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India’s Nuclear Energy Imperative

The country needs a focus on nuclear power, and legislative reform, if it is to avoid an energy crisis.

Prime Minister Narendra Modi’s strong emphasis on making nuclear energy an integral part of the country’s energy basket to kick start a flagging economy may well be challenged by ground realities. Energy-starved India currently relies on coal to produce two-thirds of its electricity even as – according to the World Bank – nearly 400 million Indians remain without access to power.

With demand likely to double by 2020, mainly attributable to the rapidly growing Indian middle class, already some 300 million strong, and the new government’s focus on manufacturing in the economy (as encapsulated in Modi’s recently launched “Make in India” campaign), India’s power generation capacity may be stretched to the limit.

In July this year, Modi urged the Department of Atomic Energy – a wing that oversees nuclear technology, nuclear power and research, and is directly under his jurisdiction – to triple the country’s nuclear capacity to 17 GWe by 2024. The prime minister also underscored the importance of maintaining the commercial viability and competitiveness of nuclear energy compared with other clean energy sources. Industry body Federation of Indian Chambers of Commerce and Industry has furthercalled for an investment of more than $100 billion in nuclear power over a 25-year period.

However, these ambitions need a dose of realism, given that the country’s nuclear energy market (worth around $150 billion) and the nascent domestic nuclear energy infrastructure are currently unequipped to deal with the projected ramp up in demand. This was evidenced in July 2012 when an overburdened northern grid crashed in the early hours of the morning, leaving more than 600 million people across 22 states literally powerless for a whole day.

India currently has 21 operational nuclear power reactors across six states that contribute under three percent of the country’s total energy generation. The government is keen to boost this to 25 percent by 2050. To realize this goal, Modi has reached out to foreign administrations. He secured Japanese Prime Minister Shinzo Abe’s pledge for a nuclear agreement during a visit to Japan in August. He has also brought on board Australian Prime Minister Tony Abbott for a deal for uranium sales to India. China’s President Xi Jinping – who was in India last month – has also evinced interest in nuclear cooperation with India.

Be that as it may, critics point out that the country’s regulatory climate is hardly conducive to either nuclear generation or foreign investment in the sector. And this has much to do with the fraught India-U.S. civil nuclear agreement signed in 2005 by the George Bush administration and the Congress-led United Progressive Alliance (UPA) dispensation helmed by Manmohan Singh.

Hailed as a “path-breaking achievement” at the time, the agreement had the U.S. lobbying for a controversial international push to provide India access to nuclear fuel and technology for the first time in 35 years. New Delhi aimed to make private U.S. companies – and in future private Indian companies – stakeholders in an ambitious expansion drive for nuclear power generation. A raft of new nuclear reactors were to come up with American help to whittle down the strains resulting from erratic and expensive power supply.

However, the deal’s fine print ended up dampening investor enthusiasm. So much so that Russia – India’s long-time ally for nuclear cooperation – refused to supply the two additional Kudankulam nuclear reactors in southern Tamil Nadu.

Under the treaty, operators are liable for a fine of up to $100 million per incident, and plant owners for up to $450 million. The agreement seeks to cap the liability for accidents to private contractors, suppliers and operators because the UPA government was reluctant for a repeat of the Bhopal gas tragedy. Dubbed “the world’s worst industrial disaster,” the tragedy involved a gas leak incident in 1984 in the central state of Madhya Pradesh at the Union Carbide factory. More than 500,000 people were exposed to the deadly methyl isocyanate gas and other chemicals.

Critics blame the civil nuclear liability law for doing more damage than good to India’s nuclear future. Even the state-run Nuclear Power Corporation of India Limited (NPCIL) has gone on record tostate that “no manufacturer, Indian or foreign, would be able to serve the nuclear power industry” under the provisions of this new law. The most contentious clauses of the deal, say legal specialists, are section 17 (b), which gives the operator the right of recourse against suppliers in the event of a nuclear accident, and clause 46, which states that suppliers can be sued under any other Indian law as well as by anyone.

Some of the foreign suppliers’ reservations also stem from the fact that the liability law contradicts India’s obligations under international law. New Delhi signed on to the Convention for Supplementary Compensatory in 2010, but hasn’t been able to ratify it as the latter will mean an automatic violation of the international treaty.

“The fundamental incompatibility between India’s civil liability law and international conventions limits foreign technology provision in the country,” an NPCIL official told The Diplomat on the condition of anonymity. The law has also had ramifications for local industry, said the official, adding that more than 200 domestic companies that make reactor components (which are also subject to unlimited nuclear liability), are reluctant to supply components for state-run nuclear power plants.

Such an asphyxiating regulatory atmosphere has naturally impacted productivity. Indian nuclear power plants have been running at sub-optimal capacity for years due to a chronic shortage of nuclear fuel. Their average load factor plummeted below 60 percent over the period 2006-2010. The deficit of raw materials has had another undesirable fallout – it has foiled NPCIL’s plans to build 16 new power plants across the country in the 12th five-year plan.

“The law bucks international norms by making suppliers potentially liable for nuclear accidents. Given this handicap, how can any foreign or Indian energy company ever be enthusiastic about making a foray into the Indian civil nuclear market?” questions energy expert Dr. Shanti Prasad, previously with the New Delhi-based think tank Institute for Defence Studies and Analysis.

Prasad advocates a redrafting of the “tardy legislation” that is not only depriving the country of clean fuel but also choking economic growth. “It creates stifling conditions for the suppliers while damaging the credibility of Indian nuclear manufacturers. It also deters other stakeholders like the domestic nuclear industry suppliers and manufacturers.”

Foreign minister Sushma Swaraj said at her first press conference that the new government will not be eschewing the supplier liability clause. “We (BJP) put it there, we are not going to change it,” she said.

Be that as it may, businesses are hopeful that reform-minded Modi will amend this restrictive legislation to accelerate nuclear energy production. A sliver of hope is emerging with the government announcing last month that it will amend the law to allow private companies to be involved in nuclear power generation and possibly other aspects of the fuel cycle. Following the announcement, Reliance Power Ltd, GVK Power & Infrastructure Ltd and GMR Energy Ltd are reported to be in discussion with overseas nuclear vendors including Areva, GE-Hitachi, Westinghouse and Atomstroyexport.

Experts are unanimous that India urgently needs a new legislation, one that unambiguously spells out the liability involved in building and running a nuclear reactor in India. “The choice is clear – either we amend the law or jettison our plans to make nuclear power a major component of our energy profile,” K. Ramanathan, Distinguished Fellow, Tata Energy Research Institute, New Delhi, told The Diplomat.

According to Ramanathan, India’s gargantuan energy requirements necessitate an inclusive approach to harness all forms of energy to produce power. “We can’t afford to be choosers. A judicious mix of fuels in the country’s energy portfolio is pivotal to powering India’s growth story. This is also necessary because renewable energy – especially wind and solar – remain largely seasonal options. This is compounded by the fact that India has very little storage capacity to store such power for future use,” adds the expert.

An urgent focus on nuclear energy generation is thus the need of the hour for Asia’s third largest economy. Without it, the day will soon come when crises akin to the one that struck in July 2012 become part of the country’s daily narrative.