Transcript of Breakfast meeting hosted by The Energy Daily with Dr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission of India.
April 19, 2006
Good morning ladies and gentlemen. I am Grant Stockdale, associate publisher at the King Publishing group. Welcome to this media breakfast, one in a very long series that started in the 1970s. We want to thank our co-sponsor VP America for helping make this very long series possible. Of course, this is on the record. We will have comments first and then we will go to Q&A. I’ll pick the questioners. We will go through a first round, and then we will go through a second round. We will start on time and we will end on time. Today is April 19th 2006. Last month President Bush signed an agreement with India concerning nuclear fuels. It’s controversial. It is a departure from the United States’s long held status/stance on Nuclear Non Proliferation. It is going to be an exception if this is passed as is required by Congress. So today’s media breakfast is very timely. Today we have with us our guest, Mr. Montek Singh Ahluwalia who is both the chair of the India United States energy dialogue and Deputy Chairman of the Planning Commission for the government of India.
So we are most grateful for having him here. We are going to talk about the energy dialogue which includes five areas. Coal is one, Gas is the second, Power and Energy efficiency, New Technologies and Renewable energy and finally Civil Nuclear, which of course has drawn some controversy here in the United States. We will begin by welcoming Dr. Ahluwalia. Thank you for being with us. What we will do is let you make some comments Dr. Ahluwalia and then we will go to a Q&A.
Dr. Montek Singh Ahluwalia: Well, thank you very much. It is a pleasure and privilege to be here and I am very happy to have this opportunity to interact with you. I know that you are all interested in Energy so I’ll keep my comments on the economic side very brief. Basically, the Indian economy has been going through a gradual acceleration in growth in the last two years. The present government is just about to complete its first two years in office. These two years have been very good from the point of growth, with an average growth rate of 7.7 or 7.8 percent. The objective in India is to go beyond that. I think that people sense that the economy is in a strong position. A lot of capabilities have been built up. We are currently working to a mandate handed down by the Prime Minister that we should go beyond 8% growth on a 5- year basis and try to get to 10%.
One possibility would be that we would aim to go above 8% in the beginning of the next 5 years and sort of reach 10% towards the end, kind of averaging somewhere around 9%, a little bit more, a little bit less over a 5 year period. Now that kind of growth involves many things: Economic reforms etc, I won’t go into that on this occasion. But it does involve meeting energy needs. We have done a lot of analysis on what the implication could be for energy. As with other countries, we have been experiencing a gradual improvement in energy efficiency, so the elasticity of total primary energy to GDP is significantly less than 1. On the other hand, India is also switching from non commercial to commercial energy. Non commercial being fuel, wood and traditional forms of fuel switching into commercial energy and as the economy becomes more organized and more modern, so the demand for commercial primary energy, the elasticity of that demand would be somewhat higher than the total, but nevertheless we expect that the growth rate for energy requirement for a growth of 8+ percent would probably be somewhere between 5 and 6 percent on average.
Having said that let me say that the basic structure of India’s energy supplies is that we are deficient clearly in oil. Obviously like everyone else we hope that exploration etc produces huge amounts of oil and gas, but at the moment, most people would feel that India is unlikely on its own territory, including the economic exploitation zone, unlikely to find huge amounts of oil, though there are very good prospects for gas. Nevertheless, we are looking at both these.
India has very substantial hydroelectric energy potential. It’s a bit difficult to harness it because there are very strong resistances from NGOs etc relating to the fact that we may have to submerge forests, it’s difficult to resettle people etc, but I think that we are working towards trying to do sensible resettlements so that we can use more hydro potential.
India is very amply endowed in coal and clearly coal will be a major source of new energy. The problem really is that we are now, like the rest of the world, becoming much more aware of the damaging consequences of carbon emissions, so while we have a lot of coal, and we will of course use it, combined with efforts to reduce emissions, we really need to find non polluting sources of energy, and that just leaves nuclear and non conventional.
We are making a big effort on the non conventional front, but the amount is really very, very small and even if we have a huge increase in the amount of non conventional energy, certainly in the next 10 to 15 years, the scope for getting much increase out of that is limited. Nuclear is a different matter in the sense that the technology is now well understood. At the moment we have something, a little over 3,000 megawatts of nuclear power in the country, 3,600, something like that and some being constructed. But our estimates are, if we can get the Civil Nuclear Agreement through, which would relax the restrictions on the supply of Uranium and also supply of technology, by the year 2030, we could increase the Nuclear capacity from something under 4,000 megawatts to something of the order of 63,000 megawatts. So we are talking about an extra, approximately 60,000 megawatts that could be put in place by the year 2032. This is obviously conditional on the nuclear agreement going through.
Now I should mention that India does not have huge supplies of Uranium domestically. On the other hand, India is very amply endowed with Thorium. So our longer term nuclear energy strategy is to really rely on Thorium as the basis for an expanded nuclear program and that of course requires technological constraints to be overcome. Assuming that they are overcome, and that will take a fair amount of time, this is not something that will happen in less than 30 years or so, then the amount of Thorium based capacity that could be put in place is in the few 100,000 megawatts range. So the problem really is in the transition between now and when the Thorium based activity can begin. There the principal constraint on us is the availability of domestic Uranium. Clearly if we have an agreement with the United States and the other energy partners, we would be able to bring in Uranium under safeguards and use it to produce electricity. In our view, that’s an important part of our energy management strategy.
We are doing a lot of work on coal. Work in the sense that we are outlining a program in the area of coal that would improve both the efficiency with which we extract coal and also put in place a program that would help improve the use of Indian coal. Indian coal is very low in Sulphur but is very high in ash content and I think that one of the problems is that, while there is a lot of work being done to improve the use of coal, there is not that much work being done to address the special technological problems posed by Indian coal. One of the things we are doing in our Indo - United States energy cooperation in the coal working group is to try and get more work done on the kind of coal that is available in India. This is a matter of interest not just to India but also to the United States, because if the concern really is to reduce carbon emissions and to increase efficiency, Indian coal is going to be a major source of energy for the growth of the Indian economy and the scale of that is very large. So there is a logic to persuading the United States in our India United States partnership arrangements, to devote some intellectual energy to the issue of how do we crack these technical problems related to Indian coal, and these discussions have just begun, and I am hoping that as this partnership strengthens, we will get some concrete outcome from that. I think that’s really the broad picture that I want to share with you, and I am sure that you will want to ask questions on one or other aspect. So let’s go straight to the Q&A session.
Question: The fastest growing economy in the world today is China. From what you have been saying, are you expecting to overtake China’s growth rate in the next 5 years?
Dr. Montek Singh Ahluwalia: We are not setting a target in terms of overtaking growth rates. I think China’s performance in the last 2 or 3 decades has really been remarkable and it has had a very good impact on India in terms of benchmarking our own performance. The bottom line is that China has been growing at over 9% for about 3 decades and I think that this has led to a very strong perception in India that we ought to look at our own policy and see how we can get rid of the constraints, on the assumption that being broadly similar economies, although China is much more advanced than India obviously, we should be able to achieve these kinds of growth rates. So what we are looking at is: What is the scope for acceleration in India? Now the argument about overtaking Chinese growth rates, if you look at some of the literature, its really based on the assumption that China is likely to slow down, having done a fantastic three decade run at 9.6%. So quite honestly, we are not actually targeting a 9.6% growth. We are targeting an average which should be above 8%. It is possible as most people say, that China having reached a certain stage, will now begin to slow down a little. If that slow down happens, then our growth rate may be higher than China’s, but China’s per capita income is much higher than India’s, so nowhere in our targeting are we sort of setting the objective either to overtake China’s growth rate or to overtake China’s per capita income or any of those kinds of things.
Question: The implications of your remarks vis-à-vis the Civilian Nuclear agreement and India’s shortage of Uranium seems to be that in the short term before India can start using up the huge reserves of Thorium is that it will help to sustain the growth rates and sort of meet India’s energy needs. But isn’t translating the Civilian Nuclear agreement going to take some time in so far as Nuclear reactors being conditioned on the deal going through, in terms of the nuclear reactors being set up etc, or does India have the capacity to enrich Uranium given to India by the United States under safeguards, to immediately get that going in terms of meeting some of the energy needs?
Dr. Montek Singh Ahluwalia: No. There are obviously time lags involved in the construction of nuclear plants. Our own experience in the past is that it takes several years, though the construction lags are coming down. Part of the reason why construction lags have been high in the past is that technology flows have been restricted, so clearly if technology flows are being made easier, then I would expect…Our objective should be to set up Nuclear Plants in the same time period that they are set up internationally. Even that I’m sure will be three to four years if not more. So that time lag you have to build into it. But I am talking about going from 2006 to 2032. I don’t think much can happen before 2010. That’s for sure. But in the period 2011 onwards, you move to a different world in terms of technology access to Uranium, you could plan for a very substantial step up in reactor capacity. Not in the next four years. We should use the Thorium reserves up as soon as we can, but that’s a matter of when the technology will be ready. I am not scientifically knowledgeable, but whenever I talk to people, they say, don’t assume that we are going to have anything in the 25 years we are talking about. That’s not the period in which we will successfully be able to use Thorium based reactors. I mean you might have a prototype or two, but not on any big scale.
Question: So far as the global economy is concerned, Energy is the number one concern for all the economies of the world including America and India, and there is a fear in the United States of America that the energy prices and the oil prices may shoot up to $100 a barrel. If that kind of thing happens, India is a big importer oil, and our import content is so much that everything, all planning, can be affected. Can you speak about the effect on the Indian economy if the energy prices go up?
Dr. Montek Singh Ahluwalia: First of all, let me say that it is not true that our import intensity is that high, but I have no doubt that if oil goes to $100 a barrel; the impact on India will not be that different to the impact on other countries. So at a $100 a barrel, there is no doubt that there will be a slowing down of the world economy. I still think that India’s economy will grow faster than the world economy, simply because we are much poorer and there is much unutilized scope and potential. But definitely, if the world economy slows down, then we will correspondingly suffer. To be honest with you, we are not actually planning on the assumption that oil prices will be $100 a barrel. You can have a short terms spike, but we think that somewhere between 60 and 70, the oil price remains at that level. We are venturing to suggest that the targets we have in mind of 8% plus can still be maintained. To do that will require major structural change in terms of adjusting to oil prices, and I should mention to you that we don’t directly use oil to produce electricity except in captive power plants. Our oil is essentially used mainly in transportation and price pass through in transportation should take place. Unlike other countries, the potential efficiency gain in India in all these areas is very large. I expect that what will happen if the oil prices rise, it will pressurize us to pass on the cost so it will hurt, but the economy will respond because there is much greater potential in terms of energy efficiency. But you know if you were to say: What is your growth capacity at $100 per barrel? I don’t have that calculation. The trouble is that you will have to redo the world growth potential also. Definitely the growth rate will slow down, but how much, I am not in a position to say.
Question: I’ve heard that India will run out of its own indigenous Uranium capacity within 12 to 18 months. Is that fair?
Dr. Montek Singh Ahluwalia: This must be in reference to existing levels of stock. We have in the mid term appraisal of the planning commission done an assessment, just a year ago. India can probably produce; take its nuclear generation capacity up to about 10,000 megawatts based on its existing Uranium resources. So if we don’t have access to world Uranium supplies, then our Uranium based nuclear plants would peak of at 10,000 megawatts, and that would actually involve a lot of mining in order to utilize these existing resources etc, so its subject to the ability to get all these mines operational and so on. Going beyond that requires one of two things. Either we sit around and wait until the Thorium based technology becomes effective in which case our capacity will flatten and then according to the scientists, once Thorium is usable you can have a couple of hundred thousand megawatts of it, once you have got it in production and so on. Alternatively, we have a more gradual transition, to go above that 10,000, we need to bring in Uranium and hence the importance of the civil Nuclear deal. Obviously this Uranium that comes in will be fully safe guarded. So from our point of view the issue really is…I mean the United States is already persuaded and we hope that the proposals made by the United States administration go through Congress, and that’s an important constraint and then thereafter that the NSG is also persuaded, it would essentially enable us to expand on the Nuclear generation capacity based on the imported Uranium.
Question: But how urgent is the need? That’s what I am trying to get at. There are reports that you have a new deal with Russia. A new fuel deal for Tarapore with Russia…
Dr. Montek Singh Ahluwalia: Yes. But that is replenishment of fuel for an existing plant. That is very small. I don’t think that that is a substitute in any way. That simply enables this plant to continue in operation, that’s all.
Question: Are you confident that the NSG is going to go along with that?
Dr. Montek Singh Ahluwalia: The United States is the lead player in this and we are making the assumption…I should qualify all of this by saying I am not the one who is actually negotiating this side of it, so you are hearing a somewhat informed view, but not an insider’s view. It is our expectation and hope, and we obviously don’t want to take NSG for granted, but it is our expectation and hope that if the United States Congress endorses this deal, then the rest will go through and there is some indication from the NSG that they are looking to the United States, so the perception in India is that what is currently being considered by the United States Congress will critically determine the outcome in this area.
Question: On the planned reactor construction, you said 60,000 megawatts by 2032. I am wondering if you can sort of break that down into how much you expect of that to be domestic construction and how much you estimate to be imported. A similar question, on a shorter time frame, by 2012 I have seen different figures saying 8 new reactors out of which 4 would be imported and some other figures saying that 8 would be imported, so could you clarify that shorter term figure as well please.
Dr. Montek Singh Ahluwalia: I am not sure that I will be able to give you all the figures on this. But let me say that for the longer term projections, the 60,000 that I talked about are not actually reactors that are planned in the sense that we know where they are located etc. These are the numbers that come out of the draft integrated energy policy document which is available on the website of the Planning Commission. This is a draft which is being discussed mainly the focus of the discussion is on energy price policy, so I think that these numbers are not likely to change. It is our assessment that this would be the logical thing to do given the existing: a) price prospects for oil, b) the difficulty in expanding supplies of hydroelectricity and the desire of wanting to limit as much as possible the use of carbon. So it is, if you like, a recommended supply pattern that we should all work towards. How much of that would be imported and how much domestic is not something we determine as a planning decision. In the past, because all of our capacity was deemed to be a mixture of civil and military, the nature of the arrangement was that it was all part of an area of the economy that was not normally subject to economic rationality and so on because it is part of what might be broadly called the strategic area. The essence of the new agreement is that if it goes through, then India has agreed to separate the civil from the military. The military will of course remain part of the normal non economic process, but the entire civilian expansion will become ruthlessly subject to the usual kinds of economic concerns.
At present, I think, atomic energy remains in the public sector, technically at present. The private sector has already come up and said look, in the old days, because everything was part military and part civil, it was public sector simply for the usual kind of security reasons. If we move into an actual separation which we hope will happen, then the civilian part of the nuclear has to be subjected to the same kind of economic considerations as any other part of the economy, and essentially who gets to invest becomes potentially open, and the Indian private sector has recommended that we open up Civil Nuclear to the private sector also.
I mean my personal view is that if that agreement goes through, that’s certainly an issue that we would have to consider. It also becomes possible to subject nuclear plants to an element of competition in the sense that if the thing has to be under safe guards anyway, and if party A is offering you power at X% and somebody else is offering it at less, we would be foolish not to consider the second. This opens up the possibility, first of all, of opening it up to the private sector and second, if it is opened up to the private sector, obviously technology and sourcing is determined by the private sector, not by us.
I think it raises the question that if it is opened up to the private sector then why shouldn’t it be opened up to foreign investment also and I think that that is something that would be quite legitimate and we would have to look at it at that time and we haven’t addressed that issue. We don’t have a declared policy at the moment of saying that this is what we would do, but they are issues that we would certainly have to consider. I think it is also the question that if it is opened up, then given the scarcity of public resources available, it is far more useful to us to use all our public resources to support the research area: the fast breeder reactors, the research on Thorium rather than just setting up plain nuclear plants based on Uranium. I think that this is an important factor to consider, and this is what the private sector would say. They are not going to invest in research on Thorium. We have categorically said that research on the fast breeder and all the research on Thorium use will in fact be maintained at whatever the capacity is to do it. All of which would suggest that with the expansion on conventional nuclear resources, we should be willing to use whatever resources we can get.
Question: On the shorter…how many by 2012?
Dr. Montek Singh Ahluwalia: I don’t actually have the details on that. I know that some of the plants which are being constructed were under the original agreement with Russia. All of them have an element of import and an element of domestic so when you say imported, it’s not as if the whole plant is imported. A lot of the stuff is produced domestically. There is domestic capacity to fabricate these things. My impression is that the amount of domestic fabrication is very high, so it is difficult to determine what you mean by imported. Kullum Kullum is the one that is under the agreement with the Russians so if one views it as a basic technology, it’s an imported design but quite a lot of it would be fabricated domestically.
Question: I wonder if you could give us your view of the administration’s global nuclear energy partnership, …… research in reprocessing fast reactors, I don’t know if you are familiar with this. I was just wondering if you are aware if the Indian government has had any even preliminary discussions with the Bush administration about participating in this plan, especially since you have done a lot of research and development on fast reactors.
Dr. Montek Singh Ahluwalia: One of the working groups under energy is civil nuclear. I am making a distinction between the civil nuclear deal, which requires United States law to be amended which will then lead to a changed practice amongst the NSG and the cooperation, the working group between us and the United States, looking at possible areas of cooperation. There is this group. They have met once. They have exchanged ideas, sharing with each other common concerns in areas of research etc The United States has supported our entry into the ITER, so some talk has taken place. I am not aware that we are actually engaged in actual joint work or research in this area, so it’s more like exchanging information and becoming more knowledgeable. Some of this cooperation in principal, certainly all the fusion related stuff is not actually impeded by the absence of a civil nuclear agreement, some would be. So obviously, what happens in this joint working group is going to be determined by whether that deal goes through or not.
In the absence of the deal going through, we are limited to some discussions on the safety procedures and exchanging scientific papers and conferences and what have you. If the deal goes through then the scope for collaboration increases hugely but this is very early stages. I think the civil nuclear group has met once and they will be meeting again. I don’t know if that correctly answers the position. The Americans are of course aware of the work we are doing on fast breeder nuclear reactors and we have had an American team visit. They saw some of the facilities, had good discussions with Indian government, so they are aware of what’s going on.
Question: If you really believe, or if you are projecting that our energy scenario should be based on oil, lets say 60 to 70, logically gas should be something like $10 per million because that’s the normal ratio. At that particular price, as far as I can see, using it for electricity generation would be completely economic to the Indian continent. All these assumptions, a lot of it has been based on the fact that gas is going to be used for electricity production. If that is not going to happen, if we are only going to do it on the basis of nuclear or coal, what then is the impact of all these pipelines that are constantly being talked about? On the Nuclear, we are going forword on the assumption that the United States Congress will approve the deal. Suppose the United States congress does not approve the deal: What are the chances that nevertheless we will have the Bush administrations support? Nuclear Suppliers Group may say, that’s Ok, the United States doesn’t agree, but the rest of us will go along. How can we play that particular game?
Dr. Montek Singh Ahluwalia: On the latter one, I can tell you, since I am not actually involved in the negotiations I really don’t know if that is an option or not. I mean logically from our point of view, since we feel that the present restrictions are not logical, we are not members, we never signed up on the Non Proliferation treaty etc, its asymmetric, we have to welcome any removal of restrictions, but I’m not aware that we are consciously trying a strategy that will bypass the deal not going through. To be honest with you, if there is a plan B, I am not aware of it, but I think that if there is a plan B, it will be a very inferior plan to plan A, because I think that we value the symbolic value of the United States recognizing the illogical nature of the existing arrangement, so we are not really looking at doing a little bit of sneaking around and sort of getting little bit here and there, so whatever it is, if there is a plan B, it will be highly inferior plan B, whereas this thing is widely seen in India as an extremely important step that in a symbolic way transforms Indo United States agreement, so I sincerely hope that whoever is arguing in Congress will make a good case for it and that it goes through.
On the gas issue, you are absolutely right. At the moment we have a gas pricing policy under which gas is being sold at ridiculously low prices for what are assumed to be priority areas like fertilizer etc. In the planning commission we are not in favor of continuing with this sort of system. Logically we would move as fast as possible to hydrocarbon prices that are aligned with the rest of the world which is absolutely logical in my view to have these hidden subsidies. Realistically in policies, historical positions often constrain you. This is only a part of the gas. All the new gas that is being found is being sold at market prices. So it’s really what the market is willing to bear that is really going to make a difference.
How much of it is really going to be useable in electricity is a function to some extent of how much improvement and efficiency you get in the electricity system. At the moment, the electricity distribution system is highly inefficient and tolerates very high losses in the system which constrains your ability to raise the price paid by those fellows who are paying. Now if these losses were actually reduced, I mean let’s face it, if oil is going to be $70 a barrel, that is an external parameter that transforms the energy economy very substantially from oil being $20 or $30 a barrel. Although we have not been able to adjust within a year, I assume that if it becomes clear that that will be the oil horizon then that adjustment will come. So, some use of the gas, even for power, cannot be ruled out if you can bring about the improvement in the distribution end, because that will increase the ability of the system to pay. Having said that, yes a lot of the demand for gas was related to power, but in the longer run, gas is an important fuel and it clearly will be, creating an integrated market and having linkages between different markets is sort of a logical thing.
On the specific issue of the Iran pipeline, there are so many uncertainties. This is not a government process in the sense that it is an idea that is being pushed, which is a good thing. In any economic arrangement you will have these ideas floating around all the time. Whether it’s feasible or not, a lot will depend on gas purchase agreements. It’s all very well to build a pipeline, but at the other end, somebody must be willing to buy the gas, and nobody has thought of what the price is at which the gas will be bought. So I am assuming that no one is going to invest in a pipeline without some assurance of gas purchase and if it turns out that at the existing price, nobody wants to buy the gas, then there won’t be a pipeline, or the pipeline will have to wait until these other adjustments have been made and people are willing to buy the gas. But I think that as a general rule, India is going to be a major source of demand for fuel, therefore anything that links this area of demand with areas of supply has to be viewed as contributing to rational energy markets in the world. There may be political constrains in any particular pipeline, but these things change over time.
Question: In terms of pricing, imported coal is the obvious alternative to imported gas. From imported coal, plants will be producing at 2 rupees, on the basis of gas, in today’s prices; it will be almost twice as much. Plus, basically Iran has reneged on its agreement, and wants to renegotiate with us. It will happen with hydrocarbons, but with coal you can have useful long term agreements. It seems to me that your planning on energy should completely shift away from gas and concentrate on coal.
Dr. Montek Singh Ahluwalia: What you are saying is that we should not rely too much on imported gas, but let me say that the talk of this pipeline, the idea is that it is going to be a commercial arrangement. It was not an arbitrary arrangement that there is going to be a pipeline and we are going to set up public sector power plants and these power plants are going to pay for the pipelines. It’s an idea that came out of the petroleum ministry in the logical sense of trying to build a gas infrastructure and nobody would have invested in it without people willing to sign a gas purchase agreement. That problem we are already sensing in the sense that there are many power plants that have already been set up. I think that 4,000 megawatts of gas based power plants exist in India today, and they are not really willing to pay for gas at the price that they are sending over. Now many of these guys hope that the price will come down. Its only about a year and a quarter ago that the think tanks in Washington that worry about the developing world categorically say that there is absolutely no fundamental reason why the price of oil should remain at $55 a barrel, and obviously people have revised their perception. So, this will get fed into the system slowly.
Question: India’s quest to lower its price of electricity for general consumers.
Dr. Montek Singh Ahluwalia: India suffers from too low a price of electricity for general consumers, we need to lower the price for industrial consumers, and they are being overcharged.
Question: In the quest for that, are you looking at other countries as a model, like for instance the United States?
Dr. Montek Singh Ahluwalia: Well, actually, we have the model. It’s just the difficulty in implementing it. The electricity policy that has just been introduced lays down as a guideline for the regulators…In the Indian system it is the regulatory bodies that determine what the price will be for the consumer. So the key issues in India are two things: one, certain categories historically have been given very low electricity prices, households for one and agriculture for another and other categories such as the commercial users, industrial users and also the railways pay very high prices. Now what the electricity act says, or rather the electricity policy that is issued under the electricity act which has the force of a guideline to the regulators, says, is that tariffs should be set in such a way that no category is charged a tariff less than 20% below the average cost, and none charge more than 20% above the average cost.
To give you a rough idea, the average cost today is Rs2.90 per electricity. There are industrial consumers paying Rs4.50 and there are farmers paying the equivalent of Rs0.50. The present range of variation is huge, and the electricity policy requires this to be narrowed down. This is the first point. The second point is that many of the people who are at present being charged very high rates are just cheating, usually in connivance with whoever reads the bill, and simply not showing the electricity that they are consuming, so that’s theft and corruption taken together. It can’t happen without corruption. These are two things we have to address. The first, which is the tariff structure, is already addressed under the electricity policy. My guess is that it will take 4/5 years for these guys to really start narrowing it down. The second is a matter of governance. Some states have privatized the distribution system, one or two, others are trying to improve it within the framework of a public sector utility, and the short answer, the quick picture is that there is an improvement but at a very slow pace. Whether this is one of those things that takes a bit of time, 3 or 4 years and then suddenly we will get an improvement, or the pace will continue to be low, you can make your own judgment, but if both these things happen, we will get away from having excessively high tariffs because of cross subsidy, and secondly, the ability of the system to pay at the margin higher price for some categories of power will go up, and that really modifies what Mr. Iyer just said that it may be, even at a high price for gas for purposes of peaking power, somebody might be willing to buy some gas, I don’t know. Taking all these things together, it’s a big agenda of reform and we should somehow get it done.
Question: I don’t know how closely you have been briefed by the administration about the administrations negotiations with the hill…
Dr. Montek Singh Ahluwalia: Not at all since I just arrived yesterday.
Question: One thing that a couple of senators have mentioned as a possible condition to the deal is that they would like the notion of India, United States and IAEA negotiate the specific safe guards that would be part of this deal before they actually vote on whether to approve the deal. They just sort of said informally that that might be a nice way to proceed. That would obviously delay their vote on this deal, possibly beyond the nuclear supplier’s group meeting. What is your need in terms of timing? Would that be a problem or…
Dr. Montek Singh Ahluwalia: Since I am not engaged in it on a day to day basis, I can’t give you a specific answer. On the issue of negotiating with the IAEA, we already started doing that. I think a team from our department of atomic energy shortly after President Bush, did go and start the discussions…I don’t know much about the details. Obviously, whatever safeguards are going to be there are going to be IAEA agreed safeguards, so if the Congress passes something which is conditional on those safeguards, then why it’s necessary to wait for the IAEA or just to make it a conditional thing is not very clear to me. In terms of timing, frankly, we would obviously like to see it done as quickly as possible. I think that one of the important things to remember, and I don’t know if I should be saying this on the record or off the record because I don’t deal with the negotiations…There’s a huge amount of public interest in the deal. Rightly or wrongly it is seen as an indication of a totally transformed Indo United States relationship. An early settlement of the deal would signal a new perception by the United States administration and the United States, because people don’t make a distinction between the United States administration and the United States and Congress…it will be seen as the United States signaling a completely new approach to India.
There are a lot of things on the Indo-United States agenda which are very positive and everybody is very supportive of. From my point of view an early conclusion of the deal would create a highly favorable atmosphere that following the Presidential visit are really ticking off in a very positive way , responsible people understand there are delays, we keep having delays on our side, all I can say is that there are costs, and they cause a loss of momentum, quiet frankly if I were asked what does it matter why not have a delay, I would say it matters to the cost , one view is what does it matter 6 months, 8 months, 9 months but there is a political dynamic to things and I think an early conclusion would contribute hugely to that political dynamic. What I want to emphasize is I m not actually negotiating the civil view, this is my perception if you were interviewing me in New Delhi, this is Washington D.C. and I am not handling this side of it I am adding this as a caution, so add this as my perception.
Question: Is there an economic quid pro quo involved in this nuclear agreement in the sense have you told the Americans if the deal goes through that there will be some kind of most favored nations status as far as exporting nuclear technology is concerned because that is implicating for United States jobs and United States industry and United States construction, and this seems to be part of the make up of things in this country here?
Dr. Montek Singh Ahluwalia: You mean United States exporting technology to us sounds wonderful but to be fair the meaning of most favored nation is that United States will be on the same terms as everybody else so actually what you really asking is are we offering United States some preferred position. The short answer is under international law we can’t, but lets face as the world’s leading source of technology and as a country that has the maximum number of corporations that would be capable of benefiting from any opening up of trade, even a level playing field of competitive opening would in fact give the United States a terrific access potential, I have talked to United States companies that would be conceivably interested in a business that would emerge from a relaxed nuclear deal, none of them have asked for any preferential treatments, they have all said they are keen if this happens in the growth of business in this area they see a terrific opportunity for us, so I would just stay with that there will be a terrific opportunity and none of the American companies are asking us to do any kind of preferential thing, under international trade law its not something anybody should do or should ask, so I think it has never come up
Question: There is a group of American companies, Westinghouse, that have been recently been to India
Dr. Montek Singh Ahluwalia: The dominant point that they make to us, and it is the point we take No.1 the fact that the United States has not set up plants for its own regulatory reasons should not make us feel they didn’t have the technology, but we didn’t think they didn’t have the technology , but that’s not a problem so they are just clarifying, they are setting plants elsewhere including China, so their main message to us was that as and when the deal is through and India is setting up new plants there is going to be a lot of business in getting access to technology, getting access to equipment the critical thing for India is that if there is separation between military and civilian and I think I talked about this earlier the pressure to become competitive and look for the lowest cost technology in conventional nuclear plants will be very high. That would be a competitive field, in principal our own chaps might want to compete. I mentioned the Indian private sector is keen to get into it, if policy is relaxed to allow that, if you get the private sector supplier, the decision from whom they buy the equipment, will not be the decision of the government. It will be a decision of the private sector. It will basically open it up and make it competitive and I think the United States has a great advantage in that area
Question: If this thing goes through and if we begin to have nuclear power plant supplies coming from various places would we insist on transfer of technology as a condition, this kind of thing has been done in various other fields, in this particular area India has been lagging since we have been cut off for the past 50 years, transfer of technology is something China has insisted on its coming in the way of some construction of plants there, the French have an advantage because they were willing to supply but even there they balked at some transfer of technology. What would our position likely be?
Dr. Montek Singh Ahluwalia: This is speculative obviously since we don’t have a policy position on this, you can only insist on transfer of technology if it’s a public sector plant being set up, for e.g. if we set up a public sector plant and look for different partners we could say as part of the deal you are doing bilaterally we would go with you if you would do X or Y if it’s a private sector, some people have been pushing for that you don’t insist on transfer of technology. In my view the transformation will lead to opening of technology, we would need as much as transfer and absorption of technology as possible. I would therefore assume that the Government of India would be well advised to use whatever legitimate instruments it has to effect as much transfer of technology as possible. As far as the foreign partners are concerned they aren’t actually unwilling to do that, once the stuff is all safeguarded and there is no security related issues and our experience with American corporations is that they welcome deeper involvement with India and are quiet willing to transfer technology and indeed logically we hope that they would put us on the map as a part of their global production cum technology partnership, that’s true whether you are buying locomotives and saying listen why don’t we do some of the production here whether we are dealing with Boeing and asking them to produce some of their aircrafts. In all these areas I have’nt found American companies unwilling to do that, the fact of the matter is technology moves so rapidly that their cutting edges and future technology transferring simply means embodying it locally and I don’t think they would be unwilling to do that. Competitively they would be well advised to do that and I would hope they would service nuclear plants set up elsewhere from production that they do in India with good companies at much cheaper costs, I think that would happen and we don’t need any kind of legislative action
Question: You mean GE sets up manufacturing plant in India, would we insist within 5yrs…..
Dr. Montek Singh Ahluwalia: You can only insist on it if you decide not to open it to the private sector, if you decide in the civilian nuclear area it’s the government of India that will invest in building nuclear plants then you can insist on it that requires prior decision, that is you devote scarce public resources to produce electricity, unlike today where there is some presumption that your technology is merged with your military activity this will not be merged with the military activity, it will safeguarded. So then the bottom line is how much public investment we want to do and do we want to do it in nuclear power that I m not sure about, frankly if we had scarce resources we would be much better off accelerating the pace off technological development of the Thorium activity than building another plain nuclear plant
Question: I wonder if there is any thought being given if the nuclear deal goes through to privatizing civilian nuclear plants in India or maybe setting up some sort of government corporation that will then see crucial arrangements?
Dr. Montek Singh Ahluwalia: The nuclear power corporation of India is currently a public sector corporation which sets up these nuclear power plants, so there is an existing government corporation run like any private corporation, the difference is at the moment in the absence of a separation between civilian and military there are potential military uses of every nuclear plant that may not actually be used that way but they are potential, this means that it doesn’t operate in an entirely civilian manner, once this deal goes through India will have agreed to separate and designate certain things as military and certain things as civil, whatever is civilian is going to be subject to safeguards, the moment that happens the civil part will be viewed ruthlessly in economic terms, if people ask the question how come it is producing power so expensively or why does it take so long. As long as it is military subject to economic constrains its not easy to ask that question. Once the separation comes none of that is relevant so the first issue is that the nuclear power corporation has to become a much more ruthlessly commercial body , the second is will we insist our nuclear power plants to develop only in public sector. As I mentioned to you some of our leading private sector companies which are involved in power have in fact proposed to the government, the government hasn’t taken a view on this, but they have proposed if the deal comes through and if you can use uranium just to produce power then you should open it up to the private sector. Logically that is something we will have to consider, as long as these plants have a potential military use this question can’t be addressed. The moment they don’t have any potential military use its no different from any other public sector electricity producing area, everything else in energy , in the electricity area private investment is allowed. 100% foreign investment is also allowed. I can’t make a statement on what we will do but the argument is very compelling to do it
Question: With regard to the technology transfer there is some talk about technology transfer or information the other way because the United States is building new type of reactors that may go into mass production, can you say what kind of activities are going on to transfer that kind of technology or information from India to the United States?
Dr. Montek Singh Ahluwalia: I don’t know enough about that personally. I will be delighted if there is a transfer from India to the United States, it would indicate that in certain areas we are becoming competitive. I have talked to representatives of the department of energy who came for meetings with our atomic energy people and they made very positive statements, in the sense as a result of these discussions they were impressed at the quality of work being done. They didn’t actually say that now we are keen for you to transfer technology but the fact is it opens up we are doing work in areas that United States is not doing work in, and we would be delighted if it ever came to me and somebody said how about transferring technology for a price and as long as If the price is right we should do it.