US-India accord triggers scramble for $50bn contracts

[Adux]

US-India accord triggers scramble for $50bn contracts



“India has for decades resisted what it terms ‘nuclear apartheid’ by the five permanent members of the UN Security Council”The US-India agreement designed to end New Delhi’s nuclear isolation marks a new phase in strategic ties between the two countries that is as bold a departure as President Nixon’s China visit of 1972.

Washington has signalled its desire to accommodate India’s strategic ambitions by unilaterally waiving anti-proliferation restrictions against a country that less than a decade ago drew international ire by testing nuclear weapons.

By accepting international safeguards on its civilian – though not military – nuclear programme, India has in turn sought to demonstrate that it is a responsible power.

US-India relations have greatly improved since the end of the Cold War. They share an interest in fighting terrorism, dealing with China’s rise and promoting regional energy security. They are tied by growing trade, investment and a politically active Indian American community.

The July 2005 nuclear agreement signed by President Bush and Manmohan Singh, the Indian Prime Minister, was a breakthrough. India has for decades resisted what it terms “nuclear apartheid” by the five permanent members of the UN Security Council. Under the 2005 deal, the US agreed to lift nuclear sanctions on India and to work towards convincing other countries to follow suit. In return, India agreed to place civilian nuclear facilities under international safeguards.

But the agreement angered interest groups in both countries. Some in the US saw it as rewarding India for its defiance of international proliferation norms and put pressure on Congress to act tougher with New Delhi. This led to the December 2006 passage of the Henry J Hyde US-India Peaceful Atomic Energy Cooperation Act, which changed US laws to conform with the 2005 agreement. But it also contained several conditions unacceptable to India, including fuel supply restrictions, a ban on fuel enrichment and language that called for the agreement’s cancellation and recall of all material if India carried out a nuclear test.

In India, too, nationalists and parts of the state nuclear establishment claimed the agreement compromised India’s strategic autonomy, prompting Singh to reject any significant restrictions on the nuclear fuel cycle. The Hyde Act, however, contradicted many of these positions and created a gap between the two countries.

The most recent round of talks was therefore aimed at producing a bilateral agreement – termed a “123 Agreement” after the relevant portion of the US Atomic Energy Act – that would put the Bush-Singh accord into operation, subject to the constraints of the Hyde Act.

Hard bargaining by India and a mutual willingness to leave some grey areas has led to a treaty that essentially conforms to the prime minister’s commitment to ensuring future safeguarded reactors will run without interruption even if India tests a nuclear weapon, that India will have the right to reprocess spent fuel and that only standard International Atomic Energy Agency (IAEA) safeguards will apply to Indian facilities.

Washington gave these concessions in part by outsourcing those commitments it couldn’t legally make. So, the US will continue to deny India enrichment technology but will agree to supply nuclear fuel so long as India reprocesses it in a safeguarded facility. The US will maintain the right to demand the return of nuclear fuel and equipment if it deems this necessary but will do so after due consultations with India and by paying “fair market value” and, most importantly, will ensure fuel supplies continue to flow until an alternative source is finalised.

The process of opening India’s civilian nuclear industry is still incomplete, and India must negotiate a safeguards agreement with the IAEA after which the US Congress must approve the 123 Agreement. America must also convince the 45-nation Nuclear Supplier Group (NSG) that regulates global nuclear commerce to ease similar restrictions on India. The Indians are looking for more favourable terms that would permit countries such as France, Russia and the UK to supply enrichment and reprocessing technology, but the NSG operates by consensus and it remains uncertain what conditions will emerge.

A successful shift in the international nuclear regime will open significant commercial opportunities for foreign firms that supply reactor technology, nuclear fuel and project finance. India plans to generate 40,000MW of nuclear power by 2030, equivalent to more than 30 new nuclear reactors. India’s state-owned nuclear establishment has consistently failed to reach its ambitious generation targets, and Indian nuclear plants currently generate 4,120MW, less than 3% of total power output.

If private industry is allowed to construct just half the projected capacity, it will generate business worth more than $50bn (£24bn, E36bn) over the next 25 years. Nuclear power generation currently remains a state monopoly but officials have stated they will amend the relevant laws to facilitate private investment. Firms watching the sector include General Electric, US Enrichment, Areva, Toshiba and Russia’s Atomprom.

A successful agreement will also improve the prospects of large military sales to India. Boeing and Lockheed Martin are bidding to sell 126 multi-role fighters to the Indian Air Force in a contract worth $7bn or more, and other US firms are hoping to sell helicopters, transport aircraft, missiles and other high technology items. The party could just be beginning.

Amitabh Dubey is India editor of Trusted Sources, the analytical service on emerging economies, www.trustedsources.co.uk[/HTML]

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