Import of Nuclear Power Plants by India : Post Indo – US Agreement for Civilian Nuclear Cooperation

Stepping Out

Stepping Out

The seeds of Indo – US civilian nuclear cooperation agreement were sown when the a telephone call was first made by US President George Bush to the Prime Minster (PM) of India Dr. Manmohan Singh on the evening of 25th March 2005. After about two and half years of extensive and at times acrimonious public and Parliamentary debates in India and Senate discussions in US, the process reached a closure, once US President George Bush on 8th October 2008 signed the enabling legislation number HR 7081. Subsequently NSG waiver was obtained after substantial interventions were made by US, France, Russia and UK to overcome the objections of several of its member countries from Europe and South Asia by September 2008. Nuclear Suppliers’ Group (NSG) is 45 member nations club that controls trade in civilian nuclear hardware, technology and fuel supplies. Ironically NSG is a rechristened brainchild of Mr. Henry Kissinger who first conceived and called it “London Club” in 1975 with informal agreement between a few European and North American nations not to supply any nuclear material and technology to India. Even IAEA was not aware of its existence for almost a year after it was formed.

On 2nd February 2009 India and International Atomic Energy Agency (IAEA) signed “Application of Safeguards to Civilian Nuclear Facilities” at Vienna. The IAEA currently applies safeguards to six nuclear reactors in India under safeguards agreements concluded between 1971 and 1994. A total of 14 reactors of DAE will be placed under full scope safeguards by 2014. 17 reactor units are in operation and 5 are under construction as of now.

As of today, after more than 40 years of starting construction of Tarapur Atomic Power Station (TAPS), we have a total nuclear power generation capacity of only 4120 Mega Watt (MW), which is less than 3 percent of country’s total installed capacity of 147715 MW by end February 2009. The target of DAE is reportedly to reach 20000 MW by 2020. This is quite ambitious both from the point of view of challenge of indigenous capacity development even though supplemented by importing large size power units. Availability of financial resources is another practical concern.

It is important to recall that it is not the first time Indian Government would import commercial nuclear power plants into the country. What is interesting is to recount how first Indo – US deal in mid sixties and later on Indo – Russian deal was struck in mid eighties to import nuclear power plants by DAE mandarins. Indian Atomic Energy establishment under its first Chairman Dr. Homi Bhabha had decided to set up a commercial nuclear power plant as early as in 1958-59. A site was chosen at Tarapur, about 100 kilometers from the Bombay city, in Maharashtra state. The group assigned this task considered French Heavy Water Reactors versus British reactors using natural Uranium, Graphite moderated and Carbon Dioxide cooled as the most suitable for Indian context.

Once the word spread about Indian interest, several world-renowned vendors contacted the team assessing the suitable reactor types. Even though the general view was for natural Uranium type design, Westinghouse sent General K D Nicholls to speak to Dr. Homi Bhabha and explain techno-economic features of their Pressurized Water Reactor (PWR). Around this time General Electric (GE) was developing the Boiling Water Reactor (BWR) type reactors. GE soon jumped in the fray and showed up in India to make presentations.

It was after considerable persuasion by American vendors the Indian team agreed to receive their bids also for evaluation. The French reactors were employed by their national utility Electricite de France (EDF) of heavy water types and UK ones were used by Central Electricity Generating Board (CEGB), cooled by gas. The Canadian and US offer from General Atomic were rejected, as they were not based on mature technology. The French expert who dealt with Indian team was Mr. Claude Bienvenu. Dr. Bhabha was also a good friend of Bertrand Goldschmidt, a co-member from France in International Atomic Energy Agency (IAEA) Scientific Advisory Committee, in sixties. Both countries leadership had identical views on freedom from safeguards, contrary to US aggressively pushing for these controls. 

It was at this time that General Electric (GE) and Westinghouse offers pitched in rather strongly. The main features were low cost coupled with intense lobbying for sale by US Atomic Energy Commission (USAEC) Chairman and Noble Laureate Dr. Glenn Seaborg. He was also a good friend of Dr. Bhabha, but differed with him on safeguards issues for reactor supply. Eventually it was the diluted safeguards and low cost that won the day for GE. Indian government bought Boiling Water Reactors (BWRs) fuelled by enriched Uranium, 2×200 Mwe capacity units for $200 per kilowatt-estimated cost. It was funded by USAID @ 0.7% interest rate with 40 years tenure. French lost the deal.

It is useful to note the chequered history of Indo-USSR agreement for setting up fully imported two-unit nuclear power station requiring life time guarantees of Low Enriched Uranium (LEU) fuel supplies. Negotiations were going from mid eighties onwards. By this time on India had already positioned itself in unique situation of not accepting full scope safe guards of its nuclear facilities and did not accede to the Non Proliferation Treaty (NPT) and Comprehensive Test Ban Treaty (CTBT). In this context, the potential of any commercial cooperation between European ( read French) and North American countries with India on Nuclear Power plant deal was practically ruled out. The then Soviet Union (USSR) was willing to supply reactors if India submitted the imported reactors to inspection and safe guards while isolating the other facilities of Indian Nuclear Power program. Dr Homi Sethna was the Chairman of DAE when it was first mooted. He did not like the idea. When Dr. Raja Rammana took over from him as Chairman of AEC, he immediately sent missions to USSR for negotiations.

Mrs. Indira Gandhi, Prime Minster was shot on 30th October 1984. Project lost a tenacious supporter and the deal went into limbo. Another blow to the credibility of Russians was the disastrous accident in the RBMK type nuclear reactor operating at Chernobyl on 26th April 1986 killing over 31 persons and costing billions of Roubles to clean up. Mr. Rajiv Gandhi was the PM and had many reservations about buying Russian supplied nuclear reactors. Dr. M R Srinivasan the then Chairman of AEC managed to convince the PM. Mikhail Gorbachev and Rajiv Gandhi finally signed the agreement in a glittering ceremony in November 1988 at Delhi.

Even though USSR was supplying VVER type nuclear rector, assumed to be safer than RBMK type, there was no doubt that some reservations down the DAE hierarchy existed on this deal. But the politically cozy relationship between the two countries for over three decades and being the biggest dependable arms supplier to India were overwhelming comforting factors in mid eighties. Besides, the deal neither obliged India to change its NPT stance nor to sign the full scope safe guards. Cleverly, Russia formally joined NSG club after the deal with India was signed and sealed.

On 31st March 2002 by pouring concrete for the foundation, work formally commenced at Kudamkulam, Nagarcoil District of Tamil Nadu state to set up 2×1000 MW capacity water – water pressurized tube (VVER) type nuclear power plant with Russian collaboration. This plant was estimated to cost INR 13171 crores or about 2.65 billion dollars at the current foreign exchange rates. Commercial terms negotiated in mid eighties were 2% rate of interest and 8 years moratorium for repayment till the construction was complete. This has been reportedly revised to about 4.5% interest rate. Repayment will be in 14 equal yearly installments. 2/3rd of the equipment imported is to be paid in Dollar currency with foreign exchange protection guaranteed by India to Russian and Ukrainian suppliers. Some renegotiation had taken place and scope of Indian involvement in construction, erection and commissioning activities had been enhanced. The overall supervision stays with Russian experts. Commissioning was slated in 2007-08 for the two units but is now delayed by couple of years.

We are in 21st Century and political equations have changed dramatically. Notwithstanding the historical paradigm, there would be intense political and diplomatic pressures on Indian Government from France (AREVA), US (GE-Hitachi), Japan (Westinghouse-Toshiba) and Russia (Atomstroyexport RF) to choose nuclear equipment and component originating from manufacturers located in their countries. In today’s Indian context and taking into account the likely hostile posturing by Left and Right parties to the deal; it will be well nigh impossible to order any nuclear plant without intensive public debate and constant open scrutiny. Indian government has been signing MOU etc with French, Russians and US governments for civilian application and cooperation for peaceful uses of nuclear energy etc. One must remember that commercial decisions cannot be taken based on MOUs and declarations signed for diplomatic niceties.

Given the current meltdown in global economies, particularly those who supply nuclear reactors, multibillion Dollar orders are rarely heard. India can indeed drive a real hard bargain, if it acts with discpatch. This is the good time to summon the potential suppliers and ask for their Turnkey offer scope, delivery schedules and price etc. Also there is a sense that new nuclear plants will be built is US, China, France etc on a significant scale in the coming years. Once that begins to happen the bargaining power of DAE and NPC will drop and current leverage will vanish. Speed is essential to capitalize on the Indo-US enabling agreement signed in 2008 and order a series of large capacity reactor units in 2009.

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2 thoughts on “Import of Nuclear Power Plants by India : Post Indo – US Agreement for Civilian Nuclear Cooperation

  1. Hi Sir. this is pandu ranga rao from Kurnool. please tell how to start solar power generation in small business. how much investment we have to invest, please specify if any one offered the small project reports .

    Thanking You Sir ,
    Pandu ranga rao
    9494555413

    • Dear Pandu,

      Follwoing reply given to similar quesires should help:

      This is State specific issue. It also requires some due diligence on your part. I can propsoe that you look at the following items as part of your project financial viability:

      1. Land cost will be given by the state at some concessional rate. 30 MW will need 120 Acres of fallow land. In case you have your own land, good luck.
      2. You need to know very precisely the DNI and HNI ( direct Solar and Horizontal Insoaltion rates) at the exact location you prppose to set up the plant. This will determine many issues like technology choice between solar panels versus Concentrated Photovoltaic (CPV) versus tracking versus fixed axis panels etc.
      3. Many a times you can buy this data and also source from free web sites maintained by international bodies (NASA) and Solar Energy Centre (SEC) of MNRE, India. Best bet is to set up your own data generation hardware ( Solar Insolation rate measuring instruments) at the proposed site. This will give you the whole year round, actual ground numbers on DNI / HNI etc. This small pre-investment is worth ( under INR 30 lakhs) when compared to the overall cost of the project running into about INR 250 – 270 crores or more. You will have relaible soruce to predict the Financial viability with this approach.
      4. Tax exmpetions will be mainly on Tax Free Holidays for many years, Accelerated Depreciation still allowed till Direct Tax Code (DTC) comes into force, Carbon Credit as your project size is quite large, you can get long term PPA with State and / or extra revenue by selling on Energy Exchange under RPO obligations etc.
      5. If you have enough equity funding I will suggest that you engage amongst the reputed / proven EPC contractors in solar business. This will allow you two critcal controls. Firstly, the banks will agree to fund the debt based on your EPC supplier’s track record and secondly you will be assured of energy/ electricity delivered each year against the EPC guarantees / warranties. Most of Solar developers have come to regret there viability expectations due lower than expected Capacity Utilisation Factor (CUF) once the plant were commissioned. Remember that due to high tariff ( 8-12 INR per Kwhr) , each % loss in CUF will lead to huge drop in top line and IRR (generally CUF is about 18-20% only, based on location in India).
      6. You can also test you business model by approaching IREDA ( located in New Delhi at Bhikaji Cama Place) for loan and fill their forms. Ireda has experts and they will evaluate your project thoroughly ,ask good questions as they have learnt over years from the experience of many Solar investors in India. The EPC contractor should be able to sail through your proposal with IREDA, provided it had previous expereince of similar project in India. Other public sector funding could be PFC in Delhi.
      7. I do not advise you against fee. This is free knwoledge I am willing to offer, to the extent I know about Solar Business in India and abroad.

      8. I am travelling all the time, busy with my existing commitment for work. Kindly hire services of professional Solar Expert, I guess there one too many now a days, so be careful.

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