JULY 16, 2009
India Designates Sites for U.S. Nuclear Deals
By AMOL SHARMA
India selected two sites U.S. companies can eventually build nuclear-power reactors, a significant step as the countries look to implement the landmark nuclear pact they completed last fall, according to people familiar with the matter.
But the selection, which could be announced when U.S. Secretary of State Hillary Clinton visits India this week, is unlikely to lead to quick contracts for companies such as GE-Hitachi and Westinghouse Electric Co. to begin building plants.
The U.S. companies must still overcome a range of regulatory and legal hurdles in both countries and are concerned that state-backed rivals from France and Russia -- which face fewer regulations in both India and on their home turf -- have an advantage in India's $100 billion nuclear energy sweepstakes. India has already designated sites for French and Russian nuclear reactors.
The U.S.-India agreement ended a 34-year U.S. moratorium on nuclear trade with India following the country's first nuclear tests in 1974. The deal opened the door for U.S. and foreign companies to sell reactor technology and fuel to India and required India to allow greater international inspections of its civilian nuclear facilities. The pact took more than three years to complete and was hailed in both countries as a major foreign policy breakthrough.
During her visit, Mrs. Clinton is expected to highlight several areas of "strategic dialogue" with India, including national security, trade, education and the environment, people familiar with the visit said. After decades of estrangement over the nuclear issue and Cold War differences, the U.S. and India have improved their relationship markedly in recent years. Bilateral trade is expanding and reached $45 billion last year. Military cooperation is increasing.
The two countries may also use Mrs. Clinton's trip to announce completion of an agreement for the U.S. to track sales of defense equipment and ensure it is used for its stated intent, according to people familiar with the matter. That "end-use monitoring" agreement will be crucial, experts say, as U.S. companies compete for major contracts such as India's plans to purchase 126 fighter jets at an estimated cost of $11 billion.
A spokesman for India's Ministry of External Affairs said that some agreements will "naturally" be finalized between the U.S. and India during Mrs. Clinton's trip but declined to elaborate.
The Obama administration's assistant secretary of state for South Asia, Robert Blake, said the U.S. was hoping to announce the two nuclear sites, as well as the end-use agreement, during Mrs. Clinton's visit to New Delhi on Monday. Mr. Blake also disputed charges that the U.S.-India civil nuclear accord was failing to develop as quickly as U.S. corporations had hoped. "I don't think there should be any apprehension about the future of the civil nuclear agreement," Mr. Blake said.
There are still points of tension that Mrs. Clinton will have to address. Indian officials are concerned about what they perceive to be growing protectionism in the U.S. over India's strength in low-cost business outsourcing. And they object to climate-change legislation moving through Congress that would impose tariffs on products from countries that don't reduce greenhouse-gas emissions.
The nuclear sites the Indian government is likely to name for U.S. companies are in the states of Andhra Pradesh and Gujarat. But there are still several roadblocks preventing U.S. companies from cutting deals with India. The U.S. Department of Energy, for instance, hasn't granted American companies the licenses needed to engage in sensitive technical discussions about their products with Indian companies.
U.S. regulators are seeking "nonproliferation assurances" from India that U.S. technologies won't be transferred to any parties other than the original importer, including subcontractors. The State Department's top officials on arms control, former Rep. Ellen Tauscher and department veteran Robert Einhorn, are hard-line nonproliferation advocates who criticized the India nuclear deal. But President Barack Obama and Mrs. Clinton voted for the deal in Congress and have said they intend to follow through on it.
Meanwhile, U.S. companies are waiting for India to sign an international convention that limits the liability of private nuclear companies in case of nuclear accidents. India hasn't passed the necessary legislation.
Thomas Rumsey, a spokesman for GE Energy, a unit of General Electric Co., said the liability issue is the biggest remaining hurdle. "The Indian government is very aware of this. They understand what has to be in place," he said.
But some experts say there are domestic political considerations for India. "There are people in India who say, 'Why do we have to make these changes so quickly just because American companies want them?'" said Seema Gahlaut, director of the South Asia program at the University of Georgia's Center for International Trade and Security.
India is also pressing the U.S. for the right to reprocess uranium fuel it imports, an issue that wasn't tackled as part of the nuclear deal.
Foreign companies, meanwhile, have charged ahead. France's Areva SA last week submitted a bid to build two reactors in the western Indian state of Maharashtra, and announced strategic alliances with local Indian construction and engineering companies. Foreign companies from France and Russia don't face the same export-licensing requirements as U.S. companies and can invoke sovereign liability protection as state-controlled companies.
"We understand regulations take time to implement, but we're concerned that the French and Russians are pushing ahead with deals while we aren't able to," said Meena Mutyala, the point person on India nuclear discussions for Westinghouse, a unit of Toshiba Corp. that supplies technology and designs for 40% of the world's nuclear plants.
Not every U.S. nuclear supplier is eyeing India in the short term. India isn't an ideal customer, since its rickety electric grid is incapable, in many places, of absorbing large blocks of power from nuclear reactors. And some companies are more focused on getting approvals to bring plants online in the U.S.
Babcock & Wilcox Co. says it may supply some nuclear components to India but isn't ready to market a reactor there or to any distant buyer. "We don't have nuclear ambitions relative to India right now," said John Fees, chief executive of McDermott International Inc., parent of Babcock & Wilcox.
India, which generates only 3% of its power from nuclear energy -- the majority comes from coal-powered plants -- has said it wants to quintuple its nuclear production by 2020. U.S. companies fear that India could purchase the eight reactors it wants in the short term from foreign companies before U.S. companies even have a chance to bid.
The U.S. "led the way in changing the global nonproliferation regime for India," said Ted Jones, director of policy advocacy for the U.S.-India Business Council, which represents U.S. companies with significant interests in India. "Now we're a long way from being on a level playing field with our international competitors."
—Rebecca Smith, Paul Glader, Niraj Sheth and Jay Solomon contributed to this article.
Write to Amol Sharma at firstname.lastname@example.org