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Story Publication logo August 10, 2012

India: Countdown to Zero Dollars


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A full-throttle nuclear arms race is underway in a region where terrorism, ethnic violence, and...

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Former President George W. Bush and Indian Prime Minister Manmohan Singh at the signing of the U.S.-India Civil Nuclear Agreement on March 2, 2006. Image by U.S. Embassy New Delhi, Flickr. India, 2006.

It was supposed to signal a new era of strategic and economic cooperation between India and the United States, but four years after a ground-breaking nuclear deal between the two countries, frustrated American companies are wondering what happened to all the lucrative deals that were supposed to come their way. And Pakistan, which tends to view India's every move on the global chess board as a zero-sum game, has registered its unhappiness by ramping up its capacity to produce weapons-grade plutonium with two new Chinese-supplied reactors.

The deal, known as the U.S.-India Civil Nuclear Agreement, ended a 34-year embargo on the transfer of nuclear technology to India, paving the way for U.S. manufacturers and suppliers to sell reactors and fuel to India, even though it is one of the four nuclear weapons states that are not party to the Nuclear Non-Proliferation Treaty, or NPT. (Pakistan, Israel, and North Korea are the other three.)

Giving India this exemption did not sit well with the non-proliferation community -- it still doesn't -- but heavy lobbying by the U.S. nuclear industry helped the Bush administration push the deal through Congress.

Thus far, however, the results have disappointed the Americans.

"It's no secret...that the U.S.-India Civil Nuclear Agreement hasn't met U.S. commercial expectations due to the nuclear liability law passed by the Indian Parliament, which essentially shuts out U.S. companies," said Rep. Steve Chabot (R-OH), chairman of the House Foreign Affairs Subcommittee on South Asia at a hearing in May. That's putting it mildly. Of the $150 billion jackpot that was supposed to be in play, U.S. firms have not yet earned a dime.

Hillary Clinton traveled to New Delhi the same month as the hearing, to nudge the process along. A few weeks later in Washington, standing beside her Indian counterpart, she announced the first modest piece of good news: Westinghouse, whose headquarters are in Pennsylvania but which is owned by the Japanese conglomerate Toshiba, had concluded what is called an "early works agreement" to begin preliminary negotiations on site development and licensing issues for a proposed 1,000-megawatt reactor in the western state of Gujarat. But this is far from a done deal and it could be years before an actual contract is signed. "An agreement has to be reached on the liability law before we do anything," said Scott Shaw, a spokesman for Westinghouse.

Meanwhile France's Areva and Russia's Rosatom have been doing a very profitable business in India -- thanks to the doors opened by the U.S. government's 2008 deal. Areva has already signed a $9.3 billion preliminary agreement to build two reactors, the first of six that are planned. The deal could eventually be worth about $20 billion to the French company.

Although frustration within the U.S. nuclear industry is palpable, the official line is that it's still early. "It would be beyond expectations to have business on the ground at this time," said Daniel Lipman, director of strategic supplier programs for the Nuclear Energy Institute in Washington.

The biggest problem for American companies trying to do business in India, as Rep. Chabot noted, is a severe liability law adopted by India's parliament shortly after the nuclear deal was signed. Mindful of the Bhopal catastrophe -- the 1984 industrial chemical accident that killed 3,000 almost instantly and up to another 20,000 over time -- Indian lawmakers insisted that not only plant operators but also suppliers and manufacturers be held liable in the event of a similar catastrophe. This is seen as much less of a burden for state-owned companies like Areva and Rosotom than it is for private sector U.S. companies and their insurers.

Raja Mohan, an analyst at the Observer Research Foundation in New Delhi, describes the liability laws as "ridiculously hard" and blames the Indian government for mismanaging the legislative process, but he also notes that the government is rethinking the entire question of nuclear energy in the wake of Japan's Fukushima reactor disaster, and that India as a whole, with its booming economy and growing middle class, has a changed outlook. "Having a nuclear reactor in your backyard is not popular here either," he said.

Indian officials are inclined to shrug at corporate America's frustration. "When we began to negotiate, it was never about business. Both sides were looking at it in a much larger strategic sense," said Shyam Saran, who was India's Foreign Secretary at the time. "The agreement reflects a certain strategic convergence between the U.S. and India. A deal would not have been possible without this convergence. Even if we are not allies, we have similar concerns and attitudes regarding the emergence of China-not as a threat, but as a challenge. Like it or not, we both have to deal with it."

The nonproliferation lobby in the United States and elsewhere has never been comfortable with the deal, which gives India access to sensitive technology and allows it to buy nuclear fuel on the international market without binding it to the rigorous safeguards and restrictions of the NPT. Under the terms of the deal, India has agreed to open all of its civil nuclear facilities to inspection by the International Atomic Energy Agency -- which proponents say is an important step forward -- but India's military nuclear facilities remain closed to IAEA inspection.

Pakistan, which views India and its nuclear arsenal as a constant existential threat, is deeply disturbed by the preferential treatment given to India. "It creates a new category of nuclear weapons state -- one with all the benefits of the NPT, but with no safeguards on weapons," said Maria Sultan, director of the South Asian Strategic Stability Institute, an Islamabad think tank.

Before the agreement, India had to choose: it could use its limited domestic supplies of uranium for energy or for bombs. Now, with access to the international marketplace, it can have both.

Pakistan responded to the U.S.-India agreement by signing a deal with China for the construction of two more plutonium reactors. One is currently undergoing trials and the other is scheduled to come on line by 2016. Pakistan already has two plutonium reactors built by China, the only country willing to supply it with nuclear technology.

Boosting strategic ties with India by offering it nuclear technology may have looked like a win-win idea at the time, but thus far the payoff to the U.S. nuclear industry has not materialized and the headache of dealing with Pakistan's burgeoning nuclear arsenal is getting worse.


Nuclear Threats


Nuclear Threats

Nuclear Threats




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