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Tuesday, April 29, 2008

India preparing for a war in the next 10 years: Business for US Corporates from Indo-US Nuclear Deal

In my last post on this issue several months back, I had reproduced how much the American Nuclear supply companies stood to gain from this deal. Well, among others, our security analyst Raghavan (whom I had quoted in my last post) too got it wrong. The Nuclear Deal and the arms supply to India is seemingly poised for a major jump. Indeed the kind of investment seem to imply that we want to go for a war in the next decade or so.

Here are excerpts from a blog post from someone who maybe thinks all this is great news - Indians in the USA who stand to benefit from the deal through their careers/ companies. India is to become a major centre of weapons in the coming decade is the clear message. Much of the so called FDI that is being invested in India is to be utilized by the revenue being generated more efficiently by Chidambaram & Co., for buying weapons of mass destruction (WMD) from a country that has been obsessed with that idea for a long time now.

Business and Indo-US deal

Power Plays: Business Implications of the Indo-U.S. Nuclear Deal

From: India Knowledge@Wharton Article , Aug 09, 2007

Two big U.S. delegations -- representing 180 companies and 38 companies respectively -- visited India in the past year, looking to sell items such as Westinghouse nuclear reactors, uranium from South Dakota and Lockheed Martin fighter jets.
...Still, political groups in both countries threaten to block the deal, even as the emerging geopolitical realities and the economic benefits appear to outweigh the concerns. India Knowledge@Wharton spoke to corporate executives, analysts and Wharton faculty members to understand the business ramifications of the deal.

Staying Below the Radar
Initially, it appeared that most of the debates about the U.S.-India nuclear agreement were largely political. A deafening silence marked the business implications -- and with good reason: Many senior executives were waiting for the political clouds to clear and for the final terms of the agreement to be revealed. As GE India's CEO T.P. Chopra told India Knowledge@Wharton in an interview, the final form of the agreement would affect GE's nuclear power strategy in the country. Some business leaders point to other challenges. "First, some hurdles still remain," says the CEO of an Indian company that has been negotiating with U.S. firms for defense joint ventures. "The last thing we want is to give ammunition to the Left-wing parties. They would love to project the U.S. as greedy capitalists selling the country for a few dollars more. Business will keep silent until it's all signed, sealed and delivered." (The Congress Party-led Indian government depends on support from the Left, which has rejected the deal.)
According to an ...News report, "Areva, the world's largest maker of nuclear power stations, and General Electric, are among four companies poised to share $14 billion of orders from India as nations led by the U.S. prepare to lift a 33-year ban. Toshiba's Westinghouse Electric and Russia's atomic energy agency Rosatom will probably also win contracts to each build two 1,000 megawatt reactors, according to Nuclear Power Corp. of India chairman S.K. Jain." The report noted India can begin purchasing equipment following NSG approval of the agreement.

....(the report) added that "the orders will form the first phase of Prime Minister Manmohan Singh's plan to build 40,000 megawatts of nuclear capacity by 2020, equivalent to a third of current generation. India needs to add to the 3% of electricity that comes from Russian-designed reactors to meet soaring energy needs and reduce its reliance on coal-fired power plants." The report also quoted one source who said India would "try to diversify its suppliers and it's highly likely all four [Areva, GE, Westinghouse and Rosatom] will win the contracts."
For U.S. companies, multi-billion dollar opportunities are opening up. "It is not just in the nuclear area," says Shivanand Kanavi, a commentator on technology issues who is currently writing a book on India's nuclear program and is the author of Sand to Silicon, a book on the digital revolution. "There are opportunities at several levels and in several sectors."

One obvious opportunity is that U.S. companies will be allowed to sell both nuclear reactors and technology to India. This is big business -- roughly $150 billion worth, according to estimates from the U.S.-India Business Council (USIBC). The numbers are extrapolated from the Indian nuclear industry's plans to increase nuclear power output from around 3,500 MW now to 60,000 MW over the next three decades. The Atomic Energy Commission has doubled its target for 2024 from 20,000 MW to 40,000 MW. Nuclear energy today accounts for barely 3% of India's total generation of 120,000 MW.

A clear beneficiary of the new regime is the public-sector Nuclear Power Corporation of India (NPCIL) -- the entity negotiating the deals with Areva, GE, Westinghouse and Rosatom cited in the Bloomberg report.
Regulatory Bottlenecks
At the recent annual general meeting of Tata Power, the group's chairman, Ratan Tata, told shareholders: "If the government opens the sector for private investment, Tata Power would be certainly interested in operating a nuclear power plant." A critical challenge for businesses, however, will be securing the government's green light. Today, only companies with a 51% government stake are allowed to generate nuclear energy. In practice, this has boiled down to only NPCIL. Two years ago, the 89.5% government-owned National Thermal Power Corporation (NTPC) had approached NPCIL with a proposal that it enter the nuclear generation arena. But the talks have not made much headway. (Incidentally, NTPC shares rose on the release of the text of the 123 Agreement; NPCIL is not listed.)

For the private sector to enter the fray, the regulatory environment will need to change. In May, Atomic Energy Commission chairman Anil Kakodkar told a meeting in Kolkata (formerly Calcutta) that the Atomic Energy Act would be amended as soon as possible to allow private-sector participation. Draft legislation has already been circulated.

...Over the years that the Indian nuclear industry was shunned by the Western world, many of these companies have built up a good deal of expertise. HCC, for instance, was the first Indian construction company to undertake civil engineering works for pressurized heavy water reactor power projects in India. "HCC has constructed four out of the seven nuclear power plants in India," says chairman and managing director Ajit Gulabchand. Four new plants are under construction, with HCC building two of them.

"It is fast becoming accepted that nuclear energy is 'green' compared to conventional energy sources, and it is also quicker to implement," says Gulabchand. "There is a renewed global focus on building new capacities."

M.V. Kotwal, who heads the heavy engineering division of engineering giant L&T, now sees openings to set up "light water nuclear reactors of the boiling water type or the pressurized water type." He says the technology for such reactors, which need enriched uranium as fuel, is available with the U.S., France, Japan and Russia. Whereas L&T is equipped to manufacture the main reactor vessels as well as steam generators, pressurizers and other critical equipment for such nuclear power plants, "it is a problem at times to source some of the raw material which is manufactured by European, Japanese and Russian companies," says Kotwal. "After the clearance of the agreement, it will be easier to source such material and hence to speed up the Indian program."

...Meanwhile, the perestroika in the nuclear arena will extend to exploration. The public-sector Uranium Corporation of India will be bidding for mines abroad. Meanwhile, at home, the private sector is being allowed into uranium exploration. For starters, the Department of Atomic Energy (DAE) will outsource areas like data collection and analysis.

All of this is, however, small change compared to defense deals, which have U.S. companies waiting anxiously. A conservative estimate says that India will spend $70 billion in defense procurement over the next five years. (The $150 billion estimated for nuclear power projects is spread over 28 years.)

Take just one component: fighter jets. India is in the market for 126 multi-role combat aircraft. At $10 billion, this is one of the world's biggest single-supplier contracts.

... Boeing's recent win of a $11 billion order for 68 aircraft from Air India, and its announcement that it would invest $1.7 billion to buy goods and services from Indian companies. Lockheed Martin has approached Hindustan Aeronautics, Bharat Electronics, BHEL, and the Tatas for joint defense projects, he adds.

Today, Russia is India's biggest defense supplier. Israel stands at No. 2, having overtaken France, the U.K. and the U.S., who had been hamstrung by various restrictions but now want part of the action. India this year expects to spend $10.5 billion on military equipment, including $4 billion for the air force, $2.8 billion for the army and $2.5 billion for the navy. Some 70% of those capital needs are met though imports....

"Ultimately, economics determines everything," says Chaudhuri, who feels those compulsions will override political opposition to the deal. To support that point, he says that despite widespread criticism of China's political system and its human rights issues, the U.S. business community is "very close to China."

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