear Power
Corporation of India Limited (NPCIL) Chairman S.K. Jain
(Delhi, January 14); Ministry of Power Secretary V.S.
Sampath, Power Finance Corporation Chairman V.K. Garg, Power
Grid Corporation Chairman S.K. Chaturvedi (Delhi, January
14); Department of Atomic Energy Chairman Anil Kakodkar
(Delhi, January 15); A FICCI-organized roundtable with Indian
Parliamantarians; and additional technical and commercial
sessions with NPCIL and Indian industry. A planned meeting
with senior opposition BJP leader L.K. Advani and colleagues
did not take place.