Tag Archives: CLNDA

The Final Chapter of the Kudankulam Saga

02 Fri Jun 2017

Posted by in India, Nuclear, South Asia

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On June 01, India and Russia concluded an agreement that would begin work on the fifth and sixth reactors at Kudankulam. The deal was finalised during Prime Minister Narendra Modi’s visit to St Petersburg for the 18th annual bilateral summit between the two nations and ironed out the technicalities to a 1988 Memorandum of Understanding signed by Mikhail Gorbachev and Rajiv Gandhi for the development of nuclear energy in southern Tamil Nadu. Completion of this project would make Kudankulam India’s largest nuclear park, responsible for 40 percent of India’s total nuclear energy capacity.

Although the original MoU envisioned a total of eight reactors at the Indian site, a subsequent negotiation in 2008 reduced that number to six. No size of the reactor had been mentioned in the agreement but was mutually understood to be the 1,000 MW VVER-1000. In 2014, Russia offered its latest Gen 3+ VVER-1200 for future Kudankulam installations but this suggestion was nixed by India as there were no working models of the design; the first VVER-1200 reactor became commercial just three months ago at Novovoronezh.

The deal for the last two reactors at Kudankulam comes at an interesting time in international nuclear politics. Rosatom has been strongly pushing nuclear exports over the past five years and secured agreements in several countries such as Hungary, Bolivia, Argentina, Indonesia, Turkey, Egypt, Nigeria, Algeria, Bulgaria, Finland, and others. As the only company in the nuclear sector that is capable of offering the full spectrum of services from mining to reprocessing, Rosatom has a powerful advantage over its competitors in new markets. However, nuclear sales come with financing agreements and it has been questioned if the Russian state-owned company can indeed afford to float such lines of credit. In fact, Rosatom had offered to partner with India in fulfilling its agreements for probably similar concerns. This deal confirms valuable additional business for the Russian nuclear giant when it needs it most, especially considering the short period of 10 years for the $4.2 billion loan Russia has extended India for Units V and VI.

The finalisation of Kudankulam V and VI also comes on the heels of India’s decision to proceed with 10 indigenous 700 MW reactors if foreign suppliers cannot be relied upon to assist with India’s nuclear aspirations. If Delhi does succeed in streamlining the indigenous route, a valuable customer with enormous needs would be lost to the international market. Despite its frustrating vacillations, India still remains one of the hopes of a nuclear renaissance.

It is also hoped in some quarters that indigenous nuclear development will give India additional leverage to force its way into the Nuclear Suppliers Group. The emergence of a parallel market in which Delhi can set its own rules while broadly following international non-proliferation and safety protocols is a threat to the Western-led international nuclear regime. Although this is no more than a fantasy, it is hoped that taking even small steps towards such reliance will soften the stand of the nuclear cabal. Given the new mantra of Make-in-India and Modi’s emphasis on developing Indian industry, it is not inconceivable that a few benefits are also seen in domestic Indian nuclear industry.

There is no clear information yet as to what the cost of Kudankulam V and VI will be. The first two units were built for ₹17,270 crores but the price for the third and fourth units skyrocketed to ₹39,747 crores. The agreement for the fifth and sixth units commits Russia to a loan of approximately ₹27,000 crores to cover the construction costs of the reactors but reports make no mention of what the total cost is likely to be. If the agreement on Kudankulam III and IV – in which India secured a $3.4 billion loan towards construction costs – is any indicator, the last two VVER units at the site are likely to cost around ₹51,000 crores.

As usual, India’s Nuclear Power Corporation (NPCIL) will construct the plant with guidance from Russia’s Atomstroyexport. No information has been released on the timeframe for Kudankulam V and VI to begin commercial operation, or for that matter, the earlier two units.

The agreement for the fifth and sixth units follows quickly on the heals of the agreement for Kudankulam III and IV. The infusion of two more foreign reactors will not salvage India’s moribund nuclear energy programme but it comes at a time when more and more people are asking questions about India’s relations with Russia. While Delhi is perceived to have drifted towards the United States, Moscow flirts with Islamabad to India’s chagrin. Despite all the diplomatic packing peanuts, defence (technology) agreements have formed the bedrock of India-Russia relations ever since Stalin and the new Kudankulam will give flagging relations a shot in the arm. As long as cooperationin the strategic realm remains strong, both Moscow and Delhi will be able to weather any storms since their relations are not based on a sense of community or shared international vision.

It also seems clear now that Russia will be exempted, de facto, from India’s asinine nuclear liability regime. The argument for the exemption is that laws cannot be applied retroactively – though such common sense has not always prevailed in India – and the Kudankulam agreement and the subsequent renegotiation were both concluded before the Civil Liability for Nuclear Damage Act. As analysts have pointed out, By reopening the Kudankulam deal to accommodate the CLNDA would provoke Russia into demanding renegotiation of reprocessing rights, the implementation of full scope safeguards, and showing a greater restraint in nuclear cooperation or technology transfer. Russia has already substantially raised the price of its reactors to allow for India’s convoluted workaround of its liability law.

Russia remains the only country that has committed to developing nuclear power plants in India despite the CLNDA albeit no new agreement has been concluded and the reactors presently under construction are still grandfathered into the 1988 accord. India’s early optimism in face of international concern for its liability law now seems hollow and self-deceptive. A good experience with Kudankulam is therefore important to retain India’s only foreign nuclear vendor.

This post appeared on FirstPost on June 02, 2017.

Debating Nuclear Supplier Liability

30 Fri Oct 2015

Posted by in India, Nuclear, South Asia

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There has been a lot of discussion about civil nuclear liability in India over the past four years. The new law promulgated by the government in 2010 as one of the requirements for the operationalisation of the Indo-US nuclear deal two years earlier has proven to be controversial and been the subject of much scrutiny. Nuclear vendors, both foreign and domestic, have been dismayed at the unorthodox stipulations of India’s Civil Liability for Nuclear Damage Act (CLNDA) and have generally stayed away from the country’s potentially lucrative market, scuttling what had promised to be a nuclear renaissance in 2008. The most offending clause – and there are a couple – is that in case of an accident, nuclear operators shall have recourse to legal measures against their suppliers. This goes against nearly six decades of internationally accepted practice of making the operator solely responsible for all liabilities.

Proponents of India’s new interpretation of nuclear liability have argued that the present insurance regime makes little sense and goes against the entire body of tort law. No other industrial insurance system allows suppliers immunity from legislation even in case of fault. Nuclear vendors have so far enjoyed a risk-free ride that serves as an indirect subsidy to the entire industry. Some of this support is, no doubt, built on the experience of the Union Carbide tragedy in Bhopal in 1984 that killed about 4,000 people and injured over 550,000 according to government estimates. The horrific accident, followed by bitter legal battles and what many see as insufficient compensation, has left many Indians wary of foreign corporations and their technology.

There are, of course, reasons for the unusual evolution of nuclear liability. They begin in 1954, when the United States decided that the private sector may be invited into the nuclear energy market. Until then, there were no civilian nuclear reactors and all military facilities would be the responsibility of the government under various environmental and tort laws. Initially, there was reluctance to enter into the market because of the substantial risk involved and the difficulty of calculating insurance premiums for such low-probability yet high-risk events. The Price-Anderson Nuclear Industries Indemnity Act (1957) simplified these issues by investing all liability in the nuclear operator, capping compensation limits, and including a no-fault condition. This was seen as an equitable distribution of risk and benefit between supplier, operator, and consumer.

Economic channeling of liability to the operator was efficient; if multiple vendors all had to take out insurance against a potential nuclear accident, not only would it raise the price of components but also lock down larger financial assets. Furthermore, smaller suppliers would hesitate to take on risk that could be orders of magnitude more than the value of their contract. Similarly, the public is guaranteed compensation without delay because of a no-fault liability – if legal disputes arose over who is liable for damages, victims may spend years waiting for the courts to decide on the case. The operator is also afforded some level of protection by capping damages. Thus, the benefits to each party in the nuclear concord are not insignificant. Though not a consideration when the Price-Anderson mechanism was formulated, it can additionally be argued today that nuclear power serves a public good by offering bountiful and reliable low-carbon energy.

Economic efficiency is not necessarily the prime consideration in policymaking but in the case of the nuclear industry, it might be the sensible yardstick. The notion is certainly not novel – governments frequently interfere in the market to prevent, break up, or regulate monopolies. For example, power distribution is a critical part of modern infrastructure; however, it would be foolish for companies to duplicate power lines simply to remain loyal to a strict textual reading of free market theory. Consequently, governments usually award a regulated monopoly to power distribution companies, thereby achieving economic efficiency and consumer protection as well as infrastructure development.

In India, of course, the traditional course of action has been for the government to have a powerful presence in business. However, recent legal amendments have opened the door to consider regulated monopolies in India. The Monopolies and Restrictive Trade Practices Act (1969) was replaced by the Competition Act (2002). In a significant departure from the former, the latter does not categorically disallow monopolies but concerns itself with merely the effect on the market in terms of consumer benefits and potential competitors. Clearly, Delhi has shown that it is not averse to economic efficiency if it is in the general interest of the public; the international nuclear liability norm is similarly another case of economic efficiency.

It is not that India’s decision makers do not understand economics. The real fear for politicians is the astronomical cost of a nuclear accident, however rare. The insurance pool established by the Price-Anderson Act has grown to approximately $14 billion today. This is by far the richest insurance pool available for awarding damages arising from a nuclear accident. Yet even the Price-Anderson nuclear insurance pool pales before some of the estimated costs of a nuclear cleanup. Fukushima, for example, where not a single death was caused by radiation, is still predicted to cost Japanese taxpayers around $100 billion. Nuclear suppliers have deeper pockets than nuclear operators, particularly in India where the only legal operator is an autonomous government agency. Leaning on the vendor, as the Indian legislation does, will help defray the cost that the state as the guarantor of last resort will have to ultimately pay.

This strategy has not borne fruit – all international vendors have shunned the Indian market despite its potential. The only exception, the Russian state-owned Rosatom, has renegotiated its contract and drastically hiked the price of their reactors. While the cost of the first two reactors at Kudankulam was Rs. 17,270 crores, the third and fourth reactors will cost India Rs. 39,747 crores – more than double the original price when economies of scale should have actually lowered the price. Moreover, it is unlikely that suppliers will budge from their positions for the global precedent that would set. The cost of this impasse hurts India not just in the price per reactor but also environmentally and economically. The public interest would be better served were Delhi to accede to the standard international interpretation of nuclear liability.

This is not to delegitimise India’s fears of the cost of an improbable nuclear mishap. Rather, the solution must be found elsewhere. One possibility is to allow private sector entry into the nuclear power industry, allowing some of the costs of a nuclear accident to be borne by industry. In congruence with privatisation, a nuclear insurance pool may be set up that all operators would contribute to depending upon the number of reactors they own. A greater amount of reactors will create a bigger pool and if India were to modestly aim at even half of its electricity to be derived from nuclear power, substantial funds could be accumulated. In addition, suppliers can be called upon to contribute to the pool as well in the form of a small annual licensing fee per reactor. As long as they are not exposed to liability, most suppliers should accept this modest proposal.

An unpopular but required measure is to also assess how many of the safety precautions are psychological and how many are truly needed. To take just one example, evacuating a zone 50 kms in radius always sounds better than clearing out an area 20 kms in radius. However, how much is necessary is a decision scientists can make better than others; nuclear power plants already come with exclusion zones and evacuation beyond that should be dictated only by necessity.

If Delhi truly wanted to worry about liability, there are other aspects it can look at. For instance, its neighbours have shown increasing interest in nuclear power; Pakistan is acquiring reactors from China, Bangladesh has inked an agreement with Russia, and Sri Lanka is considering joining the nuclear club as well. If an accident were to occur at any of these sites, the trans-boundary implications could be severe. None of these states are party to any of the international liability conventions yet and responsibility for any accident will fall on each state for its own domain. Expanding Indian’s national nuclear pool to these countries is one solution but the sheer number of reactors India will have means that the Indian share in any compensation would be disproportionate. Nonetheless, this is an important conversation South Asia needs to have.

India’s stubbornness on nuclear liability seems to have the purpose of punishing foreign vendors rather than achieving a pragmatic system. For all its interest in holding suppliers liable for damages, one wonders why Delhi has not asked coal and oil companies to compensate the over 100,000 deaths per annum and millions afflicted by respiratory illnesses. India is wrong on supplier liability and it takes political courage to walk back a mistake. But that is what this government must do.

This post appeared on FirstPost on November 12, 2015.

In Search of a Nuclear Vision

09 Fri Oct 2015

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Few things are as confounding as watching India mismanage its nuclear energy policy. The Indo-US nuclear deal in 2008 raised hopes that the country might be on the verge of a nuclear renaissance but Delhi handled subsequent steps with about as much aplomb as a tapdancing platypus. The latest fallout of this ham-handed approach to nuclear policy has been General Electric’s announcement that it will not participate in the Indian nuclear market until the country’s nuclear liability laws meet international standards.

The Civil Liability for Nuclear Damage Act is but a symptom of a far greater malaise that has plagued Indian nuclear thinking for decades. In the early years after independence, India’s nuclear tsar, Homi Bhabha, had a close relationship with Prime Minister Jawaharlal Nehru. Consequently, he could count on Nehru’s support in his ambitions for India’s nuclear programme. The prime minister himself was also a devotee of high technology for it signalled to him a way in which India might leapfrog several stages of development.

Bhabha used the fact that he had the prime minister’s ear to dream big: he formulated the three-stage programme which would eventually see the country powered by thorium reactors and free from external dependencies. To reach this goal, India would first have to build a fleet of pressurised heavy water reactors and fast breeder reactors that would produce the fuel for the third stage. The chutzpah is astonishing when one considers that India did not even have a single nuclear reactor then.

Post Nehru, Indian leaders have been distant of the nuclear programme. It was difficult, however, to disavow the programme entirely. This was partly because the energy programme was inextricably interwoven with a weapons programme and India’s principled opposition to international nuclear apartheid linked the political fortunes of both to each other. The closeness between Bhabha and Nehru, not to mention the latter’s childlike fascination and wonder at big science, created a dynamic that has not since been replicated.

One thing India’s political class has never been accused of is possessing in-house expertise and this shows in the way Delhi seems lost at sea when it comes to nuclear energy. The drastic adjustment of the growth target for nuclear energy in the country – from 63 GW to 27.5 GW – by 2032 betrays a worrying incompetence in the Indian bureaucracy, or at the very least a complete disconnect between scientists and policy makers. The plan had been to build 16 domestic and 40 foreign reactors but fumbling on nuclear liability, viewed only through a prism of political expediency rather than technical criteria, repelled desperately needed foreign investment in India’s nuclear energy sector. Even if foreign vendors were forthcoming, the cost of their products has also shot up due to the convoluted bypassing of nuclear liability via the suppliers’ insurance pool. In the seven years since the epochal nuclear deal, the only good news the nuclear establishment can boast of is the securing of uranium supplies for the next decade or so.

The nuclear liability quagmire aside, Indian nuclear energy is still in complete disarray. Only six reactors are under construction in the country presently, a 1,000 MW VVER at Kudankulam, two 700 MW pressurised heavy water reactors (PHWR) at Kakrapar, two more similar reactors at Rawatbhata, and the 500 MW prototype fast breeder reactor (FBR) at Kalpakkam. All have seen significant delays in construction – an inter-governmental agreement between India and the Soviet Union was signed in 1988 but construction only began in 2002; Kakrapar and Rawatbhata were approved in 2005 but construction started in 2010, and the PFBR is at least three years behind schedule. These are among the faster projects – the nuclear power project in Gorakhpur was sanctioned in 1984 but finally broke ground only in 2014!

Delays are rampant across the industry. Yet most are due to political or bureaucratic inefficiencies such as trouble with land acquisition, unforeseen hurdles in financing, and at times, protests and litigation. Once the reactors are built, however, the nuclear enclave seems to have done a splendid job in operating and maintaining them – in 2003, Kakrapar was recognised by the CANDU Owners Group of being the best performing PHWR. Similarly, an IAEA team that visited Rawatbhata in 2012 reported that the reactors they inspected were safe and impressive; in 2014, one of the reactors at the same plant set a world record for the longest continuous operation.

Admittedly, some delays do arise due to technical shortcomings. For example, the design and construction of the reactor pressure vessel (RPV) for the PFBR took Larsen & Toubro almost three years more than anticipated; any increase in the power rating of future FBRs will again require a similar timeframe to re-design the RPV. The reason Indian manufacturing lags behind nuclear industry needs, P. Chellapandi – Chairman & Managing Director of Bhavini – explained, is that there is little incentive to pre-empt demand given how small and infrequent it is. India has built some 21 reactors in the 70 years since independence; by contrast, France built 60 reactors in just 20 years from the mid-1970s to the mid-1990s under the Messmer Plan; the United States built 100 reactors before the lull that set in under President Jimmy Carter; the European Union’s nuclear trade association, Foratom, has just called for 100 new reactors by 2050; China has 25 reactors under construction presently, has plans for 43 more, and is sitting on proposals for 136 more by 2030!

In the last couple of years, Areva, Toshiba, and Urenco have all looked for outside investors in their nuclear divisions. India has let the opportunities by without so much as a whimper. While India has secured nuclear fuel for the next decade, uranium prospecting or acquisition of mines abroad – especially when prices are so low – does not seem to have factored high on the Indian agenda.

In terms of technological cooperation too, India is nowhere on the international scene. China is the hot destination for nuclear vendors and startups – the size of Beijing’s orders has persuaded GE to share its AP1000 technology with Chinese firms, and Bill Gates’ TerraPower recently signed a deal with China National Nuclear Corporation to build the first of a new generation of reactors, the travelling wave reactor (TWR), a 1,150 MW liquid sodium-cooled fast reactor that uses depleted uranium as fuel. This type of reactor will generate less waste, be cheaper, and safer. In the meantime, India postponed the start of its PFBR again and the advanced heavy water reactor is nowhere in sight.

Like any large national project, say, for example, the highways or the railways, the utility and efficiency of nuclear power increases with scale. Furthermore, the high upfront cost of nuclear power demands a clear set of short and medium-term goals with a long-term vision. It is, therefore, essential that the government, either in partnership with the private sector or on its own, have a considered and clear-eyed policy for the industry. The urgency to meet deadlines, the impetus to remove roadblocks, must come from the top to galvanise the entire chain. Indian nuclear fingerprints appear nowhere in the various international nuclear ventures, from mining through construction to development.

Prime Minister Narendra Modi has outlined an environmentally friendly trajectory for Indian development that is mindful of climate change, air quality, and other environmental concerns. It is unclear how he intends to meet these goals and grow the economy at eight per cent per annum at the same time without substantial help from nuclear power. Admittedly, plans for nuclear reactors at ten sites were announced in April 2015 but it is unlikely any of this will come to fruition in a timely manner without developing Indian manufacturing and bringing the CLNDA in line with international practices. Thankfully not ubiquitous, the attitude that the world needs India more than vice versa is far too common among Indian bureaucrats, planners, and citizens. They are in for a rude surprise. As former commerce secretary Rahul Khullar succinctly explained in a recent article, this attitude, combined with domestic calculations, narrow ministerial interests, a fundamental lack of understanding of negotiating give and take beset India’s negotiations with the outside world.

Even more helpful would be to rekindle the relationship between the prime minister’s office and the heads of the nuclear community to the same level as that between Bhabha and Nehru – after all, nuclear energy does fall under the PMO and not the Power or New and Renewable Energy ministries. Modi seems to be the point source for visions and thinking big in the ruling party and were senior nuclear scientists to have the prime minister’s ear, it may be just the sort of thing to accelerate growth in Indian nuclear energy. With their domain expertise and confidence of the prime minister’s support, an ambitious yet realistic nuclear expansion programme can be launched. To be clear, there is no Indian century without nuclear power – clean air, carbon emissions control, plentiful energy, employment, economic growth, energy security…in one industry can India find solutions to so many of its needs. We just need a little vision. Desperately.

This post appeared on FirstPost on October 29, 2015.