Pivotal Time for India-U.S. Nuclear Deal

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Companies have had difficulty penetrating India thanks to sanctions that date back a decade. In 1998, India tested a nuclear bomb near the border with Pakistan. The resulting international trade sanctions, led by the U.S., starved India's nuclear reactors of uranium and its elite scientific institutes of superfast computers and other equipment that Washington deemed sensitive, or dual-use technology. The current deal, nicknamed the 123 Agreement, was championed by President George W. Bush and Prime Minister Manmohan Singh as a way to bring the U.S. and India closer, and also for India to do business with the cliquish club of international nuclear suppliers. India is supposed to open up its 14 civilian reactors to international inspectors, and in return will be allowed to buy and trade nuclear fuel, reactors, and spares with the 45-member Nuclear Suppliers Group. Its military reactors will stay off-limits.

For American companies, this sounded like a blessing. Governments in the U.S. have not approved a nuclear reactor for construction since 1979's Three-Mile Island accident, even though American companies have been involved in about 60 reactors in Japan, South Korea, Finland, and elsewhere. India's energy needs are vast—as its economy booms, the country plans to quintuple its nuclear energy production to as much as 40,000 megawatts by 2020. At an estimated $2.5 billion per 1,000 megawatts, the nearly 30 new reactors India will commission could signal the beginning of a "nuclear renaissance" that American nuclear companies have been waiting for, says the U.S.-India Business Coucil's Ron Sumers.

France, Russia Stand to Gain More

First, the deal needs to win approval in India's Parliament, though. India's Congress-led United Progressive Alliance government has had to swap out its communist allies with those from a smaller regional party. And the deal is no sure thing in Washington, either. The White House is pushing hard to get the deal on the legislative calendar in the House and Senate. For an embattled President, bringing India into the nuclear fold would be a rare foreign policy success for the Bush Administration.

Even if the deal does finally go through, it could be as late as 2009 when India finally gets around to signing the CSC; until it does, no American nuclear company can afford to take the risk of doing business in India. "That's the kind of protection that companies look for when they decide to invest in countries," said Omer Brown, a Washington-based lawyer who helped push the treaty on behalf of the Contractors International Group on Nuclear Liability.

Meanwhile, both Areva and the Russian companies have leaped to the front of the queue, Atomenergoproekt and Atomstroyexport are already helping India build a nuclear reactor in Kudankulam, in southern India. France's Areva has been in site-specific negotiations with the state-owned Nuclear Power Corp. of India, says a senior official at the Indian company who declined to be identified because of the political sensitivity of the deal; Areva has exploratory agreements in place that almost assure it of a site in western India.

The prospect of losing more lucrative contracts to the French and Russians has U.S. companies worried. "Signing the CSC would be a way for India to say that they are prepared to play a full role in the international nuclear renaissance," says Dennis Hays, vice-president of governmental affairs at Thorium Power, a specialist in nuclear-fuel design based in McLean, Va., that considers India to be crucial for growth. India has one-third of the world's known thorium deposits.

Large Enough Playing Field for Everyone

At the same time, the argument in India goes, why should India commission reactors from American companies that aren't even making sales at home? "I can easily see the Indians going for French or Russian reactors because they are seen as more advanced," said Padmanabha Chari of the Institute for Peace and Conflict Studies, a Delhi-based think tank. "In the U.S., the entire industry has stopped growing, and they aren't into the most modern technology."

That's a misconception, say executives from U.S. companies, but it's one they have to fight hard against. Indian officials have tried to assure the companies that the pie is large enough that they will eventually get a decent-sized piece. "Irrespective of any understanding or quid pro quo, the current situation in India is that the demand for electricity is so large, that we can accommodate all countries," says RB Grover of India's Bhabha Atomic Research Center and India's chief negotiator for the nuclear deal.

There's more than just nuclear reactor business on the line. The deal is seen as a proxy for Indo-American relations, and if it survives, it augurs well for future strategic defense and economic ties. One defense deal delayed until the 123 agreement is signed is the nearly $11 billion purchase of 126 fighters for India's Air Force, a bellwether for U.S.-India military acquisitions. Both Boeing (BA) and Lockheed Martin (LMT) have horses in that race.

Srivastava reports for BusinessWeek from New Delhi.