Politics & Economics
U.S. and India, Nuclear Bedfellows
The countries' nuclear cooperation deal has detractors such as Pakistan. But it promises to be a bonanza for U.S. reactor builders
Back in March, Indian Prime Minister Manmohan Singh and U.S. President George Bush announced their intention to push for a historic civilian nuclear energy tie-up deal. And the backlash was almost immediate. U.S. war-on-terror ally Pakistan wasn't thrilled.
Critics in the U.S. argued passage of what became known as the United States and India Nuclear Cooperation Act of 2006 would demolish global compliance among other countries that (unlike India) had signed the Nuclear Nonproliferation Treaty. Indian detractors at home feared New Delhi's freedom to conduct foreign policy as it sees fit would be compromised.
Yet on Dec. 9, the U.S. Congress approved the legislation and Bush is certain to sign this bill into law. In the end, the prospect of a huge business windfall for U.S. reactor builders and energy companies, and India's fear of an energy crunch down the road, trumped foreign policy concerns on both sides.
Security Needs Will Grow
The deal, which still must be approved by the Indian Parliament, opens the way for the U.S. to provide India with fuel and reactor technology for its civilian nuclear program in return for extra safeguards imposed on India's nuclear weapons activities. This represents a significant win for India as it would get access to nuclear fuel supplies despite not being a signatory to the Nuclear Nonproliferation Treaty.
There is also serious money to be made for U.S. and other foreign companies, given the vast nuclear reactor build-out that India will need to improve its energy security now that it has better access to international uranium supplies and reactor technology. As it stands, nuclear energy only kicks in 3% of India's energy needs.
Up for grabs is what the U.S. Chamber of Commerce estimates is up to $100 billion in reactor and related supply contracts in the coming decades if India's nuclear power industry acquires access to international fuel supplies, investment, and expertise.
No Liability Limits in Place
Small wonder the Bush Administration has pushed mightily for legislative approval of the deal, arguing that India deserves special treatment given its solid track record in not spreading nuclear weapons technology. A largely unspoken incentive, of course, is the huge commercial potential for U.S. companies such as General Electric (GE), nuclear fuel supplier U.S. Enrichment (USEC) (USU), and contractors and material suppliers such as Bechtel, Lockheed Martin (LMT), and Boeing (BA) (see BusinessWeek.com, 8/2/06, "India's Nuclear Build-Out").
A U.S.-India nuclear deal still has some hurdles to overcome. One crucial issue to U.S. companies still in need of resolution: India doesn't yet have a law that limits liability claims on private investors in the event of a nuclear plant accident or mishap—equal to the Price-Anderson Act in the U.S. No foreign private company will bet big on India without that kind of assurance.
"A big one for us is going to be the liability issue," says Pratyush Kumar, president and chief executive of General Electric Infrastructure, India. "Other power companies from France and Russia are government-owned, but we belong to the private sector."
Still Suffering From Sanctions
India clearly must reconfigure, expand, and diversify its energy industry. The country is already failing to meet its energy demands, and that's constraining economic growth. Without additional electric power generation, New Delhi will have a tough time boosting annual gross domestic product growth to 10% by 2010, from around 8% now.
At the moment, India has about 16 nuclear reactors and seven are under construction, including two large ones and a fast breeder reactor. Some of them were built decades ago, are small-scale, and are administered by the federally run Nuclear Power Corp. And they've all been suffering from lack of modern technology as well as a fuel shortage, the result of sanctions imposed on India when it tested a nuclear device.
Assuming the U.S.-India deal goes through, India realistically won't start letting out international contracts for its nuclear build-out until late 2007. And it will be seven years from now before the first unit of electricity from a new nuclear power plant is released. Still, the industry is eager, hopeful, and looking forward to a dramatic expansion.
"Changes the Scene"
Reliance Energy (RELFF) and Tata Power, the two largest private power players in India, are both actively preparing for new business ahead. Another big beneficiary would be Larsen & Toubro, an engineering and construction firm that has had a virtual monopoly on building India's nuclear plants, mostly heavy water reactors.
A nuclear industry expansion would give a big boost to L&T's future growth as India tries to meet growth targets for its nuclear industry expansion through 2030. "The nuclear deal changes the scene," says M.V. Kotwal, an executive vice-president with the company.
Other foreign companies outside of the U.S. are sure to make an aggressive play for new reactor work in India. Among them are France's Areva Group, Mitsubishi Heavy Industries, Russia's Atomstroyexport, and Siemens (SI) of Germany.
Lakshman covers India business for BusinessWeek.
United States President Bush signed the United States-India Peaceful Atomic Energy Cooperation Act which provides for cooperation between the US and India in civilian nuclear matters. 

The deal would also open 14 of India's nuclear plants to international inspection while leaving eight military nuclear sites closed to outside access.

Critics say that the deal will undermine pre-existing nuclear non-proliferation treaties, embolden other nuclear and near nuclear powers and erode American credibility when dealing with proliferation issues with other countries such as Iran. 

In India, the deal has also come under criticism with the oppostion asserting that the deal primarily acts to limit India's nuclear capabilities.