VZCZCXYZ0010
OO RUEHWEB

DE RUEHUL #0769/01 0690626
ZNR UUUUU ZZH
O 100626Z MAR 06
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6484
INFO RUEHBJ/AMEMBASSY BEIJING 0222
RUEHMO/AMEMBASSY MOSCOW 7154
RUEHKO/AMEMBASSY TOKYO 0304
RUEHUM/AMEMBASSY ULAANBAATAR 1107
RUEHBS/USEU BRUSSELS
RHMFISS/COMUSKOREA J5 SEOUL KOR
RHHMUNA/CDR USPACOM HONOLULU HI
RHMFISS/COMUSKOREA J2 SEOUL KOR
RHMFIUU/COMUSKOREA SCJS SEOUL KOR

UNCLAS SEOUL 000769 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL ENRG ETTC KS KN
SUBJECT: ROK AND JAPAN AGREE ON KEDO TERMINATION PACKAGE 
 
REF: A. 05 SEOUL 5436 
     ¶B. 05 STATE 233640 
     ¶C. SEOUL 10 
 
¶1.  (SBU) Summary: On March 9 the ROK passed to us a 
"Proposed Draft Resolution on the Termination of the LWR 
Project."  The ROK proposes that the Korean Peninsula Energy 
Development Organization meet on April 10-11 to adopt the 
resolution and requests a response from the United States as 
soon as possible.  END SUMMARY. 
 
¶2.  (SBU) Poloff met on March 9 with Cho Sung-hwan, Special 
Adviser in the Ministry of Unification's Office of Planning 
for the Light Water Reactor Project, for a briefing on the 
outcome of discussions between the ROK and Japan on the ROK's 
ref A proposal for the termination of the Korean Peninsula 
Energy Development Organization.  Cho passed us a copy of a 
"Proposed Draft Resolution on the Termination of the LWR 
Project" (reprinted below in para 6 and faxed to EAP/K) that 
had been agreed upon by the ROK and Japan on March 8 after 
two months of negotiations.  Cho emphasized that the proposal 
would impose no new costs on the United States or the 
European Union, which would remain liable only for 
administrative costs. 
 
¶3.  (SBU) Reviewing the text of the proposed resolution, Cho 
explained that Japan had agreed to the ROK proposal to 
transfer all of KEDO's assets to the Korean Electric Power 
Corporation (KEPCO), but had insisted those assets currently 
in North Korea should not transfer.  Cho noted that this 
meant the KEDO Executive Board would have to decide what to 
do with assets still remaining in North Korea.  Japan had 
resisted referring explicitly to its obligation to reimburse 
JBIC for its losses on KEDO, saying it could not do so until 
the national budget was submitted to the Diet; there was, 
however, an understanding that the ROK would be liable for a 
USD1.4 billion payment to the Export-Import Bank of Korea 
(KEXIM) and Japan would be liable for a USD400 million 
payment to the Japan Bank for International Cooperation 
(JBIC).  Finally, in order to clarify that there would be no 
obligation to transfer equipment to a rogue regime such as 
Iran, Japan had also insisted upon the inclusion of language 
in the draft resolution clarifying that transfer to a third 
country would have to be in compliance with the respective 
export laws and regulations of the transferring country. 
 
¶4.  (SBU) South Korea and Japan also agreed that, in the 
event KEPCO made unexpected profits from the resale of LWR 
components, it would consult with KEDO on sharing some of the 
unexpected gain.  The two sides agreed the termination 
contract between KEDO and KEPCO would include the following 
language:  "KEPCO will report to KEDO the outcome of the 
future resale or reuse of the LWR components.  In the event 
KEPCO gains by such future resale or reuse excessive profit 
in view of the profit that is ordinarily expected under 
general commercial practice, KEDO and KEPCO shall settle 
through mutual consultation the issue in a fair and 
reasonable manner." 
 
¶5.  (SBU) Reiterating that neither the United States nor the 
European Union would incur additional obligations under the 
proposed resolution, Cho urged Washington to respond as soon 
as possible to the proposed draft resolution.  The ROK, he 
said, proposed that the KEDO Executive Board meet on April 
10-11. 
 
ROK Proposed Draft Resolution: 
 
¶6.  (U) Begin Text: 
 
Proposed Draft Resolution on the Termination of the LWR 
Project 
The Executive Board of the Korean Peninsula Energy 
Development Organization (KEDO), 
 
Recalling the Statement of the Executive Board of November 
14, 2002 and Executive Board Resolutions 2003-4, 2004-13 and 
2005-14, 
 
Recognizing that recent actions and measures by the DPRK in 
the nuclear safety field has made it impractical to continue 
the Light Water Reactor (LWR) Project, 
¶1. Decides that KEDO terminate the LWR Project and directs 
the Secretariat to have consultation with Korea Electric 
Power Corporation (KEPCO) as soon as possible in accordance 
with the following conditions: 
 
KEDO shall transfer all rights over the LWR equipments, 
materials and technical documents owned by KEDO and located 
outside the DPRK (Equipment and Materials) to KEPCO, in 
accordance with the arrangement to be worked out between KEDO 
and KEPCO, on the condition that KEPCO shall waive all 
financial claims to KEDO excluding those relating to the 
unpaid P&M invoices 
 
KEDO shall confirm that KEPCO shall only be responsible for 
the claims and the termination related costs agreed between 
KEDO and KEPCO, and shall be indemnified from any and all 
political and financial claims brought against KEDO, 
including "those claims" by the DPRK, but excluding those 
arising from the TKC; and 
 
KEPCO will report to KEDO the outcome of the future resale or 
reuse of the Equipment and Materials. 
 
¶2. (Agrees that the member governments of the Executive Board 
shall take necessary measures to facilitate the transfer of 
the Equipments and Materials to KEPCO in compliance with the 
respective export control laws and regulations.) 
 
¶3.  Decides to terminate KEDO as an organization upon 
completion of all the necessary procedures by the end of 2006 
at the latest, and directs the Secretariat to hasten its 
rationalization in the light of reduced workload. 
 
¶4.  Reconfirms that KEDO has the right to require payment of 
any amounts due and financial losses in connection with the 
LWR project in accordance with Article 16.2 of the Supply 
Agreement and reemphasizes KEDO's position that KEDO 
maintains the right of access to the site, that all KEDO 
assets at the site remain the property of KEDO, and that the 
DPRK must allow the repatriation of these assets as soon as 
possible. 
 
¶5.  Continues to consult on the arrangements for KEDO,s due 
payment of the bank loans, based on the Loan Agreement with 
KEXIM and JBIC. 
 
END TEXT OF DRAFT RESOLUTION. 
 
VERSHBOW