VZCZCXRO9782
RR RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #2391/01 1381342
ZNR UUUUU ZZH
R 181342Z MAY 07
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 5733
INFO RUEHCG/AMCONSUL CHENNAI 0381
RUEHCI/AMCONSUL KOLKATA 9953
RUEHLH/AMCONSUL LAHORE 3971
RUEHBI/AMCONSUL MUMBAI 9570
RUEHPW/AMCONSUL PESHAWAR 4545
RUEHIL/AMEMBASSY ISLAMABAD 3233
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 04 NEW DELHI 002391 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT PASS TO USTR DHARTWICK/CLILIENFELD/AADLER 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA ABAUKOL 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
STATE FOR SCA/INS MICHAEL NEWBILL AND EB/TRA JEFFREY HORWITZ AND TOM 
ENGLE 
PASS TO FAA THOMAS NASKOVIAK 
PASS TO DOT DAVID MODESSIT 
 
E.O. 12958: N/A 
TAGS: EAGR EAIR ECPS EFIN EINV ETRD IN
SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS 
 
 
¶1.  (U) Below is a compilation of Economic highlights from Embassy 
New Delhi for the week of May 14-18, 2007. 
 
INDIA AND CIVIL AVIATION 
-------------- 
 
¶2.  (U) In a productive meeting with Deputy Economic Counselor, 
Civil Aviation (CA) Joint Secretary RK Singh reviewed several key 
issues - including Air India's plans for direct routes to the US, 
including WashDC; reviewing GOI requirement for domestic carriers to 
be operational at least five years before servicing international 
routes (which if lowered could permit Kingfisher and other Indian 
carriers to move forward sooner with plans for service to the US); 
Ministry of Civil Aviation's continued efforts with the Ministry of 
Finance to eliminate the high import duty and countervailing duty 
(CVD) on private aircraft and helicopters regardless of use; and 
moving forward U.S.-India Aviation Cooperation Program (ACP). 
 
AIR INDIA WILL SOON FLY DIRECT TO THE US 
---------------- 
 
¶3.  (U) Singh stated that Air India (or the new merged national 
Indian carrier of Air India and Indian Airlines) will begin flying 
direct to the US in August on the Mumbai-New York route.  This 
direct service will be priced marginally higher than, for example, 
Jet Airway's proposed service to the US from Mumbai via Brussels due 
to the extra cost of passenger and fuel loads.  Plans are also in 
work to introduce a Delhi-New York route and perhaps a Delhi-DC 
route.  GOI has asked Boeing to change the paint job on Air India's 
new Boeing-777s and are now expecting delivery in July vice June 
¶2007. 
 
REVIEWING REQUIREMENTS FOR DOMESTIC 
CARRIERS TO FLY ABROAD 
---------------- 
 
¶4.  (U) Singh explained that GOI is reviewing the five-year 
operational rule for domestic carriers.  Previously, when GOI 
decided that domestic carriers would have to demonstrate a proven 
record, meet global inspection requirements, and be in business for 
at least five years, there were only two private competitors to the 
national carriers - Jet Airways and Sahara.  With the rapid growth 
in the domestic aviation industry, that has all changed and a number 
of new private carriers and low-cost carriers have entered the 
market in the last couple of years.  Singh said the government is 
moving towards greater liberalization in the aviation industry and 
is considering reducing the required number of operational years to 
three.  For Kingfisher, GOI has thus far denied its application to 
fly internationally since the airline has been in existence for less 
than the current requirement of five years. 
 
CIVIL AVIATION WEIGHS IN WITH 
FINANCE ON IMPORT DUTY 
----------------- 
 
¶5.  (U) Singh cited the recent announcement by the Ministry of 
Finance to exempt certain categories of use (trainers and 
unscheduled charters) for fixed wing aircraft and helicopters from 
the three percent import duty and 16 percent CVD as a very positive 
development.  Singh noted that US companies like Bell continue to 
complain that the duties continue to apply for sale to private 
companies and individuals and have seriously affected sales in 
India. In response, CA is lobbying MOF to eliminate the duties for 
aircraft destined for any end users, since India does not 
manufacture small planes and helicopters. 
 
VISIBLE IMPACT FOR ACP 
---------------------- 
 
¶6.  (U) Singh was very positive about the results of the April 
Aviation Summit and the Aviation Cooperation Program (ACP).  He 
recommended the ACP move quickly to have a more visible impact and 
 
NEW DELHI 00002391  002 OF 004 
 
 
establish something tangible (beyond training for example).  Civil 
Aviation Minister Patel and Secretary Chawla are very supportive of 
developing an Aviation Museum - similar to the one near Dulles 
Airport in Washington, DC which displays both civilian and defense 
aircraft.  GOI is willing to put in land and some construction money 
towards the project and views this is a visible symbol of the 
U.S.-India Partnership, the ACP, and a good venue for youth.  Singh 
suggested the old airport space at Safdarjung Enclave.  Embassy will 
review this proposal with principal ACP organizers - USTDA, FAA, and 
Boeing (as one of the co-chairs with FAA) - and welcomes Washington 
agencies feedback. 
KERALA SIGNS DEAL WITH DUBAI FOR MAJOR IT PROJECT 
------------------- 
¶7.  (U) After a year of protracted negotiations, the Dubai-based 
Technology and Media Free Zone Authority (TECOM) and the government 
of Kerala signed an agreement on May 13 to set up an Information 
Technology infrastructure project in Cochin, Kerala.  Dubbed "Smart 
City," the $350 million investment project is modeled on Dubai's 
"Internet City," another TECOM venture.  It aims to bring in 
investment from global IT companies who have largely shied away from 
Kerala.  The project envisages creating 8.8 million square feet of 
built-up space, with supporting infrastructure for IT and IT-enabled 
service companies, and promises to create 90,000 jobs in the next 10 
years.  The Smart City will be a joint-venture (in which GOK would 
initially have a 16% stake that would rise to 26% after five years). 
The previous Congress-led government began negotiations with TECOM, 
but Kerala's Chief Minister claims his Communist Party of India 
(Marxist) government renegotiated the deal, ridding it of conditions 
that were harmful to Kerala's interests. 
Rumors of Cabinet Switch Amidst Upcoming Elections 
--------------------------------------------- --- 
 
¶8.  (SBU) Southern Indian press speculated today on two possible 
Cabinet changes in the run up to Presidential Elections.  First, the 
newspaper, the Deccan Chronicle, claimed that the regional party, 
Dravida Munnetra Kazhagam (DMK), which recently demanded that 
Dayanidhi Maran step down as IT Minister, plans to get UPA approval 
to put the Tamil Nadu Chief Minister and DMK leader M. Karunanidhi's 
daughter Kanimozhi in as Minister of Commerce, hiving off the 
Ministry of Industries for Kamal Nath, who currently presides over a 
combined ministry.  This move would put Kanimozhi in charge of trade 
and bilateral and multilateral engagements, including WTO, while 
Nath would focus on investment.  DMK's inclusion in the United 
Progressive Alliance (UPA) coalition enables it to name three 
Cabinet ministers.  The replacement of the IT Minister only moved an 
existing minister to another portfolio. 
 
¶9.  (SBU) As a potentially parallel move, the Deccan Chronicle also 
claimed that, if Foreign Minister Pranab Mukherjee is chosen as the 
consensus candidate for President, leaving the Foreign Ministry 
portfolio open, Finance Minister P. Chidambaram would move over to 
head the Foreign Ministry.  Then, current Chairman of the Prime 
Minister's Economic Advisory Council (EAC), Dr. C. Rangarajan, would 
take over the Finance Ministry. 
 
¶10.  (SBU) Rangarajan's background suggests he would continue the 
same level of commitment to economic reform and liberalization as 
Chidambaram, although perhaps not with as much tenacity.  Rangarajan 
received his Ph.D. in economics from the University of Pennsylvania, 
teaching for a while in the US.  Since 1982, he has held senior 
positions in the central bank, the Planning Commission, and the 
Andhra Pradesh state government, before becoming Chairman of the 
EAC.  Rangarajan was central bank governor during the early reform 
years of 1992 to 1997, residing over the rupee's full convertability 
on the current account.  His reform and central bank experience may 
be an opportunity for additional advocacy (read pressure) on the 
central bank to open the banking sector and capital account more 
quickly. 
 
U.S EXIM LOAN TO RELIANCE TO BOOST U.S. EXPORTS 
------------------ 
¶11.  (U) The Export-Import Bank of the United States has given a 
 
NEW DELHI 00002391  003 OF 004 
 
 
$500 million loan guarantee to Reliance Petroleum Ltd. (RPL) to 
build a $6 billion state-of-the-art oil refinery and petrochemical 
complex in Jamnagar, Gujarat.  Major U.S. exporters also 
participating in the project include: Black & Veatch International 
Co for sulphur recovery and gas treatment units; Dow Global 
Technologies for licensing and services for the polypropylene plant 
process; Foster Wheeler Corp for fired heaters for the refinery's 
coker; and UOP LLC for the catalytic converter reactor section and 
PSA (Pressure Swing Absorption) packages.  The new refinery will be 
the world's sixth largest and will be located adjacent to Reliance 
Industries Ltd's (RIL) existing refinery and petrochemical complex 
in Jamnagar. Together the two refineries will comprise the largest 
refining complex in the world. 
 
¶12.  (SBU) This deal is the first success story coming out of the 
USTDA-supported Refinery Orientation Visit (OV) for Indian oil 
companies held in January 2007.  The TDA-funded OV helped Reliance 
Limited to complete due diligence before placing orders on U.S. 
companies.  The US-EXIM played a key complimentary role in extending 
the credit line to Reliance once it made up its mind to buy U.S. 
equipment and technologies. 
 
GOI's GAIL CLAIMS LNG SUPPLIES NOW SUFFICIENT TO RUN RATNAGIRI 
(DABHOL) GAS FIRED PLANT 
--------------- 
¶13.  (U) The empowered group of ministers (EGoM) on the 
partially-idle Ratnagiri Power Project (previously known as the 
Dabhol project), in the power-deficit state of Maharashtra, has 
decided that all three blocks of the thermal power plant project 
will run on liquefied natural gas (LNG), said Minister for External 
Affairs, Pranab Mukherjee, who heads the EGoM.  Up until now, union 
Power minister, Sushil Kumar Shinde has cited unavailability of LNG 
as the major hurdle for the revival of the Dabhol plant.  Mukherjee 
said that the Gas Authority of India Limited (GAIL) has given an 
assurance to supply adequate LNG for all the three blocks of Dabhol 
project, although no date for start-up has been set.  The Gujarat 
state government has been requested to expedite the state clearances 
for a stretch of pipeline that is to feed gas from Petronet's import 
terminal at Dahej in Gujarat to the Dabhol project in Maharashtra. 
 
¶14.  (U) GOI data indicates that, while India's overall electricity 
load deficit is 9%, in the industrial state of Maharashtra it is as 
high as 20%.  The supply of 2,150 MW from the Dabhol project could 
bridge half the power shortfall in the state.  Currently, only one 
block of the project is running on naphtha, which produces very 
costly power. 
 
¶15.  (SBU) COMMENT:  The Dabhol LNG facility has a capacity of 5 
million metric tons of LNG per year (about 6.8 billion cubic meters 
at standard pressure of natural gas per year).  GAIL has been trying 
to identify potential LNG supply sources for Dabhol which would 
allow the plant to maintain a generation send-out cost of U.S. cents 
5.2 per kilowatt-hour, which would imply a natural gas price of 
US$3.00 per MMBTU.  Given current international prices for LNG, in 
some cases at over twice that level, it is unlikely that GAIL will 
be able to obtain long-term supplies at this price.  This pricing 
situation raises doubts about power purchases by the power-starved 
Maharashtra State Electricity Board, which seems be the only 
potential buyer.  End comment. 
TAMIL NADU'S NEW LIQUOR LAW TO COMPLY WITH WTO OBLIGATIONS 
-------------------------- 
¶16.  (U) Tamil Nadu's ruling DMK introduced a bill to amend the 
Tamil Nadu Prohibition Act to bring the state into compliance with 
India's WTO obligations.  The existing Prohibition Act substantially 
restricts the sale of imported wines and spirits in Tamil Nadu. 
According to media reports, the government of India had has been 
asking the state to take action since 2001.  The bill's statement of 
object said "It has, therefore, been decided to comply with the 
request of the government of India and to amend the said Act 
accordingly." 
¶17.  (U) Visit New Delhi's Classified Website: 
http://www.state.sgov/p/sa/newdelhi 
 
NEW DELHI 00002391  004 OF 004 
 
 
 
Pyatt