VZCZCXRO8614
PP RUEHAST RUEHCI RUEHDBU RUEHLH RUEHNEH RUEHPW
DE RUEHBI #0479/01 3510741
ZNR UUUUU ZZH
P 170741Z DEC 09
FM AMCONSUL MUMBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 7645
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 8855
RUEHBI/AMCONSUL MUMBAI PRIORITY 2879
RUEHCG/AMCONSUL CHENNAI PRIORITY 2171
RUEHCI/AMCONSUL KOLKATA PRIORITY 1958
RUEHUNV/USMISSION UNVIE VIENNA PRIORITY 0046
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC

UNCLAS SECTION 01 OF 04 MUMBAI 000479 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EIND EINV ENRG KNNP ETRD IN
SUBJECT: INDIAN NUCLEAR ESTABLISHMENT HIGHLIGHTS REPROCESSING AND 
ASSURED FUEL SUPPLY CONCERNS TO VISITING U.S. NUCLEAR SUPPLIER 
DELEGATION 
 
MUMBAI 00000479  001.2 OF 004 
 
 
¶1. (U) Summary:  The U.S.-India Business Council's delegation of 
U.S. commercial nuclear energy vendors engaged with the Indian 
nuclear energy establishment in Mumbai to discuss the role of 
U.S. companies in augmenting India's nuclear energy capacity. 
The Nuclear Power Corporation of India, the government-owned 
operator of nuclear power plants in India, is preparing the 
groundwork for housing 10,000 MW of imported reactor technology 
at four coastal sites.  The company is also securing around USD 
26 billion through debt and equity funding to finance its 
capacity expansion plans.  However, NPCIL interlocutors and S. 
Banerjee, the newly-appointed Secretary of the Department of 
Atomic Energy, maintained that commercial co-operation with U.S. 
companies is conditioned upon an assured lifetime reactor fuel 
supply and the right to reprocess spent fuel for reuse in the 
safeguarded reactors.  Indigenous manufacturing of reactor 
components to reduce production costs and achieve low nuclear 
power tariffs was also cited as critical to the success of the 
Indian nuclear power program.  End Summary. 
 
 
 
¶2.  (U) On December 10, the U.S.-India Business Council (USIBC) 
brought a delegation of U.S. nuclear technology, equipment and 
fuel suppliers to India to engage with the Indian nuclear energy 
establishment based in Mumbai.  S. Banerjee, the newly-appointed 
Secretary of the Department of Atomic Energy (DAE) and the 
former director of the Bhabha Atomic Research Center (BARC), 
acknowledged the U.S. government's role in opening up global 
nuclear energy trade and commerce to India and said that there 
was scope for "an even greater involvement of U.S. companies" in 
pushing forward India's ambitious nuclear power capacity 
augmentation program.  (See reftel A for background on 
Banerjee.)  S.K. Jain, the Chairman and Managing Director of the 
Nuclear Power Corporation of India (NPCIL) which is the 
government-owned operator of nuclear power plants in India, said 
that the Indian public, politicians, and policymakers were 
looking for "action on the ground" and were waiting for the 
"first nuclear power wattage from a foreign reactor." 
 
 
 
Work on Imported Reactors with Total Capacity of 10,000 MW to 
Commence by 2017 
 
--------------------------------------------- -------------- 
------------------- 
 
 
 
¶3.  (U) India currently has 17 nuclear power reactors with a 
generation capacity of 4,120 MW.  Jain announced that five more 
reactors -- three indigenous reactors and two light water 
reactors based on Russian technology -- will supply power to the 
grid by 2010, increasing India's installed nuclear power 
capacity to 6,780 MW.  The Indian government has approved the 
construction of eight indigenous pressurized heavy water 
reactors (PHWRs) of 700 MW capacity each.  Jain also announced 
the commencement of site work for three fast breeder reactors 
and for the 300 MW advanced heavy water reactor.  With this, 
work on 12 indigenous reactors will commence as projected in the 
Eleventh Five Year Plan for 2007-12, he said. 
 
 
 
¶4.  (U) Two coastal sites -- Mithirvidi in Gujarat and Kowada in 
Andhra Pradesh -- each with a capacity of 10,000 MW, have been 
reserved for U.S. companies, General Electric (GE) and 
Westinghouse, to build nuclear power parks.  The Jaitapur site 
in Maharashtra will house another 10,000 MW nuclear power park 
based on France's Areva technology.  Russian technology will be 
used at the nuclear park at Haripur in West Bengal and to build 
another four reactors of 1,000 MW at Kundakulum in Tamil Nadu 
where two Russian light water reactors of 1,000 MW each are 
presently under construction.  Jain said that the government has 
asked NPCIL to start acquiring land at all these sites.  The 
company hopes to be in possession of the land at all the sites 
within the next eight to ten months after which it will start 
the construction of civil works at the facilities.  NPCIL plans 
to prepare these sites so that work can begin as soon as the 
technological-commercial contracts for LWRs are signed with 
foreign vendors during the Twelfth Five Year Plan, 2012-2017. 
 
MUMBAI 00000479  002.2 OF 004 
 
 
 
 
 
USD 26 Billion Needed in Near Future to Fund Nuclear Power 
Program 
 
--------------------------------------------- -------------- 
------- 
 
 
 
¶5.  (U) Aside from site location and technology, Jain noted that 
funding and manpower are two other components to nuclear energy 
projects.  J.K. Ghai, Director (Finance) of NPCIL, estimated 
that around USD 26 billion would be required to fund the 
company's plans to build 13,600 MW in the near future.  (Note: 
This includes eight 700 MW PHWRs and eight 1000 MW LWRs imported 
from France, Russia, GE and Westinghouse.  End Note).  All power 
projects have a 70:30 debt-equity ratio.  NPCIL's share would be 
8 billion USD; with potential investments in uranium mines and 
other assets worth 900 million USD, NPCIL's equity requirement 
is around USD 9 billion, he said.  The remaining USD 18 billion 
will be funded through debt, which will be a mix of bank 
borrowings, and export credit agency funding, Ghai said.  Due to 
its AAA rating, the company can secure domestic and 
international funding on soft terms and conditions.  The 
company's average interest rate for loans is 7.25 percent.  Jain 
added that some of the leading global banks have indicated their 
willingness to underwrite debt of USD 4-5 billion to support the 
Indian nuclear energy program. 
 
 
 
¶6. (U) The company has internal funds of USD 6 billion which 
would finance up to 8,000 MW.  Support from the Indian 
government, the public issuance of NPCIL shares, or partnerships 
with other public sector companies could be used to jointly 
finance some nuclear energy projects, Ghai explained.  Jain 
announced that NPCIL has signed agreements to partner with the 
National Thermal Power Corporation, Indian Oil Corporation, and 
National Aluminium Corporation -- all government-owned and 
capital rich companies -- to increase its financial strength and 
capital base.  Ghai added that the Andhra Pradesh Electricity 
Generation Company, APGENCO, and the Indian Railways have also 
expressed interest in partnering with NPCIL.  Financial 
institutions including Power Finance Corporation and 
Infrastructure Development Finance Corporation were also 
interested in investing in NPCIL's projects.  Ghai admitted that 
private sector involvement would greatly increase the project 
financing capability, although current legislation does not 
allow private participation in nuclear power generation. 
 
 
 
¶7.  (U) NPCIL has also been ramping up its manpower requirements 
to build multiple reactors simultaneously.  (Note: NPCIL is 
responsible for the construction, erection, commissioning and 
operation of all nuclear energy facilities in India.  End Note). 
 Jain noted that the average age of NPCIL staff is less than 40 
and the company can also leverage the technical skills and 
knowledge of the Indian industry to support the nuclear energy 
program.  K.C. Purohit, Director (Projects) of NPCIL, separately 
concurred, and noted that the company had managed the 
construction of nine nuclear energy facilities of differing 
capacities and technologies at the same time.  He acknowledged 
that the drastic expansion of the nuclear power program which 
would require NPCIL to simultaneously work on indigenous and 
different imported reactor technologies would be challenging but 
nonetheless achievable. 
 
 
 
Assure Lifetime Fuel Supply Before Importing Foreign Reactors 
 
--------------------------------------------- ---------------- 
 
 
 
¶8.  (U) Ashok Chauhan, Associate Director (Fuel) of NPCIL, 
emphasized that NPCIL is not prepared to commence any 
construction with imported reactor technology without an 
 
MUMBAI 00000479  003.2 OF 004 
 
 
assurance for a lifetime supply of reactor fuel.  To ensure a 
steady and reliable fuel supply, NPCIL requires a sovereign 
guarantee from the fuel supplier country, and either a 
technology transfer or a joint venture with the fuel supplier to 
construct a fuel manufacturing facility in India, he continued. 
NPCIL is also open to setting up a fuel manufacturing facility 
which could serve as an export hub to supply fuel to nuclear 
reactors in other countries or to supply fuel to other light 
water reactor vendors who have plants in India, he added.  NPCIL 
currently has short-to-medium term fuel supply contracts with 
Areva, TVEL Corporation and Kazatomprom (KAP). 
 
 
 
¶9.  (U) According to Chauhan, NPCIL is looking to source uranium 
from different vendors and have offtake arrangements from owners 
of uranium mines, take independent equity stakes in uranium 
mines and have short, medium and long-term contracts with fuel 
suppliers from different geographical locations.  Chauhan 
explained that NPCIL is also planning to partner with uranium 
conversion utilities or to acquire stake in commercial 
enrichment plants.  India's present enrichment program is not on 
an "industrial scale" and is too small to support a 1000 MW 
nuclear power station. 
 
 
 
Reprocessing Rights Should Predate U.S. Commercial Co-operation 
 
--------------------------------------------- ------------------ 
 
 
 
¶10.  (U) In a speech to U.S. company representatives, DAE's 
Banerjee emphasized that commercial co-operation with U.S. 
nuclear energy suppliers will not be possible unless India can 
reprocess the spent fuel obligated to run the imported U.S. 
reactors.  Banerjee said that reprocessing facilities will be 
located in the exclusion zone around the nuclear energy parks 
which are at coastal sites.  This will minimize the 
transportation of spent and reprocessed fuel between the 
reprocessing facility and the reactor, he explained.Anil 
Kakodkar, the former Secretary of the DAE and one of the chief 
negotiators of the U.S.-India Civil Nuclear Cooperation 
Initiative, pointed out that reprocessing of subsequent 
generations of spent fuel is critical to grow the capacity and 
size of the Indian nuclear power program.  There is an integral 
link between reprocessing and reactor capacity; limiting one 
would constrain the other, he argued.  Kakodkar also believes 
that reprocessing spent nuclear fuel will soon be inevitable 
even for the U.S. as energy demand grows and environmental 
concerns for non-polluting energy sources mount. 
 
 
 
Cheap Nuclear Power Not Possible Without Localization 
 
--------------------------------------------- -------- 
 
 
 
¶11.  (U) All NPCIL speakers and DAE's Banerjee emphasized that 
the indigenization of reactor components and nuclear energy 
equipment is central to achieving low-cost nuclear power.  The 
current cost of nuclear power ranges from .02 USD to .06 USD, 
with the average cost of nuclear power is .05 USD. (Note: 
Nuclear power, like other sources of power in India, is priced 
at a cost plus basis to ensure the recovery of fixed and 
variable costs and an assured return on equity of 14-15.5 
percent.  Nuclear power tariffs are determined by the Department 
of Atomic Energy in consultation with the Central Electricity 
Regulatory Commission.  End Note).  DAE's Banerjee believes that 
increasing local content will reduce fixed costs which will 
enable lower tariffs for nuclear power.  NPCIL's Purohit 
emphasized that involvement of the local industry at all stages 
of the nuclear energy project is critical to build an efficient 
supply chain which will not only save costs but also ensure 
timely completion of nuclear power projects. 
 
 
 
 
MUMBAI 00000479  004.2 OF 004 
 
 
¶12.  (U) Meena Mutyala, Vice President of Westinghouse, 
acknowledged that Indian manufacturers are extremely proficient 
in high precision heavy engineering that is required to 
manufacture reactor components.  She, however, pointed out that 
speed and timely completion of a project is as important as 
achieving low costs.  She noted that Indian manufacturers can 
play a greater role after they gain the skill and experience to 
manufacture reactor components.  The initial imported reactors 
may therefore have less local content that those commissioned 
later, she said. Mutalya claimed that U.S. reactors cost less 
than the Russian reactor as they have fewer components.  She, 
therefore, pointed out that the cost of nuclear power generated 
by U.S. reactors could be even cheaper that that generated by 
the Russian reactors.  She noted that U.S. reactors offer a 
combination of cost competitiveness, operational ease and safety. 
 
 
 
¶13.  (SBU) Separately, N. Rao, General Manager (Finance) of 
NPCIL, confided to Congenoff that NPCIL paid a "high" price for 
French reactors from Areva and hoped that the U.S. reactors 
would be more competitively priced in comparison.  He believed 
that GE and Westinghouse would be able to leverage their global 
manufacturing presence to offer a cheaper price.  Jain noted 
that India's first two nuclear reactors that were built by GE 
were presently supplying the cheapest nuclear power in the 
country and were operating at a 100 percent plus plant load 
factor (capacity utilization).  He also pointed out that the 
first two Russian reactors that are likely to be commissioned in 
2010 are expected to generate power more cheaply than some of 
the indigenous nuclear power facilities. 
 
 
 
¶14.  (U) NPCIL interlocutors also highlighted the potential of 
using India's low cost manufacturing capabilities for the global 
manufacturing of nuclear equipment.  Mutalya concurred and 
pointed out that the International Energy Institute had 
projected an increase in global nuclear energy capacity from 372 
GW to 1280 GW by 2050, mainly concentrated in Asia (particularly 
in India and China) and parts of Africa.  There is, therefore, a 
tremendous opportunity for India to emerge as the global 
manufacturing hub to meet the growing worldwide demand for 
nuclear power, she said. 
 
 
 
¶15. (SBU) Comment:  The U.S. nuclear energy suppliers delegation 
was warmly received by the nuclear energy establishment in 
Mumbai.  These companies are also extremely eager to finalize 
some major sales.  Indian participants recognized the need to 
complete the final steps necessary to implement the Civil 
Nuclear Cooperation Initiative, and ensure that commercial sales 
can proceed, and there was a sense of impatience - on both sides 
- to move forward.  Nonetheless, the interactions with NPCIL and 
Indian industry's private sector nuclear equipment suppliers 
showcased the continued interest and perseverance of U.S. 
companies to participate in growing India's nuclear power 
generation capacity.  End Comment. 
FOLMSBEE