Latest U.S.-India Nuclear Deal: Less than Meets the Eye?

In late January, President Obama traveled to India and met with Prime Minister Narendra Modi in a photo op, touting a new civilian nuclear power deal. Obama claimed that the new deal was a “breakthrough understanding.” The Washington Post reported, “The White House said the agreement involved the provision of insurance pools and an assurance that reducing liability would be within the framework of the 2008 agreement. It will now be up to companies to decide whether to do business in India.”

The Obama-Modi event was an attempt to rescue an earlier deal between the two countries, long at odds over nuclear energy.

In 2005, amid much ceremony and hoopla, the U.S. and India signed an agreement that proponents, including the Bush administration, said would open the Indian market to U.S. nuclear vendors, ending a period of some 30 years when India was largely isolated from cooperation with the U.S. and European nuclear expertise.

President Bush traveled to India for a photo op with Prime Minister Manmohan Singh as they signed the agreement.

When Congress ratified the deal in 2008, the Reuters news service said that the Bush administration believed that the arrangement with India “will secure a strategic partnership with India, the world’s largest democracy; help India meet its rising energy demand; and open up a market worth billions.”

India had largely been cut off from nuclear cooperation with the developed world after in 1974, when it used bomb-grade material diverted from a Canadian Candu reactor to explode an atomic bomb. In 1998, India tested an additional nuclear weapon during a period of chest-pounding with its arch-rival Pakistan, further isolating the country from Western nuclear commerce. The agreement with the Bush administration was aimed at normalizing nuclear commerce with the world’s largest democracy.

It was not to be. While India moved forward, although not very aggressively, toward increased civilian nuclear power (in a country with large coal resources), it dragged its heels on a number of issues important to U.S. and other private-sector vendors. In 2010, India enacted a strict liability law that U.S. nuclear reactor vendors saw as making it impossible to conduct business in India. The Indian law holds vendors and suppliers fully liable for nuclear accidents, unlike the laws in the U.S. and Europe, which limit liability and provide mechanisms for government support in the case of damages.

The U.S. and India began negotiating over how to get around the Indian law. That resulted in Obama’s trip to New Delhi to appear with Modi and brag about their achievement.

But the Post reported several days later said that the deal may be mostly cosmetic. The newspaper said that “the legal issues remain so complex that private U.S. companies may continue to shy away from new deals in India, despite the developing country’s fast-growing and dire power needs.” The news account added, “‘We’ve been characterizing it as a breakthrough or breakthrough understanding,’ a senior U.S. administration official said Tuesday. But, said the official, who spoke on the condition of anonymity, ‘it is not a signed piece of paper, but a process that led us to a better understanding of how we might move forward.’”

One of the issues still dividing India and the U.S. is tracking uranium to assure it is not diverted to weapons, as occurred in the 1970s. As part of the 2005 deal, the Nuclear Suppliers Group lifted its 1974 sanctions against India in return for a pledge not to produce plutonium from its uranium fuel for use in weapons. According to Mark Hibbs of the Carnegie Endowment for International Peace in Washington, writing in The Diplomat, India has been digging its heels in on this issue. “India has set out to weaken the information sharing provisions in its agreements with Canada, the United States, and soon Australia,” Hibbs writes. “All three supplier states support India’s bid for membership in the Nuclear Suppliers Group (NSG), but India’s behavior here hardly supports New Delhi’s contention that it is like-minded.”

The U.S. has had a rocky relationship with India on a variety of large energy projects over the years. In the mid-1990s, a consortium of Enron, GE, Bechtel and the Maharashtra Power Development Corp. built a large gas-fired power plant in the state of Maharashtra, with guarantees of fair business practices from the government of India. But the guidelines didn’t cover the state, which abrogated negotiated prices for the power from the Dabhol. Construction stopped in 2001 (and Enron soon went into a spectacular bankruptcy). The plant sat idle for five years, eventually ending up in the hands of state-owned operator.

Consider Dabhol a cautionary tale.