Published On: Mon, Jun 20th, 2016

The cost of India’s nuclear diplomacy


By Suvrat Raju

In their recent joint statement, Prime Minister Narendra Modi and President Barack Obama “welcomed the start of preparatory work… in India for six AP1000 reactors to be built by Westinghouse…” Judging by the cost of similar reactors under construction in the U.S., these six reactors may cost as much as Rs.4 lakh crore. This makes the deal potentially the largest commercial contract in the offing between the two countries.

There are several disturbing aspects to this agreement that deserve close public scrutiny. These include the arbitrary use of executive authority in selecting Westinghouse as a supplier, the international legal commitment made by the government to indemnify Westinghouse in the event of an accident, and the high expected cost of electricity from these reactors.

Economically unviable

When the United Progressive Alliance government announced its intention to start work on two reactors each from Westinghouse and General Electric (GE) in the 12th Plan period (2012-2017), it did little to pretend that these contracts made sense on their own merits. Instead, as the former chairperson of the Atomic Energy Commission, Anil Kakodkar, explained, India had “to keep in mind the commercial interests of foreign countries and of the companies there” and was obliged to purchase these reactors in return for U.S. diplomatic support on other issues.

Last year, GE backed out of this arrangement citing concerns about India’s liability law. This was good riddance; GE was offering India an untested design that it has not yet managed to sell anywhere in the world. But the government’s decision to deepen India’s investment in Westinghouse — even as negative news about the company has accumulated — makes little sense.

In April, Toshiba, which acquired Westinghouse in 2006, announced a $2.3 billion write-down in its value, largely because of persistent concerns about the economic viability of Westinghouse’s AP1000 design. Of more than a dozen orders that Westinghouse expected from within the U.S. a decade ago, only four have materialised. Just last month, a utility called Florida Power and Light postponed its plans for two AP1000 reactors by at least four years. And in February, the Tennessee Valley Authority, a U.S. government company, cancelled its plans for two AP1000 reactors explaining that this was “the fiscally responsible action”.

Likewise, the fiscally responsible action for India would be to cancel this deal. The two AP1000 reactors being built in the U.S. state of Georgia are now projected to cost Rs.1.4 lakh crore, which translates into a capital cost of about Rs.70 crore per megawatt of capacity. Even indigenous Indian nuclear reactors, which have struggled to be economically competitive, have capital costs that are seven times lower at about Rs.10 crore per megawatt.

A more detailed calculation indicates that with these capital costs, the first year tariff on electricity from these reactors could be as high as Rs.25 per unit. In contrast, recent winning bids for solar power have projected tariffs of about Rs.5 per unit. The government claims that it can reduce construction costs in India by 25-30 per cent, but this is far from sufficient to make the AP1000 reactors cost-competitive.

The green ruse

The joint statement suggested that these reactors would help India meet its commitments on climate change but this is misleading. Economists use a “price on carbon” to determine whether a given technology provides a cost-effective method of reducing greenhouse gas emissions; a commonly used European figure is about Rs.2 (0.03 euros) per kg of carbon dioxide. Since coal plants, which produce most of India’s electricity, emit about 1 kg of carbon dioxide per unit of electricity, the AP1000 reactors may have been attractive from this point of view if their tariffs had been within Rs.2 of the tariffs from coal-based plants. Since their projected tariffs are much higher than this, India could reduce greenhouse gas emissions more efficiently by investing the same resources in other green technologies.

Nevertheless, the government has persisted in making concessions to Westinghouse. In February, it ratified the “Convention on Supplementary Compensation” (CSC) for Nuclear Damage that contradicts India’s domestic liability law and protects nuclear suppliers from liability for an accident. Now, in the event of a disaster, Indian courts may find it difficult to exercise jurisdiction over Westinghouse that is not based in India and could point to India’s international commitments under the CSC to block any potential claims against it.

For example, Dow Chemicals has rebuffed attempts to make it contribute to a clean-up in Bhopal by arguing that Indian courts have “no jurisdiction over it”. And in a cautionary tale about how flawed international agreements can subvert the domestic legal system, in 2011, an international arbitration tribunal awarded White Industries Australia Ltd. AU$4 million under a bilateral investment treaty even as its dispute with the Indian government was sub judice in India’s Supreme Court.

In the joint statement, Mr. Obama “re-affirmed that India is ready for membership” of the Nuclear Suppliers Group (NSG). But India’s engagement with the NSG is irrelevant for its energy problems. A 2008 NSG waiver allowed India to purchase uranium for its indigenous civilian reactors but these account for less than 1 per cent of the country’s total electricity generating capacity. NSG membership may additionally allow India to acquire enrichment and reprocessing technology. However, since India’s indigenous heavy water reactors do not use enriched uranium and imported light water reactors come with associated fuel contracts, this technology has little significance for India’s electricity sector.

In his address to the U.S. Congress, Mr. Modi explained that the Indo-U.S. “relationship has overcome the hesitations of history”. In light of this, it is important to take a sober look at the recent nuclear deal. The Indian government has offered to spend lakhs of crores of public money on a loss-making American corporation, and has put its citizens in a position where they might have to pay high costs for electricity and will not be able to hold this corporation accountable for an accident. In return, the U.S. President said some nice words about India. Is this the shape of the Indo-U.S. alliance to come?

Suvrat Raju is a physicist with the Coalition for Nuclear Disarmament and Peace based in Bengaluru. The views expressed are personal.

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