This record is a partial extract of the original cable. The full text of the original cable is not available.

C O N F I D E N T I A L SECTION 01 OF 05 NEW DELHI 001824 
 
SIPDIS 
 
FOR SECRETARY BODMAN FROM AMBASSADOR MULFORD 
 
E.O. 12958: DECL: 02/14/2015 
TAGS: ENRG EPET ECON ETTC PREL KNNP TRGY IN US NSSP
SUBJECT: REVITALIZING THE US-INDIA ENERGY RELATIONSHIP 
 
REF: A. NEW DELHI 1707 
     ¶B. NEW DELHI 1261/1263/1264 
     ¶C. NEW DELHI 1175 
     ¶D. NEW DELHI 750 
 
Classified By: Ambassador David C. Mulford, Reasons 1.4 b,d 
 
¶1.  (C) Secretary Bodman, now that you have had a few weeks 
to settle into your new role, I want to share with you some 
thoughts and ideas on our relationship with India.  You 
already know from our meeting last November my views on the 
emerging India, a vibrant, multi-faceted democracy that is a 
growing and increasingly confident regional power with 
legitimate global ambitions.  A decade of economic reforms 
has raised GDP growth to the 7-8 percent range and has 
created growing public support for continuing reforms. 
Successive governments are moving these reforms forward, 
albeit within the political constraints imposed by India's 
vigorous and sometimes frustrating democratic system.  Most 
big players here predict several decades of sustained robust 
economic growth, thanks in part to India's youthful 
population, which will lift India into the top ranks of 
global economic and political powers.  Energy is at the heart 
of the Indian agenda because there is consensus that India 
will not be able to achieve its aspirations without secure 
and reliable energy supplies.  The Indians realize that we 
are critical to their energy agenda, which gives us 
considerable leverage in influencing their developing energy 
policies. 
 
A Comprehensive Relationship 
---------------------------- 
 
¶2.   (C) President Bush's 2001 directive to transform the 
strategic agenda with India has borne good results in the 
last four years.  The bilateral relationship has strengthened 
on virtually every front.  Today we consult regularly at the 
highest levels on political, economic, security, and global 
issues.  Secretary Rumsfeld visited Delhi in January. 
Secretary Rice is expected next week.  She will be followed 
 
SIPDIS 
by Secretary Mineta in April and Secretary Snow in the fall. 
Foreign Minister Natwar Singh is scheduled to be in 
Washington in April.  We hope there will be other cabinet 
visits this year, including by you.  We also expect the 
President to visit India sometime later this year. 
 
¶3.   (C) These high-level exchanges are a sign of how far our 
relationship has changed.  Where once there was doubt and 
suspicion, today there is greater candor and cooperation. 
Our close coordination in responding to the December Tsunami 
and the ongoing Nepal crisis are cases in point.  Even when 
we disagree, as we did over Iraq, we are generally able to 
deal constructively with our differences, and move on.  The 
announcement of the "Next Steps in Strategic Partnership 
(NSSP)" last year was an important signal that both sides 
want the relationship to grow closer in the years ahead and 
to leave behind the sanctions-focused era of US-India 
diplomacy. 
 
¶4.   (C) The bilateral economic relationship, which once was 
a laggard, is beginning to expand.  In the 9 months it has 
been in power, the United Progressive Alliance (UPA) 
government has moved on several issues of importance to us: 
it has finalized an Open Skies policy with us; it has 
strengthened its IPR regime; it has raised foreign direct 
investment limits in several areas; and it has lowered tariff 
rates in sectors of importance to our industry.  Another 
highly symbolic FDI legacy issue, the Dabhol dispute, which 
was complicated by the Enron collapse, is moving closer to 
resolution.  We hope Boeing will soon be awarded a $8.5 
billion contract for sale of commercial aircraft to Air 
India, which has not bought new planes since the 1980s.  The 
United States is India's biggest export market and its 
largest foreign investor.  Although a large trade imbalance 
remains, India is becoming an increasingly important 
destination for U.S. exports.  Last year our exports grew by 
21 percent, with prospects of a similar increase this year. 
The growing Indian market offers extraordinary potential for 
U.S. exports and investment in the decades ahead. 
 
The Economic Dialogue 
--------------------- 
 
¶5.  (C) The principal tool we have used to strengthen the 
economic relationship is the US-India Economic Dialogue (ED). 
 Last October, following the Prime Minister's visit to New 
York, we agreed that the ED, which had yielded uneven 
results, needed to be revitalized.  The leadership of the ED 
has been elevated so that key issues can be lifted to the 
White House/Prime Minister's Office level.  National Economic 
Advisor Al Hubbard and the Prime Minister's principal 
economic advisor Montek Singh Ahluwalia will serve as overall 
coordinators.  The five existing tracks of the ED -- Finance, 
Environment, Trade, Energy, and Commerce -- will remain 
because they are useful.  A new CEO's forum will be added to 
advise policy makers on what is required to remove structural 
impediments to greater trade and investment ties.  I believe 
American energy companies should be represented at this 
forum. 
 
¶6.   (C) For the five tracks of the ED to yield tangible 
results, it is essential that there be support from the 
relevant Departments in Washington and Ministries in Delhi. 
The Energy track of the ED has historically been its most 
active track, with numerous cooperative activities across a 
broad spectrum of energy-related areas ranging from clean 
energy and energy efficiency to cooperative activities on 
natural gas and coal.  These activities, however, have 
drifted somewhat in recent times.  The Foreign Ministry has 
told us that launching a revived energy dialogue -- similar 
to what India has with the EU -- will be a priority for 
Foreign Minister Natwar Singh's April 5 visit to Washington. 
I hope you will give your personal attention to revitalizing 
the energy pillar because of its great potential to move our 
broader economic relationship forward.  The four areas that I 
believe hold the greatest potential are cooperation on energy 
security, civil nuclear activities, natural gas, and clean 
and efficient energy. 
 
Energy Security 
--------------- 
 
¶7.   (C) India imports about 70 percent of its oil and gas 
needs, primarily from the Middle East.  It is among the 
fastest growing importers of oil and gas in teh world.  In 
the decades ahead, India (along with China) could be 
competing with the United States for access to limited 
supplies.  For this UPA government, as with the previous 
National Democratic Alliance (NDA) government, energy 
security is a high national security priority -- in many ways 
it is the tail that is driving Indian foreign policy. 
Petroleum and Natural Gas Minister Mani Shankar Aiyar is 
widely regarded as the brightest and most successful of the 
UPA ministers.  He has significantly raised his Ministry's 
profile, usurping the international role that the Foreign 
Ministry earlier monopolized.  The state-controlled oil and 
gas companies have been directed to aggressively seek out oil 
and gas properties offshore and overseas.  India has 
transformed its position on participating in trans-Pakistan 
gas pipelines to take advantage of energy supplies in Iran 
and Turkmenistan. 
 
¶8.   (C) It is important for these reasons that we engage in 
an energy security dialogue.  We could influence Indian 
energy policy such that it follows a path conducive to U.S. 
economic, political, security, and global environmental 
interests.  We have reported on India's growing oil and gas 
relationship with Iran (Ref C).  A renewed and invigorated 
high level exchange could allow us to exert some influence on 
this Indo-Iran energy relationship and to encourage forays in 
other directions, such as the burgeoning India-Qatar ties. 
It will also make the Indians more attentive to resolving 
investment disputes some of our companies face (Dabhol, Tamil 
Nadu), and yield significant opportunities for U.S. business. 
 The idea of an energy security exchange was first broached 
by us in 2002, when Under Secretary of State Al Larson 
suggested to the GOI that discussion could move along two 
tracks:  fuel and supply diversification; and energy 
preparedness in the event of a major supply disruption.  The 
GOI was enthusiastically receptive to this proposal, in part 
because it resonates well politically within this highly 
energy import-dependent economy.  The GOI, which was in the 
process of creating its own strategic stockpile, also felt it 
could benefit from American expertise in this area. 
Subsequently, DOE hosted several visits by GOI officials, 
including one by then-Indian Petroleum and Natural Gas 
Minister Ram Naik, to share our experience in creating the 
National Petroleum Reserve.  The GOI participated in DOE's 
Strategic Oil Stockpiling Conference in November 2004. 
 
¶9.   (C) We believe that our energy security exchanges should 
be revitalized and broadened beyond an occasional meeting or 
site visit at the margins of some event.  The process should 
get high level (i.e., Secretarial and Ministerial) support. 
We should institutionalize meetings at regular intervals 
between experts in areas such as alternative strategic 
petroleum reserve storage methods, tripwires for tapping the 
reserve, agriculture-based fuel additives, alternative fuels 
and reductions in oil intensity.  As we have done previously, 
we should support the Indian road shows, such as Minister 
Aiyar's January presentation in Houston, which are designed 
to elicit interest in India's exploration and production 
leasing program.  An MOU on information exchange between the 
Energy Information Agency and the GOI, which has taken eight 
years for us to finalize, should be signed immediately. 
 
Civil Nuclear Cooperation 
------------------------- 
 
¶10.  (C) India has established an ambitious civil nuclear 
power program, which will be a small but increasingly 
important part of the country's energy mix.  Its efforts, 
however, are being stymied because it is now encountering a 
critical shortage of natural uranium fuel.  The GOI seeks 
more collaboration with the United States in the civil 
nuclear area, but believes that U.S. policy does not 
accommodate realities on the ground.  Foreign Secretary Saran 
has suggested there should be a comprehensive review of the 
US-India civil nuclear relationship and a need to move the 
nuclear relationship forward even within the constraints 
imposed by our NPT and NSG obligations.  This presents us an 
opportunity where we can leverage flexibility on our part to 
move Indian policy in other issues of importance to us, and 
fold civil nuclear issues into the broader matrix of 
cooperative efforts with an emerging economy as important as 
India. 
 
¶11.  (C) We have been impressed, as was NRC Commissioner 
Jeffrey Merrifield during his February 8-11 visits to various 
nuclear power stations in India (Ref B), at the maturity and 
sophistication that the Indian civil nuclear establishment 
has achieved as a power generating utility.  There ought to 
be activities that DOE and its labs could conduct which would 
be comply fully with current law and with NSG obligations but 
still respond positively to Indian requests for a broader 
civil nuclear power relationship.  We should explore 
cooperative activities that encourage the Indian civil 
nuclear sector to pursue responsible policies that are 
consistent with international best practices.  India's 
current nuclear fuel crunch is pushing the GOI to move in 
unproven and potentially dangerous directions, such as use of 
MOX fuel in their boiling water reactors and developing a 
complex  fast breeder reactor.  We should use this 
cooperation to assure that U.S. interests are clearly 
understood and recognized as the Indian civil nuclear 
industry comes of age. 
 
¶12.  (C) For example, the United States could support nuclear 
safety at the aging Indian reactors by permitting the plants 
to acquire U.S. safety-related equipment under the NSG's 
safety exception.  We could consider reviewing our policy of 
blocking India's efforts to acquire uranium for civil nuclear 
power from other countries, as long as it is consistent with 
NSG obligations.  Both these steps could be used to leverage 
placement of additional Indian facilities under IAEA 
safeguards.  We could also pursue additional US-India 
cooperation on fusion research and safe reactor designs.  We 
could support Indian participation in events sponsored by the 
nuclear power industry within the United States.  Although 
there are may be difficulties with responding positively to 
the GOI's interest in becoming a member of the International 
Tokomak Engineering Reactor (ITER), DOE could make a 
concerted effort to bring Indian plasma physicists on board 
U.S. plasma physics efforts just as they are on board high 
energy physics collaborations (Ref B and D).  We could 
continue to support Indian participation in the World 
Association of Nuclear Operators peer review process where 
members benchmark safety practices and conduct peer reviews 
of power plant operations.  We could also support Indian 
participation in INPRO, a forum for exploring the next 
generation of proliferations resistant reactors (Ref A). 
 
Natural Gas 
----------- 
 
¶13.  (C) The natural gas market in India is expected to grow 
robustly in the years ahead as its share in India's energy 
mix increases from 8 percent to over 20 percent by 2020.  The 
Indian Petroleum and Natural Gas Minister told the Ambassador 
(Ref B) that current Indian supplies of 90 million cubic 
meters per day (mmcmd) is about ten times higher than in the 
1980s.  It falls far short of demand, however, which is 
estimated at 150 mmcmd and projected to increase to 400 mcmd 
in 20 years.  The 2003 discovery by Reliance in the 
Krishna-Godavari basin and subsequent discoveries by Cairns 
and ONGC further have induced aggressive exploration in the 
Bay of Bengal.  Meanwhile, India has begun to lock in long 
term supplies of LNG.  There are at least half a dozen 
proposals for building LNG terminals along India's coasts. 
It is also exploring ideas for pipelined gas from Iran, 
Turkmenistan, Burma, and Bangladesh. 
 
¶14.  (C) We recognized the potential growth of the Indian 
natural gas market early.  In 2002, DOE co-sponsored with the 
GOI a "Building Natural Gas Markets" conference in Delhi. 
And we have funded through the U.S. Trade and Development 
Agency a feasibility study for a national gas grid.  We need 
to do more.   We should follow up this year with another 
natural gas conference and related seminars and workshops on 
regulation, pricing, transportation, LNG, transparency and 
competition.  As it is doing in other sectors, the GOI wants 
to establish an independent regulatory body for the 
hydrocarbon sector.  We should share our experience and 
knowledge about regulatory best practices with them.  At the 
conference, we should help secure the attendance of 
recognized international experts on such regulatory 
practices.  We should seek out opportunities to help upgrade 
the office of Indian Director General of Hydrocarbons, the 
primary GOI technical agency for the oil and gas sector. 
Engaging early in this sector could yield signficant 
commercial opportunities for U.S. business. 
 
Clean/Efficient/Renewable Energy 
-------------------------------- 
 
¶14.  (SBU) India is one of the world largest users of coal 
and a major emitter of greenhouse gases.  The country has 
embarked on an ambitious reform program in the power sector 
in an effort to help achieve its Power on Demand plan by 
¶2012.  This translates to expanding rural power access to 
over 100,000 villages and connection to 10 million 
households.  Through DOE, USAID and EPA, we have in place a 
robust set of cooperative activities that can be loosely 
grouped together under the clean, efficient, renewable energy 
heading.  These activities have generally been quite 
successful, although we need support to raise the profile and 
broaden and deepen our efforts in such areas as energy 
efficiency, demand-side management, and distribution reform. 
We seek support in Washington to enhance the funding levels 
of these programs.  We would use high-level interest in these 
programs to showcase their success and build support for 
them. 
 
¶15.  (SBU) Such activities include the Coal Advisory Group, 
which has been a successful forum for sharing experiences and 
discussing science and economic issues relating to coal. 
India is a one of the 14 founding members of the 
International Partnership for the Hydrogen Economy.  It is 
also a charter member of the 2004 "Methane to Markets" 
initiative.  The EPA and U.S. Trade and Development Agency 
have proposed funding a Coal Bed Methane clearing house 
project.  USAID has a number of ongoing energy-related 
programs, some in collaboration with DOE.  These programs 
provide an excellent foundation for DOE to contribute its 
impressive technical, advisory and policy expertise. DOE and 
USAID have a long-term relationship under the Greenhouse Gas 
Pollution Prevention project.  At $39 million, this is 
USAID's largest climate change initiative. 
 
¶16.  (SBU) USAID is implementing a very effective $25 million 
Energy Conservation and Commercialization project aimed at 
building institutional capacity among Indian utilities and 
state and local governments to promote energy efficiency and 
demand-side management. USAID also has a multi-year $20 
million Distribution Reforms Upgrades and Management (DRUM) 
program, designed to promote power distribution reforms at 
the state and local level and efficiency improvements in 
India's creaking last mile distribution networks.  USAID's 
$10 million Water-Energy Nexus Activity aims enhances 
cross-sectoral solutions and investment opportunities.  For 
the past two years, USAID has been assisting the GOI is 
assessing the relevance of key US-developed Integrated Coal 
Gasification Combined Cycle (IGCC) technology operating on 
high ash content India coal.  Since 2001, India has been 
participating in USAID's South Asia Regional Initiative on 
Energy (SARI/E), which seeks to promote mutually beneficial 
energy linkages among the South Asian countries. 
 
Conclusion 
---------- 
 
¶17.  (C) I hope this conveys the fertile menu of existing and 
potential cooperative energy-related activities that have 
great promise.  I would like to suggest that you personally 
take charge of our Energy relationship with India and in 
doing so make an early visit here.  It is important we engage 
at high levels with a country that will play an important 
role in the global energy markets in the future.  In my 
recent meeting with Petroleum and Natural Gas Minister Aiyar 
(Ref B), it was clear that he wants to greatly expand 
cooperation with the U.S. public and private sector.  A visit 
by you would move our relationship firmly in a direction 
conducive to U.S. interests and the strengthening of our 
bilateral relations.  It would also inject momentum into the 
rich palette of ongoing activities and help launch new ones. 
I plan to be in Washington in late April and, if your 
schedule permits, hope to have the opportunity to discuss how 
we might advance our agenda. 
MULFORD