The recently concluded Indo-US nuclear deal could potentially herald a new era in India’s rapidly growing power sector. The so-called 123 Agreement between India and the US enables access to reliable and uninterrupted nuclear fuel supplies from international energy markets, ending India’s nuclear isolation which spans more than three decades.
Close on the heels of the 123 Agreement, India has entered into a nuclear fuel and technology supply treaty with France and a nuclear cooperation treaty with Russia.
The government has declared its ambition to increase India’s nuclear energy-generating capacity from the present 4,120 megawatts to an epic 40,000 megawatts by 2025. It is estimated that such a quantum leap will require investments exceeding US$150 billion, unlocking tremendous opportunities for global and Indian power developers, power equipment suppliers and other vendors.
Today, nuclear power is monopolized by the state-owned Nuclear Power Corporation of India Limited (NPCIL) which presently has only 17 nuclear reactors.
The Atomic Energy Act, 1962, currently permits private sector companies to own only up to 49% in companies engaged in the nuclear power sector. Further, the current foreign direct investment (FDI) policy prohibits FDI in atomic energy.
Given the capital intensive nature of nuclear power projects, a nuclear plant typically takes five or six years to establish at a cost of approximately Rs60 million (US$1.25 million) per megawatt.
Compared to thermal power, commercial tariffs for nuclear power will be substantially higher since the cost of establishing a nuclear plant is twice that of a coal plant. It is possible, therefore, that the government’s limited ability to raise capital may trigger a call for enhanced private participation.
The success of the sector also depends on critical areas like equipment supply, repair and maintenance.
Given the strategic importance of the sector and the fact that much of this technology is owned by global energy majors, it may be wise to consider allowing foreign equity participation to ensure the commitment of equipment suppliers to the operation and success of the project in India.
The easing of FDI norms would enable foreign players, with valuable experience and expertise in nuclear energy generation, to participate in projects in India. Private participation, at a more general level, would also increase the pace of construction and minimize delays in capacity addition, while simultaneously introducing superior project management systems.
Major industry bodies such as the Federation of Indian Chambers of Commerce and Industry, the Confederation of Indian Industry and the Associated Chambers of Commerce have strongly appealed to the government to allow private participation in nuclear energy generation.
Eager to move in
Bharat Heavy Electricals (BHEL), which is already collaborating with NPCIL in manufacturing 700 and 1,000 megawatt nuclear reactors, and private sector engineering giant Larsen & Toubro (L&T) have already finalized plans to enter the sector.
Reliance Energy, Tata Power, Jindal Steel, GMR Energy and many other companies are also formulating entry strategies for the sector. Overseas technology providers such as Alstom, Areva, Siemens and GE are eyeing Indian nuclear power sector orders estimated to be worth Rs588 billion.
The nuclear deal has set the stage for huge investments in capital equipment manufacture.
While several companies in the private sector plan to purchase reactors and equipment from global majors like GE-Hitachi, Westinghouse Electric of the US, Areva of France and Rosatom of Russia, some companies, such as the Jindal Steel-Toshiba, L&T-Mitsubishi and NTPC-BHEL joint ventures plan to establish equipment manufacturing hubs in India.
Large numbers of manufacturers and sub-contractors of varied sizes in the manufacturing sector are also sizing up the potential demand for nuclear power equipment.
The nuclear deal could be a significant step towards India’s realization of its “power for all” dream by 2012. We hope that the next article on this issue will herald the eagerly awaited policy changes and initiatives by the government to liberalize the nuclear power sector.
Akshay Jaitly is a partner at Trilegal in Delhi where Sameer Guha is a senior associate and Nayantara Nag is an associate. The firm has offices in Delhi, Mumbai, Bangalore and Hyderabad and has over 80 lawyers, some of whom have experience with law firms in the United States, the United Kingdom and Japan.
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