India’s interests are safe even

minus deal
Brahma Chellaney
October 20, 2007
Now that the vaunted US-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 US-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 US-
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-US 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-US 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 US-inspired technology controls. The
Next Steps in Strategic Partnership (NSSP) initiative was designed to
help ease US 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 US has a lot to
gain. The US 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 US, 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 US
officials have "scrambled" to "try to revive the deal."

Shouldn't New Delhi have tested the US 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 US been keen to
remove the disadvantage India faces vis-Ã -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 US executive
action. By elastically interpreting existing US 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 US Congress has unreasonably cross-linked its action

on civil nuclear cooperation to the continuance of US export controls
against New Delhi in another "trinity" area, with the Hyde Act
stipulating that the US missile sanctions law (which prohibits dual-
use space exports) will still apply to India even after it "unilaterally
adheres" to the US-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 US, 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 pulverised
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 US 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 US in the period since
1970. The US 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
monopolised 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 US 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 US
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.