India’s nuclear-power goal needs more than capital

By Mihir Sharma

Nearly two decades ago, India promised itself — and the US — that nuclear power would be its next big bet. The two countries signed a landmark deal on civilian nuclear energy in 2008, amid protests from politicians and activists alike.

The late Manmohan Singh, then prime minister, bet his government’s survival on passing that legislation — a wager he won, contributing to its re-election a year later.

But all that political capital was wasted in the years that followed. Investment didn’t flow in. No new plants that used world-class technology or private-sector expertise got built.

That might, finally, be about to change. In December, parliament passed a new bill that is supposed to make it easier for private companies, including foreign ones, to build and operate nuclear power plants.

It ends a de-facto state monopoly on the source of energy — and, even more importantly, aligns India’s legal framework with global norms, so investors know what they’re getting into.

Hopefully, this hasn’t come too late for power-hungry India. Nuclear contributes only about 3 per cent of its electricity. As renewable energy scales up across the country, many worry that its intermittent nature will keep dirty coal plants in business longer than necessary. But New Delhi has finally accepted that the base load power demand of the future will need supplementing, and nuclear plants are one way to go about it.

These ambitions are small compared to India’s size — but vast by any other standards. The government plans for 100 gigawatts of nuclear-energy capacity by 2047, the 100th anniversary of independence, up from less than nine gigawatts today. In other words, it intends to build the equivalent of America’s entire reactor fleet over the next generation.

This is one of the biggest opportunities in the energy sector in years. Unsurprisingly, there are a few companies that are already interested. Bloomberg News has reported that Adani Group intends to kick things off with small modular reactors in the most populous state, Uttar Pradesh. Several other large conglomerates are also apparently keen.

But that won’t be enough. Officials have estimated a build-out of this scale will cost 217 billion dollars. Domestic capital can’t do that alone; foreign companies will need to get involved.

This is where the second part of the December law comes in. The rules have been changed to reflect global liability standards, removing the biggest reason that the 2008 nuclear deal underperformed.

This has been a political land mine for a very long time. In 1984, a pesticide plant in the central Indian town of Bhopal leaked a highly toxic gas. Thousands died. We still don’t know exactly how many — but enough to make it the world’s deadliest industrial disaster.

Many Indians still believe the plant’s operator, the US company Union Carbide, got off too lightly.

The shadow of Bhopal has meant that the Indian state has always wanted to ensure it could go after suppliers of industrial equipment if needed; but, across the world, the liability for nuclear accidents is usually shouldered by a plant’s operator, not those who provide the technology and equipment.

Moving beyond this was essential to finally make nuclear energy projects financeable. But the government shouldn’t skip out on the other half of the bargain: Regulation.

The controls the new law proposes appear strong enough — on paper. But unless the government is very careful, things might be different in practice. This is particularly true once well-connected business groups get involved. In sectors from coal to airports to telecom, apparently independent regulators have been accused of being too weak on politically influential Indian corporations.

That’s bad anywhere. In the nuclear sector it could be disastrous. The problem of information asymmetry is unusually severe, the care required unusually high, and the damage that an accident could cause uniquely irreversible. Regulators thus have to believe they can delay projects, shut down plants, even embarrass tycoons in public.

India tends to build sectors first and regulate them later. With nuclear power, it must do both together. It will save billions by allowing the private sector in, but it must also spend billions on independent laboratories, well-paid inspectors, and real-time monitoring.

The government is right to hope that private capital will help manage the awesome up-front cost of building the world’s second-largest fleet of reactors. But it has a start-up cost of its own to pay: The creation of regulatory expertise and governance capacity.