, , , , , , , , , , , , , , , , , , , ,

The failure of the northern and eastern electricity grids in India at the end of July 2012 left nearly 700 million Indians – approximately the combined population of the entire Western hemisphere – in darkness, giving India the dubious honour of having had the world’s largest blackout. While most commentators have been wondering why this happened, the real question ought to be why it didn’t happen sooner. The embarrassing state of India’s electricity network is quite well-known – a populist tariff scheme that impoverishes state electricity boards, poor quality of coal (high ash content and rocks in the coal supplied by Coal India Ltd.), failure to increase power production, the highest transmission losses in the world (24% according to the Organisation for Economic Co-operation and Development), and theft of up to 15%. Worse, the chronic shortage is despite incomplete electrification leaving vast swathes of the country in the dark after even 65 years of independence. However, the United Progressive Alliance’s (UPA) star achievements have been two welfare schemes, the National Rural Employment Guarantee Scheme and the Food Security Act, that drain rather than augment the national treasury. The fact is, an India in darkness is far closer to the norm than an electrified India where power is a norm that can occasionally go unmet.

Compounding the tragedy of India’s woeful shortage of power is that the stumbling block is not of material resources, manpower, or technology, but self-inflicted regulatory policies. Controlling the price of coal and gas has inhibited further exploration and development of the resources. Furthermore, manipulating tariffs has led to little private interest in the power sector, and India’s byzantine bureaucratic processes have deterred foreign investors. In addition, slow movement on the nuclear front has meant that the nuclear share of the country’s power production has hardly risen or is likely to rise appreciably in the near future. Unfortunately for New Delhi, international coal prices have been pushed up by surging demand from India and China, and the much trumpeted gas finds in the Krishna-Godavari have yet to alleviate India’s present 100 million cubic metres per day shortfall. As the present government’s economic exsanguination holds India in the dark, it remains to be seen how hard the economy will stub its toe before the next election.

Almost symbolically, as India’s economy groans under the strains of a depressed global economy, high oil prices, systemic inefficiencies, premature welfarism, and endemic corruption, electricity grids throughout the country are also giving out. Parts of the country are enduring power cuts for up to 16 hours a day, and many rural regions have been without power for days. A couple of months ago, the Uttar Pradesh state government, facing a shortfall of 3,000 MW this month, declared its inability to supply power to shopping malls and restaurants beyond the hours of 11 am – 7 pm. In the south, Karnataka and Tamil Nadu suffered a power deficit of nearly 4,500 MW in May, and Andhra Pradesh around 3,900 MW. Across the nation, power shortage is close to 37,000 MW per month. The problem is not only an insufficient installation of capacity, but also poor management of power plants, shortage of coal and gas, and the inability of the bankrupt state electricity boards to purchase the required coal and gas when available. In this gloom and darkness, the bright promise of the Indo-US nuclear deal must seem very distant indeed.

The agreement on civilian nuclear commerce concluded by India in 2008 ended four decades of nuclear ostracism. A very controversial compact attacked by both, the Left and the Right, the promise of a nuclear renaissance and abundant power pushed the deal through the Lok Sabha. India’s nuclear market – reactors, fuel, skilled labour – was estimated to be worth over $150 billion. However, salivating international vendors were given a rude shock by the terms and conditions of the Nuclear Liability Act (NLA) that India passed in 2010 – running against decades of tradition of channelling all liability to the operator, the NLA allows the operator to approach the suppliers with claims is the fault is found to be with the product. The merits and demerits of the NLA aside, the Act has effectively reined in what promised to be an era of explosive growth in the nuclear energy sector. No deal with a foreign vendor has been signed since the NLA (the last step required to actualise the Indo-US nuclear deal) – discussions are still going on with Russia about the expansion of Kudankulam (and setting up new facilities at Haripur), nothing has progressed beyond a general framework on Jaitapur with the French, and GE-Hitachi and Westinghouse are still “consulting” on Kovvada and Chhayamithi Virdi. Furthermore, contrary to the GoI’s declarations that Russian and French companies are willing to work with the NLA, Russia has recently announced its unwillingness to allow its Kudankulam project to come under India’s new liability law. In effect, the initial target of increasing electricity generation from the present 4.78 GW to 20 GW by 2020 and then to 63 GW by 2032 has been significantly downsized to 14.6 GW by 2020 and 27.5 GW by 2024, and even those targets seem in question.

The nuclear energy industry is at the intersection of, to borrow a meme from VS Naipaul, two areas of darkness in India. One is in the literal sense, the massive electricity shortfall in the country, and the second is metaphorical, in that anything nuclear is strictly under wraps. The fundamental problem with the nuclear industry in India – the country itself, in fact – is an unhealthy obsession with secrecy (and obfuscation). Common sense would dictate that energy stocks in India would be skyrocketing – 1. the economy has accepted the basics of the free market; 2. there are comparatively less regulations; 3. the government has more money at its disposal; 4. the country desperately needs energy; 5. there is plenty of investor interest in India – but the reality is quite different.

One reason for the anaemic state of the nuclear power sector in India is the lack of transparency in the industry. New Delhi conflated, a long time ago, secrecy with security: as the Atomic Energy Act, 1962, makes clear, anything regarding location, mining, theory, quality, operation, construction, or research pertaining to nuclear technology and facilities is “restricted information,” and subsection (f) bars the private sector from electricity generation. In addition, a new Nuclear Safety Regulatory Authority (NSRA) Bill, 2011, proposes to restrict even the scope of RTI (Right to Information) requests that can be made to the nuclear establishment. This means that press releases by the nuclear establishment – bordering on stand-up comedy – cannot be easily verified. For example, the Atomic Energy Commission chairman, Srikumar Banerjee claimed the uranium finds at Tummalapalle as “one of the world’s largest,” providing “a major fillip to the country’s nuclear programmes.” However, as Sam Tranum, energy journalist, discovered, initial estimates put reserves at 15,000 tonnes, with the potential of a ten-fold increase. Actually, the latest data posits deposits to be around 60,000 tonnes, which may be revised upwards to 150,000 tonnes. However, this still puts Tumalapalle at 15th place, and the most optimistic assessment still puts it at 9th place.

One solution to the situation is allowing the private sector to participate in the nuclear conclave. In terms of liability legislation, it releases the Indian taxpayer from responsibility for paying for a cleanup (up to a certain amount) and throws the door wide open to foreign suppliers. To be fair, the Department of Atomic Energy (DAE) is doing a fair bit in setting up indigenous plants – the two reactors planned for Kakrapar (3 & 4) are on schedule as are the two (7 & 8) for the Rajasthan Atomic Power Station (RAPS). These should contribute about 2.8 GW by 2017. If all goes well (but it seldom does in India), nuclear power plants should be set up or augmented at Kaiga, Mahi Banswara, Kovvada Matsyalesam, and Gorakhpur (sanctioned in 1984!), generating an additional 7.2 GW of electricity by 2023. This is still less than half of the revised goal of 27.5 GW by 2024. By allowing the private sector in, the financial burden could be leveraged across multiple players. Furthermore, the additional inflow of private capital should drastically shorten the time an area of darkness exists in India, at least literally.

The idea of nuclear technology and fissile material in the hands of private contractors may sound scandalous in a country that has barely completed two decades as a relatively free-market economy, but private nuclear utilities have done quite well globally. According to findings presented at the World Nuclear Association symposium, between 1990 and 2001, “split of nuclear electricity generated between private and publicly-owned utilities has remained roughly constant at around 55% to 45%.” Uranium mining is split fairly evenly between private and public entities, and private companies have been catching up with government in hex production (45:55); in enrichment, public operations have declined from 91% in 1990 to 61% in 2001, and reprocessing has remained entirely in government hands, no doubt due to proliferation concerns. In terms of electricity generation, privately owned reactors perform significantly better, with 94% of them achieving load factors about the world average, while barely 44% of government reactors achieve the same benchmark. It was also found that 82% of reactors operating in liberalised nuclear energy markets operated at above average (81%) loads, whereas only 40% did so in regulated markets. Most importantly, as private equity has increased in the nuclear market, industrial safety has too, the accident rate going from 1.04 to 0.33 per 200,000 work-hours.

Worldwide nuclear power generation Uranium Mining
Hex Conversion Reprocessing
Load factor in 2001 (efficiency) Load factor in 2001 (markets)
Load factor above 90% Industrial safety accident rate
Source: World Nuclear Association (1990 – 2001)

Privatisation is also a quick fix for the dispute over supplier liability. To be sure, the burden of insurance may be too great for one company, certainly if there is an accident, but as has been seen in other countries, nuclear utilities are owned by holding companies that are a conglomerate of several interested businesses. For example, the ČEZ Group is a conglomerate of 96 companies, of which 24 are even outside the Czech Republic. Similarly, Finland’s Teollisuuden Voima is a conglomerate of 16 companies. This allows the sharing of liability in a manner similar to profits.

While it is difficult to disagree with India’s position on the NLA – the existing laws do go against all torts common sense – it is an issue that can be revisited at a later date. By insisting on creating a perfect system, the country is paying dearly in terms of economic growth. One estimate puts loss of productivity due to electricity shortfall at 35-40% in the National Capital Region and across the country to approximately Rs. 43,205 crores per annum; and that is not measuring the loss of investments that might come to India had power infrastructure not been in shambles. So far, New Delhi has resorted to importing coal, but foreign coal is more expensive, costing $17.6 billion last year despite which many plants ran below capacity for lack of coal.

It is no longer a question of economic philosophical loyalties but of necessity that India open key sectors to private capital, domestic and foreign. New Delhi has many calls on its purse as it is – defence, space exploration, environment, and hydrocarbon imports, not to forget the mammoth $1 trillion investment in infrastructure over the next five years. In what may be the brightest hope for India (and the world), construction of the Advanced Heavy Water Reactor (AHWR) should start around 2016. The reactor uses thorium as fuel, and if successful, can significantly alleviate India’s nuclear fuel bill (not to mention reduce nuclear waste) and serve as an example to national nuclear industries around the world. Passing the nuclear energy buck to private concerns would be an additional boost to industry, not only financially but also technically, in the operation and security of sensitive resources. It would free up government resources to do “government things,” rather than run interference in commerce. Many nuclear analysts called 2008 India’s nuclear dream – it is time India woke up and went about achieving it.

This article appeared on Niti Central in three parts, from August 14-18, 2012.