Until 2005 India was a pariah in the international nuclear community. For decades, it could not import nuclear technology, equipment, technical services or uranium for its civil nuclear programme. This situation changed after former US President George Bush phoned former Prime Minister Manmohan Singh in March 2005, to say he looked forward to signing the 123 Agreement with India. Section 123 of the US Atomic Energy Act of 1954 requires the US to sign a cooperation agreement before entering into a nuclear deal with another nation.
The US-India civil nuclear co-operation agreement opened the doors for India to access US and European nuclear technology. Vigorous follow-up helped Bush sign the enabling legislation, HR 7081, in 2008. Following this, the media reported that General Electric (GE), Westinghouse Energy Corporation (WEC) and AREVA of France would conclude contracts, and reactors with capacities of 1,200-1,700 MW from these suppliers would be located in clusters of six at certain coastal sites in India. So why hasn’t this happened, even after eight years of negotiations between the Indian Department of Atomic Energy (DAE), and plant suppliers in the US and France?
There are many reasons. Among the most critical are the Civil Liability for Nuclear Damages (CLND) law of October 2010, and the Rules of 2011, passed by Indian Parliament. The CLND provisions gave the Nuclear Power Corporation (NPCIL), as a nuclear plant operator, the right of recovery in monetary terms, from nuclear suppliers, if they were found guilty.
This was not the practice anywhere in the global nuclear community. The US and French suppliers rejected such liability. The Indian government then came up with the Indian Nuclear Insurance Pool (INIP) to cover the suppliers’ risk of potential liability. The assumption was that both parties would be de-risked once this pool was established and insurance policies were issued to NPCIL and its hardware suppliers. This was an intelligent solution to a tricky situation.
Despite access to INIP at a nominal cost to Indian and foreign suppliers, Jeff Immelt, CEO of GE, noted on 23 September that the rest of the world had a standard liability regime, and called for homogeneity between India and the world. He said: “There is no project that’s worth so much to put GE into risks. No, never! We just have to have a common language.”
If the Indian government were to comply with Immelt’s expectations, it would effectively abolish the right of recovery. Given the political climate in India, this will not happen. So are we ever going to get imported nuclear power plants from the US and Europe?
We already import nuclear power plants through the Indo-Russian partnership. Thanks to the Russian government’s support, Rosatom, a Russian public-sector company, which supplies reactors in consortium with their own manufacturing industry, worked assiduously with the DAE and NPCIL in the mid-1990s and the early 21st century, to build the institutional capacity for licensing through the Atomic Energy Regulatory Board (AERB), localising civil construction, installation and commissioning skills, co-opting Indian industry players to be part of the local supply chain, and localising civil works and plant operation for their 1000 MW VVER type nuclear reactors.
To date, the Russians have signed commercial contracts to supply four reactors at Kudamkulam near Kanyakumari. Contracts for two more at the same site are likely to be signed in the coming years. The first of the six started commercial operation in January 2015. The second is likely to be connected to the Tamil Nadu grid by early next year. The first two reactors at Kudamkulam will supply power to the grid at under Rs 4 per kilowatt hour (kWh).
I am arguing here that notwithstanding India-US bonhomie, the signature on 123 agreements for civil nuclear cooperation and the French interest to supply their EPR reactors, the Indian nuclear power programme will follow a two-track model that practically excludes US and European suppliers.
The first track is based on construction and operation of domestically developed pressurised heavy water reactors (PHWR) of 700 MW each. Six of these, with domestic technology, are under construction in Rajasthan, Gujarat, and Haryana. Another 14 such reactors are supposed to be built in Rajasthan, Karnataka and Madhya Pradesh over the next decade, though how many will actually be built after Gorakhpur is a moot question.
The second track is based on the VVER type nuclear plants from Russia. Besides Kudankulam, six of these 1,000 MW units will be built on the east coast of India. The total installed capacity of the two sites will be a little over 12,000 MW. I see no scope for US or French reactors in this paradigm. The question is: how could Russia monopolise the supply of foreign reactors to India”?
Russia’s success is no fluke. It is based on financial and technological advantages that India cannot ignore. VVER is a safe reactor by global standards, approved by the AERB. The capital investment for it is lower than for US and French reactors. The capital cost for VVER reactors is under Rs 20 crore per MW, and it is expected to decline as more orders are placed on Rosatom. For NPCIL, the cost escalation over the gestation of the plant in dollar terms is zero. The interest rate on capital is only four per cent. Loan repayment begins after the plant starts generating power, and the funding is from the Russian government, not commercial banks. The Russian plants can supply power at under Rs 3.9 per kWh — competitive when compared to new coal and hydro plants in the country. It’s a win-win situation for both parties.
It is nearly impossible for US and French nuclear plant suppliers to match their Russian rivals. Russia has quietly ring-fenced the nuclear market in India over the years, the 123 agreements and French overtures notwithstanding. Russian suppliers sensed NPCIL’s inherent weakness; as a company of moderate size, it cannot spring for nuclear plants with high capital costs. NPCIL’s revenue in 2009-10 was Rs 3,837 crore, and net profit Rs 576 crore.
Thanks to the 123 Agreement, NPCIL was able to receive natural uranium through imports made by DAE from France, Russia, and Kazakhstan. Fuel availability for plants subject to International Atomic Energy Agency inspection helped NPCIL to increase power generation. As a result, revenues shot up to Rs 8,957 crore, and net profit to Rs 2,201 crore, in 2014-15.
However, NPCIL’s size still does not enable it to order US and French reactors. The Russian government astutely threw in an extra sweetener into the bargain – an inter-government loan that benefits NPCIL without the company having to borrow on its balance sheet. NPCIL should enjoy the benefits of this nexus till it lasts. The flip side, of course, is that Russian guarantees are only as good as their political leadership. I’m sure NPCIL and DAE know this better than anyone else.
(This story was published in BW | Businessworld Issue Dated 30-11-2015)
