Repeating Enron in Jaitapur- Miscalculations of the cost of energy from Jaitapur will cost #India


English: Internationally recognized symbol. De...

 

Suvrat Raju, Hindu 

 

The tariff of Rs. 4 per unit of electricity is unrealistic unless the government subsidises the cost of the first two Areva reactors by Rs. 22,000 crore

More than a decade after Enron’s collapse, its legacy continues to haunt Maharashtra. In 2006, the Dabhol power project was restructured into the Ratnagiri power project with public subsidies that, by some estimates, amounted to Rs. 10,000 crore. The project has led a troubled existence and in March this year it announced that it may have to stop servicing its outstanding debt of Rs. 9,000 crore because of a problem with its fuel supply. In spite of this reminder of the continuing long-term costs of sweetheart deals to attract foreign investment in the power sector, a team from the Indian atomic energy establishment left for France last week to repeat the same mistakes.

Problem with design

The French company Areva, just like Enron, has been promised a contract for six European Pressurized Reactors (EPRs) by executive fiat, bypassing a competitive bidding process. The reactors will be set up in Jaitapur, which is also in Ratnagiri. No one knows the exact extent of this give-way, because no EPR has been commissioned anywhere in the world. Areva started construction on its first EPR in Finland in 2005, with a promise to complete the reactor by 2009, at a price of just over €3 billion. After eight years, the reactor is still incomplete but cost estimates have ballooned to €8.5 billion —almost thrice the original figure. Areva has various excuses, but similar delays and cost increases in the second EPR under construction in its own country point to a more fundamental problem with the EPR design.

There is little public data about the EPRs being built in China, but these prices are consistent with those proposed for EPRs in Britain and indicate that each Indian reactor may cost as much as Rs. 60,000 crore. So, the price of the two reactors that the government hopes to commence in the Twelfth Plan period will equal the total plan outlay on science and technology including the departments of Space, Science and Technology, Biotechnology, and research labs throughout the country.

What does this imply for consumers? In 2010, the then CEO of Areva, Anne Lauvergeon, told this newspaper that the tariff would be “below the Rs. 4 figure.” More recently, Areva suggested that this “tariff holds true,” except for small escalations because of the delay in operationalising the project.

Both Areva and the Nuclear Power Corporation of India (NPCIL) have doggedly refused to explain the origins of this number. In the same 2010 interview, Lauvergeon said that “I am not going to give you the details … it is not for me to give the price if the customer does not want to give it.” The government has also refused to divulge information in meetings with local activists or even in response to parliamentary questions, where it has fallen back on the story that the final price is still under negotiation.

However, it is possible to independently estimate the cost of electricity using a study on the economics of imported reactors that the government produced in preparation for the India-U.S. nuclear deal. This was later updated and published by NPCIL.

When M.V. Ramana and I applied this framework to the Jaitapur reactors, in a paper for theEconomic and Political Weekly, we concluded that the true cost of electricity is likely to be almost four times as high as what the government claims. The figure of Rs. 4 per unit comes from a combination of unrealistic assumptions and a revenue model that provides massive public subsidies to the project.

The single most important factor in determining the tariff is the capital cost of the reactor. The government claims that the Indian EPRs will be cheaper because construction forms “about 40 per cent of the total cost.” Estimates suggest that construction costs in India are about 60 per cent lower than Europe. So, under best case conditions, the government could hope for about a 25 per cent reduction in the total cost.

However, the capital cost assumed in the government’s study is not 25 per cent lower, but literally 25 per cent of the figure for European reactors! It is this assumption of an unrealistic capital cost that underpins the Rs. 4 figure.

The study also reveals how the government plans to set out an exceedingly generous revenue model for the project. For example, it assumes that the project will have access to long-term debt at an interest rate of only 6 per cent. This is inconsistent with the serious concerns about the project’s viability. Moreover, since the yield on 10-year Indian Government bonds has been consistently higher than 7 per cent, even the full backing of the government will not bring the rate down to this level in the open market. So, the government will have to arm-twist public sector banks or itself provide a long-term loan to the project at this throwaway rate.

Another subsidy is built into the government’s plan to inject equity during the first few years of construction. In the government’s revenue model, this money will sit idle for more than a decade until the reactor becomes operational. Assuming, optimistically, that the EPRs are constructed as fast as the Kudankulam reactors, this delay will bring the government’s return on equity down from the advertised rate of 14 per cent to an effective rate of only 7.7 per cent. Further delays, which are likely, will reduce this further.

When these parameters are corrected, and combined with a realistic estimate of the cost of fuel, the government’s own methodology leads to a first year tariff of Rs.15 per unit, even without including transmission and distribution costs. Obviously, this cannot be passed on to consumers, and so the state will have to subsidise the electricity. To bring the tariff down to Rs. 4 will require a subsidy of Rs. 22,000 crore each year for the first two reactors. This “Areva-subsidy” is a quarter of India’s entire food subsidy bill.

There are other serious questions about the project. For example, Areva’s reluctance to accept even a small amount of liability is in sharp contrast to its unscientific claims that it has precisely computed the probability of a serious accident in an EPR, and found it to be once in 1.6 million years.

But the economics of this project are so appalling that it is possible to separate these issues and even the broader question of the role of nuclear energy in India. Even the nuclear establishment accepts, as WikiLeaks revealed, that the “NPCIL [has] paid a ‘high’ price”. The justification for the project cannot be Maharashtra’s electricity shortage either since at this price it is possible to find several alternative solutions to that problem.

Jairam Ramesh admitted that for the government, the “venture is significant not just from an energy generation but also from a strategic point of view.” Anil Kakodkar, former chairperson of the Indian Atomic Energy Commission, explained that India had to “nurture” French “business interests” because France helped India when it wanted access to international nuclear markets.

Back-room deal

This is an admission of an unsavoury back-room deal. However, a moment’s reflection also brings out the circularity of this argument. France supported India’s efforts because it wanted to sell reactors to India. Why should the country return this self-centred help by paying through its nose?

There is a simple but significant political aspect to this entire issue. It is clear that this deal and the concomitant negotiations to purchase reactors from American companies are being driven by pressure from the Prime Minister’s Office. The reason that negotiations with Areva have taken on an urgent note is because the government’s prospects in the next elections are uncertain. If the next dispensation does not have the same ideological commitment to imported nuclear reactors, these deals may flounder.

Our system concentrates enormous financial powers in the hands of the executive. However, just because the government has the power does not mean that it has the right to rush into a deal that could bleed the country for years to come.

— SUVRAT RAJU

http://www.thehindu.com/opinion/lead/repeating-enron-in-jaitapur/article4834435.ece

 

 

 

Jaitapur nuclear power plant :A very expensive proposition


 

A very expensive proposition
MV Ramana and Suvrat Raju
February 12, 2013, HT
During his visit to India this week, French President Francois Hollande is likely to urge the government to conclude a questionable deal to purchase six nuclear European Pressurised Reactors (EPRs) from the French company Areva for Jaitapur (Maharashtra). Though marketed as “the most advanced”

reactor, the EPR is commercially immature; not a single reactor has been commissioned anywhere in the world. Moreover at the construction sites at Olkiluoto (Finland) and Flamanville (France) costs and time have escalated dramatically from the initial projected figures, suggesting that each reactor will cost about Rs. 60,000 crore. So six could cost in excess of Rs. 3.5 lakh crore.To put this figure in perspective, each of the two reactors that Areva is hoping to sell in the next five years is larger than Maharashtra’s annual plan for 2012 (Rs 45,000 crore). Shockingly, the government agreed to purchase the reactors from Areva without a nominal competitive bidding process. The procurement rules in any branch of the government, including the Department of Atomic Energy (DAE), mandate public tenders for any purchase aboveRs. 10 lakh.

Cables revealed by Wikileaks suggest that this peremptory decision was made in 2007. The government’s rationale was laid out by former DAE secretary Anil Kakodkar. In an article in 2011, Kakodkar wrote: “We also have to keep in mind the commercial interests of foreign countries and of the companies there… America, Russia and France were the countries we made mediators in these efforts to lift sanctions, and hence, for the nurturing of their business interests, we made deals with them for nuclear projects.” Indian officials are aware that this attitude is costly. In another cable, the general manager of the Nuclear Power Corporation (NPCIL) admitted that India had “paid a ‘high’ price for French reactors from Areva”.

Unsurprisingly, the government has been reticent about discussing the modalities of the contract it is negotiating with Areva. It has failed to support its assertions that “the cost per unit of electricity from the Jaitapur plant will be competitive to the other power plants” with any substantive data on costs. When asked, it demurred, even in Parliament, with the excuse that “the detailed project proposals … are under finalisation.”

To check the veracity of the government’s claims, we recently used the best available public data on fuel prices and capital costs, assumed a substantial markdown to account for lower costs of labour in India and estimated the expected tariff from the EPR reactors. This calculation involves some rather detailed accounting, but the basic procedure for setting the electricity tariff from nuclear plants was laid out by NPCIL in 2008.

By adapting this procedure to the EPR  –  and using the most recent guidelines of the Central Electricity Regulatory Commission  – we estimated that if NPCIL were to follow the regulations faithfully, the first-year tariff from the EPR would be about R14 per unit. This assumes that reactor construction starts next year and is completed on the same pattern as the Kudankulam I and II reactors, which, given the untested nature of the EPRs, is generous. The calculated tariff is a far cry from current or expected future tariffs from other base-load power projects.

Since it cannot pass on such a high tariff on to consumers, the government may absorb the loss and sell electricity at a lower price. However, every rupee of under-recovery will cost the exchequer about Rs. 1,000 crore per year. Just to halve the tariff from the first two reactors down to Rs. 7, the government may need to spend Rs. 14,000 crore per year.

This is in addition to indirect subsidies in the existing revenue model. For example, NPCIL plans to put in its equity early, and then let it lie idle with no return for the period of construction that may easily extend beyond a decade. The government may increase these handouts in various ways – for example, by putting pressure on public sector banks to provide cheap credit for the project. The issue here is not Maharashtra’s need for electricity. Rather it is why the government has chosen this particular company, and its overpriced technology, to meet this need.
MV Ramana and Suvrat Raju are physicists associated with the Coalition for Nuclear Disarmament and Peace. Ramana is the author of The power of promise: Examining nuclear energy in India
The views expressed by the authors are personal

 

Cost of Jaitapur reactors could triple to nearly Rs. 35,500 crore


 

VAIJU NARAVANE, The Hindu, Dec 6,2012

 

English: Internationally recognized symbol. De...

English: Internationally recognized symbol. Deutsch: Gefahrensymbol für Radioaktivität. Image:Radioactive.svg (Photo credit: Wikipedia)

 

EDF, the French electricity giant that has built and operated the country’s 58 nuclear reactors, has announced that the bill for the 1,650-MW, third-generation pressurised reactor known as EPR has now gone up to AFP €8.5 billion. At its inception, the reactor, designed by Areva of France, was expected to cost €3.3 billion.

This is bad news for India which is slated to buy six EPR reactors for a site in Jaitapur, Maharashtra. Initially expected to cost some €20 billion, the six EPRs India intends to buy will now be in the region of €50 billion — nearly Rs. 35,500 crore.

Delays and cost over-runs have marked the construction of the EPR in Flamanville, Manche, France. In the aftermath of the Fukushima disaster, the French Nuclear Safety Authority (ASN) carried out an audit of the country’s nuclear installations and asked for several reinforcements and design changes. All these added to the price.

However, work on the reactor had been badly delayed and it is now expected to go on stream in 2016. Industry insiders predict that date will not be respected and there will be further cost overruns.

“The development of the boiler design, additional engineering studies, the integration of new regulatory requirements and everything learnt from Fukushima have also been taken into account,” EDF said in a statement.

There is not a single EPR that is working today. The reactor built in Olkilouto, Finland, by Siemens and Areva is also running four years behind schedule and has yet to begin operating. The reactor may start operating next year.

EDF has been rapped on the knuckles several times by the nuclear watchdog ASN for cutting corners, using shoddy materials, and employing workers who do not know their job. The Flamanville plant is the first reactor being built in France in nearly 20 years.

 

 

Jaitapur- No Thank You!


Anny Poursinoff intervened today in the Assembly to oppose the agreement between France and India on civilian nuclear energy and show support to the people of Jaitapur who refuse implantation by two Areva EPR on a seismic zone to 400 miles from Bombay. This text was to pass without discussion, but at the request of environmentalists, the opposition was able to get a debate. The text of the speech is below.

Mr. Speaker,
Sir,
Mr. Rapporteur,
Colleagues,

I thank my colleagues in the opposition who, at our request, have made ​​this debate possible.
Indeed, nothing comes to nuclear is trivial. The Court of Auditors has just recently conceded to environmentalists on the hidden costs of this industry.
We are now proposing to facilitate intellectual exchange on civil nuclear energy between France and India.
In fact, we fear that the agreement is linked to the establishment by Areva EPR nuclear power plant at Jaitapur in a reservoir of biodiversity and an earthquake zone, 400 kilometers from Bombay, the Indian economic metropolis.
A few days after the anniversary of Fukushima, According to the report of the Nuclear Safety Authority showing that plants have nothing infallible, our Indian friends themselves have doubts: they asked Areva to strengthen the security of computer systems.
Indeed, in a country ranked fourth terrorist targets, the risk of attack adds to the risk of accidents.
However EPR is particularly dangerous. It produced plutonium and MOX use, whose radioactivity is multiplied by 5 to 7 times compared to uranium fuel.
Through this agreement, we are asked to take your risk of a new Fukushima and a new Hiroshima.
No, I’m not exaggerating.
You know, India, like Pakistan have developed nuclear weapons. These two rivals have not signed the Nuclear Nonproliferation Treaty.
You also know, France is selling weapons to both countries – let us remember the case of Karachi or the recent sale of more than one hundred combat aircraft to India.
Yet the agreement on intellectual property could open the door to the transfer of technology could be used for military purposes, whether reprocessing plants and enrichment uranium or plutonium production.
The Nuclear Suppliers Group, last June, has yet banned the export of sensitive equipment to countries that have not signed the nonproliferation treaty.
We therefore request to take the risk of putting us in breach of international laws.
The French government is desperate to sell plants!
I say here solemnly: I hope that negotiations with India on nuclear power will fail.
Democracy required: the local population is opposed to the positioning of plants Areva.A protester has already paid with his life!
The reason the scientific and economic imposes too.
Five years late for the EPR in Finland! Four years late in Flamanville! An addition that never ceases to grow!
Why offer our Indian friends in such a poisoned chalice?
Our cooperation should deploy around peaceful activities such as the fight against global warming, and not focus on energy death, arms sales and the sale of nuclear!
“We must safeguard the jobs of Areva! “Will protest my fellow pro-nuclear.
But technology transfer, which India does not recognize patents, does nothing to protect employees of French nuclear. The Indians have excellent scientists and excellent engineers!
As for the excuse of economic development, it does not. Local people do not have the jobs generated by the nuclear studies in Tamil Nadu have shown.
Residents of Jaitapur do not allow themselves to take: they refuse to be expropriated, they do not want these plants.
We either!
I’ll try to say in Hindi: dji Jaitapur nahi!
Jaitapur no thank you!
The French government demonstrated a bad faith criminal. On the one hand it ensures that there is no risk with nuclear power, on the other he pressures his Indian counterparts to change their legislation.
India provides that the manufacturer of a central is responsible for disaster.
After Bhopal, we understand the caution of the Indian government vis-à-vis Western industrial partners unscrupulous.
Gold the President of the French Republic himself has asked Prime Minister of India to relax the law . Why? Because Areva does not want to be liable for a nuclear accident at Jaitapur?
Neither do we, we do not bear this responsibility.
But the best way to avoid another Fukushima is to forego building these plants, which are located, I repeat, on a seismic zone … as Fessenheim!
French Environmentalists expressed their solidarity with the opposition of Indian civil society.
I call you, dear colleagues, to do the same, and vote against it.
In France as in India, future generations must be protected from disasters and nuclear waste.

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