FROM BUSINESS WORLD OF 26 JULY 2005.
Back from the doghouse
The Prime Minister’s visit to Washington was attended by
much pomp and ceremony, with the media closely positioned to watch. So it has
naturally occupied many acres of print space and hours of prime time. Many of
his achievements during the visit are preliminaries to what might come, and
contingent on what further needs to be done. But in one area, they are concrete
and substantial.
Independent India’s energy policy
has hitherto ensured that whilst oil, produced as far as possible at home, was
used for transport, domestic coal supplied the rest of energy either raw or
transformed into power. Indiscriminate self-sufficiency made energy costly and
industry uncompetitive; but that made India even more self-sufficient and was
considered a virtue in a paranoid age. After trade liberalization of the 1990s,
the steel industry was allowed to replace the junk that passed for coking coal
with imports; but otherwise, the reforms left the energy economy untouched.
Energy has engaged the attention
of recent governments because the state-owned coal industry is showing signs of
age and exhaustion. Subsidized electricity demands ever increasing quantities
of coal; the coal industry has barely managed to meet the demand. One way of
instilling vigour into the industry would be to introduce private capital and
management. But the monolithic Coal India and its unionized labour force have
stalled such initiatives.
One substitute for coal would be
oil; and thanks to the protection they have been given, government oil
companies are replete with cash and keen to invest in oil exploration and
production. But the world’s most important oil properties are already in the
occupation of established oil companies, and in the competition for new fields,
our oil companies generally lose out to more thirsty and resourceful Chinese
companies.
So our hydrocarbon companies have
been increasingly drawn to gas from the Middle East. Iran has the largest gas
reserves in that region, and it is difficult for anyone looking for gas to
avoid it. Iran, however, is anathema to the US. Their relations soured when
mobs in Teheran held US embassy staff captive for months at the time of the
Ayatollah’s revolution in 1978; they have worsened since it came to be known
that Iran is working towards a nuclear bomb.
To prevent India from importing
gas from Iran, Condoleeza Rice had said four months ago that the US was
prepared to help India solve its energy problems. That started a process of
negotiations which has resulted in the understanding reached in Washington.
India cannot be recognized as a
nuclear power unless the signatories to the Nuclear Proliferation Treaty (NPT)
agree to do so. There is no chance of that happening; China would veto such a
proposal. What the US has done is to recognize India as a nuclear power without
calling it one; in other words, it has agreed to give up all the punitive
measures that the NPT enjoins its members to adopt against rogue nuclear powers
like India. In particular, the US will not longer restrain flow of nuclear
equipment, fuels and technology to India. And if the US exports these to India,
other industrial countries will follow, if only so that they are not left out
of the Indian market
The significance of this move can
be appreciated only if it is realized how costly and inefficient India’s
home-built nuclear power plants have been. They have taken years, often a
decade, to build. Their operational performance has not been bad. But their
costs have been so high that the government has not dared to increase their
share in Indian energy supply. They remain less than marginal to the Indian
power scene.
Not that the US has great nuclear
technology. No nuclear plants have been built in the US since the Three Mile
Island incident. Nor have many elsewhere; world oil supply was benign from the
1980s, and countries did not see the need for nuclear power. But oil prices
have more than doubled in the last three years, so nuclear power must look more
attractive. And the companies that built nuclear plants once, such as
Westinghouse and GE, still have the technology, even if in mothballs.
If we can take advantage of the
new understanding and get or built standardized nuclear power plants using
enriched uranium, the cost savings will far exceed any possible costs of the
new understanding. Costs there undoubtedly are. It is likely that the US will
now expect India to keep away from Iran, and that India will have to share with
the US the policing of the Indian Ocean. Manmohan Singh has made a bargain. How
much we get out of it depends on how far we exploit the door to US technology
and equipment that he has prised open.
