VZCZCXRO4555
RR RUEHBI RUEHCI
DE RUEHCG #2554/01 3131140
ZNR UUUUU ZZH
R 091140Z NOV 06
FM AMCONSUL CHENNAI
TO RUEHC/SECSTATE WASHDC 0426
INFO RUEHNE/AMEMBASSY NEW DELHI 2069
RUEHBI/AMCONSUL MUMBAI 4899
RUEHCI/AMCONSUL CALCUTTA 0639
RUEHLM/AMEMBASSY COLOMBO 1272
RUCPDOC/USDOC WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 02 CHENNAI 002554 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT PASS USTR FOR BHATIA, HARTWICK 
 
E.O. 12958: N/A 
TAGS: PGOV ETRD ECON EINV ENRG IN
SUBJECT: TAMIL NADU: ECONOMIC GROWTH, BUT IRRITANTS REMAIN 
 
 
¶1. (SBU) SUMMARY: The growing FDI inflow into Tamil Nadu, 
particularly in the manufacturing sector, the support the state 
receives from the Center due to the synergic political arrangement 
between the DMK and the Congress parties, the bipartisan support for 
economic development available in the state, the comfortable energy 
situation -- all form part of the picture Tamil Nadu officials 
presented to visiting Embassy New Delhi Economic Minister Counselor 
John Davison. Some businesspeople, particularly the US power 
producers, however, were less bullish: they pointed to the lingering 
disputes with the state Electricity Board and the need for new 
projects to step up generation capacity. Davison also leveraged 
meetings with influential contacts to raise Mission concerns such as 
the recent GOI disqualification of Motorola from the BSNL tender, 
cable broadcasting industry concerns, and other issues. END 
SUMMARY. 
 
UPBEAT OFFICIALS, BULLISH INVESTORS 
 
¶2. (SBU) Tamil Nadu Chief Secretary Tripathy appeared pleased with 
the attention the state is receiving these days: two days prior to 
his November 6 meeting with Davison, Prime Minister Singh and 
Congress President Sonia Gandhi were in the Chennai suburbs to 
inaugurate a Flextronics facility, visit the new Nokia plant and lay 
the foundation for a $10 million Automotive Research Center. 
Tripathy pointed to the new investments that have come in recent 
months -- Motorola, Dell, Hyundai (expansion) -- and the many more 
in the pipeline.  "After an MOU is signed, we make sure that work 
begins within a month", he said.  According to the Chief Secretary, 
infrastructure development is uppermost in the state 
administration's mind, including ways to develop the Tamil Nadu 
ports.  While the state has sufficient power generation as of now, 
the government is planning to generate new projects with Australian 
or Indonesian coal. 
 
BUT SILENT ON POWER DISPUTES 
 
¶3. (SBU) According to Tripathy, problems such as the continuing 
inflow of Sri Lankan refugees (SEPTEL), the perennial river water 
disputes with neighboring states and the funding shortfall for 
infrastructure development are not very serious issues. While 
conceding that fund shortage does hit the much-needed but less 
visible projects such as storm water drains, other major sectors 
such as roads, ports and power, he stated, have no resource crunch. 
Tripathy did not comment on the "legacy issue" of American power 
companies' disputes with the state Electricity Board. Davison raised 
the issue of possible U.S. wheat imports which could greatly benefit 
millers and the increasing customer base in Tamil Nadu.  Tripathy 
indicated this is an area where Tamil Nadu leadership wants to be 
helpful. 
 
TALENT POOL RESULT OF YEARS OF INVESTMENT IN EDUCATION 
 
¶4. (SBU) In a separate meeting, key officials such as state IT 
Secretary Chandramouli and the Managing Director of Tamil Nadu 
 
SIPDIS 
Industrial Development Corporation (TIDCO) Ramasundaram described 
factors that helped the state emerge as a preferred investment 
destination in software development services, consumer electronics, 
automobiles and textiles.  According to the officials, years of 
public investment and bipartisan support for education has ensured 
the availability of a large productive talent pool. Pioneering 
programs such as noon-time meals and affirmative action (reservation 
of seats) for backward castes significantly enhanced both enrollment 
in schools and literacy rates.  They added the already power-surplus 
state proposes to add another 4000 megawatts to meet anticipated 
future demand. Industry-specific Special Economic Zones will also be 
established. To avoid problems of land acquisition, land purchases 
are to be kept at market rates. 
 
POWER COMPANIES PRESENT WOES 
 
¶5. (SBU) Representatives of two U.S. power companies that have 
unsettled disputes with the Tamil Nadu Electricity Board (TNEB) on 
power pricing and capital costs, however, presented a less 
encouraging picture.  ST-CMS sent notice to TNEB informing them of 
their decision to seek arbitration to finalize capital costs.  They, 
however, also mentioned that they intend to talk to the state 
government to try and come to an understanding on the issue. CMS 
would also welcome DUSTR Bhatia's raising their case with Tamil Nadu 
leadership when he visits Chennai at the end of November. 
Meanwhile, Covanta Energy has gone to court to block retroactive 
excise tax levies totaling 24 million dollars; early rulings in 
their favor have given them some hope that their arguments will 
prevail.  Covanta has appealed to the Ministry of Finance to waive 
 
CHENNAI 00002554  002 OF 002 
 
 
the imposition of excise duties on furnace oil used for generating 
power. The appeal is pending before the Union Finance Minister. 
 
¶6. (U)  Coincidentally, on November 8 post received from the state 
government a written reply to a July representation on the power 
issues.  We will report that response septel, along with a more 
detailed update on the IPP issues. 
 
7.(SBU) The power companies' reps believe that the state will face a 
power crisis in the next couple of years as there are no big 
projects under construction that will supply power exclusively to 
the state. According to the companies, the 4000 megawatts that Tamil 
Nadu officials tout will take two years to commission and in the 
meantime the state is likely to scramble for power as demand is 
growing exponentially, exceeding capacity. 
 
"MOTOROLA SHOULD HAVE AVOIDED GOING TO COURT" 
 
¶8. (SBU) With Kalanithi Maran, the Managing Director of Sun (TV) 
Network and brother of Union Telecom Minister Dayanidhi Maran, 
Davison raised the issues of cable broadcasting rates and of 
Motorola's recent disqualification from BSNL's bidding process. 
Maran commented that it was unwise on the part of Motorola to have 
gone to court as it will antagonize "the entire bureaucracy."  He 
believes that the court is unlikely to reverse the decision and that 
even if it does, the issue would go for appeals and prolong 
indefinitely.  Maran said that, instead, Motorola should have talked 
with the Ministry.  He also indicated there could be an additional 
complicating factor behind the disqualification, promising to 
provide further details.  Maran further stated that an out-of-court 
settlement might still be possible, but again gave no indication 
what such a settlement might look like. 
 
¶9. (SBU) Very well informed on Center-State politics, Maran 
commented that the Congress-DMK relations within the UPA remain very 
good at the top level.  He pointed out that the DMK is an 
indispensable ally of the Congress-led UPA government and that it 
enjoys the support of the Congress in the state.  He also 
acknowledged that the DMK government can survive even without the 
support of the Congress party as long as the other sections of its 
Tamil Nadu alliance are retained.  Maran said the state leadership 
of the Congress party does not matter; they are divided and always 
bickering. 
 
CENTER AND STATE WORKING TOGETHER 
 
¶10. (SBU) COMMENT: The Center-State coordination, facilitated by the 
DMK's role in the state and Union governments, is striking. In fact 
it is more than a party activity: Union IT Minister Dayanidhi Maran, 
both Chief Minister Karunanidhi's confidante and grand-nephew, uses 
his position and influence to direct investments to his home state. 
Tamil Nadu, nonetheless, could progress even further if it would 
address its legacy issues and prevent a potential backlash as well 
as attract investment into its power and infrastructure sectors. END 
COMMENT. 
 
¶11. (U) Econ Minister Counselor John Davison cleared this message. 
HOPPER