At its meeting on October 19, 1955, Cabinet approved Canadian participation in several small projects in India.²⁵ At that time it was pointed out that only a relatively small amount of funds from the 1955-56 allocation was involved since it was expected that the bulk of the allocation to India for 1955-56 (and some part of 1956-57 funds) would be required if Cabinet eventually approved Canadian participation in a large hydro-electric project at Kundah, in Madras State, which was being investigated by Canadian engineers.

2. This memorandum seeks approval for Canadian participation in Kundah. Additional funds are also requested to meet the increased costs of one of the projects approved on October 19, 1955 - the aero-magnetic survey of Western Rajasthan - and the extension of this aero-magnetic survey to the Uttar Pradesh Province of India.

The Kundah Project

3. The Indian Government have requested Canadian Colombo Plan assistance for the financing of the external costs of the Kundah hydro-electric project which has been included as a high priority project in the Indian Second Five Year Plan. The power from this project will be used in Madras State, one of the most thickly settled and highly industrialized areas in India. This area is already short of power and the Kundah project offers the only source of relatively cheap power which can practicably be developed at this time to meet the rapidly increasing needs which are expected over the next few years.

4. A firm of Canadian consulting engineers has now investigated this project thoroughly and has reported that it is technically and economically sound.

5. Stage I of this project (for which India has requested assistance) will involve the installation of 145,000 kilowatts of power at an estimated total cost of $60 million. Of this amount, the external costs involving equipment which will be required from outside India and the services of a Canadian engineering company (to carry out the design and supervision of the work) are estimated not to exceed $20 million. A precise estimate of external costs cannot be made until there has been more extensive investigation, in cooperation with Indian officials, of the practical possibilities which exist for supplying as much of the equipment as possible from Indian sources (particularly transmission lines). The Canadian engineers are also hopeful that as the project progresses it may prove possible, by altering designs or specifications, to reduce substantially the costs of equipment and materials required from outside India. The balance of the costs in excess of the Canadian contribution to the external costs will be born by India which will thus bear roughly two-thirds of the total costs for Stage I.

6. Subject to satisfactory delivery dates for the equipment it is estimated that Stage I of the project can be in operation by 1961 (one part of the installation could produce power as early as 1959).

7. If approval is granted in principle at this time for Canadian participation in financing the external costs of Kundah now estimated at a maximum of $20 million, approximately $13 million might be allocated for this out of 1955-56 funds, with the balance to be met out of funds to become available in 1956-57.

Increased Estimate for the Aero-Magnetic Survey of Rajasthan

8. At its meeting on October 19, 1955, Cabinet approved the allocation of $125,000 out of India's 1955-56 allocation to finance the external costs of an aero-magnetic survey by a Canadian company of the prospective oil bearing areas of West Rajasthan. Subsequently a Canadian Company, Spartan Air Services, were selected for this survey on the basis of this preliminary estimate although, pending negotiations on the revision of the costs and approval by Cabinet, no contract has yet actually been concluded with Spartan. A more detailed examination of the flying to be carried out and the eventual compilation of data revealed that the amount of $125,000 was not sufficient to cover the total external costs involved in an effective survey. While contract negotiations were still under way between Canadian officials and the company, the latter arranged for personnel and equipment (including an aircraft) to reach India at the end of last year and in the early part of this year. Due largely to unfortunate flying conditions the Indian Air Force were unable to complete preliminary photography (required before the aero-magnetic survey can begin) and the project was unable to start effectively on the anticipated date. As a result of these delays certain standby costs additional to the original estimate have arisen and these, together with the revised estimate described above, now bring the total cost of the project to $175,000. The Indian Government has been informed that we consider a part of these additional costs to be attributable to delays for which they were responsible and negotiations are now taking place to ascertain what part of the standby costs they should bear. In addition to the part of these standby costs which it may prove practicable for India to assume, the latter has also assumed responsibility for all other local costs involved in the project. The Canadian Government has agreed that counterpart funds totalling $50,000 (out of existing counterpart funds resulting from previous Canadian Colombo Plan grants to India) may be used by the Indians to help finance part of these local costs.

9. Approval is sought to conclude a contract with Spartan based on the final estimate of $175,000, on the understanding that Canadian expenditures within this amount may be reduced to the extent that India assumes part of the standby costs referred to in the preceding paragraph.

Extension of the Aero-Magnetic Survey to Include Some Areas in Uttar Pradesh

10. The Indian Government has arranged privately for Spartan to fly a reconnaissance of further potential oil bearing areas in the Gangetic Basin in the State of Uttar Pradesh. If this reconnaissance (which will be carried out without expense to Canada) proves favourable India has requested Canadian assistance in financing an aero-magnetic survey of some 10,000 line miles in the area in question.

11. The external costs of this latter project are estimated at $80,000 if the same personnel and equipment now employed for the Rajasthan Survey can be used to undertake the Uttar Pradesh survey on the completion of the Rajasthan Survey this spring. The mobilization and demobilization costs for the aircraft and personnel would be spread over two projects with considerable saving in external costs of the Uttar Pradesh project. It would therefore be desirable to have an early decision in order to take advantage of these savings.

12. Assistance to India in the survey and development of its oil resources should make an important contribution to the Indian economy. Some assistance for ground surveys has been provided to India from the USSR, but it is generally conceded that improved Western techniques could be used to offset some doubtful advice now being proffered by Soviet technicians.

13. Approval is sought to conclude a further contract with Spartan to finance an extension of the aero-magnetic survey to areas in Uttar Pradesh, if the preliminary reconnaissance proves that such a survey would be desirable and effective. Any standby costs incurred before the start of the Uttar Pradesh project will be met by India.

Recommendations

14. It is recommended that:

(a) Cabinet agree in principle to participation by the Canadian Government in the Kundah project and that the Canadian Government should finance the external costs of this project, estimated at this stage not to be in excess of $20,000,000. The sum of $13,000,000 would be set aside out of 1955-56 Colombo Plan funds to meet part of these external costs and the remainder would be covered by an allocation from funds which Parliament will be asked to approve for 1956-57.

(b) Cabinet authorize the conclusion of a contract between the Canadian Government and Spartan Air Services for an aero-magnetic survey of Rajasthan at a cost of $175,000.

(c) Cabinet agree that, subject to the report of the preliminary reconnaissance being favourable, the Canadian Government should finance the external costs of an aero- magnetic survey in Uttar Pradesh at an estimated cost of $80,000, to be undertaken by Spartan Air Services immediately upon the conclusion of the aero- magnetic survey in Rajasthan.²⁶

L.B. PEARSON