Uranium woes

Australia’s U-turn on uranium exports to India represents a serious setback to the Indian drive to open up international civil nuclear trade.

Brahma Chellaney

Asian Age, February 16, 2008

New Delhi has cited a pressing need to source natural uranium from overseas as a key driver of its nuclear deal with the United States. Yet, when the new Labour Party-led government in Australia conveyed its decision last month not to export uranium to India, New Delhi did not react. Indeed, even as Australian Prime Minister Kevin Rudd’s administration publicly defends its reversal of the previous Liberal-led government’s agreement to sell uranium to India, mum is the word from New Delhi.

The uranium deal was to involve a separate safeguards accord between Canberra and New Delhi, along with a civil nuclear cooperation agreement.

            How significant a setback for India this reversal constitutes can be seen from the fact that Australia, with 38 per cent of the world’s lowest-cost uranium reserves, currently accounts for 22 per cent of the global exports. “A doubling of uranium exports by 2015 is realistic,” according to an official Australian report released in late 2006, a decade after Canberra changed policy and approved new uranium-mining projects, two in South Australia state and a third in the Northern Territory.

Australia exports virtually all its production of processed uranium ore — also called U₃O₈, or yellowcake — because it has no real domestic needs in the absence of a single commercial nuclear power plant. Its U-turn eliminates a key potential supplier for India in a tight international uranium market, where demand is outstripping supply.

Global uranium demand now runs at about 80,000 metric tonnes per year, while mined output is roughly 60,000 tonnes, leaving a shortfall of around 20,000 tonnes, which has been met from utility stockpiles or from decommissioned nuclear warheads in Russia. Although Australia and Canada are the world’s main uranium producers, Russia became a major exporter by tapping the inventories it built up by down-blending highly enriched uranium extracted from retired Soviet-era weapons.

Today, in addition to the 439 nuclear power reactors operating around the world, a further 29 plants are under construction. France, a large uranium importer, has taken the lead to aggressively export power reactors, with President Nicolas Sarkozy turning into a nuclear salesman during a recent Middle Eastern tour, seeking to dispense reactors like charity.

Most commercial nuclear plants in operation or under construction are Light Water Reactors (LWRs), which are fuelled by low-enriched uranium (LEU), with a first fill normally demanding around 600 tonnes of natural uranium and each subsequent refuelling consuming about 200 tonnes.

The price for uranium ore in the world market has come under pressure due to several factors, including a drying up of the excess uranium supply from dismantled Soviet-era weapons, inventory constraints among power companies and rising international demand, which is projected to grow annually by about 5 per cent. Yellowcake sold for less than $12 a pound in 2003. Today its international price for immediate delivery — the so-called spot price — is $75 a pound. Uranium had actually raced to a record spot price of US$135 in 2007, on speculative pressure built up by hedge funds and other institutional investors. Although the price has fallen back, it is still far above long-term averages.

Add to this picture another element: The world’s proven uranium reserves are limited and unless breeder technology is embraced in a big way or the higher-grade ores reserved for military programmes are freed, the known uranium stocks are likely to last barely 85 years, according to estimates in the Red Book, jointly published by the Organization for Economic Cooperation and Development and International Atomic Energy Agency.

It is possible, however, as is happening in the oil-and-gas sector, that sustained high prices would spur more exploration, mining and supply. The IAEA believes high prices could help raise production by 10 per cent a year. But if the new supply takes years to enter the market, the price of uranium is bound to climb steeply, adding to the cost of nuclear-generated electricity, whose commercial attraction has already taken a beating through escalating equipment costs and manufacturing bottlenecks.

This has been highlighted by the Franco-German Areva’s time and cost overruns to complete Finland’s much-touted Olkiluoto 3 — the first nuclear plant to be built in Europe since 1991. With the $4 billion original price tag facing a $2.1 billion cost escalation, Olkiluoto 3 is set to become the most-expensive nuclear plant in history — a point missing from Sarkozy’s feverish sales pitch in India and elsewhere.

The significance of Australia’s withdrawal as an agreed supplier to India is also underscored by another fact: Uranium, unlike other commodities, does not trade on an open world market. Rather, in keeping with political controls, buyers and sellers negotiate contracts privately, with the spot price published every Friday by two market consultants, Ux Consulting and TradeTech. The spot market actually is very small, with most trading occurring through governmental intervention under long-term contracts, where prices typically are marked down. 

Nuclear trade indeed constitutes the world’s most politically-regulated and monopolized commerce, with a tiny cartel of state-guided firms controlling all reactor, fuel and component sales.

Against that background, the government-to-government deal that New Delhi had with the previous John Howard administration in Canberra was the only way to secure Indian access to the vast uranium resources of a country where BHP Billiton and Rio Tinto, two of the world’s largest and diversified mining companies, are involved in uranium extraction. A new Canadian-run project at Honeymoon, South Australia, is scheduled to start annually producing 400 tonnes of U₃O₈ later this year, while $81 million is being spent to assess the possible doubling of production at the BHP Billiton-owned Olympic Dam — the world’s largest-known uranium deposit.

The Australian deal was also important because the world’s other major uranium producer, Canada, while agreeing to “pursue further opportunities for the development of the peaceful uses of atomic energy” with New Delhi, has yet to decide whether it would allow its mining firms to export yellowcake to India. Ottawa may be leaning toward a position to not come in the way of a Nuclear Suppliers’ Group exemption for India. The opening of its uranium exports, however, is a separate matter demanding a Cabinet decision to lift a 33-year-old ban on nuclear trade with India. Canada’s Cameco Corporation alone holds almost 20 per cent of the global uranium market.

Another supplier-state, Russia, is committed to meeting the LEU needs of reactors it is building or intends to construct in India. But beyond such fuel arrangements to underpin reactor exports, Moscow has little capacity to meet the supply needs of India’s indigenous, natural uranium-fuelled Pressurized Heavy Water Reactors (PHWRs). In fact, with its own nuclear-power industry beset with problems, Russia’s first two reactors in India are running far behind the agreed construction schedule.

Owing to its rising domestic demand, Russia’s uranium exports are set to peter out. Moscow is seeking not only to expand its nuclear-power programme, but also to build a new generation of nuclear warheads in response to the U.S. pressing ahead with a missile defence system in Eastern Europe and designing a new warhead for the D5 missiles, carried on Trident submarines. Two decades after the Berlin Wall’s fall, Russia and the U.S. together still retain some 25,000 nuclear weapons, including 6,000 long-range weapons deployed on hair-trigger alert.

Outgoing President Vladimir Putin last week vowed that Russia would field new strategic weapons because “a new arms race has been unleashed in the world.” Putin declared: “We didn’t start it … funnelling multibillions of dollars into developing weapon systems.” With rearmament looking certain, Russia has been aggressively seeking uranium imports.

Last September, Canberra signed an agreement with Moscow allowing Australian mining companies to export uranium ore for use in Russian power reactors. Moscow is also tapping the uranium resources of Kazakhstan, which has larger recoverable reserves than Canada but lags significantly in production and export. Foreign investment and technical assistance, however, helped expand uranium production in Kazakhstan by 25.3 per cent last year.

Kazakhstan’s state-owned agency, Kazatomprom, which controls all uranium exploration and mining, has roped in several foreign partners, including companies from Russia, France, Canada, China, the US, Japan and South Korea. Two joint mining ventures with Kazatomprom are to give Moscow access to 6,000 tonnes of U₃O₈ every year. Kazatomprom is also set to become the main uranium supplier to China, having agreed to export 2,000 tonnes per year from two mines in which Chinese state companies hold a 49 per cent stake. India, in contrast, figures nowhere in the Kazakh picture.

While America, France and Japan will remain the world’s three largest uranium importers, the yellowcake needs of China, Russia and India are set to expand.

India’s uranium crunch is self-made. Despite new deposits having been discovered in Andhra Pradesh, Meghalaya and elsewhere, the central governments between 1991 and 1998 starved the nuclear programme of necessary funds, crippling uranium projects and other expansion plans. As nuclear chief Anil Kakodkar publicly admitted last October, “The present fuel demand and supply mismatch would not have arisen had these projects been pursued in the same spirit with which Dr. Homi Bhabha started activities at Jaduguda” — the site of India’s first uranium mine and mill.

According to the Red Book, India has 64,000 tonnes of reasonably assured uranium reserves and an estimated additional 30,000 tonnes in situ — sufficient to meet the current modest demand for long.  At present, all mining and milling is done in Jharkhand state, at Jaduguda and Bhatin (since 1967), Narwapahar (since 1995) and Turamdih (since 2002).  Last year, India’s first open-cut mine was commissioned at Banduhurang (Jharkhand), along with a new mill at Turamdih. Two new Jharkhand mines are coming up at Bagjata and Mohuldih.

Despite environmental clearances, however, the opening of new mines in Andhra Pradesh and Meghalaya has been held up by grassroots activism over land-acquisition and rehabilitation issues and other concerns. In Andhra, the Lambapur-Peddagattu project in Nalgonda district is building one open-cut and three small underground mines, while an underground mine and a mill are to be developed at Tummalapalle in Kadapa district. In Meghalaya, uranium is to be mined at Domiasiat-Mawthabah and Nongstin.

Australia, unlike distant Canada or landlocked Kazakhstan with no freight corridor to India, would have been New Delhi’s preferred uranium supplier.

Canberra’s policy reversal leaves India on shaky ground. In the absence of a single committed long-term supplier of yellowcake, can New Delhi proceed to permanently place eight indigenous power reactors under external inspection or begin to import plants of a type that are going to be perpetually dependent on foreign fuel? And will it still be ready to assume international obligations of a kind that no nuclear-weapons state has accepted thus far?

© Asian Age, 2008

An Air of Desperation

Brahma Chellaney

Asian Age, November 3, 2007

In its frantic efforts to salvage the nuclear deal, the United States is sending out a politically incorrect message — that the deal matters more to it than the very survival of the Manmohan Singh government. The deal has not only divided India like no other strategic issue since independence, but also plunged the world’s largest democracy into a political crisis, with the threat of a mid-term election looming large. Yet the unrelenting U.S. pressure on India to proceed with the deal has only intensified.

            An obvious question begging an answer is: What are the compelling interests America aims to advance through this deal that are prompting it to give high priority to getting this arrangement through, even if it results in Singh’s political downfall? Is the venerable Singh so dispensable for the U.S.?

The Congress Party, holding only 27.5 per cent of the Lok Sabha seats, needs allies to survive in power or to return to office in a new election. With not a single party today willing to help shore up the deal, the Congress does not wish to stake its future on that dicey, divisive issue.

Yet, from the time Sonia Gandhi and the prime minister last month pulled back from the political-precipice edge, the U.S. has piled up pressure on New Delhi, leaving no stone unturned to rescue the deal. Remember how President George W. Bush anxiously sought to reach the PM by telephone while the latter was travelling in Africa? This week, Secretary of State Condoleezza Rice called Foreign Minister Pranab Mukherjee to convey the same message — in the words of her spokesperson, “to urge the Indian government to move forward with this deal.”

To personally lobby Indian leaders, the White House sent Treasury Secretary Henry M. Paulson and former Secretary of State Henry Kissinger in recent days. And as if India were a Pakistan, where Washington brokered a Pervez Musharraf-Benazir Bhutto deal to help keep its pet dictator in power, the U.S. is trying to cut a deal between the Congress Party and Bharatiya Janata Party, so as to save another deal dear to it. 

            By pulling out all the stops, the signs of desperation have become unmistakeable. In fact, since that famous Bush call to Singh, no day has passed without some senior U.S. official, diplomat or congressman telling India why it should seize the deal as a golden opportunity not to be missed. The U.S. ambassador to India, for his part, has seemingly returned to his old marketing job, hawking the deal door-to-door — from South Block offices to the homes of important politicians in town.

It is as if a vibrant India is really a dumb India that doesn’t know what is in its own interest and needs counsel from the other party in the deal. Besides prolonging India’s political crisis and keeping alive the spectre of a snap poll, such meddling, along with its unremitting advice, has become increasingly clamorous.

            Paulson, for example, counselled his host nation “to implement the agreement as soon as possible,” acknowledging that the U.S. has been “encouraging it to go forward as quickly as possible.” Kissinger weighed in with his ominous hints about the effect of the deal’s collapse on India’s credibility. The smooth-talking Nicholas Burns, now making almost a daily statement on the deal, declared from Washington: “We, and many other governments, believe that India should grab this opportunity and enter a new era of relations with the U.S.”

            Make no mistake: It is the U.S. which sees the deal as an irresistible opportunity, which, if taken advantage of, would bring lasting strategic benefits. There is thus dismay that Indian politics has stalled what the Bush administration had been savouring as a major foreign-policy accomplishment.

The U.S. got the deal largely on its terms. In addition to the 41 pages of India-specific conditions in the Hyde Act (passed with bipartisan support after closed-door briefings), the U.S. has concluded a so-called 123 agreement without permitting India upfront to reprocess, or providing for a dispute mechanism (like the arbitral tribunal found in the 123 accord with Tokyo), or explicitly linking perpetual international inspections to perpetual fuel supply. Of all the 123 agreements the U.S. currently has with partner-states, the one with India stands out for conferring enforceable rights only on the supplier-state.

That is why, as the state department reiterated this week, the U.S. will not accept renegotiation of the deal. Washington indeed wants New Delhi to speedily conclude a safeguards pact with the International Atomic Energy Agency because from then on, India would become a mere spectator, watching what additional conditions the Nuclear Suppliers’ Group and the U.S. Congress may attach to the final deal.

America’s commercial interests in the deal are evident: The tens of billions of dollars worth of arms and reactor contracts it is likely to reap. Not so obvious is its huge strategic stake, which is two-fold.

First, the deal would open the path to rope in India more than just as a strategic partner. In a 21st-century world in which the concept of alliance is giving way to nations pursuing multiple partnerships to pursue a variety of interests with different players in diverse settings, the U.S. still fancies bringing in India as a new Japan or Britain — an ally that would faithfully follow the alliance leader.

Burns makes no bones about America’s intent. “I think Americans might be able to say 20 years from now, India is one of our two or three most important partners in the world. That will be a tremendous strategic change for us… You need friends, you need allies,” he said in an October 3 interview. At the Council on Foreign Relations on October 23, he amplified: “Twenty or 30 years from now, many Americans would say India is one of the two or three most important global partners — the way Japan and the European Union are today.”

Second, the deal is the means to achieve a central U.S. goal since the 1998 Indian tests — to prevent India’s rise as a full-fledged nuclear-weapons state and bring it into the U.S.-led non-proliferation regime (or, what Burns calls, the “non-proliferation mainstream”). Having failed to stop India from going overtly nuclear, the U.S. wants India’s capabilities to stay regionally confined (like Pakistan’s), even if that strategically disadvantages New Delhi vis-à-vis Beijing.

The first and second objectives are linked because, if this deal goes through, India would be saddled with a rudimentary and inadequate deterrent capability that would promote security dependency on the U.S., including for missile defence. Fostering security dependency is the key to winning and maintaining an ally.

In his 2004 book, Engaging India, Strobe Talbott wrote: “If there is a deal to be done with India, my guess is that it will be a version of the one offered by the Clinton administration and rejected by the BJP-led government. The four U.S.-proposed non-proliferation benchmarks put forward in 1998 — joining the CTBT, making progress on a fissile material treaty, exercising strategic restraint (by that or some other name), and meeting the highest standard of export controls… should remain the basis of the American policy into the future. That means the U.S. government should persist until the four areas of restraint become the basis of the Indian policy.”

That is exactly the line U.S. policy has followed. In the Bush deal with India, the second and fourth Clinton-prescribed benchmarks (progress on fissile material treaty and “comprehensive” export controls) find explicit mention in the original July 18, 2005, deal. The other two benchmarks are reflected in the enabling legislation, the Hyde Act, which seeks both to compel India to exercise strategic restraint and to drag it through the backdoor into an international pact rejected by the Senate — the Comprehensive Test Ban Treaty. The test ban also is built into the 123 agreement implicitly through the incorporation of the U.S. “right of return.”

            The Bush team indeed managed to secure more: While the Vajpayee government was willing to open two indigenous power reactors at the most to international inspections as part of a deal, the Singh government has agreed to put 35 nuclear facilities, including eight existing indigenous power reactors, under IAEA safeguards of a kind applicable only to non-nuclear states — perpetual and legally irrevocable.

In addition, it has agreed gratuitously to shut down the Cirus research reactor by 2010, an action that would significantly affect India’s rate of production of weapons-grade plutonium. Given that fuel burn-up in power reactors produces plutonium of a quality less desirable for weapons and that the use of power stations for such purposes, in any case, makes little economic sense, India has relied on its Cirus and Dhruva research reactors to derive supergrade plutonium. And given that Dhruva, commissioned in 1985, faced major startup problems that took a long time to rectify, most of India’s cumulative historic production of weapons-grade plutonium has come from Cirus — a point noted by Paul Nelson et al in a 2006 paper funded by the U.S. Department of Energy.

In asking New Delhi to dismantle Cirus, the U.S. has sought to crimp India’s nuclear-deterrent plans. As Undersecretary Robert G. Joseph had asserted, deal-related measures “must contribute to our non-proliferation goals.”

India could build a replacement reactor. But the long lead time needed to construct and commission such a reactor is bound to leave a major production shortfall. Yet, no explanation has been offered to the Indian public thus far as to why New Delhi, disregarding the advice of its Department of Atomic Energy, agreed to shut down the 40-MWth Cirus, which had been refurbished at a cost of millions of dollars and reopened only in 2004.

With all the U.S. benchmarks met, is it any surprise that Talbott now has turned from a critic to a proponent of the present deal, joining the “this-has-got-to-happen-soon” chorus and attacking the Singh government for “a very shortsighted calculation” in putting its survival ahead of the deal?

            The key point is that if this U.S.-dictated deal falls apart, it will not only deny America the handle it seeks on Indian policy and deterrent posture, but also its one-sidedly magnanimous terms are unlikely to be replicated in any future agreement. That is why Washington today is feverishly delivering the same two-word message: “Hurry up.”

Let’s be clear: Time is on India’s side. The real test the deal has to pass is whether it can survive a change of government both in New Delhi and Washington. And the test for Singh, given the upcoming Parliament session, is whether the deal can withstand what he has so far sought to thwart but now ought to allow — close legislative scrutiny.

After all, India should enter into the arrangement, not as a good deed for the U.S., but for its own good. Every right-thinking Indian would want U.S.-inspired technology controls against his country to go, but that can hardly justify “a deal at any cost” approach or the use of rose-coloured vision to sell Indians a fantasy. The present deal does not cover high-technology and civilian space controls against India and indeed leaves intact even restrictions on civil enrichment and reprocessing equipment transfers.

The current hold on the deal, forced by domestic political circumstances, underscores the vitality of Indian democracy. It can only help enhance India’s international stature and safeguard national interests.

© Asian Age, 2007

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.

123 Agreement: A Response to Brahma Chellaney 

Kapil Sibal

The Hindu,  September 17, 2007

The UPA-Left Committee has an historic opportunity to iron out doubts that have been expressed publicly by some, and specifically by the Left, in opposition to the Indo-U.S. Civil Nuclear Cooperation Agreement. Historic, because if the UPA-Left Committee does not address these issues upfront with an open mind, India will lose an opportunity to be recognised as a nuclear weapons state and to avail itself of options to diversify our energy basket and enhance power generatio n to bridge the gap of unmet demand for electricity.

The statement that U.S. national laws have primacy over the 123 Agreement as contended by Brahma Chellaney (September 14) is both constitutionally and legally untenable. Reference to the U.S.-China Agreement, which stipulates that the parties to the Agreement will observe “the principle of international law that provides that a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty,” is a reiteration of the principle of international law, the absence of which, specifically in the Indo-U.S. 123 Agreement, does not result in its inapplicability. It is also not a standard provision found either in the U.S.-Japan accord or the Australia-China Agreement. Besides, in the 123 Agreement, Article 16(4) stipulates that “this agreement shall be implemented in good faith and in accordance with the principles of international law.” Also, Article VI(2) of the U.S. Constitution grants to international treaties the status of a sovereign law. Once the 123 Agreement is ratified by Congress, it will be regarded as the “last expression of the sovereign will” and overrides all other laws including national laws.

Mr. Chellaney next objects to the absence of a tribunal to settle disputes, a mechanism available only under the U.S.-Japan Agreement. Under that Agreement, the setting up of an Arbitral Tribunal is relevant only when and if a question arises concerning its interpretation or application. It has no application if either party decides to terminate the Agreement.

To contend that India has somehow allowed itself to be denied the rights conferred by the U.S. to other contracting parties is misleading. Reference to the U.S.-China and the U.S.-Japan Agreements demonstrates that India has been able to negotiate a far better agreement. For example, the Chinese do not have the right to reprocess spent fuel, a right granted to India, enhancing manifold our energy generation capacity. Secondly, the 123 Agreement recognises India as a de facto nuclear weapons state and for the first time has been granted a de jure nuclear weapons state status. Thirdly, the provision for termination of the agreement by either party is far more complex and difficult to implement than similar provisions in other agreements. Fourthly, the Japanese being signatories to the NPT, have no right to use either the nuclear material or technology for research and/or development of any nuclear explosive device, or for military purposes. If sovereignty is an issue, India’s sovereign rights are recognised by the non-hindrance clause reflected in Article 2(4).

Mr. Chellaney states that India bent backwards and agreed to terms that go beyond the requirements of U.S. law. The argument is a non-starter since no other similar agreement contains a termination clause, which conforms to specific provisions in the U.S. Atomic Energy Act. All agreements related to civil nuclear cooperation contain a termination clause that clothes both parties with the authority to, in the interim, suspend cooperation, without assigning reasons. The 123 Agreement with India is unique in that it provides for a one year notice of termination along with reasons. Instead of lauding our negotiators for having protected India’s interest so admirably, we are nitpicking on clauses which are in fact beneficial to our long term interests.

Mr. Chellaney then suggests that New Delhi has granted unfettered and uninfringeable rights to the U.S. to demand the return of all exported items and materials if it were to hold India in breach of stipulated conditions. The author is aware that in all other similar agreements, the right is entirely unfettered and uninfringeable and that in the 123 Agreement with India, the ambit of the right is limited by considerations which are contextual relating to India’s geographical situation and security concerns.

Further the safety net provided in the termination clause in the 123 Agreement with India is absent in all other agreements. What is a gain for India is being viewed as a sell-out.

The next major objection relates to the Separation Plan and the right to reprocess spent fuel, the operationalisation of which depends upon the setting up of a dedicated reprocessing facility. It makes sense to set up such a facility and route all foreign nuclear material to ensure its safeguarded use and verifiability. Such a framework serves the objective of enhancing our capacity to generate electricity, with India-specific safeguards in place. The decision to opt for a dedicated facility and not using the existing PREFRE plant under safeguards is based on scientific considerations of verifiability and administrative convenience. The building of such a facility is not a sell-out as contended.

The statement of the Prime Minister that the U.S. has a longstanding policy not to allow reprocessing and enrichment transfers is accurate. Under the U.S.-China Agreement, the Chinese are allowed neither the right to reprocess spent fuel nor enrichment transfers. Has China bartered its sovereignty in the bargain? Does the U.S.-Japan Agreement not inhibit the right of Japan to even conduct research for weaponisation and making nuclear devices?

Mr. Chellaney’s next objection is that the U.S. has the right to veto a separate agreement on reprocessing contingent upon building a new state-of-the-art facility before working out such arrangements. It may be stated upfront that India’s ability to reprocess spent fuel is not contingent on the transfer of reprocessing technologies from the U.S. We don’t need these from the U.S. Besides, we have a right to access such technologies from members of the Nuclear Suppliers Group. Despite this, the U.S. has agreed to seek an amendment of its Atomic Energy Act to share reprocessing technologies. Our right will be operationalised on building a dedicated reprocessing facility with IAEA safeguards.

As far as foreign policy implications of this deal are concerned, even in the Hyde Act, matters relating to foreign policy are regarded as statements of policy, not binding on India. The operative part of the Hyde Act deals with permanent waivers and congressional approval. Statements of policy and reporting requirements of the President vis-À-vis Congress have no bearing on the provisions of the 123 Agreement just as our statements of policy have no bearing on U.S. obligations under the Agreement.

Let us now deal with the nature of safeguards. Safeguards in perpetuity are contingent upon assured and uninterrupted fuel supplies, to which the U.S. is committed. Assured and uninterrupted fuel supply to safeguarded facilities is reflected in Articles 5(6)(a) and 6(b) 2, 3 & 4 of the Agreement. Article 5 (6)(c) stipulates specifically that the IAEA safeguards agreement, which would be India-specific will provide for safeguards against “withdrawal of safeguarded nuclear material from civilian use at any time as well as providing for corrective measures that India may take to ensure uninterrupted operation of its civilian nuclear reactors in the event of disruption of foreign fuel supplies.” To say that corrective measures are cosmetic is again not based on the language of this Agreement. Indeed, this is the only Agreement which confers on any country to take corrective measures in the event of a possible disruption of supplies and these corrective measures will be taken by India in its national interest.

The next objection deals with possible impetuous and induced monitoring based on Section 104(d)5 of the Hyde Act. A close reading of the provision will indicate that the accountability to Congress is of entities required to account for technology transfers and the obligations of the Department of Commerce and the Nuclear Regulatory Commission.

All these again are consistent with the IAEA safeguards and the terms of the 123 Agreement and can neither impinge upon nor impact on India’s sovereignty. The interpretation of Section 108 of the Act is again an attempt to find a ghost in every corner where none exists. Collaboration with the Indian scientific community is a salutary provision, which would give us access to technology and information.

The argument relating to the life of the Agreement and the stipulated expiry date cannot by any stretch of reasoning be a subject matter of debate and discord when India has the right to terminate the Agreement by giving one year’s notice, which right is also granted to the U.S. The period of 40 years, in fact is evidence of the level of confidence and goodwill between the contracting parties.

In the U.S., many believe that the 123 Agreement is a bad agreement made worse. That the U.S. can live without this agreement, there is no doubt. That India should live without this agreement is certainly a matter of debate. India should not lose this historic opportunity to be part of a global regime in which India is included as a shareholder. We must get on the bus of nuclear renaissance. History has taught us if you miss the bus once, you will also miss the ride. The walk forward will be long and arduous.

(The writer is Union Minister for Science & Technology and Earth Sciences.)

© Copyright 2007 The Hindu

http://www.hinduonnet.com/thehindu/thscrip/print.pl?file=2007091755761100.htm&date=2007/09/17/&prd=th&

Put Nuclear Deal On Hold

Part I

Brahma Chellaney

Asian Age, September 8, 2007

Since signing the Indo-US nuclear deal on July 18, 2005, Prime Minister Manmohan Singh has repeatedly slipped on promises to the nation. Every time he has been unable to keep an assurance, he has sought to devise a revised gauge to maintain the semblance of an unbroken word.

Singh’s changing measures mirror the shifting terms of a deal that has proven increasingly divisive in India. Unlike in the US, where criticism has been limited to some quarters and to just one issue — non-proliferation — the deal has attracted wide-ranging concerns across India. And unlike the bipartisan political support it has drawn in America — both inside and outside the US Congress — the deal has badly split India’s political establishment.

The most striking difference, however, relates to legislative oversight. At every stage, US President George W. Bush has had to bow to the congressional prerogative to vet any arrangement with India. Bush has even made the grant of reprocessing right to India conditional on the congressional approval of a separate agreement that is to be negotiated in the years ahead under Section 131 of the US Atomic Energy Act (AEC). By contrast, the US granted Japan and EURATOM the actual right to reprocess upfront through an implementing accord accompanying a Section 123 agreement, not through a separate Section 131 deal years later.

The Indian Parliament, on the other hand, has been reduced to being a mere spectator on the deal. The PM insists that Parliament has no role on the Indo-US 123 agreement other than to be merely informed about it. Parliament similarly will be shut out from the subsequent Section 131 agreement on reprocessing. Yet Singh affirms that he has “kept Parliament fully in the picture at various stages of our negotiations with the United States” by making “several statements.”

Singh’s concept of public accountability, in other words, centres on making statements in Parliament at his own sweet will, merely to convey what has been agreed to and signed, without having to bow to the will of the national legislature. The PM has yet to disclose how much money his government spent to lobby members of the US Congress to pass the enabling legislation on the deal — the Hyde Act. Given that the US legislature had never previously passed a country-specific law laden with so many conditions to permit cooperation in just one narrow area as it did through the Hyde Act, it is a surprise that no one has been asked to account for the multimillion-dollar lobbying campaign New Delhi coordinated on Capitol Hill last year — a campaign whose outcome seeks to saddle India with onerous long-term requirements, many of which have little to do with civil nuclear cooperation.

New Delhi has blithely gone along with the shifting terms of a deal that is set to attract even more India-specific conditions as it traverses the remaining stages. The best course for India at this point would be to put the deal on hold while continuing to build a stronger relationship with the US in other areas. After all, the record since July 2005 does not redound to India’s credit. Consider the latest major goofs:

● No provision for international arbitration in case of a dispute.

The 123 agreement has no provision for an arbitral tribunal, despite India’s bitter experience over an earlier 123 accord with the US signed in 1963. The 1963 agreement was not only more protective of Indian interests, but also free of any Hyde Act-style overarching legal framework. Yet, 15 years later, the US effectively gutted the accord by retroactively rewriting its terms through a new domestic law.

In the latest 123 agreement, India has gained the right to be merely consulted but has granted America the right to take all final decisions.

Contrast this with the Japan-US 123 agreement in which Tokyo’s interests are protected through Article 14: “If any dispute arising out of the interpretation or application of this Agreement is not settled by negotiation, mediation, conciliation or other similar procedure, the parties may agree to submit such dispute to an arbitral tribunal which shall be composed of three arbitrators appointed in accordance with the provisions of this paragraph. Each party shall designate one arbitrator who may be a national of its country and the arbitrators so designated shall elect a third, a national of a third country, who shall be the Chairman. If, within 30 days of the request for arbitration, either side has not designated an arbitrator, either side may request the President of the International Court of Justice to appoint an arbitrator. The same procedure shall apply if, within 30 days of the designation or appointment of the second arbitrator, the third arbitrator has not been elected, provided that the third arbitrator so appointed shall not be a national of the country of either party. A majority of the members of the tribunal shall constitute the quorum, and all decisions shall require the concurrence of two arbitrators. The decisions of the tribunal shall be binding on the parties.”   

The terms, “arbitration,” “mediation,” “conciliation,” “tribunal” and “International Court of Justice,” do not find mention in the latest Indo-US 123 accord, which only provides for toothless “consultations.” The agreement’s Article 15, titled “Settlement of Disputes”, merely states: “Any dispute concerning the interpretation or implementation of the provisions of this agreement shall be promptly negotiated by the parties with a view to resolving that dispute.”

Japan is a close ally of the US, yet it sought an arbitral tribunal. India is still grappling with outstanding issues from its earlier 123 agreement with the US, including an accumulating spent-fuel stockpile, yet its negotiators have placed it at the mercy of the supplier-state. 

● Primacy of American law has been upheld.

Nothing better illustrates this than the way the Indo-US agreement copies, word to word, Article 2(1) of the China-US 123 accord, but only to drop its critical final sentence — that the “parties recognize, with respect to the observance of this agreement, the principle of international law that provides that a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.”

This omission is because the Indo-US agreement, as both sides have admitted, is anchored in the Hyde Act. Instead of treating that Act as a red rag to a bull, New Delhi has bragged how the 123 agreement is within the framework of that legislation. In the words of National Security Advisor M.K. Narayanan, “As far as we are concerned, we haven’t breached the Hyde Act … We have seen to [it] that no law is broken.” And US Undersecretary Nicholas Burns has seconded that by saying “we have the Hyde Act. And we kept reminding the Indian side, and they were good enough to negotiate on this basis, that anything we did had to fall within and respect the legal guidelines that Congress had set forth.”

Having accepted the supremacy of US law, Singh has been left with only the provision for “consultations” to flaunt. “Both Parties have agreed to take a number of factors into account in their consultations so that the scope for precipitate or unilateral action is reduced,” the PM told Parliament.

The 1963 agreement also provided for consultations and for taking into account the economic and other effects of any precipitate action, yet the US unilaterally walked out of the accord. Had there been a provision in that agreement for an arbitral tribunal, would India have been unable to reprocess the Tarapur spent fuel to this day?

● India has conceded ground beyond the requirements of even American law.

For reasons unexplained, Indian negotiators have agreed to some terms that go beyond the requirements of any US law — the Hyde Act and AEC included. This may have happened because the 123 agreement has been largely drafted by US lawyers, with Narayanan admitting that while “there were State Department lawyers” in the negotiations, no lawyer was present on the Indian side because “our country is not litigious like that.”

Yet today, in response to the national furore, the government has drafted a top lawyer like Kapil Sibal to defend the deal in public. Shouldn’t his services have been sought when they were most needed — during the negotiations with the US?

Here are three examples of how Indian concessions go beyond even the demands of US law.

1. Unrestricted right of return. India shouldn’t have accepted that the supplier-state is at liberty to terminate cooperation retroactively through the right to demand the return of all exported items and materials. After all, Indian officials had been saying in background briefings until last May that any formal acknowledgement of the American right to seek return on account of a US-determined Indian non-compliance with non-proliferation conditions would turn India’s voluntary test moratorium into a binding prohibition through a double instrument — a bilateral agreement atop the Hyde Act.

Yet, in finally succumbing to the US demand, Indian negotiators agreed to incorporate the “right of return” in the 123-agreement text in such a way as to give carte blanche to the American side. Under Section 123(a)(4) of AEC, America’s “right of return” is limited to two specific causes — “if the cooperating party detonates a nuclear-explosive device, or terminates or abrogates an agreement providing for IAEA safeguards”.

But under the Indo-US agreement under Section 123, America has been handed an unrestricted right to demand return by citing any reason. All it requires to invoke that right is for a notice to be “delivered to the other party on or before the date of termination of this agreement.”

2. Open-ended right to suspend all supplies. The unrestricted “right of return” is linked to the open-ended suspension and termination provisos in the 123 agreement. The basis for suspension or cessation of cooperation is not merely limited to any violation of the agreement. Cooperation can be suspended or terminated for reasons other than a material breach of the agreement’s terms or non-compliance with IAEA safeguards. This leeway has been fashioned to hold India’s feet to the US non-proliferation fire.

Under the agreement’s Article 14.2, the supplier-state enjoys an unfettered right to suspend cooperation at will and leave the recipient-state high and dry. The Article states: “The party seeking termination has the right to cease further cooperation under this agreement if it determines that a mutually acceptable resolution of outstanding issues has not been possible or cannot be achieved through consultations.” So the US can either hold consultations or even dispense with them if it believed the desired outcome “cannot be achieved through consultations.”

More importantly, although termination is to take effect at the end of a one-year notice period, the US is empowered to “cease further cooperation” forthwith. All that is required is that the “party giving notice of termination shall provide the reasons for seeking such termination.” But with the reasons for termination not defined in the agreement, the cause can be any. This makes a mockery of New Delhi’s claim of having secured an uninterrupted fuel-supply assurance.

Contrast the unlimited right in the 123 agreement to suspend or terminate cooperation with the limits set by US law — Section 129 of AEC — wherein precise triggers are specified for cessation of exports to a non-nuclear-weapons state (India is classified as one in this deal): (i) a nuclear-device detonation; (ii) a material breach or termination of IAEA safeguards; (iii) a material violation of the 123 accord; or (iv) proliferation-related transfers by the recipient state to a third country.

Even the Japan-US 123 agreement, despite its arbitration safety measure, does not provide for an unlimited right of suspension or termination. Under its Article 12, the triggers for cessation of cooperation are restricted to non-compliance either with the agreement’s own provisions or with “the decisions of the arbitral tribunal.” India, however, has merrily reposed its implicit faith in the same supplier that walked out from the earlier Indo-US 123 agreement.

3. All foreign-origin spent fuel to be routed through a single facility. American law seeks to regulate only spent fuel that is of US-origin. Yet, after a similar assertion by Burns, Singh admitted in Parliament on August 13, 2007, that the new Indian reprocessing facility to be built at American instance will be not just for US-origin fuel but for all “foreign nuclear material under IAEA safeguards.”

That is odd. Why should India grant America a say in where it reprocesses spent fuel generated from imports from countries other than the US? Given that the new facility will be US-approved in terms of its design, why hand Washington a veto on where India reprocesses other foreign-origin fuel? Considering the frequent outages and breakdowns in any reprocessing plant due to its handling of highly unsafe spent fuel, India’s decision to route all foreign nuclear material through a single such facility unduly limits its options.

(To be continued)

© Asian Age, 2007