Nuclear, Reactors

The Dependence Entrapment

Issue 2 and Volume 8.

Sarosh Bana   By Sarosh Bana, Executive Editor, Business India

India needs to proceed with utmost caution on its civil nuclear deal with the United States.

The pathbreaking agreement – dramatically “operationalised” in a 25 January meeting with India’s Prime Minister Narendra Modi by U.S. President Barack Obama during his three-day state visit to India – has raised high expectations in both countries and elevated their partnership to a new dimension. However, the advancements made by India in the atomic energy sector compel the question of whether the country needs to be buttonholed into such an arrangement.

India’s planned $182 billion expansion of its operating nuclear capacity calls for an increase from the present 5,780 MW from 21 operating reactors to 14.6 GW by 2020 and 63 GW by 2032. The 2.57 per cent share of nuclear power in India’s total installed generating capacity of 224.7 GW, as of 31 December 2014, is aimed to be raised to 25 per cent by 2050, evoking a renaissance in the global nuclear energy industry.

This development is especially paving the way for the revival of the nuclear power industry in the U.S., where no nuclear power plants (NPPs) have been built since 1973 after as many as 103 were erected over the previous decade. American vendors like Westinghouse Electric Co. and GEH (General Electric-Hitachi Nuclear Energy) – apart from France’s Areva and Russia’s Atomstroyexport – have been enthused by the business potential India holds out for them.

Westinghouse has been provided land at Chhaya-Mithi Virdi in Gujarat to host six of its 1,110 MW (a total 6,660 MW) Advanced Passive 1000 (AP1000) Pressurised Water Reactors (PWRs), with groundbreaking in 2012. GEH will build six of its 1,520 MW (a total 9,120 MW) generation III+ Economic Simplified Boiling Water Reactors (ESBWRs) on land allotted to it in Kovvada in Andhra Pradesh. The first concrete pour is expected early this year.

Obama exulted that a “breakthrough understanding” had been reached on two issues that were holding up the India-U.S. civil nuclear cooperation, while Modi expressed relief that India was moving towards commercial cooperation on civil nuclear trade with the U.S. six years after the two sides had signed a landmark deal on it in 2008.

The two issues Obama was referring to are India’s Civil Liability for Nuclear Damages Act of 2010 that holds suppliers, designers and builders of NPPs directly liable in case of a nuclear accident. The U.S. has been urging India to limit this liability to plant operators. The other issue pertained to “administrative arrangement,” a defined procedure Washington has been insisting on for it to monitor nuclear material supplied by it or produced in U.S.-supplied reactors.

The process towards an agreement had actually begun in July 2005, when then-Prime Minister Manmohan Singh signed the “joint statement” with then U.S. President George W. Bush, a move that had seriously threatened the survival of the Indian government amidst political outrage over a perceived sell-out to Washington.

New Delhi has maintained that all nuclear material supplied by the U.S. and other countries with similar civil nuclear accords will already be subject to International Atomic Energy Agency (IAEA) safeguards. Washington has dropped its insistence, though there was a previous possibility that as India was not a signatory to the Nuclear Non-Proliferation Treaty (NPT), which it finds discriminatory, the U.S. Nuclear Regulatory Commission (NRC) was not likely to approve nuclear reactor sales to India in the absence of such U.S. supervision. Obama has also backed India’s phased entry into the Nuclear Suppliers Group (NSG), the Missile Technology Control Regime (MTCR), the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, and the Australia Group to strengthen non-proliferation and export control regimes.

The U.S.’ reservations on India’s Civil Liability for Nuclear Damages (CLND) Act of 2010 have been addressed to quite a degree. Section 17 (b) of this law gives the operator a “right to recourse,” that is, the right to sue the supplier. But the Ministry of External Affairs (MEA) has “clarified” that while this right is permitted, it is not required or necessary. The Ministry asserts that the operator can exercise this right only if it is specified in the contract under section 6 (a) between the operator and the supplier.

New Delhi previously intended to hold suppliers, designers and builders of NPPs directly liable in case of a nuclear accident, but Washington wants this liability to be limited to plant operators. India’s anxiety for secondary recourse against a supplier was in view of the myriad unresolved claims from the 1984 chemical leak disaster at the U.S.-owned Union Carbide plant in Bhopal that by official estimates killed 5,295 people. Union Carbide could virtually walk away from the episode in the absence of such a framework.

Nuclear plants in India are designed, operated and maintained by Nuclear Power Corporation of India Limited (NPCIL), a public sector enterprise under the administrative control of the Department of Atomic Energy (DAE). Since it is controlled by the government, NPCIL is unlikely to defy government direction and assert its right to recourse against suppliers like Westinghouse and GEH that have, by India’s own admission, been kept abreast of all negotiations on the liability law. Moreover, providing for the right to recourse while simultaneously discounting it conditionally renders the CLND Act infirm and open to adjudication.

India also overcame the liability impasse by proposing an “insurance pool” of Rs1,500 crore ($244 million) to be set up by the country’s insurance companies to indemnify suppliers against liability. The Indian government will cover additional compensation of up to 300 million IMF Special Drawing Rights ($420 million). Beyond that, India will need to join the Convention on Supplementary Compensation for Nuclear Damage (CSC) of the IAEA to access international funds, the Convention apportioning shared risk to the number of nuclear plants of each member state.

Curiously, the U.S., which pioneered the world’s first comprehensive nuclear liability law, the Price Anderson Act of 1957, is not party to any international nuclear liability convention except for the CSC of 1997, which will come into force on 15 April 2015. India signed the Convention in 2010 and is expected by the U.S. to ratify it in the near future.

In the civil nuclear sector, countries are guided by their own legislations as also by the 1988 Joint Protocol that links the IAEA’s Vienna Convention on Civil Liability for Nuclear Damage of 1963 that entered into force in 1977, and the OECD’s Paris Convention on Third Party Liability in the Field of Nuclear Energy of 1960, which entered into force in 1968. The Price Anderson Act, however, provides for $10 billion in coverage without cost to the public or government and without fault needing to be proved. It was renewed for 20 years in 2005 and requires individual operators to be responsible for two layers of insurance coverage.

The fine print of the India-U.S. agreement is not yet public as the agreed text will be finalized shortly. The 25 January summit joint statement simply notes that the “Leaders welcomed the understandings reached on the issues of civil nuclear liability and administrative arrangements for civil nuclear cooperation.”

India’s liability law will clearly impose a financial burden on nuclear suppliers as they will need to factor supplementary safeguards and protective systems into their plants and also contribute towards the “nuclear pool.” Evidently, to recoup their outgoings, they will need to charge more for their plants.

Indian-designed reactors are already reflecting this cost increase. The approved cost of the first two of the four 700 MW PHWRs being built at Gorakhpur in Haryana is Rs20,594 crore ($3.35 billion). Units 5 and 6 at Kaiga in Karnataka, construction on which will begin in December 2016, is Rs22,000 crore ($3.58 billion). In comparison, the earlier planned units 7 and 8 at Rawatbhatta in Rajasthan, scheduled for commissioning in June and December 2016, are being built at a cost of Rs12,320 crore ($2 billion), and units 3 and 4 at Kakrapar in Gujarat, to be commissioned in June and December 2015, cost Rs11,459 crore ($1.87 billion).

Even with this approximately 80 per cent inflation, Indian reactors are highly cost competitive and suit Indian needs. While an Indian-made dual-unit, 1,400-MW plant is priced at around $3.5 billion, the cost of the U.S.’s first nuclear project in over three decades, the two-unit, 1,117-MW Westinghouse AP1000 units 3 and 4 at the Vogtle Electric Generating Plant in Georgia, has spiraled from $14 billion to $16.2 billion due to cost overruns and delays. The delays led to a $900 million lawsuit being filed between Westinghouse and plant co-owner Georgia Power, the latter citing deficiencies in design and poor execution for the delays. These instances belie the U.S.’s Energy Information Administration (EIA) estimates that construction costs of new nuclear power plants will average $5,335 per kilowatt of capacity.

In proportion, at 2,234 MW, the Indian PHWRs would cost $5.59 billion, almost a third of the AP1000. GEH’s 1,520 MW ESBWR being built for Unistar, a consortium of Constellation Energy and Électricité de France, at Bell Band, Pennsylvania, is estimated to cost $9.6 billion.

The Indian government opted for GEH’s reactor, though it is as yet untried and untested, having secured sanction for commercializing only last September when its design was approved by NRC. Neither GEH nor Westinghouse has disclosed the capital costs of their six reactors each planned for India. But it is clear they will extract huge investments, even though construction costs are lower in India than in the West. This will unquestionably affect the country’s previously moderate nuclear power tariff rates that range from 92 paise (1.5 cents)/kWh for the Tarapur 160 MW BWR units 1 & 2 to Rs3.4 (5.5 cents)/kWh for the Rawatbhatta 220 MW PHWR units 5 & 6.

One authoritative study conservatively calculates the tariff for the first year of a plant of $6,000/kW “overnight cost” – discounting insurance, fuel and maintenance costs – at Rs21.80 (36 cents). In comparative terms calculated at 2,234 MW capacity for both the Westinghouse and GEH plants, the overnight costs of the $16.2 billion AP1000 and of the $14.11 billion ESBWR come out to $7,250/kW and $6,316/kW, respectively. That would make their respective first year tariffs Rs26.34 (43 cents) and Rs22.95 (37 cents), prohibitive for the Indian context.

India has managed to standardise and improve upon the Canadian-designed 220-MW PHWRs and scale it up to 540 MW. A milestone was reached in September 2005 when the country’s first indigenously designed and fabricated 540-MW PHWR Tarapur Unit 4 became commercial seven months ahead of schedule. Using the same 540-MW core, Indian enterprise has designed and developed the 700-MW PHWR, eight of which are under construction. Capabilities have also been developed in front and back ends of the fuel cycle, from mining, fuel fabrication and storage of spent fuel to reprocessing and waste management. India is now capable of selling its 220-MW reactors to developing countries that require compact, affordable and easily manageable plants. NPCIL has achieved about 407 reactor years of experience in safe operation of nuclear power plants.

India’s deal with the U.S. is thus driven less by technology requirements than by the need to be integrated into the global nuclear community that will gain it access to uranium imports that it is now denied and which can fuel its plans for expansion. Its concerted indigenisation of its nuclear programme was prompted by technology and uranium sanctions imposed by the Western world, led by the U.S., against its atomic tests of 1974 and 1988. As of now, the country’s nuclear power generation is largely dependent on its depleting and poor grade, endemic supplies that are among the lowest grades in the world, of 0.06 per cent.

The on-going first stage of India’s three-stage nuclear power programme is based on locally available natural uranium. Subsequent stages, with manifold higher potential, do not need any additional uranium, but what India is looking at is the possibility of imported uranium, a stipulation within contracts for foreign reactors.

Instead of being drawn into an arrangement which may not be advantageous to it, India would be better placed to build on its own uranium resources. The country needs to avoid any recurrence of the sort that happened after its nuclear test of 1974. A year after the U.S. Congress passed the Nuclear Non-Proliferation Act in 1978, Washington reneged on its own 30-year agreement for supplies of low enriched uranium (LEU) for India’s atomic power station at Tarapur, almost leading to a shutdown of the facility and forcing its downgrade from 210 MW to 160 MW.

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