BackDecoding the nuclear deal for Indian business
Narendra Modi will have to put his office and goodwill behind the nuclear deal in earnest to sort out problems equitably
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The India-US nuclear agreement cleared two major hurdles on 25 January, as announced by Prime Minister Narendra Modi and US President Barack Obama, and everything looks like it’s ready to go. This means US companies can now provide reactor designs and equipment for building nuclear power plants in India and transfer technology to local firms, apart from a shot at 50% of the project work.
The benefits for India are clear—lower dependence on coal and reduced vulnerability from imports. For consumers, electricity will be cheaper because nuclear power in India currently costs ₹ 2.71 per unit compared to ₹ 3.3 from the cheapest coal-fired power using subsidized fuel.
Low energy prices will be a big boost to Modi’s Make in India plan. Industries across most states typically pay a high price for power, up to ₹ 6 per unit and more, and even then, they have intermittent supply. Consequently, over 2 million tonnes of diesel is burnt every year for captive generation. This electricity costs well over ₹ 10/unit and is a national waste, making Indian industry less competitive. Cheap and reliable power should put an end to that.
To make this a reality, two critical details need to be taken care of. First, India needs to close a nuclear deal with Japan as well, because US company Westinghouse Electric Co., which is building one of the nuclear power plants in India, is owned by Toshiba Corp., a Japanese firm. Japan’s Hitachi Ltd is partnering with General Electric Co. (GE) for a second reactor. Even though the foreign ministry in its briefing on Sunday said there are alternatives to Westinghouse and Hitachi for technology, these alternative deals will have be negotiated from scratch, negating the work already done with Westinghouse and GE-Hitachi. Second, there has to be clear and measurable transfer of technology to Indian firms, something China did with reactors ordered from foreign firms. India is one of the few nations building reactors and is thus helping create and preserve high-tech jobs in supplier nations. It too must get something tangible in return.
Thus actualized and if well-executed, Indian businesses can look forward to ₹ 1 trillion (about $16 billion) worth of business in the first phase of the four nuclear power plants that India wants to build with US, French and Russian firms. This capital value of the four plants is just over ₹ 2 lakh crore, and Nuclear Power Corp. of India Ltd has indicated that domestic content will be 50% in the first phase, which is to be taken up to 80% in subsequent phases. The US, French and Russian firms supplying the reactor designs and equipment can expect the other 50%, or $16 billion, in the first phase. If these reactors can be completed by 2021 as planned, consumers will have a more reliable source of power, and India will have a power sector that is more diversified and stable.
Like all good things, there is a catch. Around the world, nuclear plants are delayed and costs are going up. French company Areva SA began building a reactor in Finland a decade ago, which is still under construction because of faulty planning. Even China is facing delays in an ongoing project by Westinghouse. This does not bode well for India, already best by chronic delays. There’s also the liability clause which, for an India still hurting from the injustice of the Bhopal disaster, is not clear. The insurance pool at ₹ 1,500 crore will certainly be insufficient in case of a major incident. Also unclear is exactly how US suppliers will be indemnified against responsibility for an incident, as required by section 17 of India’s civil nuclear liability law. These issues could capture the good feelings of this deal and drag it into dissension yet again.
To make this work, Modi will have to put his office and goodwill behind the deal in earnest, and reassure citizens, pressure groups and businesses that these problems will be sorted out equitably. Only then can the promise of the India-US bilateral begin to be realized, and Modi’s manufacturing agenda for India be fulfilled.
Amit Bhandari is energy fellow at Mumbai-based Gateway House, a foreign policy think-tank.
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