Business Opportunity & facilitation by the Indo-US Agreement to tap the same
With a population of over 1.2 billion and still growing, India has an insatiable demand for power. In a decade’s time, India’s demand for commercial energy is expected to increase by over 2.5 times. With an annually demand for electricity increasing at the rate of 6 to 8%, India’s current sources of energy production have fallen way short of the demand. In this unmet demand lies tremendous opportunity. Though India has over 25% of the world’s high quality thorium deposits, which are presently used as an alternative fuel for the nuclear reactor, they are insufficient to meet the ever-increasing demand. Moreover, due to shortage of Uranium fuel, India has not been able to proceed at an accelerated pace with its nuclear programme. India’s annual uranium production is only 200 metric tones, which is dwarfed in front of its colossal demand of over 500 metric tones. Thus, there is a huge 300 metric ton demand-supply gap waiting to be met. India’s two military reactors viz CIRUS and DHRUVA require only 10% of this Uranium; the remaining 90% of demand viz 450 metric tones are used by the civilian reactors every year. The present reactors, thus, operate way short of their capability. With an ambitious aim to generate over a quarter if its electricity from nuclear power, the 123 Agreement and the subsequent “End Use Monitoring Past”, can prove to be a great help in meeting this huge demand. Thus, there lies tremendous business opportunity in this big US $100 billion market. US firms like GE which contributed to the construction of India’s first plant at Tarapur in Maharashtra by designing two BWR reactors way back in 1969 at 150 Mwe each have tremendous brand equity in this huge energy-hungry market. This has opened great opportunities for American companies to look at the Indian market and accordingly the American Council on Global Nuclear Competitiveness proactively supported the Agreement.
India, the world’s largest democracy’s defence expenditure for the year 2009-2010 has been slated to be Rs 1.41 trillion. India is amongst the top ten countries in the world in terms of defence expenditure and amongst the top three in import of defence-related hardware. It is expected that Indian Government would procure over $ 100 billion of defence equipment over the next decade. Moreover, the recent Government policy according to which International Supplier must source atleast 30% of invoice value of orders locally, presents great opportunity not just for International Supplier, but some great strategic JV in the defence sector. The role of Indian and International Law firms becomes significant in this context. The “end-use monitoring agreement” in the Indo-US Agreement for instance facilitates U.S. companies competing for major contracts such Indian Government’s expected purchase of 126 fighter jets at an estimated $ 11 billion.
Positive fallout of the Indo-US Agreement is that with US ending its nuclear embargo that goes way back when India conducted nuclear tests at Pokhran coming to an end, it ensured elimination of parallel nuclear trade ban adopted by the 45 member Nuclear Suppliers Group in 1992. This immediately opened remarkable trade opportunities between India and the NSG member States.
Legal & Regulatory Hurdles for US Companies & Significant Deals
As for general hurdles facing all the Foreign Direct Investors, FDI in Atomic Energy is prohibited which means there cannot be establishment of nuclear power plants using FDI. However, there can be manufacture of nuclear equipment and construction plants using FDI.
The Agreement notwithstanding, legal and regulatory hiccups continue to exist that act to greater disadvantage of US companies when compared with suppliers from other countries. The U.S. Department of Energy for instance is yet to provide American copanies with licences to engage in sensitive technical discussions with Indian companies about their product and technology. This is more because of internal policy differences within the US Government. Thus, before U.S. regulators seek assurances of nonproliferation from India, which basically means that an assurance on the Indian part that U.S. technologies won’t be transferred to any parties other then the original importer, including sub-contractor.
Though the Indian Government has allotted two “Greenfield sites” in Andhra Pradesh and Gujarat for the construction of nuclear power plants using American expertise, but the project might take a while before its on the wheels. In the meanwhile, Government-run French & Russian companies are making great strides in the Indian market. Being state-controlled companies, the French & Russian companies do not face the same export licensing requirements as an American company and in case of any tragedy or disaster, can invoke sovereign liability protection. The French nuclear major Areva SA for instance has submitted and looking forward to building two nuclear reactors in Western Maharashtra and is in the process of forging strategic alliances with local Indian construction and engineering companies. And the reason is not too far to seek. The U.S. Companies being private-run can not invoke soveriegn liability protection. Accordingly the American companies expect the Indian Government to sign the Convention on Supplementary Compensation for Nuclear Damage(CSC), which has actually so far been ratified by only three countries and therefore, not come into force. On the same lines, a legislation limiting the liability of private companies supplying nuclear energy is expected.
National Security Concerns
Interesting viewpoints have emerged on both sides of the table whether signing nuclear pact and subsequent “End Use Monitoring Pact” was tantamount to laying India’s security interest to International Scrutiny. If on the one side are the business communities on both sides gung ho about the deal, then on the other are genuine strategic concerns that are too strong to be ignored. Major discontent emerges from the fact that under the programme, full co-operation in the Civilian Nuclear Energy has been denied to India. This can be seen from the fact that US has expressed its reluctance to co-operate in areas relating to spent-fuel processing and uranium enrichment related to full nuclear cycle. Section 123a(7) of the Atomic Energy Act, clearly prohibits the re-processing of nuclear fuel provided by the US. As for the Hyde Act, since it is silent on the issue, a reading of the two clearly leads to a position wherein US in state of denial with regard to any support system for re-processing the spent fuel. Moreover, as per the Agreement, India is not to join as a technology developer, instead it will be a recipient State in the programme. Needless to emphasize, limits the role that India can play in the development of technology. Furthermore, Section 104 of the Hyde Act and Section 129 of the Atomic Energy Act state that in case India resumes nuclear testing, US must halt all nuclear exports to India and can also recall the ones already made as per Section 123a(4).
Section 104(d)(4) of the Hyde Act further calls for the President of US to ensure that any technology transferred to India, will not aid her nuclear development programme. It bans cooperation with India except for a multinational facility involved in an IAEA programme or national facility involved in the development of new proliferation-resistant fuel cycle techniques. The safeguard that India will never use any of the technology transferred for developing her nuclear programme is desired in perpetuity. As per Section 104(b)(2) of the Hyde Act, it requires IAEA safeguards “in perpetuity” to all the facilities that India declares as civilian in its Separation Plan and these would include the eight indigenous reactors that were already in operation before the commencement of the deal.
Section 102(13) of the Act specifies that US should not facilitate or encourage nuclear exports to India by any other state if such exports are halted by the US and Section 103(a)(6) further lays down that Us can get the Nuclear Suppliers Group to stop exports if the US terminates its exports to the country.
Interestingly, as for a full-fledged commitment to supply uninterrupted fuel for nuclear plants, there is a deafening silence on the issue. The AEA is silent on this very important aspect and the 123 Act being only a legal framework for cooperation either does not talk about the same. Infact Section 103(b)(10) lays down that any nuclear fuel reserve provided to India for use in safeguard civilian nuclear facilities should be commensurate with reasonable reactor operating requirements. Simply put, we will be on a dripper and will have ‘just-enough’ fuel to meet our requirements.
India, the world’s largest democracy’s defence expenditure for the year 2009-2010 has been slated to be Rs 1.41 trillion. India is amongst the top ten countries in the world in terms of defence expenditure and amongst the top three in import of defence-related hardware. It is expected that Indian Government would procure over $ 100 billion of defence equipment over the next decade. Moreover, the recent Government policy according to which International Supplier must source atleast 30% of invoice value of orders locally, presents great opportunity not just for International Supplier, but some great strategic JV in the defence sector. The role of Indian and International Law firms becomes significant in this context. The “end-use monitoring agreement” in the Indo-US Agreement for instance facilitates U.S. companies competing for major contracts such Indian Government’s expected purchase of 126 fighter jets at an estimated $ 11 billion.
Positive fallout of the Indo-US Agreement is that with US ending its nuclear embargo that goes way back when India conducted nuclear tests at Pokhran coming to an end, it ensured elimination of parallel nuclear trade ban adopted by the 45 member Nuclear Suppliers Group in 1992. This immediately opened remarkable trade opportunities between India and the NSG member States.
Legal & Regulatory Hurdles for US Companies & Significant Deals
As for general hurdles facing all the Foreign Direct Investors, FDI in Atomic Energy is prohibited which means there cannot be establishment of nuclear power plants using FDI. However, there can be manufacture of nuclear equipment and construction plants using FDI.
The Agreement notwithstanding, legal and regulatory hiccups continue to exist that act to greater disadvantage of US companies when compared with suppliers from other countries. The U.S. Department of Energy for instance is yet to provide American copanies with licences to engage in sensitive technical discussions with Indian companies about their product and technology. This is more because of internal policy differences within the US Government. Thus, before U.S. regulators seek assurances of nonproliferation from India, which basically means that an assurance on the Indian part that U.S. technologies won’t be transferred to any parties other then the original importer, including sub-contractor.
Though the Indian Government has allotted two “Greenfield sites” in Andhra Pradesh and Gujarat for the construction of nuclear power plants using American expertise, but the project might take a while before its on the wheels. In the meanwhile, Government-run French & Russian companies are making great strides in the Indian market. Being state-controlled companies, the French & Russian companies do not face the same export licensing requirements as an American company and in case of any tragedy or disaster, can invoke sovereign liability protection. The French nuclear major Areva SA for instance has submitted and looking forward to building two nuclear reactors in Western Maharashtra and is in the process of forging strategic alliances with local Indian construction and engineering companies. And the reason is not too far to seek. The U.S. Companies being private-run can not invoke soveriegn liability protection. Accordingly the American companies expect the Indian Government to sign the Convention on Supplementary Compensation for Nuclear Damage(CSC), which has actually so far been ratified by only three countries and therefore, not come into force. On the same lines, a legislation limiting the liability of private companies supplying nuclear energy is expected.
National Security Concerns
Interesting viewpoints have emerged on both sides of the table whether signing nuclear pact and subsequent “End Use Monitoring Pact” was tantamount to laying India’s security interest to International Scrutiny. If on the one side are the business communities on both sides gung ho about the deal, then on the other are genuine strategic concerns that are too strong to be ignored. Major discontent emerges from the fact that under the programme, full co-operation in the Civilian Nuclear Energy has been denied to India. This can be seen from the fact that US has expressed its reluctance to co-operate in areas relating to spent-fuel processing and uranium enrichment related to full nuclear cycle. Section 123a(7) of the Atomic Energy Act, clearly prohibits the re-processing of nuclear fuel provided by the US. As for the Hyde Act, since it is silent on the issue, a reading of the two clearly leads to a position wherein US in state of denial with regard to any support system for re-processing the spent fuel. Moreover, as per the Agreement, India is not to join as a technology developer, instead it will be a recipient State in the programme. Needless to emphasize, limits the role that India can play in the development of technology. Furthermore, Section 104 of the Hyde Act and Section 129 of the Atomic Energy Act state that in case India resumes nuclear testing, US must halt all nuclear exports to India and can also recall the ones already made as per Section 123a(4).
Section 104(d)(4) of the Hyde Act further calls for the President of US to ensure that any technology transferred to India, will not aid her nuclear development programme. It bans cooperation with India except for a multinational facility involved in an IAEA programme or national facility involved in the development of new proliferation-resistant fuel cycle techniques. The safeguard that India will never use any of the technology transferred for developing her nuclear programme is desired in perpetuity. As per Section 104(b)(2) of the Hyde Act, it requires IAEA safeguards “in perpetuity” to all the facilities that India declares as civilian in its Separation Plan and these would include the eight indigenous reactors that were already in operation before the commencement of the deal.
Section 102(13) of the Act specifies that US should not facilitate or encourage nuclear exports to India by any other state if such exports are halted by the US and Section 103(a)(6) further lays down that Us can get the Nuclear Suppliers Group to stop exports if the US terminates its exports to the country.
Interestingly, as for a full-fledged commitment to supply uninterrupted fuel for nuclear plants, there is a deafening silence on the issue. The AEA is silent on this very important aspect and the 123 Act being only a legal framework for cooperation either does not talk about the same. Infact Section 103(b)(10) lays down that any nuclear fuel reserve provided to India for use in safeguard civilian nuclear facilities should be commensurate with reasonable reactor operating requirements. Simply put, we will be on a dripper and will have ‘just-enough’ fuel to meet our requirements.
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