On 11th December, 2014 India agreed to buy 12 nuclear reactors from Russia for $40 billion. India is also about to buy 6 reactors from the USA for $50 billion. The reactors referred to above are both 1 GW reactors.
So, each Russian 1 GW reactor costs about $3 billion. Each American 1 GW reactor costs about $8 billion.
In comparison, Indian nuclear reactors cost between $360 million and $500 million each.
So, the cost for adding 1 GW of capacity is about $1.5 billion if you use Indian reactor technology.
It is between $3 billion and $7 billion if you buy reactors from Russia or from the USA.
If Indian reactors are of comparable price or cheaper, why then is India paying so much money to import reactors?
Are Indian Suppliers Unable to Build Reactors Fast Enough?
One possible answer is that the reactors (built by the Indian government’s nuclear agencies) are not being built fast enough.
However, it appears the Indian nuclear agency can build 540 MW reactors very fast indeed. The one at Tarapur was apparently completed in 4 years and 10 months.
In comparison, the AP1000 reactors that Westinghouse designs seem to take up to 10 years to build.
Are Indian Reactors Unsafe?
Another possible reason for buying reactors from large external vendors could be that Indian reactors are not as safe as those from other suppliers.
However, the IAEA inspected the 220 MW reactors built in India (those costing $360 million each) and concluded that they were among the safest in the world and could withstand the type of natural disaster that caused the accident at Fukushima.
If Indian reactors are cheaper, faster to build, and safer, then why exactly did India agree to purchase nuclear reactors from outside India at such a huge markup?
One possibility is that market forces are not the only factor driving the reactor purchases:
Possible Political Compulsions
Obama’s presidential campaign was possibly funded in part by energy firms. So, it is possible that he is looking to help campaign donors.
But why would the Prime Minister of India play along?
It is possible that the same economic forces that come to bear on President Obama also play a part in Indian elections. In the Indian election campaigns last year, the winning team spent twice what President Obama’s campaign spent and 75% of the money in the political parties’ war chests came from unknown sources.
So, there is a need for greater transparency and due diligence.
There is one more puzzling fact to consider.
Competitive bidding has not been used in the matter of nuclear reactor purchases.
The nuclear reactors have all been purchased in a manner reminiscent of the coal allocation scam – without any competitive bidding whatsoever.
So, who loses?
The Indian and American Taxpayers
I am going to go out on a limb and say that both Indian and American taxpayers stand to lose out in case this deal between the US and Indian governments has a corrupt angle to it.
How Indian Taxpayers Will Lose Out
Indian taxpayers will lose out because they will be paying approximately $100 billion for the 40 reactors that will be constructed. $100 billion is about the size of the last bailout package for Greece. It’s a large sum of money that the Indian government cannot afford.
An article on the Modi government’s purchase of 6 submarines last year for $12 billion hits the nail right on the head:
“According to the World Bank, India has the world’s largest share of people living on $1.25 a day or less. Currently, 400 million Indians live in extreme poverty, and that number will not decrease without prudent policy-making. Reducing poverty requires a degree of social spending and government intervention, and a government willing to spend billions on naval ships before addressing extreme poverty is telling of the government’s priorities.”
How American Taxpayers Might Lose Out
Trickle-down economics will have you believe that anything done to help large firms like GE and Westinghouse will also help the poorer sections of society in the USA.
But, if it is reasonable to suppose that wealth trickles down, it is also, I would argue, reasonable to suppose that poverty trickles up.
I am going to outline in the following paragraph one mechanism by which poverty might trickle up.
Can Poverty Trickle Up?
$100 billion is about half the size of the Indian central government’s income (tax revenue is about $180 billion annually).
If earnings in India drop because of decreased welfare spending, or a depreciating rupee, or lower salaries, more jobs could move to India and hurt American job seekers.
So, there is a way in which poverty can trickle across geopolitical boundaries.