Foreign Relations of the United States, 1958–1960, South and Southeast Asia, Volume XV

229. Telegram From the Department of State to the Embassy in India¹

Washington, May 15, 1959—6:26 p.m.

2824. AEC and Department engaged careful study Embtel 252² re US-Indian nuclear power cooperation. This message summarizes preliminary actions and sets forth certain questions. It should be emphasized reactions and following information for Embassy’s background. Any commitment by US to encourage nuclear power project would require extensive negotiations with Indians, further review and approval appropriate Washington agencies.

Embassy should review central elements US-Euratom joint program (refer issues 548 and 564 Current Economic Developments June 24, 1958 and February 3, 1959).³ Should be emphasized this program, which was intensively negotiated over six months period, required legislative action which included basic authorization and calls for annual supporting appropriations. There were special and compelling political arguments for Euratom program, particularly contribution it makes to furtherance cause European integration. It also offers opportunity US industry—and Europeans, as well—gain in experience in design operation and improvement of large scale nuclear power plants. Embassy will also note that US-Euratom program is joint, each side sharing equally in costs of associated research and development program. Of capital cost of plants, maximum 40% to be financed from Ex-Im Bank 4½% loan. Should be emphasized capital cost of plants will be paid by European utilities, as well as fuel inventory. Only grant-type contribution as such is contingent liability of US in connection with fuel cycle guarantees.

Purpose above reference Euratom program is to indicate (a) that most ambitious program US has in nuclear power field is not too attractive economically when viewed in Indian context and (b) not apparent that same political or economic rationale prevails for similar type program in India. Indian program could not be as strongly supported as low cost means developing nuclear technology as is case Euratom thus strong political justification would have to be demonstrated. We do not feel necessary or desirable to consider going to Congress for special program as in case Euratom and latter paragraphs outline alternative possible approach.

Such alternative approach would take advantage of existing sources of funds and certain atomic energy established programs. These possibilities include (a) use Ex-Im or DLF funds for foreign exchange costs which for plant of 150 MW (electrical) in India might run in range 75% of $45 million foreign exchange out of anticipated capital cost approximately $60 million, (b) Local currency costs might be covered as Embtel suggests from PL 480 rupee loan, (c) Special nuclear material, for first loading and inventory, which might be roughly in range $10 to $15 million, could be handled as part of AEC deferred payment scheme. This repayable in dollars. Under this arrangement Indians would only have to pay 4% interest on fuel, plus full payment for material consumed, for first 10 years, balance to be paid second 10 years. Substitute or possible complementary approach with respect to financing special nuclear material would be willingness Ex-Im Bank consider financing fuel as capital item. Ex-Im has in past indicated willingness to consider this approach due special characteristics nuclear fuel. Annual fuel cost in dollars could be as high as $5 million.

In considering foregoing, number questions immediately come to mind:

1) Not clear type reactor system Indians have in mind or how many. Are they still considering four alternatives set forth reftel? Or do they envisage joint review technical and economic merits various approaches prior to decision on which approach they would select? In short what approach does Bhabha have in mind in solving these problems?

2) Possible approach outlined paragraph above raises series of questions re relationships between AEC and Indian AEC; Indians and US private suppliers.

3) We are aware that Canadian experience with Indians on NRX reactor has not been entirely happy and they still have not completed negotiations on the basic agreement for the project. Does this experience have any special relevance to proposed approach?

4) As Embassy knows, any cooperation in nuclear power field requires bilateral power agreement which includes detailed safeguard provisions. Only alternative to US exercise these rights would be administration of safeguards by IAEA. One of first questions to be settled would be willingness Indians accept fact of power agreement and safeguard arrangement—either US or Agency administered. If not, there would appear to be little value in further negotiation.

5) Given limited funds what are particular merits this project compared with other possible impact type projects balanced against large dollar cost? This especially relevant in light of probable very large requirements for external assistance for balance second five-year plan, third five-year plan and Indus waters construction under IBRD proposal.

6) While Department can see political advantages cooperation with India as summarized reftel, not sure extent to which project financed from several loan funds would meet Embassy criterion “US package finance identification.” Related question is whether GOI be prepared give ample publicity US assistance or would project primarily enhance prestige Bhabha or GOI?

7) Further question is comparative economic cost nuclear power versus conventional which would have bearing on Ex-Im and DLF reactions to any Indian nuclear project.

Next step is for Embassy comment on foregoing. While this may well require some further consultation Indians, Department and AEC feel essential that there be further review implications US-Indian nuclear cooperation prior formal reply Bhabha initiative.

As principal contact with Indian atomic energy program has been UK and Canada, we feel essential that prior any formal US exploration proposal with Indians these two countries should be informed. This suggestion made against background reiterated allegation of high British authorities that US foreign nuclear programs contain subsidy elements adverse to British interests and extensive Canadian investment time and effort in NRX project.

After further Embassy–Washington consideration above questions then necessary decide best means proceeding with Indians. AEC would prefer discussions with Bhabha in Washington. They believe could take advantage of long planned visit which he has deferred. Washington locus makes possible for AEC experts to explore key questions in informal fashion and without making it appear that Bhabha being invited Washington explicitly to discuss US-Indian program. Department on other hand sees some merit high level AEC experts discussing Indian proposals on informal basis in New Delhi as means insuring that responsible Indian authorities other than Bhabha appreciate full economic aspects nuclear program. By-product New Delhi would be Embassy and USOM could become further informed on complicated technical and economic implications of US supported Indian nuclear power program. Appreciate advice Embassy this point.⁴

Dillon

1. Source: Department of State, Central Files, 611.9197/5–1559. Confidential. Drafted by J. Robert Schaetzel of S/AE, cleared with the AEC, and approved by Deputy Assistant Secretary of State Donald D. Kennedy of NEA. Pouched to London and Ottawa. According to a note on the source text, this telegram was approved during a meeting in Kennedy’s office on May 13. A memorandum of the discussion at that meeting, drafted by William A. Chapin of S/AE, is ibid., 891.1901/5–459.
2. Reference is presumably to telegram 2552 from New Delhi, April 23. In that telegram, Bunker reported that Homi Jehangir Bhabha, Chairman of the Indian Atomic Energy Commission, recently visited him to discuss U.S.-Indian cooperation in the peaceful uses of atomic energy. Bhabha indicated that India was seeking cooperation with the United States in the atomic energy field along the same lines as the agreement which was signed recently between the United States and EURATOM. Bunker stated that he discussed Bhabha’s proposal with his Country Team which unanimously agreed that this proposal was an outstanding example of the type of U.S.-Indian financial and technical cooperation which the Embassy had recommended in telegram 1538 (Document 224). In the Embassy’s view, he added, such an agreement would be desirable for the United States because, among other reasons, it would “provide ‘impact’ needed by US in propaganda battle concerning US scientific capabilities in comparison Soviets” and would “put US first in field Indian nuclear power as opposed Soviet influence in rival field public sector oil development.” (Department of State, Central Files, 891.1901/4–2359)
3. Current Economic Developments was a semimonthly classified periodical prepared by the Bureau of Economic Affairs for internal use as background and policy guidance reports. The two issues under reference are ibid., Current Economic Developments: Lot 70 D 467.
4. In telegram 3035 from New Delhi, May 31, the Embassy replied to the specific points in telegram 2824, indicating its belief that talks between John Hall of AEC and Bhabha would present an “excellent opportunity advance Bhabha’s and U.S. thinking on Indo-U.S. nuclear power cooperation.” (Ibid., Central Files, 611.9197/5–3159) Telegram 3062 to Vienna, June 2, repeated to New Delhi, informed Hall that the Atomic Energy Commission and the Department of State agreed that he should explore further the issue of U.S.-Indian nuclear power cooperation with Bhabha. (Ibid., 611.9197/5–3159)