Prospects Uncertain for Westinghouse Nuclear Deal with India

The Financial Express, a major Indian daily newspaper, reports that despite intense efforts from both sides, the Westinghouse-Toshiba nuclear reactors deal is not expected to be closed by the time Prime Minister Narendra Modi reaches the US on June 7, to meet with US President Barack Obama.

[1] Updated 5/31/16;  [2] Updated 6/3/16;  [3] Updated 6/6/16;  [4] Updated 6/7/16

Progress was expected last January when two things happened. First, India signed off on an international convention that sets boundaries for liabilities in the event of a nuclear accident. Second, Japan said that despite the fact that India has not signed the Nuclear Nonproliferation Treaty, that it would agree for businesses, including Toshiba / Westinghouse, to ink deals for nuclear technology with India.

Last January, Westinghouse CEO Daniel Roderick told Reuters that he hoped to be able to sign the deal in March. That didn’t happen. Then in March he said the deal would be signed in June.

The deal would be the first nuclear commercial power project since India and the US agreed in 2008 to cooperate in the civil nuclear arena.

Negotiations appear to be stuck on the issue of the Nuclear Supplier Liability law passed by the Indian parliament and sponsored by Indian PM Modi’s own BJP political party. In the event of an accident, suppliers of major components can be held liable for hundreds of millions of dollars in damages long after the components have been installed and operated by NPCIL.

If there is no deal it will be third time the two leaders will have met and come away without an agreement to allow U.S. nuclear firms to do business with NPCIL, the Indian nuclear reactor operator.

Westinghouse has plans to build a nuclear power station in Gujarat with total capacity of 2,300 MW. Two additional sites have been identified for GE-Hitachi plants in Andhra Pradesh with an initial capacity of 3,200 MW. Both projects envision expansion to up to six reactors at each site. (See update below for additional information on sites.)

Insurance Pool Seen as Not Deep Enough

Last year India unveiled an insurance plan for nuclear plants that aims at shielding equipment suppliers from liability in the event of an accident by transferring the risk to insurers. The plan is still in development, but generally it creates a $226 million) insurance pool. The insurance may be bought by the suppliers who would then recoup the cost by charging more for their services or the NPCIL would take out insurance on behalf of these companies.

While the whole process looks circular from a financial perspective, it has been criticized by  as falling short in terms of coverage. Also, the pool does not place a limit on liabilities that might be assigned to a supplier.

Diplomat Cites Continued Uncertainties

U.S Diplomats pushed comfort cookies in response to India’s continued support of its liability law. Reuters reported that a U.S. State Department official assured lawmakers that India has addressed concerns over liability that had for years kept U.S. corporations from signing nuclear power contracts in the country.

“We believe that the steps that India has taken have addressed by and large the key concerns that have been in place,” Assistant Secretary of State for South and Central Asian Affairs Nisha Desai Biswal told the Senate Foreign Relations Committee on May 12.

She noted that India has now signed on to the International Convention on Supplentary Compensation which set standards for assigning damages in the event of a nuclear accident. However, India’s domestic political / economic environments are disconnected from these types of global developments with heated opposition still firmly in place to any U.S. nuclear company entering its markets.

In addition to the usual “nonaligned” interests who only want to see construction of a domestic reactor design, a 700 MW PHWR, the nation’s enormous coal interests have no intention of allowing nuclear reactors to cut into their market share for power generation.

Back in DC Biswal declined to say that all U.S. companies would now be comfortable doing business in India. “Those are going to be individual determinations that companies are going to have to make,” she said.

Bargaining Chips Ahoy

The senior state department diplomat also said the United States supported India joining the Nuclear Suppliers Group (NSG), a 48-member group of nuclear trading nations.

China, along with Pakistan, have blocked India’s membership.

India may be using carrot of opening its markets to U.S. nuclear reactor firms in return for U.S. support of its membership in the NSG. If approved it would settle forever India’s problems in obtaining enough uranium to fuel its civilian reactors.

India’s arch enemy Pakistan sees NSG membership as a force multiplier for India to boost its nuclear weapons capability. Both India and Pakistan have nuclear arsenals.

India was shut out of uranium supplies for decades because of its weapons program. A 2008 agreement with the United States gave it access to foreign suppliers without giving up arms primarily meant as a deterrent against nuclear-armed China.

In November 2015 India signed an agreement with Australia to buy uranium under condition that it would be strictly limited for use in civilian reactors.

EDF to Pursue Deal for Six 1600 MW EPRs at Jaitapur

Reuters reports that EDF has said it will deliver a proposal to the Indian government by year’s end to build six nuclear reactors, a in what could be the world’s biggest nuclear deal to date.

Last January EDF announced a preliminary agreement with Nuclear Power Corp of India Ltd (NPCIL) to build six EPR nuclear reactors at Jaitapur in western India.

“India has asked us to present a complete technical and economic proposal for six EPRs by the end of this year. We are working hard on this,” Xavier Ursat, EDF head of new nuclear, told shareholders at their annual general meeting.

Ursat said many countries are interested in building nuclear plants or upgrading their existing fleet and that EDF – which is acquiring the reactor building arm of Areva – is positioning itself in this market.

EDF CEO Jean-Bernard Levy told shareholders that EDF needs growth in international markets because European power markets are stagnant.

The Jaitapur project, first announced nearly six years ago, has been bogged down in local disputes over land use, technology transfer, and the use of Indian heavy industry firms to supply components to the reactors. Progress was made on all three fronts this year which could lead to the project breaking ground in 2017.

Unlike American firms, which are publically traded, EDF is French government concern. This means that with regard to the supplier liability law, it self-insures and can take on the risks that U.S. firms cannot accept.

Update 1: 5/31/16

Reuters reports that Westinghouse will relocate a planned project to build six nuclear reactors in India to the southern state of Andhra Pradesh, after the original site proposed for the multi-billion-dollar project, in Prime Minister Narendra Modi’s home state of Gujarat, ran into intense local opposition. The change in location is a setback for Modi in terms of political influence at the center of his political base.

However, the Indian government is touting the change as a “breakthrough” ahead of a June 7-8 visit by Modi to Washington, where he will be hosted by President Barack Obama for a final summit before the U.S. presidential election in November, and will address both houses of Congress.

The change in location is at best a bit of theatrics since the underlying issue of the nuclear supplier law has not changed relative to risk for U.S. publicly traded firms. While India has signed off on an international convention on liability, its domestic legislation remains intact.

One observer, according to Reuters, remains optimistic.

“Some time before the end of the calendar year they may be able to close,” said Ashley Tellis, a senior associate at the Carnegie Endowment for International Peace, who was a negotiator for the George W. Bush administration in the U.S.-India nuclear talks.

The site in Andhra Pradesh was originally allocated to GE-Hitachi, but that company has been quite firm that it will not proceed with a reactor project with NPCIL until the underlying liability law comes off the books or is brought into conformance with international law and practice.

Update 2: 6/3/16

Modi’s US visit: nuclear deal not final yet

The Hindu, one of India’s largest daily newspapers, reports this AM (6/3/16) that Prime Minister Narendra Modi’s U.S visit from June 6th to 8th — his fourth in the last two years — will not be marked by any “big-bang announcements.”

Negotiations between nuclear reactor builder Westinghouse and the Nuclear Power Corporation of India Ltd (NPCIL) for six reactors face issues may not resolved before the PM’s visit.

Central to the negotiations are the application of India’s nuclear supplier liability law, technical scope, financing, and domestic supplier participation in the construction of six 1150 MW AP1000 nuclear reactors worth an estimated $25-30 billion.

The Economic Times, a major Indian newspaper, reports a new potential roadblock to a deal between Westinghouse and NPCIL. The US Congress has sharply limited the ability of the Export Import banks to fiannce such a deal.Details revolve around NPCIL coming up with 15% of the cash for each $5 billion reactor. That kind of financing would require major legislative action by India’s parliament.

Update 3: 6/6/16

The Hindustan Times reports Indian officials have played down the chances of major announcements during the visit, but noted that India is very close to a deal with US electric giant Westinghouse to build a nuclear plant.

“There is a very detailed and advanced negotiation,” Arun Singh, India’s ambassador to the United States, told reporters, adding that only the financing details of the scheme remain to be agreed.

The multi-billion dollar deal to provide power to India’s growing populace had been on hold because of concerns about site safety in Modi’s home state Gujarat. But a new location for the six-reactor plant has been found in Andhra Pradesh and concerns about insurance have been ironed out, Singh said.

Update 4: 6/7/16

Japan’s Diet Ends Session without Confirming Civilian Nuclear Deal with India

The India-Japan civilian nuclear deal suffered a setback this week as Japanese parliamentary approval has been delayed until Fall 2016 or later. The current session of the Diet concluded on June 1st without taking it up for consideration.

Last year the deal was concluded in principle by India and Japan during the visit of Japanese prime minister Shinzo Abe to New Delhi.

The delay in Japan will impact negotiations between Indian and US companies to build nuclear reactors in India.

“The fact that we have an agreement which the Japanese system and our system will now look at and complete the formalities soon, will allow Japan to even partner other countries, particularly as both Westinghouse and General Electric have Japanese partners in their nuclear reactor offers,” Indian foreign secretary S. Jaishankar told reporters in December.

However, parliamentary approval is needed in Japoan before it can be implemented or for financing and decisions to break ground can occur.

Separately, New York Times reported 6/7/16 that India’s economy is dominated by a few elite families who insist on limits to foreign companies and investments to protect their privileged status. Those families largely fund India’s political parties through vast unreported cash contributions, making any changes to the country’s endemic and enervating protectionism difficult to undertake.

These influences may account for India’s long standing preference to build an indigenous nuclear reactor design, a 700 MW PHWR, rather than accept US or French reactors. Interestingly, India is still moving ahead with plans for six Areva EPRs at Jaitapur and two more Rosatom VVERs at Kudankulam.

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