Sunday, October 26, 2008

India's global shopping trip

The global financial crisis means uranium can be had at a deep discount

Shyam Saran (source BBC)India faces a wide open market for nuclear fuel according to Shyam Saran (right), a special envoy for the prime minister for the nuclear deal cleared last month by the NSG and the U.S. Congress. With its ticket punched based on political commitments, Saran told Bloomberg wire service,

"This creates a favorable condition for India to embark on a truly ambitious nuclear energy program getting the best terms and conditions. We should soon see something of a buyer's market in nuclear power plants and uranium as a consequence of the slowdown of major economies."

Saran said the current global financial crisis is a "blessing in disguise" for India because prices are at record lows. While he didn't come right out and say uranium was available at flea market pricing, other sources easily confirmed these pricing conditions.

flea marketBloomberg reported that JPMorgan Chase & Co. this month cut its long-term price forecast to $65/lb through 2010 citing slower nuclear energy development due to the worldwide credit freeze.

Ux Consulting reported that as of Oct 20 the spot price for uranium was $44/lb. In November of 2007 it was $95/lb. The good news for India's bargain hunting won't last forever. Saran noted, "the window of opportunity will probably close once this crisis is over."

India's big shopping list faces banking challenges

India now says it plans to add 40,000 MW of civilian nuclear energy capacity in the next 12 years. It set the expected spending at $41 billion buying reactors from Areva, Westinghouse, and General Electric. To pay for these purchases, India plans to let a "global bond" raising money from institutional investors.

Banker not making loans todayThat could be a tough sell. Banks are not helping the situation despite huge infusions of new capital. The New York Times reports that major banks, instead of using the money for new lending, are gobbling up other banks in pursuit of eliminating the competition through industry consolidation.

According to the NYT, an executive at JPMorgan Chase told a conference call Oct 24th that it would use $25 billion to buy up other banks. Nothing was said about making new loans with the equity infusion from the U.S. Treasury.

The NYT reported that other banks also have no intentions of turning on the flow of new loans in the near term. Whether these same banks would make loans to India for nuclear reactors by themselves, or in partnership with banks in Europe and Asia, is a key question.

Regulatory and legal hurdles

India also faces challenges to privatize its nuclear industry. Abhishek Singvi told a meeting of the Congress party India must change its domestic laws permitting private firms to build and operate nuclear power plants. Indemnification as an issue for purchase of electricity and for liability in case of accidents are two topics high on the list of companies that want to do business in India.

Carlos_GutierrezU.S Commerce Secretary Carlos Gutierrez (right) told a U.S. India trade group last week that while US companies were eager to contribute to India’s developing nuclear power sector, they required nuclear liability protection in order to do business.

“India must draft and ratify a domestic law” consistent with the international Convention of Supplementary Compensation for Nuclear Damage,” he added.

India last month wrote a letter of intent to sign up to the convention, which US businesses want in order to reduce their liability in the event of a catastrophe.

South Africa and Brazil line up to book sales

Meanwhile, the Indian government's buyer for uranium, Nuclear Power Corp. of India told Bloomberg it plans to purchase 2,000 metric tons of uranium before the end of 2008. Saran told Bloomberg India will seek uranium contracts with Kazakhstan, Niger, and other nations including South Africa and Brazil.

The Economic Times of India reports that South Africa has committed to sell uranium to India now that the NSG has cleared the way for such transactions. South African President Kgalema Motlanthe and Brazilian President Luiz da Silva met with Indian Prime Minister Manmohan Singh last week to discuss uranium deals. Asked if South Africa will sell uranium to India, Motlanthe responded, "we will do so without any difficulty."

Brazil is ramping up its own nuclear energy program to build a third nuclear plant and has said it is developing a project for uranium enrichment for its own nuclear plants and for export of nuclear fuel.

However, Brazil reportedly did not make a public commitment to sell uranium to India, but did endorse joint nuclear projects between the two countries. Brazil's prime minister also reportedly reminded Singh that it had signed the nuclear nonproliferation treaty and expected countries it does business with to abide by its terms.

Japan not as ready as many

Tao AsoSiddharth Varadarajan reports in The Hindu that Japan is not ready to join other nations selling uranium and nuclear technologies to India. Japan's Prime Minister Tara Aso (right) got to the point in a press conference held in Tokyo on Oct 23 following a meeting with India Prime Minister Singh.

Aso said Japan is more interested in seeing that India sticks to is pledges not conducts tests of nuclear weapons. He said, "we are not engaged in discussions regarding nuclear energy with India." That's diplomatic talk for a blunt message of "no sale" and he probably made the statement for several reasons.

First, India is now a competitor with Japan worldwide for uranium even though Japanese firms like Toshiba and Mitsubishi want to sell reactors there.

Second, Japan always looks toward China when it makes foreign policy statements, and is well aware of that country's concerns about India's new nuclear energy drive. China and Japan are both racing to convert their energy supply grids from fossil to nuclear energy.

Third, Japan is clearly nervous about India's claims, mostly for domestic political consumption, that it reserves the right to conduct nuclear weapons testing.

Adopting a wait-and-see approach keeps Japan's options open, but also keeps India at arm's length at least for now.

U.S. trade mission in December

There were no such qualms, at least expressed in public, in the U.S. The U.S. State Department said Oct 15 it will send a mission to India in December which will include the leading suppliers of nuclear reactors, components, services, and uranium. The U.S.-India Business Council will organize the trade mission which reportedly will include representatives from 280 U.S. firms.

Council President Ron Somers projected $150 billion worth of business between US and Indian companies over the next 30 years following the deal. It offers India access to US technology and cheap atomic energy in return for allowing UN inspections its civilian nuclear facilities.

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