Messy terms of U.S.-India nuclear deal to discourage private investors

Hope overwhelms reality on U.S.-India nuclear deal


The Japan Times, September 17, 2008


The controversy that has dogged the vaunted U.S.-Indian civil nuclear deal is unlikely to dissipate anytime soon despite the recent rule change by the Nuclear Suppliers’ Group. Deep-seated partisan rancor in India over the deal and the still-needed U.S. congressional ratification will ensure that. But more than commercial nuclear power, it is U.S. arms exports and closer strategic ties with India that the deal is likely to promote.

From the time it was unveiled more than three years ago as an agreement-in-principle, the deal has been anchored in broader strategic objectives — from intelligence sharing and building of interoperability between U.S. and Indian forces, to roping in India as a key player both in the "Global Democracy Initiative" and a disaster-response initiative with military orientation. India has agreed to fully support American nonproliferation initiatives and consider participating in U.S.-led "multinational operations."

As a thank you for the role U.S. President George W. Bush and Secretary of State Condoleezza Rice personally played in getting the suppliers’ group to exempt India from its rules, Prime Minister Manmohan Singh is expected to shortly sign three agreements that U.S. officials say are crucial to forge closer bilateral military ties. One is a logistic support accord, another is to provide for end-use monitoring of transferred weapons systems, and the third is to promote military-communications interoperability.

In addition to the orders it has placed recently for American maritime reconnaissance aircraft and military transport planes, India is gearing up to buy other American weapons systems. If Congress ratifies the nuclear deal, America is likely to clinch the contract — amid intense competition involving several countries — to sell India 126 fighter-jets for $10 billion. In this contest, Lockheed Martin has pitched its F-16 against Boeing’s F/A-18E/F Super Hornet.

As a recently leaked Bush administration letter to Congress states, the deal will also help revive the U.S. nuclear-power industry through exports and "access to Indian nuclear infrastructure," allowing "U.S. companies to build reactors more competitively here and in the rest of the world — not just in India."

With its acute shortage of nuclear engineers, the U.S. intends to tap India’s vast technical manpower. The hype over the deal, however, needs to be tempered by certain realities. India’s growing geopolitical weight, high economic- growth rate, abundant market opportunities and status as a key "swing state" in the emerging international order have helped increase its profile in U.S. policy. But too much is made of America’s desire to use India to hold China in check.

First, a durable U.S.-India partnership cannot be built on strategic opportunism in relation to a third country but rather on shared national interests.

Shared interests mean far more than shared democratic values, which in practice can look very different. For instance, it is a tribute to the vitality of U.S. democracy that Congress is to closely scrutinize the nuclear deal again, after having passed an India-specific legislative waiver — the 2006 Hyde Act. This means Congress will have a second look at the deal.

In contrast, the Indian Parliament has had little role to play in the deal, although its conditions bring India within the constraints of the U.S.-led nonproliferation regime, impinging on the long-term credibility of the country’s nuclear deterrent. New Delhi has agreed to put more than two dozen of its existing nuclear facilities and all its future civilian reactors under permanent, invasive and legally irrevocable international inspections — the kind that only nonnuclear-weapons states accept.

In addition, it has agreed to shut down by 2010 the newly refurbished Cirus research reactor — the supplier of plutonium for India’s 1974 test and now the source of 30 percent of the country’s weapons-grade plutonium production.

Second, it appears unlikely that India will allow itself to be used as a foil against an increasingly assertive China, lest Beijing step up its direct and surrogate military pressures.

In the coming years, India will increasingly be aligned with the West economically. But strategically it can avail itself of multiple options, even as it moves from nonalignment to a contemporary, globalized practicality. In keeping with its long-standing preference for policy independence, India is likely to retain the option to forge different partnerships with varied players to pursue a variety of interests in diverse settings.

That means that from being nonaligned, India is likely to become multi-aligned. Also, even with the deal, nuclear power will continue to play a modest role in India’s energy mix. With the proposed import of eight 1,000-megawatt reactors within the next four years, the share of nuclear power in India’s electricity generation is unlikely to rise above the current 2.5 percent.

Not only is the share of other energy sources rising faster in India, but the first of the new imported power reactors — because of the long lead time required for construction and commissioning — won’t start producing electricity until almost a decade from now. The notion that India can build energy "security" through imports of high-priced, foreign fuel-dependent reactors is an absurdity.

Moreover, just as cheap oil now appears fanciful, cheap nuclear power has long been a mirage. More than half a century after then U.S. Atomic Energy Agency Chairman Lewis Strauss claimed that nuclear energy would become "too cheap to meter," the nuclear power industry everywhere subsists on generous state subsidies.

The current electricity-market liberalization trends spell trouble for the global nuclear-power industry because they threaten the state support on which it survives. As a 2005 International Atomic Energy Agency study by Ferenc Toth and Hans-Holger Rogner warns, "nuclear power’s market share might indeed follow a downward trajectory" if state subsidies abate and more cost-effective reactors are not designed.

Nuclear power reactors also remain very capital-intensive, with high up-front capital costs, long lead times for construction and commissioning, and drawn-out amortization periods that discourage private investors. Three factors are likely to discourage private foreign investment in Indian nuclear power.

The first is the deal’s messy terms. To allay deep-seated nonproliferation concerns and build bipartisan support in Congress and consensus in the suppliers’ group, the U.S. legislative and multilateral waivers for cooperation with nuclear-armed India have come with an array of conditions, some explicit, some implicit. Making matters worse, some issues have not been fully clarified but left hanging to allow the beleaguered Indian government to save face at home.

The second is political uncertainty in India, where national elections are approaching. Several parties have vowed to review or renegotiate the deal if voted into power. Having lost one state election after another in recent years, the ruling Congress Party’s prospects of returning to office are not bright.

If the U.S. Congress is unable to ratify the deal in a rushed process this month, the matter will be left to the next administration in Washington, with a new Indian government possibly seeking to reopen the terms.

Yet another factor is the continuing disarray that marks the Indian electricity market and energy policy. The nuclear-power industry in India is state run and subsists on generous government subsidies. But even the subsidized price of nuclear electricity is higher than the cost from most other energy sources.

It is not clear to what extent the next Indian government will be able to guarantee similar subsidies or provide full accident-liability and regulatory-delay cover to encourage private investment at a time when the country is trying to promote electricity-market liberalization. In fact, to allow private players in the nuclear-power industry, India will have to amend its Atomic Energy Act in a process that would subject the deal finally to parliamentary scrutiny, even if belatedly.

Brahma Chellaney, a professor of strategic studies at the privately funded Center for Policy Research in New Delhi, is the author, among others, of "Nuclear Proliferation: The U.S.-India Conflict."


The Japan Times: Wednesday, Sept. 17, 2008
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