Nuclear deal: When the price of failure is credit

India’s interests are safe even minus deal


Brahma Chellaney

© Asian Age, October 20, 2007


Now that the vaunted U.S.-India nuclear deal has seemingly run aground, one can dispassionately revisit a central question: Was it intended primarily to be an energy deal or a strategic deal? Knowing that can help answer an oft-asked query: What would be the price of failure for India?


The costs, notional or otherwise, can relate only to what India will not get if the deal were to irretrievably collapse. The price of breakdown of a strategically anchored deal would include opportunity costs and thus would be greater than an accord designed merely to allow India to boost its nuclear-generated electricity through reactor imports.


Even though the July 18, 2005, deal was embedded in a larger strategic framework — with the nuclear-related portion constituting only four paragraphs in a long joint statement — Prime Minister Manmohan Singh sought to sell the accord as principally an arrangement to help meet India’s burgeoning energy needs. The PM’s continual energy-deal spiel contrasted starkly with the deal’s portrayal by the Bush administration as a means to advance strategic and commercial objectives.


            Let us assume the deal incorporates both energy and strategic elements. Would a failed deal stall momentum in U.S.-India relations? And would India’s energy interests be adversely affected by the deal unravelling?


            Any objective appraisal will show that even without the deal, the U.S.-India relationship is set toward closer engagement. That geopolitical direction was established long before the deal was initialled. The mistake was to politically over-invest in the deal, going to the extent of meretriciously presenting it as the centrepiece of an emerging Indo-U.S. strategic partnership. Any major relationship cannot afford to rise and fall on the strength of a single issue.

            A strategic partnership with the United States, clearly, will aid Indian interests. But New Delhi seriously erred on three counts: (i) in agreeing to terms of civil nuclear cooperation that are overtly restrictive and put the recipient at the mercy of the supplier; (ii) in exaggerating the role of high-priced, foreign fuel-dependent reactors from overseas to meet India’s energy needs; and (iii) in presenting the deal in bloated dimensions.

           However well-intentioned, a deal limited to one narrow area — commercial nuclear power — can hardly serve as a suitable framework to build a broad-based, enduring partnership. In fact, depicting the deal as a central element, if not the touchstone, of the Indo-U.S. partnership only seemed to suggest that the base for such a relationship is still too small.  

Even if the deal had smoothly come into force by now, India would still have faced a wide array of U.S.-inspired technology controls. The Next Steps in Strategic Partnership (NSSP) initiative was designed to help ease U.S. controls on the export of high-technology goods to India, and to permit civilian space and nuclear commerce. These three areas were known as the “trinity.”

Instead of seeking a broad deal to cover all the “trinity” issues, India settled for an arrangement in just one area where the U.S. has a lot to gain. The U.S. is not only seeking to resuscitate its nuclear-power industry through exports to India, but also has managed to link civil nuclear cooperation to New Delhi’s purchase of major American weapon systems. For the U.S., with major interests at stake, the deal today is more important than Singh’s political survival. As the Washington Post reported last Tuesday, deeply disappointed U.S. officials have “scrambled” to “try to revive the deal.”

Shouldn’t New Delhi have tested the U.S. intent to forge a long-term partnership by insisting on a deal that helped relax the entire panoply of technology controls? In fact, had the U.S. been keen to remove the disadvantage India faces vis-à-vis China in accessing high-tech items in the American market, it would have delivered on the other “trinity” areas — high-technology and civilian space cooperation — instead of settling for a deal limited to an area holding the least benefit for India.

Tellingly, while civil nuclear cooperation has required a change in American law, a so-called 123 agreement and a wished-for exemption from the Nuclear Suppliers’ Group, opening civilian space and high-technology cooperation merely demanded U.S. executive action. By elastically interpreting existing U.S. law and applying to India the same standards it does to Israel, Washington could have opened the doors to civilian space and high-technology cooperation.

Instead, the U.S. Congress has unreasonably cross-linked its action on civil nuclear cooperation to the continuance of U.S. export controls against New Delhi in another “trinity” area, with the Hyde Act stipulating that the U.S. missile sanctions law (which prohibits dual-use space exports) will still apply to India even after it “unilaterally adheres” to the U.S.-led Missile Technology Control Regime.

Now let us turn to the other question whether the deal’s possible collapse would unfavourably impinge on India’s energy interests.

Make no mistake: Sinking billions of dollars in importing reactors neither makes economic sense nor can help significantly raise the present tiny share of nuclear power in India’s total electricity supply. Nuclear plants are not just hugely expensive to build; independent studies worldwide show that electricity generated through currently available nuclear technologies is not cost-competitive with other energy sources.

Take India’s own case. The tariffs for power from all the indigenous nuclear plants completed in the past decade — at Kaiga, Rajasthan 3 & 4, and Tarapur 3 & 4 — are in the high range of 270 to 285 paise per kilowatt hour. The price of power from the two Russian reactors under construction since 2002 at Kundakulam will be even higher — at least 290 paise per kWh, according to a Department of Atomic Energy (DAE) estimate. In comparison, new mega thermal power projects have been approved by the government with electricity tariffs fixed at less than half of those figures. For example, Reliance Energy’s 4,000-megawatt Sasan plant is to sell power at 119 paise per kWh.


The already-large tariff differential between new nuclear and non-nuclear power will become greater when electricity is produced from future imported reactors, which will cost roughly 35 per cent to 45 per cent more per unit than Kundakulam due to price escalation. Little surprise thus that New Delhi has shied away from discussing the economics of imported power reactors.


The U.S., despite offering tax concessions and other sops, still does not have a single new power reactor under construction since completing the last one ordered in 1970. A 2004 University of Chicago study computed the baseline cost of new nuclear power at 6.2 cents per kWh, as compared to 3.3 to 4.1 cents for pulverized coal and 3.5 to 4.5 cents for a combined-cycle natural gas plant. An MIT study a year earlier also found nuclear energy not economical, estimating the cost of new nuclear power at 6.7 cents per kWh, as compared to 4.2 cents for coal and 3.8 to 5.6 cents for natural gas.

Studies backed by the still-powerful U.S. nuclear-power industry, however, invariably present nuclear energy in more favourable light.  A recent Keystone Centre study, which included participants from industry, claimed that when capital costs are included, the price of nuclear power is 8 to 11 cents a kWh, about the same as natural gas. And if Congress were to impose a carbon tax or pricing scheme to curb greenhouse gases, it could make nuclear more competitive.

Yet the reality is that bad economics has led to more than 100 planned power reactors being cancelled in the U.S. in the period since 1970. The U.S. industry’s decline began much before the 1979 partial meltdown of Pennsylvania’s Three Mile Island plant.


Power reactors not only have long lead times for construction, but also a history of cost overruns the world over. The much-touted new nuclear plant in Finland, the first of a kind designed by Areva, the Franco-German consortium, is currently running at least two years behind schedule and $2.1 billion over budget. What was trumpeted as a sign of nuclear comeback in Europe has actually shown such construction in unflattering light.


In India, the Kudankulam reactors are running far behind schedule. That Russia has faced bottlenecks to supply key components for Kudankulam (and for its Tianwan project in China) is hardly a surprise, given that its industry has been beset with serious problems since the 1986 Chernobyl accident. While exports have been aggressively pushed as a way to redress those difficulties, Russia itself does not plan to build at home the older type VVER-1000 reactors it is constructing in India.


            The key point is that imported reactors make sense only if they are part of a country’s planned transition to autonomous capability. A good example is China, which is judiciously working to become self-sufficient in reactors and fuel despite entering the nuclear-power field about two decades after India. New Delhi, however, wants to import reactors of a type it has no intent to manufacture locally and whose fuel requirements will keep it perpetually dependent on a tiny nuclear cartel that runs the world’s most politically-regulated and monopolized commerce.


            If the deal goes bust, it will put India not on the debit side of the ledger but on the credit side. Time is on India’s side. A rising India that says no to the U.S. will position itself strongly for securing a better deal in the coming years that encompasses the full range of dual-range technology controls now in force.


            Look at the massive savings a failed deal will bring: By doing without imprudent reactor imports, India would save billions of dollars. The six new reactors the DAE wishes to import to increase the installed power generating capacity from the present 4.1 gigawatts to 20 gW by 2020 would alone cost roughly $7.2 billion.


            On top, there will be billions of dollars in additional savings because India would not have to incur the costs the deal entails, including on segregating its nuclear programme into civilian and military components, building a new “state-of-the-art” reprocessing facility, setting up large strategic inventories of spare parts and fuel, and potentially paying for international inspections to avoid fallback U.S. safeguards. Such large, deal-necessitated expenditure, in the first instance, ought to have been factored into the costs of generating electricity from imported reactors.


            With about a quarter of such savings, India can generate as much electricity from conventional and renewable sources as it would from imported reactors. If it invested another quarter of those savings in the next-generation nuclear technologies, including fast breeders and thorium cycle, as well as in aggressive uranium exploration and mining, it could help build energy security. The remainder half of the savings could be devoted to completing the country’s most-pressing strategic task: The building of a credible but minimal nuclear deterrent.


            Given that the deal’s consignment to the dustbin will help safeguard national interests, the costs of failure can centre only on the deal crusaders. When the nation wins, the deal peddlers are bound to lose.


No deal means no needless import of weapons, which will save extra billions of dollars. But it also means no commissions, no consultancies and no dole-outs. The attacks on the PM for seeking to save his government rather than the deal reveal whose interests the drum-beaters champion.


Copyright: Asian Age, 2007.

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