Thursday, November 01, 2007

Interpreting the Truth: The Nuclear Deal

The nuclear deal with the US has disrupted public discourse multiple times in the recent past. It is amazing how our public discourse is typically filled with opinions flying left, right and centre – opinions that each one of us fits with our own world views – and the proverbial scratch on the surface reveals that not much exists beneath the surface at all. ‘Too much punditry, too little analysis’ is a description that characterizes the greater majority of our public debates, with even ‘informed’ analyses in reputed publications typically failing to connect all the dots.

There are broadly two axes along which the deal can be analysed - the first is energy economics and the second is strategy and foreign policy. I am convinced that the deal is favourable along both dimensions, but let’s look at the issues one by one.

First, the relevant facts – the duration of the deal is 40 years, and the proposed energy transfer in the period is about an installed capacity of 60,000 MW. Either party can terminate the deal with a notice period of 1 year in this interim 40 year period, and with a notice period of 6 months at the end of the deal. The objective of the deal is to “enable full civil nuclear cooperation with India covering aspects of the associated nuclear fuel cycle”. The resultant business is likely to be of the tune of $150 billion, of which the lion’s share is likely to go to American nuclear power companies.

So what are the implications for India’s energy scenario? To evaluate that, a look at our current position is necessary. We currently have an installed peak capacity of 160,000 MW, including captive generation sources. This implies a peak shortfall of 11.7% or about 21.2MW. (This is just the installed capacity, ignoring the severe T&D losses). The Integrated Energy Policy (IEP) report of the expert committee of Government of India, dated 9th August 2006, shows that even though the elasticity of per capita energy consumption per capita of GDP growth has been falling over the years and is less than 1 now (meaning that if x% is the annual increase in energy demand and y% is the annual increase in GDP, then x < y), the energy needs per capita are still likely to increase at a rate of 6%-7% p.a., averaged over the next 25 years. It estimates that in 2031-32, we will need an installed capacity of 800,000 MW. Where is this 800,000 MW going to come from? From “pursuing all possible fuel options”, in the words of the expert committee. The 800,000MW figure is inclusive of an estimated 63,000 MW of nuclear power, 150,000 MW of hydel power, and thermal power increase of 5.1% p.a. India’s uranium reserves are good enough for only about 10,000 MW, representing the limiting value for our PHWR reactors.

Opponents of the deal have continuously touted the figure of Rs. 11 crore / MW, the estimated costs of the nuclear power generated through imported fuel and reactors. This figure, they claim, is significantly higher than the Rs 7 crore / MW for power from indigenous nuclear sources, Rs 4 crore / MW for power from thermal sources, and the even lesser cost per Mw for hydel power. These figures are a little tricky. It is fair, for e.g., to ask why the relevant power figure for comparison was taken as 30,000 MW and not 53,000 MW (estimated requirement minus indigenous resources). Ventures with higher fixed costs (import of reactors, fuel etc.) become increasingly attractive for higher volumes. The long run marginal cost of producing 1 business unit (1 KWH) of energy through nuclear sources was estimated at about Rs 1.00 for nuclear energy and about Rs. 0.90 for thermal energy, (at 1984 prices) in a 1997 paper by Prof Y K Alagh. The comparison becomes favourable for nuclear power when the distance to which coal has to be transported exceeds a 1000 Km., due to the high transportation cost of coal.

According to the IEP report, Indian uranium is extracted from ore that has 0.1% useful content as opposed to the international standards of 12 -13%. This makes indigenous nuclear fuel 2-3 times costlier than imported fuel. With all these figures, it seems hard to accept the cost considerations that have been drawn for a capacity for 30,000 MW. The dissonance is futher magnified by the fact that the IEP report has suggested that India change its energy policy from “minimum initial cost purchase” to “minimum life cycle cost purchase”.

However, let us for a moment assume that comparison to be absolutely correct. Does that change things? Not really. The inherent assumption that we could use alternative sources to generate the 30,000 MW is itself flawed. The IEP report assumes 150,000 MW of hydel power, which is 100% of the known hydel power potential of India. It also assumes a constant growth of 5.1% p.a. for thermal power, which has been the current trend. India needs those 30,000 MW of nuclear power even after exploiting these alternative options to their reasonable maximum. The scenario that we are looking at, thus, is not one of high cost power vs. low cost power, but one of some power vs. no power. One is reminded of Homi Bhabha’s succinct remark that puts this situation in its proper perspective – “No power is costlier than no power”.

India’s mineable coal reserves are estimated to last another 45 years (at 5.1% growing usage p.a.) and known oil reserves are likely to last 23 years of production and 7 years of consumption. With increasing oil prices and depleting coal reserves all around the world, there seems to be no way except to go for nuclear power. The IEP report says that “Nuclear energy theoretically offers India the most potent means to long-term energy security”. It is true that energy security has to be achieved in the long term through indigenous sources, and that the indigenous thorium-based FBR program is theoretically the best way to achieve nuclear power security. However, to let go of the opportunity of imported uranium based power generation in the hope of an unmitigated success of the FBR program would be extremely damaging in the medium term, and implies continuing peak load power capacity shortfalls.

Next, we move on to the strategic and foreign policy implications. The opponents of the deal have raised four main considerations on this front, namely
1) The deal does not guarantee assured nuclear fuel supply, and only promises to “seek to amend domestic laws” to ensure the same.
2) The Hyde act is likely to prove a major bug-bear, and the necessity of “congruence” of Indian foreign policy with that of the US impinges upon our autonomy and will be interpreted as strictly as possible by the US.
3) In the event of a unilateral termination of the agreement by the US, we will be left with unusable nuclear reactors that will impose maintenance and safety costs for no benefits at all.
4) IAEA safeguards will continue in perpetuity even though the deal is terminable.

Let’s deal with the last consideration first, because the first three are closely inter-linked. What exactly are the IAEA safeguards that we have to adopt? Simply that any reprocessing performed on the nuclear fuel imported through this deal will be in a newly created reprocessing facility that will be open for IAEA inspection (typically, these inspections are inventory checks of weapons-grade nuclear materials). Any reprocessing done in this facility will be open for IAEA inspection. But do these safeguards extend to all reprocessing performed in India’s reactors? Not at all. It is perfectly possible for India to strike similar deals with other NSG nations and reprocess the fuel obtained through those deals at separate facilities with separate safeguards. Even if the US is likely to put pressure on most NSG nations to have similar safeguards, the option of Russia remains perfectly tenable.

The first three considerations all become relevant only in the event that the US goes ahead with a unilateral termination of the deal. Since large US business houses are going to have a stake in the profits generated by the deal, their pressure and lobbying is going to act as a deterrent to the possibility of this scenario. More significantly, the information and technology transfer is going to aid India on the path of creation of indigenous reactors that can process higher grade uranium that can be imported from non-US NSG countries. This acts as a genuine buffer to the shock of a unilateral termination.

Interestingly, this is what Article 5.6(b) of the deal reads like
(i) The US is willing to incorporate assurances regarding fuel supply …. which would be submitted to the US Congress
(ii) The US will join India in seeking to negotiate with the IAEA for India-specific fuel supply agreement.
(iii) The US will support an Indian effort to develop a strategic reserve of nuclear fuel to guard against any disruption of supply over the lifetime of India’s reactors
(iv) If despite these arrangement a disruption…occurs, the US and India would jointly convene a group of friendly supplier countries to include countries such as Russia, France and the UK to pursue such measures as would restore the fuel supply to India.

The language is ambiguous, but not by diplomatic standards. Please find me another instance where India has been able to negotiate a deal with a superior power with such major concessions. Is it at all possible for the US to guarantee fuel supply in contravention of its domestic laws? Can the UPA, for example, promise the US that the deal will definitely go through?

And what about the Hyde act? Without delving into legalese, the essence of the matter is that the act is definitely restrictive, but as explained by Dr. G Balachandran of the IDSA, four prominent exemptions have been granted to India. The first one was the exemption of the requirement of IAEA fullscope safeguards. The second was an exemption that made sure that India’s detonation of a nuclear device after the passage of the Atomic Energy Act (1978) of the US does not hinder the deal. The third waived the sanction on exports to India. The fourth exemption ensures that India’s unsafeguarded nuclear activities that are independent of the nuclear transfers as part of the deal cannot be invoked as a reason for termination. The Hyde act remains an issue of contention, but seems like one that has to be negotiated with, rather than something that can be made a reason to ditch the deal.

The arguments in favour of the deal are many, the detractions few. It would be a great loss to India if the left succeeds in its attempts to stall the deal.

1 comment:

Anonymous said...

You have hit the mark. In it something is and it is good idea. I support you.