Atomic power at a steep price

Earlier this month, the Government quietly moved to finalise a deal for the Jaitapur nuclear project. This is the latest in a sequence of executive decisions that raise serious questions of propriety. The multi-billion dollar contract for these reactors was promised to the French company, Areva, without any tender process, in 2008. The project has failed to materialise because of serious economic, legal, and environmental concerns, all of which highlight its similarities with the disastrous Enron project. However, with less than a month to go for elections, and when its mandate to govern has essentially expired, the Prime Minister’s Office is still pushing to irrevocably commit the country to the deal.

From a public interest perspective, the Government’s eagerness to promote the project is troubling. The proposed design, called the European Pressurised Reactor (EPR), is untested — no EPR is functional anywhere in the world. Every EPR under construction has suffered serious cost and time overruns. Two projects in France and Finland have seen their costs balloon from about 3 billion to over 8.5 billion euros, making them the most expensive nuclear reactors ever constructed. Of particular relevance to India are the recent reports of delays of over a year of the EPRs being constructed at Taishan in China.  

According to media reports, in the latest meeting with French officials, Government sources claimed to have negotiated a  “cost of power …[of] Rs6 per unit, down from the Rs9.18 per unit quoted by the French company.” This is deceptive because Areva has no role in setting the cost of power; the plant will be operated by the Nuclear Power Corporation of India (NPCIL), and so negotiations can only be about the capital cost of the reactors. Moreover, with realistic assumptions for these costs and other construction and financial parameters, a tariff of Rs6 is unattainable; the true cost of electricity will be around Rs15 per unit, as we showed in a detailed analysis for the Economic and Political Weekly last year.

It is easy to verify this conclusion by a perusal of the nuclear establishment’s own literature. In 2008, the NPCIL published a study which suggested that imported reactors, like the EPR, could be built at a capital cost of about Rs15,000 crores, and would deliver power at a first year tariff of about Rs2.5 per unit.

However, international trends suggest that each EPR could cost more than Rs65,000 crores. The NPCIL itself admits that localising construction in India is unlikely to provide anything more than a “25-30 per cent cost advantage.” That the Government has raised its own estimate from Rs2.5 to Rs6 is an implicit admission of its failure to bring capital costs down to the level it advertised earlier.

But, the tariff also depends on other factors like the construction time. In its study, the NPCIL assumed that the reactors will be constructed in 5-6 years. This is completely unrealistic for EPRs; even the Kudankulam reactors, where there is more global experience with the design, took 12 years to become operational.

France has also reportedly offered NPCIL a 25-year loan, at a 4.8 per cent rate of interest. Such a loan is likely to be denominated in euros, exposing the country to the risk of future changes in the exchange rate. Even the short term costs of “hedging” against such a risk will take the effective rate of interest to 11.6 per cent — far above the 6 per cent assumed by the NPCIL in its study.

There is another trap here. The current yield for 30-year French government bonds is 3.16 per cent. So, the French can simply borrow money from the market at this rate of interest, lend it to India at a higher rate, and earn the difference as arbitrage at the cost of the Indian taxpayer.

It is evident, from an accounting of these costs and subsidies, that the true cost of electricity will be several times higher than the figure put out by the Government. Maharashtra needs electricity, but at such prices, there is no shortage of alternatives.

The project has also faced legal and environmental hurdles. Areva, which claims that its reactors are so safe that they are likely to undergo serious accidents less than once in a million years, has balked at accepting even a small amount of liability for a potential mishap. Areva’s computational methodology has serious theoretical flaws, but this reluctance to back its grand claims with an acceptance of liability has only heightened the legitimate concerns of local residents about severe accidents.

The locals are also concerned about the impact of the reactor on their livelihood; for example, local fish workers, who have been largely excluded from the compensation packages announced by the Government, are worried that a rise in the temperature of the seawater would reduce their catch.

In his last press conference, the Prime Minister declared that “the best moment for me was when we were able to strike a nuclear deal with the United States.” However, even after six years, his efforts have failed to yield a single contract for reactors. The direct and sustained involvement of his office in the recent negotiations is a dogged attempt to salvage the legacy of the nuclear deal.

But the legal and moral authority of the incumbent Government to continue negotiations on this front is questionable since the first two reactors will involve an expenditure of more than Rs1 lakh crores. The Chief Election Commissioner recently expressed concern at the Government’s decision on gas pricing saying that “A decision that was awaited so long could be put on hold for another two months.” Precisely the same principle applies to Jaitapur.

It is for the Election Commission to decide whether the Government’s actions violate the model code of conduct. Nevertheless, the Government’s use of executive power to pursue this agreement on the eve of elections is a disturbing indicator of its disregard for the democratic process.

The authors are physicists with leading research institutions, and have a long history of engagement with nuclear issues. Views expressed are personal