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BW Businessworld

Subtle Signs

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A few days ago, Indian Prime Minister Manmohan Singh and his Japanese counterpart Naoto Kan announced in their joint declaration that they encouraged their negotiators "to arrive at a mutually satisfactory agreement for civil nuclear cooperation at an early date". The underlying message: the two countries will work out a bilateral agreement that would allow Japanese — and US — firms to participate in building India's nuclear power plants. How big that opportunity will be for US firms is difficult to tell, though a back-of-the-envelope calculation shows it will require an investment of Rs 50,000 crore (at a very conservative rate of $1,000 per KW) to build a 10,000-MW nuclear power station.

Getting Japan on board to supply nuclear power-related equipment for India's future nuclear power plants is crucial. Hitachi, Toshiba and Mitsubishi are key players in the nuclear power industry, and have tie-ups with US nuclear power firms.

GE Hitachi Nuclear Energy, for instance, wants to supply advanced boiling water reactors, each having a capacity of 1,350 MW (at $1,000/KW, this means Rs 7,000 crore for each reactor). The company has signed agreements with Nuclear Power Corporation of India (NPCIL) and Bharat Heavy Electricals to collaborate on building multiple GEH-designed nuclear reactors. Westinghouse, owned by Toshiba, has a deal with L&T to supply reactors.

While sites or nuclear power parks have been identified for US firms and discussions between NPCIL and the firms have already started, no physical supply can happen unless the Japanese government allows these companies to sell nuclear material to India. Department of Atomic Energy sources say US nuclear firms cannot move ahead and ink deals with India where Japanese firms are involved.

However, getting Japan on board is not easy. It wants clear commitments towards disarmament and a stop on nuclear tests. India, on the other hand, is not a signatory to the Nuclear Non-Proliferation Treaty and has put a unilateral moratorium on further tests. The Indo-US nuclear deal paved the way to give India access to the international market for nuclear fuel and other material without India being a signatory to agreements such as the Comprehensive Nuclear-Test-Ban Treaty (CTBT). The US still wants India to sign the CTBT, while Japan wants clear commitments from India.

It is this bridge of understanding between Japan and India that needs to be covered before Japanese firms (and, therefore, US firms) can participate in the Indian nuclear power market. As foreign secretary Nirupama Rao says, negotiations of this nature are "complex, delicate, and sensitive". The third round of negotiations will happen in November in Tokyo.

India could get Japan's tacit nod with a bit of give and take. For instance, India will assist Japan in the supply of rare earths (used in products such as cars and televisions), which China has suddenly stopped supplying to Japan. And importantly, India recently signed the Convention on Supplemental Compensation (CSC) in Vienna — the international convention to meet the compensation arising out of a nuclear power accident.

Here's the play. With CSC in place, the US is in a more comfortable position to also put pressure on Japan in order to push their own business interests (which in turn would benefit both US and Japanese companies).

(This story was published in Businessworld Issue Dated 15-11-2010)


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