Tags: India, Jason Simpkins

India’s Nuclear “Explosion” a Cash Generator for Global Energy Companies

By , Money Morning •

By Jason Simpkins
Managing Editor
Money Morning

After being locked out of global nuclear trade for more than three decades, India is looking to lock up some major energy deals. Large global energy companies are lining up in droves to make sure that happens.

India launched its first nuclear test in 1974, but the country refused to sign the global Treaty on the Non-Proliferation of Nuclear Weapons (NPT). As a result, the 45-member Nuclear Suppliers Group (NSG) banned India from global nuclear trade.

That ban was lifted last September when Washington pushed through a "waiver" that freed India from 34 years of sanctions.

Critics of the deal worry that by lifting the trade restrictions on India, the world's "responsible" nuclear powers are undermining the NPT and could potentially reignite an arms race with India's rival Pakistan. But the deal's supporters see the decision as an act of good faith towards India that will enhance global ties and help that nation meet its growing energy demand, perhaps through a more eco-friendly method than burning coal and oil.

As it now stands, about 69% of India's electricity is generated from coal, according to the World Coal Institute. Demand is projected to soar from 391 Megatonnes (a metric ton, also referred to as "Mt") in 2002 to 758 Mt in 2030 - a 94% jump.

In fact, only one country is expected to have greater demand for coal during that period - China.

Up to now, one problem has been that India only has 17 nuclear reactors, which produce just 2.5% of the country's electricity.

"India does not have much of energy option," V. Raghuraman, an energy advisor to the Confederation of Indian Industry, told the Voice of America. "We are short of hydrocarbons. We are short of coal. We are short of everything. We need an energy mix. We need to make the ground today to prepare for the future."

India would like to boost its nuclear energy capacity from by 60,000 megawatts (Mw) over the next 15 years, according to Raghuraman. That would more than double the contribution that nuclear power is making to India's electricity grid. For that to happen, however, India would need to add 40 new nuclear reactors at a cost of roughly $80 billion.

This nuclear "explosion" will generate billions of dollars of new business for the world's leading energy companies, as India scrambles to secure fuel, acquire equipment, upgrade its technology, and develop and train workers to build, operate and maintain the power plants.

"Today, since there has been a technology denial and fuel denial for the last more than three decades, India has developed an in-house program and there have been some capabilities, but surely these are not world class or also of the capacities which are required for future development," said Raghuraman. "Which would mean we really need to access technology. We would like to look at accessing technology from all around, because the kind of capacities which we need are phenomenal."

Global Powers Swarm India's $200 Billion "Mega-Opportunity"

Last month, an 18-member delegation from the United Kingdom, headed by Lord Peter Mandelson, the British secretary of state for business, enterprise and regulatory reform, arrived in Delhi with executives of companies such as Urenco Enrichment Co., Thompson Valves Ltd., and the Weir Power unit of The Weir Group PLC.

That delegation was accompanied by an additional group from Canada, whose members included representatives from Atomic Energy of Canada Ltd., Cameco Corp. (CCJ), and SNC-Lavalin. Canadian Minister of International Trade Stockwell Day led the delegation.

"Canadian companies are well positioned to capitalize on opportunities and to work with their Indian counterparts to meet the needs of India's civilian nuclear market," Minister Day told Knowledge@Wharton, the University of Pennsylvania's business journal. "India is very enthusiastic about using Canadian technology and resources to help build [its] nuclear energy capacity."

India also entertained similar delegations from France, Japan, Russia, and even Kazakhstan.

All of these groups were eclipsed by the U.S. delegation, represented by 60 senior executives of 30 nuclear power companies.  The U.S. group spoke with a host of Indian companies, including Tata Power Co. Ltd., Larsen & Toubro Ltd. (PINK: LTOUF) and Punj Lloyd Ltd.

The representatives were originally scheduled to arrive in December, but their visit was delayed by the terrorist attacks in Mumbai.

"The robust presence here of the U.S. commercial nuclear industry, so soon after the unfortunate events in Mumbai, speaks of the commitment of our companies to partner with India in the coming nuclear renaissance," Ted Jones, director for policy advocacy at the U.S.-India Business Council (USIBC) told Wharton.

Exactly how much money is at stake for these delegations is unclear, but some analysts estimate that India's nuclear energy sector could be worth as much as $200 billion.

"It is premature to provide specific numbers as details of the work involved cannot be discussed with any of the foreign companies pending clearances from their respective governments," said Larsen & Toubro Senior Executive Vice President M.V. Kotwal.  "An approximate assessment of the business potential available for Indian industry could be on the order of $1.5 billion to $2 billion a year after a couple of years."

Even more optimistic is an L&T white paper, which takes a broader view.

"The Indo-U.S. nuclear deal will open two-way cooperation between India and the U.S. on key technologies in the areas of defense, nuclear energy, aerospace and aviation," says the paper. "This is a business mega-opportunity of more than $200 billion."

Who's Profiting From India's Nuclear Buildup?

Some energy companies are already landing big deals in India.

One of the first was Westinghouse Electric Co. LLC, which announced joint venture with Larsen & Toubro to build nuclear reactors at the conclusion of the United States' five-day trade mission to Mumbai in January.

France's Areva SA followed, agreeing to supply the Nuclear Power Corporation of India Ltd. with six reactors just two days after India said it would allow the International Atomic Energy Agency (IAEA) to inspect 14 of its reactors. NPCIL Chairman and Managing Director S.K. Jain said the deal was worth $12.3 billion.

Still more nuclear power contracts are expected in coming months.

Canada's Cameco Corp. might be one of the companies to ink a deal. The Saskatoon-based Cameco is the world's largest uranium miner, making it vital to the global supply.

India will require about 1,600 metric tons of uranium per year to achieve the energy output it desires

The cash-rich Cameco reported an 86% increase in revenue for the fourth quarter of 2008, and Chief Executive Officer Gerald W. Grandey remains optimistic that his company will continue to weather the global financial crisis.

"Our customers are well-established electrical utilities, many government-owned or with regulated rate structures. In tough times, they run their low-cost nuclear plants at full capacity, assuring demand for our products," Grandey said in a conference call last Tuesday. "Our strategy of seeking price protection in our contracting has reduced the sensitivity of our revenue to softening spot prices and we are seeing the benefit now,"

Uranium use will increase 3% annually over the next 10 years, as new reactors are built around the world, Grandey said. A short-term loan taken last June to help finance investments in new assets has been extended on good terms, and Cameco has also received new credit of $100 million.

Among those scheduled to meet with Indian interests, was Australian Prime Minister Kevin Rudd. However, Rudd decided to postpone his visit when Indian Prime Minister Manmohan Singh became ill and underwent heart surgery.

When the two leaders do eventually catch up with one another, they'll have plenty to talk about with respect to India's nuclear buildup. Australia is the world's second-largest uranium producer, trailing only Canada.  Australia exports about 10,000 metric tons of uranium a year - representing a $900 million injection into the domestic economy.

Because India hasn't signed the NPT, Australia has so far been coy about selling uranium to that country. But since the Nuclear Suppliers Group waiver, India has signed intergovernmental civil nuclear cooperation agreements with France, Russia, the United States and Kazakhstan. If Australia does change its position, BHP Billiton Ltd. (ADR: BHP) will be a big beneficiary.

BHP is the second-largest commodities company in the world, mining steel, aluminum, copper, iron, nickel, titanium, diamonds and gold. It is also proprietor of the world's largest uranium deposit, the Olympic Dam.

In addition to suppliers, India will need partners to build and operate its new energy grid.

Fenil Maru, an equity advisor at ICICI Bank Ltd (ADR: ICICI), told Knowledge@Wharton that India's Bharat Heavy Engineering is "looking for a tie-up and has been in talks with Alstom SA, GE Energy, Russia's Leningrad Metal Factory and Siemens AG (ADR: SI)."

Vendors such as GE Hitachi Nuclear Energy Inc., Toshiba Westinghouse, and Areva also could be enlisted to provide light water reactors, which will be necessary in nuclear parks with six to eight reactors at in a single location. 

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