Why the India-US nuclear deal is turning out to be a dud

Two successive Indian governments went out of their way to accommodate US commercial interests in order to operationalise the deal.

 |  4-minute read |   08-04-2017
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Donald Trump’s ascension to power in the US has cast a shadow over the nuclear deal with Iran clinched by his predecessor, Barack Obama. But another landmark nuclear deal — signed by Obama’s predecessor, George W Bush, with India — is also under pressure. Indeed, there is a distinct possibility that the deal could turn out to be a dud on the energy front.

Bankruptcy

The Toshiba-owned Westinghouse’s bankruptcy has derailed US-Indian plans to finalise the first contract under the deal. India has earmarked at least one nuclear park each for Westinghouse, GE-Hitachi and France’s state-owned Areva. Each of these firms was to build a cluster of reactors at their assigned park. Westinghouse’s massive losses have left Toshiba tottering on the brink of collapse. Toshiba has already decided to exit from overseas nuclear power construction business.

The paradox is that the promise of the India-US nuclear deal contributed to Toshiba’s overpriced $5.4 billion acquisition of Westinghouse in 2006, yet that purchase turned out to be a huge blunder. India’s plan to import over $100 billion worth of reactors had promised to revive the decrepit US nuclear power industry.

Today, Toshiba is on the verge of disintegration as it stares at a staggering $9 billion net loss in the financial year ending March 31, thanks to Westinghouse. Westinghouse’s imprudent purchase of a heavily indebted US nuclear constructions service company in late 2015 proved the proverbial last straw for Toshiba.

ndeal_040817013840.jpg Photo: Indiatoday.in

Meanwhile, the US-India deal’s prospects have been further dimmed by the financial troubles of the other two leading reactor vendors, Areva and GE-Hitachi. Like Toshiba, Areva’s very survival is at stake today. It needs at least a €5 billion bailout from the French government to stay afloat. Such a rescue package has to await the outcome of the French presidential election. Areva is likely to be split, with its reactor unit being sold to EDF, which is also state-owned. As for GE-Hitachi, it has already trimmed down its nuclear operations by recognising their economic risks.

Meanwhile, Japanese Prime Minister Shinzo Abe’s political travails over a school and scandal have injected uncertainty over whether Japan’s Parliament will ratify the country’s separate nuclear deal with India. The 2016 agreement was six years in the making largely because it was controversial in Japan, representing the first such accord with a country that is not party to the NPT.

Ratification

Due to Japan’s global role as nuclear equipment supplier, its ratification of the agreement with New Delhi is essential to opening the path to the India-US deal’s implementation. Japan is the world’s leading supplier of heavy nuclear forgings, with just one Japanese company — Japan Steel Works — controlling 80 per cent of the global market for large forged components for light-water reactors (LWRs), the type India is seeking to import.

Nearly 12 years after it was unveiled with great fanfare, the India-US deal holds little promise to deliver any tangible energy benefits to India, although the larger strategic framework in which the agreement was embedded has helped make the US the largest seller of arms to New Delhi. Rarely before has America acquired a major arms client of India’s size so rapidly. The nuclear deal has also fostered growing strategic cooperation between the two countries.

Against this background, it is apparent that the deal raised false hopes at a time when nuclear power was already in decline globally. Indeed, India, in announcing plans for a huge expansion of its installed nuclear power generating capacity, fell victim to its own hype over the deal.

Interests

Two successive Indian governments went out of their way to accommodate US commercial interests in order to operationalise the deal. For example, Indian law allowing suppliers to be held liable in case of a nuclear accident was reinterpreted through executive action by the Modi government to effectively transfer reactor vendors’ accident liability risks to Indian taxpayers. It also reinterpreted another provision so that victims of a potential accident would be barred from suing for damages in another country.

These actions were controversial, given India’s bitter experience over the 1984 gas leak from an American-owned chemical plant in Bhopal that killed as many people as Japan’s 2011 Fukushima disaster. India refused to heed the lesson from Japan’s liability laws that indemnify nuclear suppliers and make plant operators exclusively liable. GE built or designed all the three Fukushima reactors that suffered core meltdowns, yet the US firm went scot-free, despite a fundamental design deficiency in the reactors.

The dire financial state of the foreign companies that were planning to build reactors in India should be seen by Indian taxpayers as a blessing in disguise. Given the exorbitant price sought by them for selling reactors, India would have had to heavily subsidise the electricity from such plants. The four Westinghouse nuclear plants under construction in the US and Areva’s project in Finland are years behind schedule and billions of dollars over budget. Had Indian plans gone ahead, India would have been saddled with multiple Enrons in the nuclear-energy sector.

(Courtesy: Mail Today)

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Writer

Brahma Chellaney Brahma Chellaney @chellaney

The writer is strategic thinker, author, commentator.

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