Nuclear family: nuclear operations on the rise

10 June 2015

Nuclear technology and plant-building cooperation agreements between BRICS nations are on the rise, but what’s driving this? Oliver Hotham speaks to Sharon Squassoni, director and senior fellow of the Proliferation Prevention Program at the Center for Strategic and International Studies, about the implications of a recent deal between India and Russia, other agreements like it, and what they can tell us about the state of the market and the geopolitics of energy.

Last December, it seemed like nobody wanted to touch Vladimir Putin with an inanimate carbon rod. The war in Ukraine, blamed by the West on "Russian aggression", was claiming hundreds of civilian lives, EU financial sanctions on high-ranking allies of the Kremlin were beginning to bite and, as global oil prices fell, the value of the rouble was in freefall. You would be forgiven for thinking that no sensible world leader would even talk to the Russian president, let alone do business with him.

However, on the other side of the world, far from the crisis in Kiev and the West's opinion bubble, it was business as usual. On 12 December, Putin and the Indian prime minister, Narendra Modi, emerged from talks in India's capital with a renewed commitment between the two countries to cooperate in the building of "no fewer than 12" nuclear reactors.

"We have just signed a document of great significance - the strategic vision for strengthening Indian-Russian cooperation in the peaceful use of nuclear power," Putin told the press in Delhi.

The deal contained plans to build more than 20 nuclear power units in India, as well as to cooperate in building Russian-designed nuclear power stations in third-party countries, joint extraction of natural uranium, production of nuclear fuel and waste elimination. The agreement was largely a reiteration of a 2010 commitment by the two countries, as many in the trade press were quick to point out, with one analyst describing it as "merely old wine in a new bottle".

There is some truth to this. India is already using Russian technology in its nuclear portfolio: a Russian-built 1,000MW reactor in Tamil Nadu has run since 2013 and a second is set to come online later this year.

"Our view remains that it's not time for business as usual with Russia," US State Department spokesperson Jen Psaki told press at a briefing a day after the deal was made, making clear that in what appeared increasingly to be a return to an old East-West geopolitical game, the US did not welcome the news of the agreement.

The only game in town

It was the timing that made the deal significant, and the 2014 Strategic Vision for Strengthening Atomic Energy Cooperation goes to show the extent to which BRICS are choosing to go it alone when it comes to developing nuclear power, often opting for deals with each other rather than reaching out to the US or the European Union.

Much of the time, the motivation for these deals comes down to simple issues of supply and demand, says Sharon Squassoni, who watches developments in proliferation and the politics of nuclear energy at the Centre for Strategic and International Studies (CSIS) think tank in Washington DC. She argues that BRICS partners are filling a need that is not being met by Western nuclear companies, and providing a degree of financial flexibility not offered by their European or US counterparts.

"I would step back from the Russia-India deal and look at the entire nuclear industry and the trends," she says. "Russia is really the only one out there selling reactors."

"What they have been successfully doing is providing packages that countries find attractive, either because it's got a lot of financing or because they're taking back spent fuel. India already has this relationship with Russia in the nuclear area, and they've had it for a long time."

Last year saw a tranche of similar agreements. In September, during the 58th session of the International Atomic Energy Agency General Conference in Vienna, state-owned Russian nuclear company Rosatom and representatives of the South African Government signed a partnership deal for the construction of a large nuclear power plant.

Along with the agreement to build the plant, they also agreed to a broader range of cooperation, including the building of a Russian multipurpose research reactor and Russian assistance in developing South Africa's wider nuclear infrastructure.

The deal was controversial in South Africa: officials from Rosatom wanted rights to the entirety of the country's nuclear industry, and there were fears at the treasury about the affordability of the project and the long-term safety of the equipment being sold.

"We have enormous potential for developing cooperation in the energy sector, first and foremost in nuclear energy," Putin said amid wild speculation in the South African press ahead of the official agreement.

"I would step back from the Russia-India deal and look at the entire nuclear industry and the trends. Russia is really the only one out there selling reactors." 

"Russia is offering its help to South Africa not just in building individual units but in developing the country's nuclear industry as a whole - from resource production, and building a nuclear power plant and research reactors, to designing and manufacturing its own nuclear power equipment."

"They will step in where there's demand," believes Squassoni. "If other vendors are not going to meet the demand, then there's a vacuum and Russia will step in, and China might step in also."

Political power play

It's certainly not limited to Russian agreements. A month after the deal with Rosatom, South Africa signed a cooperation deal with China, an increasingly influential power in the nuclear energy game, with the South African Ministry of Energy announcing that the two countries were initiating the preparatory phase for the possible use of Chinese nuclear technology in South Africa.

"The government has reaffirmed its commitment to expand nuclear power generation by an additional 9.6GWe, in line with the Integrated Resource Plan 2010-30," the announcement by the South African Government read, "as a means of ensuring energy security and contributing to economic growth."

There's politics involved, of course. Because the BRICS nations often have state-owned power industries, they can use them to fulfil strategic and geopolitical objectives that do not always necessarily run in tandem with economic and trade interests, and some of the deals might not even necessarily be profitable.

This gives the Russian or Chinese Governments leverage that a Western nuclear power company might not have - or want. Of course, Squassoni says, the politics will often override the economic significance of these deals.

"It's naive to assume these deals are motivated by free market and economic concerns - there's a lot that goes into them," she says. "The question is how much money will they make from these nuclear deals?

"Some say, this is strategic investment - some of these deals will not make any money. It depends how privatised these country's markets are. For many, the reason these become strategic deals is because governments are so involved with this."

Another motivation among BRICS to do business with each other, particular when involving India, is the implication of nuclear liability issues.

With a troubled history of industrial accidents going uncompensated, India has strict laws about where liability lies in the instance of a serious accident. These rules, while agreed by the US Government in 2008, are a little too strict for many US companies' tastes, as they tend to prefer a shorter statute of limitations on the time that must elapse between an incident and when they can be penalised.

"If an accident happened on a plant, the vendor could be held liable in terms of what parts were supplied and whether they were defective," says Squassoni. "Most other countries have signed agreements or have laws that put the liability on the operator."

Deep pockets

Where liability is concerned, then, it may be less a case of assertive Russian investment and more a case of Western companies being dissuaded by what they see as an unfair regulatory environment - and other investment therefore filling the void in its place. State-owned Russian companies might be more likely to have the assets, and the motives, to take the risks involved in tough liability laws, assets that a privatised company might not wish to expend.

"When you look at the Fukushima accident, TEPCO went bankrupt and then the government took over," says Squassoni. "For a utility or nuclear vendor, their pockets are just not deep enough to accept that kind of liability in the event of an accident."

Liability also comes into the Kremlin's deal with South Africa; a key part of the agreement was a controversial clause that indemnified Russian business of any responsibility in the event of an accident, holding South Africa entirely responsible for anything that occurs.

"I think this is a big step," says Squassoni. "It may be a decision that reflects the lack of any other good vendors out there, or the lack of offers that include a lot of the sweeteners, like financing, or maybe there's training involved, or loans."

With governments such as those of South Africa and India under pressure to cut pollution while maximising energy output - South Africa, for example, is plagued with power cuts in its big cities caused by undersupply - nuclear is an attractive way to go.

It is, however, also a rather expensive way to go, and deals with powerhouse countries such as Russia or China often include incentives that agreements with the US or European companies might not offer.

Squassoni believes that Russia is seizing the opportunity to enter markets it historically has not had access to and is part of a trend that transcends simple BRICS relationships, with countries such as Hungary, Iran and the UAE also involved.

For her, it is more about Russia and China offering an alternative investment models and partners for countries hoping to expand their energy sectors that might not, for political, strategic or even financial reasons, want to do business with Western companies.

"This is all relatively new," she explains. "For many years, the Russians basically sold reactors to their Eastern Bloc countries, their friends and allies in the Eastern Bloc, and the Western market was closed to them.

"That is now up for grabs, and the Russians are moving into it - it's the new demand market for nuclear energy."

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