India needs to proceed with utmost caution on its civil nuclear deal with the United States.

The pathbreaking agreement, dramatically ‘operationalised’ in a 25 January meeting with India’s Prime Minister Narendra Modi by U.S. President Barack Obama during his three-day state visit to India, has raised high expectations in both countries and elevated their partnership to a new dimension. However, the advancements made by India in the atomic energy sector compel the question whether the country needs to be buttonholed into such an arrangement.

India’s planned $182 billion expansion of its nuclear capacity on line from the present 5,780 MW from 21 operating reactors to 14,600 MW by 2020 and 63,000 MW by 2032 is evoking a renaissance in the global nuclear energy industry. The 2.57 per cent share of nuclear power in India’s overall installed generation capacities of 224,680.24 MW, as on 31 December 2014, is aimed to be raised to 25 per cent by 2050.

This development is especially paving the way for the revival of the nuclear power industry in the U.S., where no nuclear power plants (NPPs) have been built since 1973 after as many as 103 had been erected over the previous decade. American vendors like Westinghouse Electric Company, a Toshiba Corporation group company, and GEH (General Electric, allied with Hitachi Nuclear Energy) – apart from France’s Areva and Russia’s Atomstroyexport - have been enthused by the business potential India holds out for them.

Westinghouse has been provided land at Chhaya-Mithi Virdi, in Gujarat, to host six of its 1,110 MW Advanced Passive 1000 (AP1000) Pressurised Water Reactors (PWRs), the pre-project activity of groundbreaking having already been done in 2012. GEH will be building six of its 1,520 MW generation III+ Economic Simplified Boiling Water Reactors (ESBWRs) on land allotted to it in Kovvada, in Andhra Pradesh. The first concrete pour is expected early this year.

Obama exulted that a “breakthrough understanding” had been reached on two issues that were holding up the India-U.S. civil nuclear cooperation, while Modi expressed relief that India was moving towards commercial cooperation on civil nuclear trade with the U.S. six years after the two sides had signed a landmark deal on it in 2008.

The process towards an agreement had actually begun much earlier, in July 2005, when then Prime Minister Manmohan Singh had signed the ‘joint statement’ with then U.S. President George W. Bush, a move that had seriously threatened the survival of the Indian government amidst political outrage on a perceived sell-out to Washington.

The two issues Obama was referring to included India’s Civil Liability for Nuclear Damages Act of 2010 that holds suppliers, designers and builders of NPPs directly liable in case of a nuclear accident. The U.S. has been urging India to limit this liability to plant operators. The other issue pertained to “administrative arrangement”, a defined procedure Washington has been insisting on for it to monitor nuclear material supplied by it or produced in U.S.-supplied reactors.

New Delhi has rejected multi-layered scrutiny, maintaining that all nuclear material supplied by the U.S., and all countries it has similar civil nuclear accords with, will anyway be subject to International Atomic Energy Agency (IAEA) safeguards. Washington has hence dropped its insistence, though there was previously the possibility that as India was not a signatory to the Nuclear Non-Proliferation Treaty (NPT) that it finds discriminatory, the U.S. Nuclear Regulatory Commission (NRC) was not likely to approve nuclear reactor sales to India in the absence of such U.S. supervision. Obama has also backed India’s phased entry into the Nuclear Suppliers Group (NSG), the Missile Technology Control Regime (MTCR), the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, and the Australia Group to strengthen non-proliferation and export control regimes.

India overcame the liability impasse without amending its law, but by proposing an ‘insurance pool’ to indemnify suppliers against liability. State-owned GIC Re of General Insurance Corporation – India’s only reinsurance company – is considering an insurance-linked bond of Rs750 crore ($122 million) towards an overall Rs1,500 crore ($244 million) compensation fund to be set up by all general insurance companies in the country. No present policy covers nuclear risks in India as insurers lack the means to assess liabilities. The 2010 liability statute incorporated the proviso for a plant operator to seek secondary recourse against a supplier in view of the myriad unresolved claims from the 1984 chemical leak disaster at the U.S.-owned Union Carbide plant in Bhopal that by official estimates had slain 5,295 people. Union Carbide could virtually walk away from the episode in the absence of such a framework.

While the 2010 liability act limits any recourse sought by the operator against a supplier to $244 million, the Indian government will cover additional compensation of up to 300 million IMF Special Drawing Rights ($420 million). Beyond that, India will need to join the IAEA Convention on Supplementary Compensation for Nuclear Damage (CSC) to access international funds, the Convention apportioning shared risk to the number of nuclear plants of each member state.

Curiously, the U.S., which pioneered the world’s first comprehensive nuclear liability law, the Price Anderson Act of 1957, is not party to any international nuclear liability convention, except for the CSC, of 1997, which has yet to come into force, on 15 April 2015. India signed the Convention in 2010 and is expected by the U.S. to ratify it in the near future.

In the civil nuclear sector, countries are guided by their own legislations as also by the 1988 Joint Protocol that links the IAEA’s Vienna Convention on Civil Liability for Nuclear Damage of 1963 that entered into force in 1977, and the OECD’s Paris Convention on Third Party Liability in the Field of Nuclear Energy of 1960, which entered into force in 1968. The Price Anderson Act, however, provides for $10 billion in cover without cost to the public or government and without fault needing to be proved. It was renewed for 20 years in 2005 and requires individual operators to be responsible for two layers of insurance cover.

The fine print of the India-U.S. agreement is, however, not yet public as the agreed text is to be finalised only in the next couple of months. The 25 January summit joint statement simply notes that the “Leaders welcomed the understandings reached on the issues of civil nuclear liability and administrative arrangements for civil nuclear cooperation”, implying that details were yet being worked upon.

India’s liability law will clearly impose a financial burden on nuclear suppliers as they will need to factor in supplementary safeguards and protective systems into their plants as also contribute towards the ‘nuclear pool’. Evidently, to recoup their outgoings, they will need to charge more for their plants.

Indigenous reactors are already reflecting this cost increase. The approved cost of the first two of the four 700 MW Pressurised Heavy Water Reactors (PHWRs) being built, and to be completed by 2020-21, at Gorakhpur, in Haryana, is Rs20,594 crore ($3.35 billion), while that of units 5 and 6 at Kaiga, in Karnataka, construction on which will begin in December 2016, is Rs 22,000 crore ($3.58 billion). In comparison, the earlier planned units 7 and 8 at Rawatbhatta in Rajasthan, scheduled for commissioning in June and December 2016, are being built at a cost of Rs12,320 crore ($2 billion), and units 3 and 4 at Kakrapar in Gujarat, to be commissioned in June and December 2015, cost Rs11,459 crore ($1.87 billion).
Even with this approximately 80 per cent inflation, Indian reactors are highly cost competitive and suit Indian needs. While an Indian-made two 700 MW-unit plant, that is, of 1,400 MW, is priced at around $3.5 billion, the cost of the U.S.’s first nuclear project in over three decades, the two 1,117 MW AP1000 units 3 and 4 of Westinghouse at the Vogtle Electric Generating Plant in Georgia, has spiralled from $14 billion to $16.2 billion. In proportion, at 2,234 MW, Indian PHWRs would cost $5.59 billion, almost a third of the AP1000. GEH’s 1,520 MW ESBWR being built for Unistar, a consortium of Constellation Energy and Electricite de France, at Bell Band, Pennsylvania, is estimated to cost $9.6 billion.

The Indian government opted for GEH’s ESBWR though the reactor is as yet untried and untested, having secured sanction for commercialising only last September when its design was approved by NRC. Also, not a single AP1000 of Westinghouse is in commercial operation, though eight are under construction, two each at the Vogtle and V.C. Summer sites in the U.S. and at the Sanmen and Haiyang sites in China. Its cost escalation at Vogtle has, however, been driven by delays of about 20 months that has led to a $900 million lawsuit being filed by Westinghouse and Vogtle co-owner Georgia Power against each other, the latter citing deficiencies in design and poor execution for the cost overrun and delays. In 2013, Duke Energy cancelled its contract to Westinghouse for two AP1000 reactors and the matter ended up in court after project costs skyrocketed from $10 billion to $24 billion and original in-service dates were delayed by eight years. These instances belie the U.S.’s Energy Information Administration (EIA) estimates that construction costs of new nuclear power plants will average $5,335 per kilowatt of capacity.

Neither GEH nor Westinghouse has disclosed the capital costs of their six reactors each planned for India. But it is clear they will extract huge investments, even though construction costs are lower in India than in the West. This will unquestionably affect the country’s hitherto moderate nuclear power tariff rates that range from 92 paise (1.5 cents)/kWh for Tarapur 160 MW boiling water reactor (BWR) units 1 & 2 to Rs2.4 (3 cents)/kWh for Narora 220 MW PHWR units 1 & 2 to Rs3.4 (5.5 cents)/kWh for Rawatbhatta 220 MW PHWR units 5 & 6.

Nuclear plants in India are designed, executed, operated and maintained by Nuclear Power Corporation of India Limited (NPCIL), a public sector enterprise under the administrative control of the Department of Atomic Energy (DAE). The Corporation has achieved about 407 reactor years of experience in safe operation of nuclear power plants.

Since India’s new government came to power in May 2014, the country has been seized of the “Make in India” mantra of Prime Minister Narendra Modi that seeks to encourage indigenous manufacturing by building skills and competences.

Nuclear power is one area in which India has indigenised to the highest degree of self-reliance, and competences, having managed to standardise and improve upon the Canadian-designed 220 MW PHWRs and then scale this up to 540 MW reactor size. A momentous milestone was reached in September 2005 when the country’s first indigenously designed and fabricated 540 MW PHWR unit 4, at Tarapur, became commercial seven months ahead of schedule. Using the same core of 540 MW, Indian enterprise has designed and developed the 700 MW PHWR, eight of which are under construction. Capabilities have also been developed in front and back ends of the fuel cycle, from mining, fuel fabrication and storage of spent fuel, to reprocessing and waste management. Indeed, India is now capable of selling its 220 MW reactors, which are the best in their class, to developing countries that require compact, affordable and easily manageable plants.

India’s deal with the U.S. is thus driven less by technology requirements than by the need to be integrated into the global nuclear community that will gain it access to uranium imports that it is now denied and which can fuel its plans for expansion. Its concerted indigenisation of its nuclear programme was prompted by technology, and uranium, sanctions imposed by the Western world, led by the U.S., against its atomic tests of 1974 and of 1988. As of now, the country’s nuclear power generation is largely dependent on its depleting, and poor grade, endemic supplies that are among the lowest grades in the world, of 0.06 per cent.

The on-going first stage of India’s three-stage nuclear power programme is based on indigenously available natural uranium. The subsequent stages, with manifold higher potential, do not need any additional uranium, but what India is looking at is the possibility of imported uranium as additionality, which comes within the contracts for foreign reactors.

Instead of being drawn into an arrangement which may not be advantageous to it, India would be better placed to build on its own uranium resources. The country needs to avoid any recurrence of the sort that happened after its nuclear test of 1974. A year after the U.S. Congress passed the Nuclear Non-Prolifera-tion Act (NNPA) in 1978, Washington reneged on its own 30-year agreement for fuel supplies – of low enriched uranium (LEU) - for India’s maiden atomic power station at Tarapur, almost leading to a shutdown of the facility and forcing its downgradation from 210 MW to 160 MW ratings.

(The author is Executive Editor, Business India)

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Published Date: 9^th February 2015, Image source: http://www.c4learn.com
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)