WASHINGTON, June 10: India has proposed setting up a special unit to reprocess spent atomic fuel under international safeguards in a bid to salvage a civilian nuclear deal with the United States that could make New Delhi a de facto member of the nuclear club, diplomatic sources told Dawn.

Indian officials discussed this proposal with their American counterparts in Germany last week on the sidelines of the Group of Eight summit, the sources said.

The Indians hope that this would remove the impediments to a deal giving New Delhi access to previously forbidden US nuclear technology.

The differences stemmed from India’s claim that it has the right to reprocess spent fuel to run its ambitious fast-breeder programme, which will eventually lead to a “third-generation” or third-stage reactor based on another material called thorium.

India is believed to have less than one per cent of the world reserves of natural uranium, but more than 30 per cent of the global reserves of thorium.

During the talks, the US proposed that India leave the reprocessing issue out of the so-called 123 agreement which spells out the conditions for implementing the deal already signed by the Indian and American leaders and endorsed by the US Congress.

But India rejected this, citing its past experience with two light-water reactors donated and built by the US at Tarapur in the 1960s. After India conducted a nuclear test in 1974, the US neither let India reprocess the spent fuel, nor took it back.

Separately, Indian Prime Minister Manmohan Singh held talks with

US President George W. Bush in Germany, also on the sidelines of the Group of Eight summit.

The Indian Prime Minister later said that both sides will have to engage in “tough negotiations” if they want to conclude the nuclear deal.

“I think some tough negotiations will be required before we can see the light at the end of the tunnel," Mr Singh told reporters on Sunday after a meeting with the US President.

Meanwhile, Indian diplomats in Washington are worried that the window of opportunity to clinch the deal can shut by September, when the US Congress reconvenes to focus on domestic issues.

By then Mr Bush, already in the last year of his tenure, will become a lame duck president as campaign for the 2008 presidential elections pick up.

Besides the issue of reprocessing spent fuel, the two governments also disagree on a condition in the proposed deal that calls for an automatic suspension of US nuclear supplies if India conducts yet another nuclear test. India is unwilling to accept this condition.

Under the deal India is to separate nuclear facilities for civilian and military use and set up a regime of international inspections in return for technology and nuclear fuel supplies.