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P 011346Z DEC 08
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 6773
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHBI/AMCONSUL MUMBAI PRIORITY 1937
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8013
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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0028
RHEHAAA/NSC WASHINGTON DC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 05 MUMBAI 000559 
 
SENSITIVE 
SIPDIS 
 
USDOE FOR SHANE JOHNSON, TOM CUTLER, AND COURTNEY GILLESPIE 
STATE FOR EEB/ESC/IEC  DAVID HENRY 
NSC FOR ANISH GOEL 
UNVIE FOR GEOFF PYATT 
 
E.O. 12958: N/A 
TAGS: ENRG TRGY BEXP EINV EFIN ECON IN PREL
SUBJECT: INDIAN NUCLEAR ENERGY SUPPLIERS ARE EAGER TO GLOBALIZE, BUT 
CHALLENGES LIE AHEAD 
 
REF: A. 07 MUMBAI 0706 
     ¶B. MUMBAI 494 
     ¶C. NEW DELHI 2985 
 
MUMBAI 00000559  001.2 OF 005 
 
 
¶1. (SBU) Summary:  In series of recent meetings in Mumbai, 
including with the delegation led by U.S. Nuclear Regulatory 
Commission Chairman Dale Klein, Indian private-sector nuclear 
energy equipment and service suppliers expressed enthusiasm 
about the opportunities awaiting them now that the U.S.-India 
Civil Nuclear Cooperation Initiative is largely completed.  For 
decades, these companies have done the lion's share of work for 
India's indigenous reactors, but are now looking at ambitious 
plans to partner with foreign companies in India and overseas to 
take advantage of the global "nuclear renaissance."  Government 
officials and industry players have privately cautioned that 
fully implementing liability protection could take several years 
and proceed in a step by step process, rather than a one-time 
enactment of the Convention on Supplementary Compensation (CSC). 
 Nevertheless, all admit that several challenges still remain -- 
from passage of nuclear liability legislation to opening up 
nuclear power generation to the private sector -- before India's 
nuclear power production goals can be met.  End Summary. 
 
 
 
Indian Private Sector Companies Look to Play Major Role in 
Indian Nuclear Power Development 
 
--------------------------------------------- ------------- 
 
 
 
¶2. (SBU) In a recent meeting, Anil Ambani, the Chairman of the 
Reliance Anil Dhirubhai Ambani Group (ADAG), told the Consul 
General that he is looking to enter the nuclear power generation 
business in India as soon as it is privatized.  Ambani said that 
Reliance ADAG has already finished discussions with equipment 
suppliers in Russia, France, and South Africa - but not the U.S. 
 (Note:  Reliance Power Limited is developing 13 medium and 
large-sized coal, gas and hydroelectric power projects with a 
combined planned installed capacity of 28,200 MW, one of the 
largest portfolios of power generation assets under development 
in India.  End Note.)  Ambani believes that the Nuclear Power 
Corporation of India, Ltd. (NPCIL) cannot expand India's nuclear 
power sector on its own, and private sector participation is 
necessary.  However, he said that the Department of Atomic 
Energy (DAE) under the leadership of Dr. Anil Kadkodkar would 
fight the entry of private players at all costs.  Despite the 
uncertainty of private sector participation, Reliance ADAG has 
hired a former NPCIL Chairman, Dr. V.K. Chaturvedi to head its 
nuclear operations at Reliance Energy, and has arranged for 100 
engineers to be trained by NPCIL.  (See New Delhi xxxx for a 
report of Dr. Kadkodkar's views on the privatization of the 
Indian nuclear sector.) 
 
 
 
¶3. (SBU) In a separate discussion, Anil Parab, the General 
Manager of the nuclear business of Larsen & Toubro (L&T), a 
leading player in infrastructure development, construction and 
heavy engineering sector, opined that privatization of the 
Indian nuclear energy sector is at least a decade away.  He 
explained that the Confederation of Indian Industry (CII) was 
trying to push privatization of the sector, as many of its 
members are private sector power generation companies, while the 
other leading chamber of commerce, the Federation of the Indian 
Chambers of Commerce & Industry (FICCI), was pushing to maintain 
the status quo as existing players in the nuclear energy 
industry -- including NPCIL -- are amongst its members.  V.K. 
Sharma, a former Technical Director of NPCIL who now works for 
Gammon India, a major construction and project management firm, 
pointed out that NPCIL is little more than a general contractor, 
and outsources all construction work to private industry.  He 
could not foresee complete privatization, but believes that the 
government will eventually amend the law to allow the private 
sector to partner with NPCIL.  NPCIL, alone, will not be able to 
manage the large number of reactor facilities that are being 
 
MUMBAI 00000559  002.2 OF 005 
 
 
planned, he argued.  Nevertheless, interlocutors agreed private 
companies would not be willing to invest in nuclear energy until 
the nuclear liability law is passed.  Equity caps for private 
players is another issue; if the government-owned partner 
retains 51 percent stake, the company has to abide by government 
norms, Parab noted. 
 
 
 
 
 
Nuclear Liability Law Some Ways Off 
 
----------------------------------- 
 
 
 
¶4. (SBU) According to Ambani, in order for India's nuclear power 
sector to grow as anticipated, the Parliament must amend current 
atomic energy legislation to allow for private sector 
participation, as well as pass nuclear liability legislation, he 
said.  Ambani said that the nuclear liability law is especially 
important for U.S. companies, which would find the Indian market 
too risky and be unlikely to participate in the sector without 
such a law in place, unlike Russian or French companies which 
have the backing of their governments.  (Note:  Existing 
legislation permits Indian government-owned companies to operate 
nuclear power plants provided they are approved by the 
Department of Atomic Energy (DAE).  The government-owned 
National Thermal Power Corporation, the largest power generation 
company in India, may get DAE's "blessing" to partner with the 
sole nuclear power operator, the Nuclear Power Corporation of 
India Limited (NPCIL) for nuclear power generation.  NPCIL does 
not require nuclear liability legislation, as it has the 
"implicit" backing of the government in case of a nuclear 
accident.  End Note.) 
 
 
 
¶5. (SBU) Ambani noted that a new Indian Parliament won't meet 
until September 2009 after the next national elections, so the 
window to amend the nuclear energy acts - and pass nuclear 
liability legislation -- is short and closing.  In fact, he 
added, the liability law "is not even on the cards."  However, 
Ambani expressed his belief that the U.S. "should not be left 
behind" once nuclear commerce begins, as the U.S. did all the 
hard work to make the Civil Nuclear Initiative possible.  Ambani 
explained that the "view among knowledgeable people in New 
Delhi" is that the U.S. companies -- GE and Westinghouse, among 
others -- would rather sell equipment and parts than design, 
build and operate plants in India, implying that nuclear 
liability legislation should not be a priority. 
 
 
 
¶6. (SBU) In contrast, L&T's Parab speculated that the Indian 
Parliament would pass its own nuclear liability law in January 
¶2009.  The law was to be passed during the fall session of the 
Parliament but most of the Parliamentarians had left to campaign 
for state elections and so it was deferred to January, he 
explained.  However, Parab privately confided that he fears that 
the domestic nuclear liability law would not be consistent with 
the Convention on Supplementary Compensation for Nuclear Damage 
(CSC) and it may take another two years to reconcile the 
legislation with the international treaty.  (Note:  In a 
separate conversation with Gitesh Sharma, the Ministry of 
External Affairs' representative at DAE, he told the Consul 
General that the domestic nuclear liability law was a "first 
step" towards CSC compatibility, but was largely "in line with" 
the CSC.  End Note.) 
 
 
 
¶7. (SBU) Parab also believes that the nuclear energy safety 
regulator in India, the Atomic Energy Regulatory Board (AERB), 
should be completely independent from the DAE to ensure 
 
MUMBAI 00000559  003.2 OF 005 
 
 
transparency and fairness.  Currently, the AERB reports to the 
Atomic Energy Commission whose chairman, Kakodkar, is the 
Secretary of the DAE. In addition, he noted that the Indian 
Mergers and Acquisition laws will need to be amended, so that 
nuclear liabilities can be transferred from one company to 
another in the event of a buy-out.  Besides the nuclear 
liability law, Gammon India's Sharma pointed out issues 
pertaining to spent fuel and the management and safeguarding of 
imported nuclear energy technology have still to be sorted out. 
 
 
 
Financing, Local Sourcing and Price to Determine Choice of 
Foreign Vendor 
 
--------------------------------------------- ----------------- 
 
 
 
¶8. (SBU) NPCIL currently operates 17 nuclear power plants and is 
constructing an additional six nuclear energy facilities.  NPCIL 
plans to construct an additional eight pressurized heavy water 
reactors (PHWRs), with a capacity of 700 MW each indigenously, 
and plans to import 24 light water reactors (LWRs).  Parab noted 
that NPCIL had enough funds to finance eight additional PHWRs of 
700 MW each.  The company would have to secure external 
financing for buying imported LWRs.  NPCIL should be easily able 
to secure domestic and foreign financing as it is triple-A 
rated, he said.  NPCIL will be able to secure financing at 
market rates rather than replicate the subsidized credit 
financing model of the Russian reactors, he opined. 
 
 
 
¶8. (SBU) Nilendra Nigam, the Executive Vice President of L&T, 
pointed out that the cost of imported LWRs is significantly 
higher than indigenous PHWRs.  Foreign vendors should therefore 
source a major portion of the nuclear equipment locally to bring 
down costs, he said.  Parab believes that pricing will be a 
decisive factor in the selection of imported reactor technology 
once the initial reactor technology contracts are "politically" 
determined and awarded to both General Electric and Westinghouse 
of the U.S., as well as Russia and France.  Gammon India's 
Sharma agreed that imported reactors have to be priced 
competitively and suggested foreign vendors tie-up with Indian 
nuclear energy equipment suppliers to discuss local sourcing to 
bring down costs.  Except for the reactor pressure vessel, all 
other equipment can be sourced from India, he continued.  S.K. 
Jain, the Chairman & Managing Director of NPCIL, had earlier 
emphasized during a December 2007 discussion with the USIBC's 
nuclear energy vendors delegation that foreign vendors will be 
encouraged or required to source reactor components and nuclear 
energy equipment locally (see ref A).  Parab told Congenoff that 
L&T will sign a MOU with Westinghouse for this purpose during 
the week of November 24. 
 
 
 
Indian Companies Seek to Globalize 
 
---------------------------------- 
 
 
 
¶9. (SBU) Besides India's NPCIL, Indian companies will also be 
able to sell nuclear equipment and components to utilities in 
the U.S., which was not an option before the 123 agreement. 
During meetings with the Indian private sector nuclear equipment 
suppliers during the week of November 17, the Chairman of the 
U.S. Nuclear Regulatory Commission (NRC), Dale Klein, noted that 
U.S. industry is unlikely to engage in heavy manufacturing and 
would prefer to source nuclear energy equipment from abroad and 
assemble it in the U.S.  Modular construction is preferable to 
on-site work at the reactor site as it is more timely, of better 
quality, and reduces the manpower strength at the site, he 
added.  Klein told Indian interlocutors that the NRC has 
 
MUMBAI 00000559  004.2 OF 005 
 
 
received applications for 26 new reactors in the U.S., and 
several utilities are also looking at getting lifetime 
extensions for existing reactors, providing many commercial 
opportunities for the sale of nuclear energy equipment and 
components in the U.S.  The French market may be more difficult 
to penetrate as the major nuclear reactor vendor and utility 
company in France, Areva and EDF, are government-owned, he said. 
 L&T's Parab agreed and noted Areva's investment of USD 42 
million to purchase 1.3 percent stake in Japan Steel Works, the 
only supplier of forgings for nuclear power plants, to secure 
forgings for its reactors. 
 
 
 
L&T Forges Overseas to Expand Domestic Nuclear Energy Footprint 
 
--------------------------------------------- ----------------- 
 
 
 
¶10. (SBU) L&T manufactures reactor vessels for PHWRs and fast 
breeder reactors (FBRs) for the Indian nuclear energy program 
and critical equipment and systems for heavy water plants, fuel 
re-processing plants and plasma reactors.  The company is also 
engaged in the civil construction and life extension services 
for existing nuclear energy reactors through on-site inspection 
and replacement of coolant channels.  According to L&T's Nigam, 
the company has a "footprint" in all nuclear energy facilities 
in India with the exception of the first two boiling water 
reactors, which were built by GE.  For example, he noted that 
L&T had done over two-thirds of the work on the FBR at Kalpakkam 
in Tamil Nadu.  L&T is also involved in the civil works, piping 
and supply of condensers and other auxiliary equipment for 
India's first imported light water reactor (LWR) based on 
Russian technology in Kundakulam in Tamil Nadu. 
 
 
 
¶11. (SBU) L&T Chairman and Management Director A.M. Naik told 
Chairman Klein that L&T has formed a 76:24 joint venture (JV) 
with the NPCIL to manufacture forgings for nuclear power plants. 
 According to Naik, there is a global shortage of forgings, as 
Japan Steel Works is the only supplier of forgings for nuclear 
power plants and increased demand for these forgings has created 
a backlog.  L&T's forgings plant will be located at the coastal 
site of Hazira in Gujarat alongside the company's existing 
manufacturing facilities for reactors and steam generators. 
Naik emphasized that by taking a minority stake in this venture, 
NPCIL indicated its commitment to buy forgings from L&T. 
Another JV to manufacture nuclear tubing may be next, he said. 
The purpose behind such arrangements is to complete the nuclear 
energy supply chain.  Naik pointed out that only 30 percent of 
the company's manufacturing capacity at Hazira will be utilized 
to build nuclear equipment for the Indian nuclear energy 
program.  The company will use the remaining capacity at Hazira 
to manufacture supercritical boilers for the power industry and 
other heavy equipment for refineries and petrochemical plants. 
In this way, Naik explained, L&T has "hedged" against the risk 
that no nuclear power plant will be built in India in the next 
five years.  The company has invested USD 1 billion to expand 
its existing facilities at Hazira. 
 
 
 
¶12. (SBU) Naik also explained that L&T and the DAE are engaged 
in discussions on constructing and exporting small nuclear 
reactors.  The price of a steam generator in India costs half 
that of a similar generator in Canada for example, he said.  The 
Shaw group in the U.S., Westinghouse, NPCIL and L&T are also 
examining the feasibility of a "single window" facility to build 
a complete turnkey nuclear energy plant, he continued.  Nigam 
emphasized that L&T plans to remain "technology-neutral" and 
will supply nuclear energy equipment to all companies requiring 
their services, both in India and overseas. 
 
 
 
MUMBAI 00000559  005.2 OF 005 
 
 
 
~While Other Indian Suppliers Focus on India 
 
-------------------------------------------- 
 
¶13. (SBU) Tata Consulting Engineering (TCE) acts as the design 
consulting engineer for all NPCIL nuclear power plants, 
excepting the first two BWRs facilities.  The company provides 
project management and engineering services for fuel 
fabrication, power generation, and management and disposal of 
disposal of nuclear waste.  R. Srinivasan, the Deputy Managing 
Director of TCE, is enthusiastic about the opportunities to 
support U.S. reactor vendors in India.  The company is in 
discussions with GE, Westinghouse and Areva to offer support for 
design consulting engineering, he added.  TCE also prepares 
design reports for safety-related structures and components, 
reviews contractor's contributions in safety documents, and 
prepares documentation for nuclear project safety review, which 
NPCIL then submits to the AERB.  TCE's familiarization with AERB 
procedures and guidelines will be an asset to U.S. companies 
looking for AERB approval for licensing their technology. Gammon 
India's nuclear power team told Congenoff that they hope to 
obtain civil engineering contracts, and are looking to partner 
with U.S. firms, such as Bechtel. 
 
 
 
¶14. (SBU) Comment:  In building nuclear power plants, NPCIL 
sub-contracts most of the construction, forgings, and the 
manufacturing of sensitive parts and materials out to Indian 
private sector companies.  In this sense, there is already 
considerable private sector participation.  NPCIL has told 
ConGenoffs on several occasions that once India is permitted to 
engage in nuclear commerce, it plans to serve as an apex 
contracting body under whose oversight all new nuclear plants 
will be developed and operated.  However, it is clear that 
Indian companies are seeking a much bigger role, hoping to serve 
as operators and global suppliers in a wider nuclear power 
universe.  Private players feel confident that ultimately, they 
will be able to play a bigger role in building and operating 
nuclear power plants.  Nevertheless, it is important to remember 
that there are many new entrants into the non-nuclear power 
production business - including Reliance ADAG - with little 
track record, which understandably makes NPCIL and nuclear 
energy regulators reluctant to open up the market to untested 
players. 
 
 
 
¶15. (SBU) Press reports indicate that the French company Areva 
has already been assigned a site to develop nuclear power plants 
at Jaitapur in Maharashtra; sites elsewhere in India -- in West 
Bengal, Andhra Pradesh, and Gujarat -- are reportedly yet to be 
assigned.  If the India government's view is that U.S. companies 
seek only to be equipment suppliers, it may not prioritize a 
nuclear liability law, which would be a prerequisite for the 
operation of nuclear power facilities and equipment sales by 
U.S. companies.  In any case, the U.S. participation in India's 
nuclear sector will likely be mediated through the already cozy 
relationship established between NPCIL and its sub-contractors. 
End Comment. 
FOLMSBEE