31 January 2015

Financial Chronicle (India): PolicyBuff: Too many grey areas

PolicyBuff: Too many grey areas

Financial Chronicle - mydigitalfc.com

By KA Badarinath Jan 30 2015

The brouhaha over Indo-US civil nuclear power deal needs to be toned down

THE reported breakthrough in the Indo-US civil nuclear power deal, hitherto known as ‘123 agreement’, has generated a huge amount of hype. But has anything really moved forward?

An objective analysis is certainly in order. The brouhaha over the joint communiqué by President Obama and prime minister Narendra Modi needs to be toned down before any such exercise can be undertaken.

Many in the Indian nuclear power establishment are asking whether the US has finally agreed to the ‘unlimited’ liability law in the present form and whether global companies like General Electric and Westinghouse are willing to play ball and supply nuclear power reactors to push Indian capacities to 65,000 mw by 2022?

The precise nature of the breakthrough was not clear as of Friday. There is no word on how the unlimited claims on equipment suppliers and operators would be dealt with in case there was a nuclear accident?

If one were to look at the claims faced by Tokyo Electric Power Company (Tepco) after last year’s Fukushima disaster, one would understand the enormity of the possible liabilities that would arise in case of an accident. Credible reports have suggested that Tepco and the Japanese government have had to fork out a massive $194 billion to clean up the mess, rehabilitate the citizens and compensate for the loss of property and jobs.

Does the latest claims of the US and Indian leaders mean that Westinghouse and General Electric are willing to take on their balance sheets unlimited ‘claims liability’ as stipulated in the Indian law passed in 2010?

Another big unanswered question is whether the insurance pool being created by India covers claims of the magnitude that were encountered after the Fukushima disaster? Will any insurance company worth its salt or re-insurance players like Swiss Re undertake such a liability on the strength of an insurance pool worth Rs 1,500 crore? No one is even sure whether it is a one-time premium or an annual outgo for either for India or the US or both? Nor is anybody aware who will operate this insurance pool or pay the premium, and for how long.

The next question pertains to what arrangement will be made in the event of a nuclear disaster caused by the operator’s negligence or incompetence? In this case, the operator will in all probability be the state-run Nuclear Power Corporation of India (NPCIL). NPCIL is expected to run reactors supplied not only by the US but also by Canada, France, Germany and Russia.

What happens to claims on nuclear fuel supply related disasters in case something unfolds in transit is also not known. India has concluded several nuclear fuel supply agreements after the all-powerful 45-nations Nuclear Suppliers Group (NSG) granted an exception to its own rules in September 2008. Kazakhstan, Namibia and South Korea, besides over a dozen other countries, have lined up fuel agreements with India.

Is there a mechanism in place to cover possible claims while disposing of nuclear waste or recycling fuel from the 21 existing operational civil nuclear power reactors and the 22 more units with a capacity of 1000 mw each that are in the pipeline?

The only thing that is clear so far is that Russia has unequivocally committed itself to picking up the ‘unlimited liability’ tab in the event of a nuclear accident from the reactors that it has supplied or will execute at Kudumkulam in Tamil Nadu.

While there have been serious technology-related glitches that were talked about on Russian reactors, nothing is known of the French nuclear power reactors with capacities of 9,980 Mw that the government proposes to set up at Jaitapur in Maharastra. This easily explains why the French nuclear establishment and its nuclear power major Areva are going slow on the Indian business. They have perhaps been waiting to see what would be coming out of the Obama-Modi arrangement for US reactors and by implication for Canadian Candu reactors.

The nuclear power campaign is being scaled down the world over, especially in major European countries like France and Germany. Japan too has not been very keen to pursue its civil nuclear power projects after the Fukushima calamity. Should India revisit its three-phased civil nuclear power doctrine put together during UPA-II? That is a question that the NDA needs to answer before going ahead with the projects in the pipeline.

No doubt, the per unit cost of power generated per se from nuclear projects is markedly lower than electricity supplied from conventional fossil fuel-based projects. But unless one factors in the insurance costs, possible disaster-related risks and threats to the environment, rushing through with such agreements may not be a wise option for any government in India.

Gaining access to technology and fuels has been a big issue with the nuclear power establishment given the ‘dual use’ postulation. For instance, should India rely on uranium, plutonium, thorium or heavy water based reactors was the biggest question that still looms large. Where is the wherewithal in the Indian research establishment to build its own reactors though prototypes for 40 mw research units were ready way back in 1960?

Princeton University researcher MV Ramana has described President Obama and prime minister Modi’s reported breakthrough as “the power of promise” at best. He was not alone in questioning the so-called ‘breakthrough’.

Mycle Schneider, the Paris-based nuclear power policy expert and lead author of the annual world nuclear power industry status report, says that there was no real market for foreign nuclear power companies unless they bring their own funds.

Schneider’s assessment may not be entirely true but unless the loose ends are firmly tied, nuclear power projects may continue to remain a pipe dream.

Or, the nuclear deal that India and US seem to be so keen to showcase to the world will have no more than just a ‘geopolitical connotation’ and may not actually help the cause of providing power to all.