The Hindu Business Line : Why the nuclear deal is important

Nuclear power can provide dependable ‘base-load’ power, like coal-based thermal units, provided the country’s nuclear isolation is removed. Shutting out that option will make the process of overcoming capacity shortfalls that much longer. S. K. N. NAIR looks at aspects of the nuclear deal that have long- and short-term ramifications.

NPCIL’s plants can be greater success stories if the fuel supply constraint is removed and global equipment supplies can be tapped.

The political tussle over the nuclear deal is nearing its denouement. The debate has generated much heat and a surfeit of arguments on both sides. But there are a few crucial issues concerning the role of nuclear power in the electricity sector that can do with some clarity even at this late stage. These issues carry both long-term and short-term ramifications.

One point that has figured again and again in the debate is that nuclear power has a very small presence in the electricity sector and will remain so, even if the ‘deal’ were to go through. So, the opponents of the 123 Agreement argue, the power sector could as well do without the ‘deal’.

Let us examine the implications of this line of thinking. The Finance Minister made a mention in the last Budget of the expected commissioning of new power generating capacity of about 10,000 MW in financial year 2007-08, which would mark the best first year in any Plan period. Figures recently put out by the Central Electricity Authority show that capacity actually added that year fell some 7 per cent short of that figure. However, the addition of 9,263 MW in one year did mark an all-time high for the power sector.

But look a little closer and the shine of this achievement wears off. The target addition for the year was set originally at 16,335 MW, lowered sharply to 12,039 MW in November 2007 and, in an official review held on January 22, 2008, scaled down further to 10,782 MW. If we were to link this up with the spill-over from the last Plan, the picture looks gloomier still.

The Tenth Plan that ended in March 2007 targeted generating capacity addition of 41,110 MW (from conventional sources) to start with. In June 2005, that is, into the fourth year of the Plan, this target was pared by ten per cent to 36,926 MW but when the Plan ended 21 months later, the actual addition totalled just 21,180 MW.

New targets

Newspaper reports have quoted the recently installed Minister of State for Power (Mr Jairam Ramesh) as stating he aimed at a target addition of minimum 11,000 MW of additional capacity in 2008-09. If this comes about, it will mark the sector reaching the original target addition for the Tenth Plan in exactly seven years. This is not a recent trend. The actual capacity addition in the Ninth Plan (1997-2002) fell short of the original target by 54 per cent and in the Eighth Plan, the comparable shortfall was 46 per cent.

It is not as if such recurring shortfalls are caused solely, or even mainly, by poor project management. Around the time the Tenth Plan target was scaled down mid-way, the Power Ministry had scaled up the procedures for monitoring of project implementation and had also drafted financial institutions into a new institutional mechanism aimed to speed up completion of privately-sponsored projects. With all those initiatives, the achievement just about reached half-way to the target.

The point is that for large projects, in general, and power projects, in particular, there are inherent barriers to speedy implementation in our political-judicial system.

These factors are well-known. The two main contributors to large capacity addition in electricity — coal-based thermal power and hydro-electric plants involving storage dams — both normally require land-acquisition and environmental restitution, apart from tying up several legally enforceable contracts.

In coal-based power — the mainstay of our ambitious capacity addition programme — these difficulties have to be overcome twice over, in developing coal mines and in the power plants proper.

In our system, these actions can be speeded up only up to a point. The project lag that is continuing into the current Plan has persisted for long and is at the root of the overall energy and power shortage that has remained in the ten per cent range for the last decade.

(The shortfall in peaking power requirement in 2007-08 was 16.6 per cent, all-India; and current year’s trends show a worsening owing to galloping demand growth).

Enlarging the options

Realism requires that we reckon with this pattern continuing into the future. Given the systemic barriers, efficient project implementation needs to be backed by a significant enlarging of the shelf of projects under implementation in a way that will help catch up with the gap in a reasonable time-frame.

This is where the nuclear power option can play a key role in the medium to long term, provided the country’s nuclear isolation is removed. Shutting out that option will make the process of overcoming capacity shortfalls that much longer. Nuclear power can provide dependable ‘base-load’ power, like coal-based thermal units (and unlike ‘renewable’ power sources such as wind energy, supply of which is inherently intermittent).

What about the short term? While absence of nuclear power can and does hurt at the margin when the shortages are in double digits, no one would claim that augmented nuclear energy can make a sea-change to the power sector in a couple of years. But let us consider what will happen to the nuclear power segment itself.

The debate over the ‘deal’ has thrown up the parlous state of indigenous availability of ‘uranium’ fuel, on account of which the nuclear plants are running at half their capacity.

If this state were to continue, it is not hard to visualise the impact on the Nuclear Power Corporation of India Ltd (NPCIL), the current monopoly producer of nuclear energy.

Financing and economics

Contributing to a study on the financing and economics of nuclear power in India (done by the National Council of Applied Economic Research in 2000 -’01, for NPCIL), this writer had occasion to compare the key financial parameters of NPCIL with that of NTPC, then the emerging giant of India’s power sector.

Set up a decade before its corporatised nuclear cousin (though the nuclear energy programme itself dates from 1962, NPCIL was constituted in 1987), NTPC had already built up sizeable internal reserves by 1996-97 (expressed as ratio to capital employed, as much as 35 per cent).

Foreign borrowings made up for a ratio of 17 per cent. By contrast, NPCIL was just recovering from a long patch of below-capacity output levels caused by technical hitches in some plants and wider frequency-related weaknesses of the power sector itself. Accumulated reserves were measly and its project funding depended almost wholly on government support and domestic borrowings

On much-improved operational performance in the subsequent decade, and speedier project implementation, NPCIL has veritably turned itself around and is now at a ‘take-off’ stage. It can replicate NTPC’s success story if the constraint on fuel supply is removed and if global equipment supplies can be tapped.

Conversely, it does not require much imagination to picture where three or four years of fuel starvation could leave its finances. Critics of the Left would not want a premier PSU to stagnate and sicken, but this is a very likely outcome if the ‘deal’ were to fall through.

Last, a comment on the fuel shortage itself. Fringe critics have, expectedly, seen a ‘hidden agenda’ in the mismatch and lag in uranium mining. Realistically, however, there has been a planning lapse and, adding to this are the systemic barriers mentioned earlier, that apply equally to prospecting and mining.

Mr Jairam Ramesh was again quoted recently as stating that plans to mine rich uranium deposits in Meghalaya were trying to overcome local opposition and environmental concerns.

As for the planning lapse, let us also note that ten years ago, there was much less clarity at the policy level on the future role of nuclear energy in the country’s power scenario. The ‘deal’ will alter the situation dramatically — if it goes through, that is.

(The author is a former Member of the Central Electricity Authority and a former Consultant to the National Council of Applied Economic Research, New Delhi).

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