Indian officials are in negotiations with Westinghouse to build six 1150 MW AP1000 nuclear reactors in Gujarat, the home state of Indian Prime Minister Narendra Modi.

If the talks result in contracts, they could be worth tens of billions of dollars. Indian suppliers of reactor components would likely get a significant share of the business.

It’s not over until the fat lady sings, and right now a key character remains center stage which is the chief villain of this political opera, and it is the supplier liability law passed by India’s Parliament led by Modi’s BJP party.

12/29/15: Updated with new cost data for both Westinghouse and Rosatom deals

The wire services are humming this week with news that there is a breakthrough in the long-standing freeze on US nuclear reactor firms having any sales of their units to India.

Westinghouse CDEO Daniel Roederick said in an email reported by the Bloomberg wire service on 12/23/15 that India is in talks with the firm to eventually place a massive order for six 1150 MW AP1000 nuclear reactors to be built at a single site. Reuters carried the initial report about the talks, but without a quote for attribution from a senior executive at Westinghouse.

According to Reuters India’s NPCIL hopes to close the negotiations with Westinghouse, at least in principle, within the first six months of 2016.

The announcement comes as India says it is poised to make changes in its supplier liability law. Those changes must be made by the same body that created them, which is the Indian Parliament.

PM Modi cannot make the changes by executive order alone. However, the Indian government is offering a fig leaf, so to speak, to try to cover this stark reality.

According to Indian news media reports, India will sign the IAEA Convention on Supplementary Compensation for Nuclear Damage (CSC). As an international agreement, it shifts liability to the operator which for India is its state-owned form NPCIL which operates all nuclear reactors in the country. Westinghouse said it would welcome such a development but did not say specifically that this action alone would allow it to do business with NPCIL.

India’s Civil Liability for Nuclear Damages (CLND) law of October 2010, and the Rules of 2011, were enact by Indian Parliament and the government. The CLND provisions give the Nuclear Power Corporation (NPCIL), as a nuclear plant operator, the right of recovery in terms of financial compensation from nuclear suppliers. No other country imposes such a burden on reactor component suppliers including their own. US and French suppliers have unanimously rejected it.

The Indian government then came up with the Indian Nuclear Insurance Pool (INIP) to cover the suppliers’ risk of potential liability. The assumption was that both parties would be de-risked once this pool was established and insurance policies were issued to NPCIL and its hardware suppliers. However, the $200M pool of funds does nothing to change the provisions of the underlying law.

Last September Jeff Immelt, CEO of the parent firm that is a partner in GE-Hitachi Nuclear Energy, said that the rest of the world had a standard liability regime which focuses on the operator of the plant and not the supplier of the components. Despite the huge market opportunity represented in India, he said: “There is no project that’s worth so much to put GE into risks.”

A GE spokesman told India’s Economic Times newspaper on 12/23/15 that it retains a “strong interest” for India’s nuclear energy market, and government action to sign the IAEA’s CSC would represent progress.

At a recent US trade mission to India, in which the Nuclear Energy Institute (NEI), was a participant, there were hints India might be ready to back off its hard line. In a press statement, Ted Jones, NEI’s director of supplier programs, said, “Our delegation was really interested to learn about the proposed solutions to remedy problems in India’s domestic liability laws. For virtually every U.S. company considering exporting to India, liability is a critical threshold issue.”

The current liability law, which was put forward by Modi’s BJP party, was always intended to do several things, and they don’t have much to do with compensation for liability in case of a nuclear accident.

First, the law is intended to tamp down on the progress India will make towards its goal of 60 Gwe of nuclear power so that the country’s powerful coal interests can continue to make profits as suppliers of fuel for fossil power plants. At the recent climate change talks in Paris, India’s delegation said that as a developing nation it would not abate its use of coal to provide power for the country. Yet, India has suffered several nationwide power outages which affected over 600 million people at their peak.

Second, India’s politics are still strongly influenced by its commitment as a “nonaligned” nation taking an independent line between the Cold War rivals of Russia and the US. This is an artifact of the Cold War, but it is still a factor today.

Significantly, the media reports about the Westinghouse talks came to light while Modi was traveling in Moscow, Russia, signing deals for new reactor deals with Russia’s Vladimir Putin (right) like the two 1000 MW units that will break ground at Kudankulam this winter.

India is expected to ink a new deal during Modi’s visit for six new Russian built reactors to be built at a coastal site in Andhra Pradesh. The fact that the announcement about the Westinghouse talks made the news while Modi was in Moscow may not have been a coincidence, but rather may have been part of a deliberate signal that India is not going to have Rosatom as its sole supplier for nuclear reactors.

If the deal goes through, Indian heavy industry firms like Laresen & Toubro and Bharat Heavy Electricals would see new orders for major components like pumps, turbines, cranes, and pipes. Neither firm would comment to the Indian press about the Westinghouse talks. Rosatom has used both firms for major components for the two 1000 MW VVERs at Kudamkulam.

Challenges Ahead

In summary, India is expected to ink a new deal during PM Modi’s visit for six new Russian built reactors at a coastal site in Andhra Pradesh. If India finds a way to finance both the six Westinghouse AP1000s and six more Rosatom VVERs, that will come to 13 Gwe of new carbon emission free electrical power on the Indian grid.

The challenges for a build of this size are well known – supply chain for components, labor force to build to nuclear design standards, and engineers to run the plants once complete. Upgrading the electrical grid to deliver the power to customers will also be on the agenda.

Separately, Japan is expected to finally sign an agreement with India to supply nuclear reactor components despite the fact that India did not sign the nuclear nonproliferation treaty. Westinghouse is owned by Japan’s Toshiba so any deal with the Pittsburgh, PA, American unit would have to get the approval of its Tokyo based corporate parent.

Financing 12 new nuclear reactors

Financing the Westinghouse deal is going to be a problem for India. NPCIL does not have the resources to commit the tens of billions of dollars needed over five-to-eight years to build six AP1000 units. In its dealings with Rosatom, it has borrowed the money at four percent interest with the provision that it will repay the loans with revenues from electricity generated by the plants.

Assuming the six Westinghouse Ap1000 units have an average price, given India’s lower labor and component costs, of $4,000/kWh, each unit comes in at $4.6 billion or $27.6 billion for the six pack. Add in costs for upgrading the electrical grid to deliver power to customers, and the price to hit the revenue service milestone easily soars past $30 billion.

By comparison, the Russian 1000 MW VVERs have an unofficially reported cost of about $2,500/kWh so each one costs $2.5 billion and six come to $12.5 billion. Add in the same costs to upgrade the electrical grid, and you easily soar past $15 billion.

Taken together the two separate projects, at two separate sites, could cost about $43-46 billion over a 15-20 year period. Both Westinghouse and Rosatom will also be the fuel suppliers. While Westinghouse will rely on India to come up with a plan for long term disposition of spent fuel from its six units, Rosatom will retrograde its spent fuel back to Russia for reprocessing into MOX. This is a standard practice for most of Rosatom’s export deals.

Toshiba, which is the parent of Westinghouse, is flat-lined financially having just posted revised balance sheets after it was revealed it was not being truthful about its numbers. A firm set of orders from India for the six Westinghouse reactors might attract international equity investments.

India’s other nuclear projects

While India is in talks with Westinghouse, and Rosatom, for up to a dozen new nuclear reactors, it is moving ahead aggressively with the construction and operation of domestically developed pressurized heavy water reactors (PHWR) of 700 MW each. See WNA profile of India’s plans for new nuclear reactors for a list of projects.

Six of these reactors are under construction in Rajasthan, Gujarat, and Haryana. Another 14 such reactors are planned to be built in Rajasthan, Karnataka and Madhya Pradesh over the next decade. All of these reactors have 100% Indian supply chains.

French state owned nuclear giant Areva has still not broken ground for the first two of a planned six reactor power station in Jaitapur. That project remains mired in land disputes and, more recently, lost its environmental certification due to the fact the term of the permit expired due to project delays.

The bottom line is If PM Modi wants six nuclear reactors built in his home town, he’s going to have to make some pretty significant political moves regarding the liability law.

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