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The deal that refuses to die
April 23, 2008
The deal has been analysed to death in India over the last three or four years, and so you, gentle reader, may legitimately wonder why I write about it yet again. The reason is that the situation is so complex, with the impenetrable Hyde Act and the 123 Agreement, and the inflexible positions taken by so many experts, that I felt it was appropriate to step back and look at the thing from first principles.
In my humble opinion, there are three aspects to the deal:
After considering these three in turn, I have come to the unfortunate conclusion that India does not gain an advantage in any of them individually if it proceeds with the so-called deal. Therefore it is beyond comprehension how, mysteriously, when you put all three negatives together, you get a wonderfully positive overall deal.
The complexity of the deal and the interminable Hyde Act and 123 Agreement tend to obscure what India actually gains. Add to this the opaqueness with which the UPA government has tried to shove it down the throats of the Indian public -- the secrecy implies they have a lot to hide.
The sceptical observer is left with the inescapable conclusion that something stinks. It is a bad deal for India, period.
1. Energy Security
This is an extremely important issue for India. Given the large and growing -- and very young -- population, India needs to maintain a growth rate like the 8+ per cent real growth rate of the past couple of years. This is the only way the rising aspirations of the middle and lower classes can be maintained. There is surely a lot of momentum, even though prosperity is yet to reach a large segment of the citizenry.
All this growth, of course, consumes a lot of energy. Oil and natural gas are the most easily consumed, but India is short of hydrocarbons on its own territory, and therefore has to import some 80 per cent of its needs. Given current consumption trends and the near-certainty that the world is close to 'peak-oil', India is in urgent need of doing one or more of the following:
First, India's fitful attempts to enter into long-term agreements with major hydrocarbon producers, both in petroleum and natural gas, have met with only partial success. This is partly because of a lack of ruthless focus (compare to the Chinese who have wooed nations like Angola and Sudan -- despite human rights issues). The other part is geographical and geo-political: Bangladesh and Burma have both declined to provide gas; and pipelines like the Iran-Pakistan and Turkmenistan-Afghanistan-Pakistan links are fraught with political risk for India.
Unfortunately, India has been fixated on pipelines, instead of developing the more expensive but supplier-neutral mechanism of liquefied gas and ports capable of handling it. Pipelines are co-specialised assets that tie India to the supplier; whereas LPG terminals enable the import of gas from any supplier.
Second, another issue -- which never gets much consideration -- is that of improving the system so that the massive waste is reduced. It may be noted that these are policy issues that will have a long lead-time but also long-term value. For one thing, building codes in India (even when they are enforced) are utterly inadequate; most Indian structures are copies of glass-skinned Western models which are grossly inappropriate for the climate as they let in enormous amounts of heat which then has to be removed via air-conditioning. Similarly, the mandatory manufacture and use of compact fluorescent lamps could reduce demand and conserve electricity.
The other major loss comes from congestion. India's burgeoning population of motorised vehicles, and the congestion caused by both poor implementation of road rules as well as the lack of adequate roads leads to an extraordinary wastage of fuel. Gridlock at junctions based simply on poor prosecution of rule violators is one such problem.
The building of good roads and interchanges has significant benefits, although these have to be well-designed for the smooth flow of traffic. The title of the world's most bizarre interchange must go to one at Richmond Circle in Bangalore where you drive up a flyover ramp, stop, wait for cross traffic to pass, and then proceed. I thought the whole point of the flyover was that you did not have to wait for cross-traffic!
Where the elected leaders of the country should set an example, they are in fact among the worst offenders in profligate waste of fuel. Particularly egregious is the use of motorcades by politicians. A single politician on a trip may bring along a fleet of 50 cars; this is not for security, but for show -- an order that puts a ceiling on this sort of ostentation would go a long way.
Third, renewable energy sources such as solar and wind have enormous potential. Given India's climate, once solar energy becomes viable -- even if it is in niches such as for household electricity use -- would be of enormous benefit. Indian should be putting billions of dollars into research into solar technologies, as they are on the verge of becoming entirely feasible, pending one or two technical breakthroughs.
In addition, what would India's billions buy? There has not been a single nuclear reactor built in the US since Three Mile Island blew up in 1979. On what basis is India thinking of buying nuclear reactors from the US? What guarantees can they provide that these things are not a) obsolete designs, b) untested new designs that will blow up and kill Indians and make radioactive waste out of the Indian countryside a la Chernobyl? Oh, and what about the possibility that all this radioactive stuff will easily be stolen by terrorists?
Fourth, there is a fundamental question that seems to have fallen by the wayside: What is the consequence of not having enough hydrocarbons? What is the worst-case scenario? Can India live with the worst-case scenario?
The worst-case scenario is one in which GDP growth slows dramatically from the current 8+ per cent, to, say 4 to 5 per cent. Of course, this would be a disaster, especially as the Indian economy is at the take-off stage. On the other hand, India has experienced slow growth for fifty years as a consequence of foolish political and economic decisions (the Nehruvian Rate of Growth of 2-3 per cent); therefore, the Congress party knows exactly how to deal with meager growth. They know there is not going to be a revolution: The urban elite will grumble, but nothing much else will happen. A few slogans about the "common man" and "remove poverty" will suffice to keep the masses quiescent.
Finally, does nuclear fission really give India energy security? No, it does not, at all. The most optimistic estimates by the establishment suggest that 7 per cent of India's energy needs will come from nuclear fission. What about the other 93 per cent? Besides, instead of being held hostage by the hydrocarbon-rich (OPEC, Russia [Images], Iran, etc.), India will just be held hostage by the uranium-rich (Australia, US, etc.) because India's own resources are minimal. Thorium-based fast-breeder technology would be an exception to this, as India has 31 per cent of the world's reserves, but the technology is far from being commercially viable.
Thus, the nuclear deal is not going to give India the much-touted energy independence. Even if the nuclear deal were to be signed, that still leaves a very large gap between supply and demand. And, given past experience with uranium suppliers (eg. the US reneged on its treaty obligations to supply India with fuel for Tarapur, Australia's China-friendly Labor government has declared that it would never sell India uranium unless it signs the NPT), it is hard to treat them as dependable.