Decoding the India-U.S. nuclear deal

The India-U.S. civilian nuclear deal was a top item on Prime Minister Narendra Modi’s diplomacy agenda while he was in the U.S.

The pact was originally signed in 2008, but its execution has been delayed due to disagreements over the liability clause for U.S. companies. While the public discourse has focused on the liability issue, the success of the deal actually depends on three other factors–resolving local sourcing, technology transfers, and project delays–all of which are beyond the control of either government.

India plans to build four nuclear power plants with international cooperation (see Table 1).¹

Table 1: Nuclear power plants to be set up with international cooperation

Local sourcing

India is concerned that the majority of New Delhi’s expenditure will flow to foreign companies. This is not true. The Nuclear Power Corporation of India (NPCIL), the state-owned utility that will own and operate the nuclear plants, says that in the first phase at each site, the foreign content will be 50%, while India will build the rest. This is big business. Each megawatt costs Rs. 20 crores–and there are over 10,000 megawatts to be built. For Indian and foreign companies equally, there is a Rs. 200,000 crores opportunity.

In subsequent phases, over the next two decades, local sourcing will increase from 50% to 80%, a highly favourable outcome for India. ²

The issue of nuclear liability is a critical sticking point, especially with the U.S. government and businesses. However, India also needs a nuclear cooperation agreement with Japan before business engagements with U.S. firms can start. This is because Westinghouse is now owned by Toshiba, a Japanese firm. Another Japanese firm, Hitachi, is a partner in the Andhra project. Japanese firms will not be able to work on these projects unless an India-Japan cooperation agreement is in place, which is yet to happen.

Technology transfers

India will be able to tap the latest technology. Areva and Westinghouse will build the latest generation of their reactors, the EPWR and the AP-1000, which have a far longer design life of 60 years and more safety features than earlier versions.³  The first generation III EPWR power plant in Finland, built by Areva,⁴ is still under construction. Westinghouse’s AP-1000 design is also not yet operational anywhere–the construction of the first power plant based on this design, begun in Sanmen (China) in 2008,⁵ is also ongoing.

Using AP-1000 as a starting point, China has successfully negotiated a transfer of technology to jointly develop a new class of reactors with Westinghouse, called the CAP-1400.⁶ India too can do the same.

Project delays

Given that 70% of the cost of nuclear power is incurred during construction, effective project management is the key and any delays can make the project unviable. This can be a major problem.⁷ The capital cost of a nuclear plant is four times that of a coal-based power plant,⁸ and given the large size of the projects, complexity and public concerns, delays are a common problem.

Kudankulam 1 is a case in point: the project in the state of Tamil Nadu began in September 2001, with commercial operations due to begin December 2007.  But the first unit of 1,000 megawatts attained criticality only six years later, in July 2013, and attained full capacity in June 2014.⁹ The second phase, due for commercial launch in December 2008, is similarly delayed.

The more efficient China too is seeing delays. The Sanmen project, begun in February 2008, should have been complete in 2013; instead it will be complete only by next December.¹⁰,¹¹ Areva’s project in Finland is doing worse: it began in 2005 and will be completed after over a decade, between 2016 and 2018.¹²

Anti-nuclear protests add to costs. Local protests against the Kudankulam phases 1 and 2, have delayed the project, as have demonstrations against the Jaitapur project in Maharashtra. This can sour projects financially, and must be factored in at the planning stages.

A major compromise on the liability issue alone will not be the magic wand to resolve the outstanding issues. These other dimensions must be taken into consideration before India and the U.S. can create a meaningful nuclear partnership.