Light years ahead

SEVENTY MILLION. This is the number of Indian households still awaiting electricity. The country will need additional capacity of over 100,000 megawatts (MW) to live up to its power for all mission by 2012. Given the two-way relationship between energy consumption and economic growth, a lot is riding on this mission. But, in light of the limitations posed by India’s reliance on thermal energy, alternative energy sources will have to be tapped to cover this deficit. In this context, the 63,000 MW-by-2032 target set by the Department of Atomic Energy (DAE) can help.

Such a long-term target when India needs power right now is because nuclear power projects have a long gestation period—seven to eight years per plant. So any current activity in this space is likely to bear fruit only around 2020.

Assuming the target is not a pipe dream—only 4,560 MW of nuclear power has been generated in the past 50 years—the challenge will be money. By government estimates, this undertaking will cost 0.5% of India’s GDP. One megawatt is likely to cost Rs 6-8 crore at current prices.

This estimate might be optimistic. India currently needs to import large nuclear reactors; it has the expertise to build reactors of only up to 700 MW, with all the safety and regulatory requirements of the International Atomic Energy Agency in place. More important, it will take between eight and 10 years to develop the technology to indigenously make reactors of 1,000 MW or more. Till then, India’s reliance on imports must continue, and this pushes up costs. “The kind of nuclear reactors being imported shows that the capital cost varies from Rs 9-13 crore per MW,” says S. Rajagopal, former secretary, DAE. According to him, the project is actually likely to cost around Rs 7.5 lakh crore. In other words, India will need to spend about Rs 35,000 crore a year to meet the 2032 target.

The utility charged with this undertaking, Nuclear Power Corporation of India (NPCIL), on its part, is hoping for a break in the future. It is the only Indian company geared to handle end-to-end production of nuclear power. “The cost is currently higher because we are using reactors from French company Areva. Once we start using indigenised ones, the cost will come down,” says J.K. Ghai, finance director, NPCIL. According to G.R. Srinivasan, former vice chairman, Atomic Energy Regulatory Board, the costs could come down by 30% on average.

NPCIL signed a contract with Areva because it’s owned by the French government. Private players will not sign a deal with India till the Civil Liability for Nuclear Damage Bill is passed. In its absence, they cannot estimate the compensation amount payable in the event of an accident like Chernobyl. The bill is expected to be passed in the winter session of parliament, which begins in November. If it is passed, private players are likely to rush in, wanting a share of India’s $160 billion nuclear energy market. They will need to get their act together quickly, before the Indian players begin to scale up.

In the meantime, Ghai has to get his finances in order. “In the next eight years, NPCIL will need about Rs 1.27 lakh crore to build 15,000 MW of power. This is not a problem for us at all,” he says. NPCIL’s current cash reserve of Rs 10,800 crore is likely to go up to Rs 15,000 crore by 2017. Working on a debt-equity ratio of 70:30, as in the case of the to-be-commissioned plant in Jaitapur, Maharashtra, it will require Rs 38,000 crore of equity to fund expansion. At best, NPCIL will need Rs 13,000 crore more as equity. Raising this from financial institutions or tapping more cash-rich partners should be easy. For instance, NPCIL has already signed a joint venture with National Thermal Power Corporation, and others such as Indian Oil Corporation and National Aluminium Company have expressed interest in partnering future projects.

However, things will change drastically 2022 onwards. NPCIL is sure to feel the pinch when the country will need to produce an additional 42,000 MW and more in the following years. Working on the same debt-equity ratio, its contribution works out to over Rs l lakh crore.

Let’s not forget that the government has not only mandated that NPCIL will have a majority stake in every new venture, at least for the next few years, but has also curtailed the role of the private sector. This means the burden of raising funds will continue to rest primarily with the power utility.

Meanwhile, private companies with fat wallets who are itching to set up nuclear reactors—Tata Power, Reliance Power and GMR, to name a few—will have to settle for the role of supplier or engineering, procurement and construction (EPC) contractor.

So how does NPCIL plan to fund India’s nuclear dream till the government does a reality check? “There are several options,” says Ghai. Apart from joint ventures, it may consider setting up a new company with cash-rich public sector players for EPCs as well as other supply chain contractors. NPCIL has already signed a 50:50 joint venture with Bharat Heavy Electricals, a public sector components manufacturer, for EPC activities, and is discussing options with players such as Siemens, Turbo Item and Skoda Power, which are banking on the nuclear liability bill being passed. If they acquire a minority stake in the venture, NPCIL’s costs could come down further. Other easy options for the AAA-rated NPCIL could be going public or selling bonds. It is also banking on its ability to leverage export credit agencies in the supplier country.

It seems like a carefully laid-out plan, at least on paper. But sceptics, including Rajagopal of DAE, say implementation will be a different story. Fundamental questions remain: Can NPCIL get enough land to set up 40 new reactors without local opposition? Does it have the wherewithal to increase its reprocessing capacity from 200 tonnes to 2,600 tonnes, which is crucial to meet the 63,000 MW target? Can it import sufficient plutonium for its reactors? These answers will determine how many Indians continue to live in darkness three decades on.