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How the N-deal will play out

How the N-deal will play out
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First Published: Tue, Aug 05 2008. 11 35 PM IST

Illustration: StockXpert
Illustration: StockXpert
Updated: Tue, Aug 05 2008. 11 35 PM IST
With the International Atomic Energy Agency (IAEA) giving its tepid approval, the Nuclear Suppliers Group (NSG) and the US Congress now loom as the big obstacles to the nuclear deal. The dissatisfaction with the so-called “India-specific” safeguards accord voiced in Vienna may take concrete shape at NSG, in which countries such as Norway and Ireland will refuse to play ball. If a “clean, clear, and unconditional” exemption from nuclear trade strictures the Indian government is seeking does not accrue, can a politically hobbled Manmohan Singh regime move forward on the deal?
Illustration: StockXpert
What is at issue is the ambiguity that made the deal possible in the first place. While New Delhi hints that the “corrective” measures mentioned in the preamble of the safeguards agreement allow it to withdraw its civilian nuclear facilities from the safeguards system if, despite contractual obligations, the supply of nuclear fuel, material, and technology is disrupted for any reason, including resumption of testing by India, Washington takes comfort from provisions in the operative part of the document referring to safeguards in perpetuity that imply rejection of a nuclear weapon state status for India. The US is also categorical that, as required by the 2006 Hyde Act, all cooperation is premised on India’s not testing again, notwithstanding anything in the supposedly “superceding” bilateral 123 Agreement. In their eagerness to obtain a deal, the two governments have papered over their differences. This has, however, merely postponed the day of reckoning and shifted the burden of taking hard decisions to successor governments in the two countries.
This is what is fundamentally wrong with the nuclear deal — the incredibly short policy time horizon adopted by the two principals, Prime Minister Manmohan Singh and U.S. President George W. Bush, disregarding in the process the Indian imperatives to test and verify thermonuclear weapons designs in order to make its deterrent credible, and the non-proliferation underpinnings of US strategic interests, respectively. Assuming further Indian tests are held temporarily in abeyance, how will the deal play out?
The most likely scenario is for the Congress coalition to be dumped in the next general elections. It will bring the Bharatiya Janata Party (BJP)-led coalition or the Left-supported “Third Front” to power, whereupon the deal will be dead, as the BJP is committed to “renegotiating” it and the Communist parties to junking it.
In the unlikely event of the Congress-headed United Progressive Alliance returning to power, there will be safeguards on our civilian nuclear programme but no energy windfall owing to the exorbitant cost of electricity from imported reactors, contracts for which will require, at a minimum, a radical dilution of the supplier’s risk and liability. With the Bhopal gas tragedy as background, this last will be politically infeasible for any government to arrange, even one with a heavy majority in Parliament.
So the costs of risk insurance will end up being subsidized by the Indian taxpayer or folded into the installation and running costs of imported reactors, compounding the already high cost of capital, resulting in high pay-outs all-round. How high? The US government has proposed risk insurance at roughly $500 million for a two-unit power plant. But such insurance costs are nothing compared with the escalating costs of constructing and operating the foreign reactors. The real cost of a new 1,000MW nuclear power station in Britain, for instance, is believed to exceed $9 billion, twice the original estimate. The cost of a Toshiba-Westinghouse reactor in the US is $10 billion.
Then there are the inevitable time and cost over-runs. The 1,600 MW reactor being put up in Olkiluoto, Finland, by an Areva-Siemens consortium, according to a report in the Financial Times, is already 60% over budget and two-and-a-half years behind schedule. Such delays are being experienced by Areva plants under construction in France as well. An insurer covering for the delays in energy delivery would have to ante up some $9 billion — virtually the cost of the plant — for buying alternative energy in the interim. Much has been written in the Indian press of low availability of power from indigenous power plants. But the four newest nuclear power plants in France in their first four years have averaged only 45% in energy availability.
A wised-up Areva and its American and Russian counterparts will ensure that all the costs for liability and risk insurance, construction and operating delays, and reactor efficiency and performance penalties will contractually be borne by the Indian exchequer. If you thought Dabhol electric power at Rs7-8 per unit was scandalous, wait for electricity units priced at Rs30 or more.
The PM has talked of imported reactors providing clean energy and energy independence. He is repeating the mistake, which a senior French energy official, Mycle Schneider, says French leaders make, namely, “conveniently confusing” electricity and energy. He explains that while “nuclear energy provides 78% of France’s electricity, this corresponds to only 18% of the total energy that consumers use”, and imported oil still “meets almost half, and fossil fuels over 70%, of France’s total energy needs”. If these figures are translated to the Indian scene, the already weak justification for imported nuclear energy — the raison d’etre for the nuclear deal — sinks.
Bharat Karnad is author, most recently, of India’s Nuclear Policy to be published in the US this October by Praeger. Comment at theirview@livemint.com
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First Published: Tue, Aug 05 2008. 11 35 PM IST