Tag Archives: CGN

An Empty Deal

12 Sat Dec 2015

Posted by in India, South Asia

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News of an agreement on civil nuclear cooperation between India and Japan has been met with much fanfare in the Indian media. The announcement came on the second morning of Japanese prime minister Shinzo Abe’s three-day trip to India to attend the ninth annual India-Japan Summit. Despite the celebratory tone in India, the fine print and context of what was agreed upon between the two nations is less than satisfactory and will mean little in practice.

The nuclear deal has been a sensitive subject between Delhi and Tokyo for the past five years. In 2005, the United States spearheaded the effort to recommence international nuclear commerce with India, urging the International Atomic Energy Agency (IAEA) and the Nuclear Suppliers Group (NSG) to consider Delhi’s excellent nuclear non-proliferation and safety credentials and make an exception for the South Asian country despite its refusal to accede to the Non-Proliferation Treaty. The international legal infrastructure was in place by 2008, and India has since concluded several nuclear cooperation agreements enabling it to purchase nuclear equipment and fuel from the international market. Delhi’s increasingly warm relations with Tokyo had led the former to believe that the latter would also ink such an accord once the United States and other major powers had done so. Mistakenly, as it turned out.

Japan holds an important position in international nuclear commerce. Over the years, the island nation has developed expertise in manufacturing several critical reactor components of high quality and become a key node in the supply chains of at least three of the major nuclear vendors, namely the French firm Areva and the American firms General Electric and Westinghouse. Among the major players, only Russia’s Rosatom and China’s two major state-run nuclear vendors – China General Nuclear Power Group (CGN) and China National Nuclear Corporation (CNNC) – are independent of Japanese components. As per Japan’s strict export controls stipulating end-user certification and other conditions, US and French nuclear firms would first need the permission of their Japanese suppliers before doing business with India. Tokyo’s consonance on nuclear cooperation with India thus achieved a greater import, not to mention the symbolic value India put on such an agreement as an indicator of its nuclear normalisation.

The declaration at the India-Japan Summit falls considerably short of a nuclear deal. The two sides merely signed a memorandum of understanding that has punted the legal and technical differences further down the road. In essence, this means that Japan has only agreed to the principle that it can conclude a civil nuclear cooperation agreement with India, that it will make an exception to its rule of not conducting nuclear commerce with a state that is not a signatory of the NPT. This is progress, no doubt, but what price Japan will extract for its concession in terms of technical requirements or how long the nuclear deal will take to operationalise is anyone’s guess. If the joint statement between the two countries is any indication, Japan’s pound of flesh will probably include Indian concessions on the Comprehensive Test Ban Treaty (CTBT) and the Fissile Material Cut-Off Treaty (FMCT). India’s view has been that both these treaties perpetuate the nuclear apartheid regime that the NPT is the foundation of. Although India has of its own volition declared a moratorium on future nuclear tests, being party to a legally binding agreement is a bridge too far from Delhi’s perspective. Furthermore, a historical perspective on the fate of India’s MoUs may be had by looking at the country’s role in upgrading the Iranian port of Chabahar or its Medium Multi-Role Combat Aircraft (MMRCA) contract.

Even if India and Japan had succeeded in inking a comprehensive civil nuclear cooperation agreement, the chances of it having much impact on India’s nuclear energy sector are slim. As part of its agreement with the United States, India agreed to bring into force a nuclear liability law like all other states with nuclear facilities. However, Delhi’s interpretation of liability, informed as it was by the Bhopal Gas Tragedy of 1984, was not in congruence with the international standard that limited damages and made the operator solely responsible for economic compensation. Consequently, no vendor is willing to enter the Indian nuclear market. Chairman Jeff Immelt stated categorically that he was not willing to expose his company to the risks Indian liability law required of nuclear suppliers, and Areva has slowed down its work at Jaitapur pending further clarifications regarding liability despite signing a pre-engineering agreement for the site with Larsen & Toubro in April 2015. Similarly, Westinghouse has been remarkably silent on its interest in India since January 2015 when US president Barack Obama and Indian prime minister Narendra Modi achieved an expensive and convoluted workaround on supplier liability by establishing an insurance pool for nuclear vendors.

The only benefit India is likely to accrue from an agreement on nuclear cooperation with Japan is the transfer of technology for reactor components, particularly Japan Steel Works’ forging of large, single-plate reactor pressure vessels. India may also diversify its suppliers and develop its indigenous nuclear energy industry. While both of these are welcome developments, they will not amount to the rapid expansion of nuclear energy in India that was envisaged in the wake of the Indo-US nuclear deal in 2008. Another possible benefit, if Modi is capable of being so bold, is the acquisition of plutonium and spent nuclear fuel for use in India’s Fast Breeder Reactors (FBR). This will expedite the introduction of thorium reactors in India, which are safer, cleaner, cheaper, and more proliferation-resistant than conventional reactors.

There is some debate about why Japan has made even this slightest of shifts in its position on nuclear cooperation with India. The Yomiuri Shimbum, arguably Japan’s leading daily, suggests that China’s forays in emerging as a major nuclear vendor has Tokyo worried. By various means, Beijing has acquired advanced Western technology and incorporated it into its own designs that are now being marketed to the world. China’s large reserves of foreign exchange also allow it to extend generous lines of credit to its customers who would be happy with a greater range of international partners. Additionally, by retreating from the international nuclear market and refusing to supply major customers, Japan will lose its technological edge in the field as Britain has. This is a plausible explanation but betrays the newspaper’s conservative leanings more than reveal Tokyo’s reasons: any argument along these lines must also take into account that there is still a large lobby against nuclear relations with a non-signatory of the NPT like India as well as the opposition to nuclear energy expansion in Japan; restarting the country’s fleet of 43 idling reactors has itself been a challenge for the Abe government.

From an Indian point of view, there are strategic as well as economic considerations at play here. Abe is not unaware of this, but he must also be able to sell this deal to his domestic audience and have it approved by the Diet. It might be his thinking that this is best achieved in small, incremental steps as the MoU was. In the meantime, there is much Modi can do to maximise the gains from a nuclear deal with Japan when it comes. It involves reforming the Atomic Energy Act to allow active participation by the private sector, establishing a de facto and de jure independent regulatory authority, improving transparency in the nuclear sector, and amending India’s nuclear liability to conform to international norms. Whatever the potential benefits of a civil nuclear cooperation agreement with Japan may be, India has not achieved them today.

This post appeared on FirstPost on December 13, 2015.

Will China Export The Next Chernobyl?

22 Mon Sep 2014

Posted by in India, Nuclear, South Asia

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During his recently concluded visit to India, Xi Jinping expressed China’s interest in participating in India’s nuclear energy market. The sector is expected to be worth at least $150 billion and India’s small domestic nuclear energy capacity cannot handle the rapid ramp up the country’s energy crisis demands. Foreign vendors have been in discussions with Delhi since the India-US nuclear agreement but have so far been vexed by India’s unconventional nuclear liability law. Presently, India is looking to source 40 light water reactors from Rosatom, Westinghouse, General Electric, and Areva; Beijing hopes that its three nuclear developers – China General Nuclear Corporation, China National Nuclear Corporation, and China Power Investment Corporation will receive a piece of India’s nuclear pie in the next round.

While China’s nuclear dream is very impressive and tempting, there are several considerations India must keep in mind. The foremost among these is the vendor’s nuclear safety and regulatory history. At a quick glance, China’s nuclear industry appears just as competent and competitive as any other in the world. China has not had a single nuclear accident scored above 2 on the International Nuclear Events Scale and the country has been constantly improving its standards since its first civilian nuclear reactor went online. After the earthquake-tsunami at Fukushima, the Beijing ordered a full review of its safety precautions to ensure – and reassure – that its reactors were not similarly vulnerable.

However, China’s nuclear establishment is not known for its transparency and concerns have been voiced at regular intervals. Presently, China has 20 nuclear power plants operating and another 28 are being constructed. Of these, most will have the CPR-1000 reactor, the Chinese version of the French 900 MW M310 unit. These reactors have had some problems which the Chinese have been reticent to admit: in 1998, for example, one of the reactors at Qinshan suffered a critical failure and had to be rebuilt because of defects in the welding of the steel vessel that contained the reactor. Worse, these reactors will be operating on technology a century old by the time they are decommissioned.

There is great concern over the process by which China buys or builds its reactors. As one US embassy cable complained, “all reactor purchases to date have been largely the result of internal high level political decisions absent any open process.” To be fair, the United States might be exaggerating the seriousness of the matter to promote its own reactors instead but such concern has also been voiced within China. He Zuoxiu, a Chinese scientist involved in developing the country’s first nuclear device, has warned against the rapid expansion of nuclear facilities without the congruent expansion of intellectual infrastructure to license, construct, and operate the additional reactors. Fan Bi, a senior official at China’s State Council Research Office, agrees. In an article that appeared only a few months before the Fukushima accident, Fan wrote, “If the current momentum of development continues, if too many nuclear power projects are started too quickly, it could jeopardize the healthy, long-term development of nuclear power… Safety is the lifeline of the nuclear power industry.” Others would add transparency of safety and regulatory mechanisms to that list.

Areva, who is involved in constructing two of its latest 1,650 MW EPRs at Taishan, has expressed its concerns over the project. “It’s not always easy to know what is happening at the Taishan site,” said one official. The collaboration was not at a level that the French firm desired, admitted another official, explaining, “One of the explanations for the difficulties in our relations is that the Chinese safety authorities lack means. They are overwhelmed.” Autorite de Surete Nucleaire, the French nuclear regulatory authority, has given few details about its worries in China. However, the body has published hundreds of documents and closely monitored the work at Olkiluoto, Finland, with whom they have better relations.

Yet another concern is the quality of indigenously manufactured reactor components. One former vice president of CNNC confessed that though Beijing puts great emphasis on nuclear safety, “companies executing projects do not seem to have the same level of understanding.” This is encouraged by the cosy relationship between China’s state-owned nuclear regulators and state-owned operators, as well as by a revolving door that allows employees to move easily between government and industry. The formulation of cogent policy is even more challenging due to divided responsibility for the country’s nuclear governance between multiple government departments and bureaucracies. China’s quest for rapid growth only exacerbates these problems of weak regulation, poor implementation, and faulty manufacturing. Given India’s own questionable policies on nuclear transparency and accountability, it would be natural for Chinese firms to replicate their behaviour at home in India as well.

To be fair to China’s nuclear industry, it has also shown remarkable eagerness to achieve the world’s highest standards in safety. It has voluntarily been through a dozen of the IAEA’s OSART (Operational Safety Review Team) missions and subjects all its civilian nuclear facilities to annual inspections by the World Association of Nuclear Operators. Though the details of the reports are private, they confirm that the reactors are operated in conformance with international protocols and standards.

Nonetheless, these accolades are for reactor operation, not construction. China’s suitability as a nuclear partner is in doubt when its export potential is stretched to the limit by its domestic expansion plans – China hopes to add 250 GW of nuclear power between now and 2040, bringing ten reactors online every year. China’s three nuclear enterprises will be hard-pressed to construct and provide post-completion support to their international clients.

For domestic nuclear enthusiasts, one hope is that between international inspections, peer reviews, and collaboration with international entities with a good safety culture, India’s nuclear enclave will also develop greater transparency and accountability. India has never had a nuclear accident rated above 3 on the INES and though an IAEA inspection gave Rajasthan’s nuclear power units a good evaluation, fears abound due to ignorance of the general populace and poor communication by the authorities. The lack of independence of India’s nuclear regulatory authority is also of some concern. Given China’s record on transparency, these values will hardly be inculcated in the Indian establishment via a nuclear partnership with Beijing.

China is a below-par partner on another level too: technology transfer. India has always made the transfer of technology a key component of its high-tech purchases, hoping these would compensate for its own inadequacies in research & development. However, Beijing has little new technology to offer; nuclear energy took off in China only in the late 1980s and Beijing also bases its nuclear decisions on the degree of technology transfers vendors are willing to provide. Like India, China also intends to leapfrog stages of nuclear development via reverse engineering and emerge, initially under license, as a major exporter of nuclear products and services. India would be better served by dealing directly with more mature vendors in France, Canada, Russia, and the United States.

Unlike other sectors, nuclear partnerships are long-term relationships. The life of an average reactor nowadays is 40-60 years and during that time, the vendor is always in the picture. Many reactor contracts nowadays come with a lifetime guarantee of nuclear fuel and support as well and it is not easy to change suppliers as Ukraine recently discovered. Is India willing to enter into a 60-year marriage with a country that denies Indian firms fair market access, props up a neighbouring state with nuclear weapons and missiles against India, has claims on Indian territory, and with whom regular skirmishes along the border are not unusual?

China’s interest in India’s nuclear programme is, to put it politely, curious. Beijing has consistently vetoed Delhi’s application to join the Nuclear Suppliers Group and yet it wishes to enter India’s nuclear market. China may have calculated its policy based on India’s nuclear liability law – as it exists, the law inhibits private foreign vendors such as Westinghouse or GE from competing in the Indian market by imposing new and large insurance premia. The state-owned enterprises of Russia and China, however, will find it easier to provide for the necessary guarantees. If India sticks to its present nuclear liability law, the smaller number of vendors in India’s nuclear bazaar is to China’s advantage. A normative nuclear liability law, however, negates that advantage and leaves China with little to offer.

India must insist on any nuclear cooperation with China to be contingent upon Beijing’s unconditional support to India’s membership to the NSG; China is presently trying to finagle a place for its ally Pakistan along with India in the body and such hyphenation runs contrary to Delhi’s long-stated position. An uncompromising attitude on the NSG costs India little for China has no nuclear unique selling point. The policy of barring India’s entry into the NSG while hoping to enter its nuclear market run contrary to each other.

India’s nuclear establishment has borne the price of four decades in the non-proliferation wilderness. Consequently, it remains in a diminished capacity and sorely needs an infusion of capital and talent. However, China is an unsuitable partner for India in a venture as complex and as strategic as nuclear energy for technical as well as geopolitical reasons. As with telecommunications, it would not be judicious for India to allow China into its nuclear energy market.

This post appeared on Daily News & Analysis on September 23, 2014.