Thwarted nuclear ambitions

Mismatch between the Government's nuclear policy and actual funding of projects has considerably slowed down India's nuclear power programme.

R. RAMACHANDRAN

THERE are some people in the Department of Atomic Energy (DAE) who hold the view that the nuclear weapons programme was pursued all these years in the hope of securing adequate governmental support for the nuclear power programme and not because of any f irm belief in the need for nuclear weapons for strategic reasons. Some people would actually argue otherwise - but not say it openly - that the raison d'etre for the nuclear power programme is actually the weapons programme. There is, however, no gainsaying that both points of view seem perverted in their logic.

At the turn of the year 2000, the installed capacity is a mere 2,280 MWe - nowhere near the ambitious target of 10,000 MWe projected in the mid-1980s. In the post-Pokhran-II phase, it is worthwhile taking a look at one of the important reasons for this s tunted and blunted profile: the lack of government commitment to nuclear power and funding for the programme.

While the euphoria and hype over Pokhran-II are still high in the Government there is as yet no clear-cut expression of a renewed commitment to nuclear power after over a decade of indifference and inadequate funding. The Parliamentary Standing Committee s on Energy in the last few years have addressed this issue and made suitable recommendations. But, judging from the recently released report of the Comptroller and Auditor General of India (CAG), these have been of no avail. The report provides an insi ght into the huge gap between the Government's nuclear power policy on paper and the actual implementation of the nuclear power programme. This, more than anything else, seems to have adversely affected the build-up of nuclear power capacity in the count ry.

However, observations made in the CAG Report are somewhat misplaced. Perhaps because the CAG cannot question fund allocations by the Government, it has ended up faulting the DAE and the Nuclear Power Corporation (NPC), the public sector undertaking under the DAE which operates the power plants, for their failure to ensure adequate fund availability. Also, by failing to highlight the recent positive achievements of the programme, the CAG report does not present a balanced perspective. But the importance of the CAG report is in its implications for a long-term nuclear power policy of the Government.

In 1984, after Unit-1 of the Madras Atomic Power Station (MAPS), the first indigenously built pressurised heavy water reactor (PHWR), went into commercial operation and heavy water plants at Tuticorin and Kota began production, the DAE drew up the 'Nucle ar Power Profile' with a target of 10,000 MWe by the year 2000. The DAE felt that all the necessary support for the country's future nuclear power programme based on PHWRs was within the reach of Indian R&D and industrial capability. PHWRs use natural ur anium as fuel and heavy water as moderator and coolant. Indian PHWRs are based on the Canadian CANDU design and the two units of 235 MWe PHWRs at the Narora Atomic Power Station (NAPS), Uttar Pradesh, which were set up after MAPS during 1991-92, represen t the "standardised Indian PHWR design".

The DAE's "long-term profile" in 1984 envisaged an addition of capacity of 7,820 MWe beyond the operational/ongoing projects up to the 2 x 235 MWe units at Kakrapar (KAPS) in Gujarat. Unit-1 of KAPS went into operation in 1993 and Unit-2 in 1995. The oth er power plants that were in operation before KAPS are: the 2 x 210 MWe Boiling Water Reactor (BWR) units (which use slightly enriched uranium and light water as moderator and coolant, based on U.S. technology); the 2 x 220 MWe PHWR units at Rawatbhatta (RAPS) in Rajasthan (based on the Canadian design, on which Unit-1 was built by the Canadians and Unit 2 was virtually built by India after Canada pulled out of the agreement following Pokhran-I); the 2 x 235 MWe units of PHWRs at Kalpakkam (MAPS) and th e 2 x 235 MWe units (of standardised Indian PHWR design) at NAPS. The installed capacity until KAPS totalled up to 2,270 MWe.

It must be pointed out that TAPS reactors were derated to 160 MWe each in 1989, RAPS-1 to 100 MWe in the mid-1980s and RAPS-2 to 200 MWe in January 1991, and all the indigenous 235 MWe PHWRs to 220 MWe in January 1992. While others were derated apparentl y on "operating experience" with these plants, RAPS -1 was derated because of problems of end shield cracking and is treated as "prototype PHWR". In terms of the above derated capacities, the total available capacity up to KAPS-2 comes down from 2,270 MW e to 1,940 MWe. Twelve 235 MWe PHWR units and ten 500 MWe PHWR units, amounting to 7,820 MWe, were proposed to be built during 1985-2000 to achieve the target of 10,000 MWe up from 1,940 MWe. (In terms of derated capacities of the Indian PHWRs, the addit ion envisaged would be 7640 MWe.) At 1983 prices, the estimated cost was around Rs.14,000 crores.

Until 1984, the Power Projects Engineering Division (PPED) of the DAE executed the various power projects. For the speedy implementation of the "10,000 MWe by 2000 AD" profile, the PPED was reconstituted into the Nuclear Power Board (NPB). Subsequently, in September 1987, given the need for a managerial structure that would be capable of executing large power projects across the country, the NPB was cast into a corporate entity called Nuclear Power Corporation of India Ltd (NPC), with the requisite flex ibility and autonomy. This structural change was based on the October 1986 recommendations of the J.C. Shah Committee constituted by the DAE.

Accordingly, as recommended by the Shah Committee, the 1962 Atomic Energy Act was also amended to enable a body other than the Government to produce power from nuclear sources. When the NPC was formed, it was recognised that given its small generating ca pacity, it would not be able to raise sizable surpluses to fund future nuclear power projects. So the Government agreed to a pattern of funding new projects, including works and interest during construction (IDC), that would be on a 1:1 debt-equity (D/E) ratio basis, with Government equity flowing initially.

In July 1988, the DAE appointed a committee to update the long-term profile and make recommendations for the implementation of projects, including the investments required. Despite the delays in the ongoing projects, the Committee reported in November 19 89 that the target was still achievable. However, in view of the advantages of going in for 500 MWe plants instead of the smaller 235 MWe plants, the Committee recommended that instead of the four 235 MWe units on which no action had been taken until the n, two 500 MWe units be built. This meant that the capacity addition to MWe by the year 2000 became 7,880 MWe (or 7,760 MWe in terms of derated capacities). Measures such as the advance procurement of material had already been initiated in the case of th e other eight 235 MWe units. The projection made by the Committee is given in Table 1. As can be seen, at 1989 prices, the funds required were placed at Rs.16,661.50 crores (about Rs. 2 crores/MWe).

When the Committee had drawn up this projection in 1989, financial sanction for four 235/220 MWe units - two in 1986 (Kaiga-1&2) and two in 1987 (RAPS-3&4) - of the 20 plants envisaged had been given and, according to the CAG, an expenditure of Rs. 213.0 7 crores had been incurred on them. The projections had apparently been made on the presumption that 10 of the remaining 16 would be sanctioned during 1989-90. The profile thus included, besides NAPS and KAPS, which were already under construction, the a bove sanctioned projects of 4 x 235/220 MWe and new start-up schemes for Kaiga 3-6 (4 x 235/220 MWe), TAPS-3&4 (2 x 500 MWe) and RAPS 5-8 (4 x 500 MWe), for which funds had been hoped for, and 6 x 500 MWe units for which sites had not yet been identifie d.

But the Three Mile Island and Chernobyl accidents began to have their impact on the projected growth of nuclear power. Detailed reviews, elaborate procedures for safety and environmental clearances were put in place leading to time overruns. At the same time the programme began to experience a severe resource crunch, with governmental sanctions for projects not easily forthcoming. Table 2 gives the annual requirement of funds, funds proposed under the plan and funds actually allocated to the NPC. It is clear that the gross mismatch between proposed outlays under the plan and the actual budgetary support as equity in the NPC has been one of the chief reasons for the shortfall in realising the envisaged capacity under the "long-term profile".

Only Rs.2,617.41 crores had been allocated, which included a government loan of Rs.250 crores in 1993-94, against a requirement of Rs.15,006.50 crores up to 1997-98 for 20 plants and ongoing projects in the profile. And the expenditure incurred was Rs.5, 291.48 crores, according to the CAG. That is, Rs.2,674.07 crores (102.16 per cent) more than the allocation. A sum of Rs.3,586.30 crores had been spent on the four 235/220 MWe plants (Kaiga-1&2 and RAPS-3&4) under construction and Rs.1,705.18 crores spen t on the remaining 10 plants (Kaiga 3-6, TAPS-3&4 and RAPS 5-8) as envisaged in the "profile". Government funding as equity towards these respectively was only Rs.1,578.40 crores and Rs.1,039.01 crores, the latter in fact less than what is required for a single 500 MWe plant.

As a result, the original target of 10,000 MWe was scaled down to 5,700 MWe in August 1990. This envisaged an addition to capacity through TAPS- 3&4 (2 x 500 MWe), RAPS-5&6 (2 x 500 MWe) and Kaiga 3-6 (4 x 220 MWe). Accordingly, an Eighth Plan Outlay of Rs.14,400 crores (Rs.2.53 crores/MWe) was proposed, based on this revised profile. Against this, the approved outlay was only Rs.4,119 crores, less than a third. This included financial sanction only for the two 500 MWe PHWRs at Tarapur (TAPS-3&4), estim ated at Rs.2,427.51 crores, which was issued in January 1991. This cost was, however, revised in December 1997 (at 1996 rupee value) to Rs.6,421.00, which includes an interest during construction (IDC) of Rs.1,580 crores. Taking the IDC into account, the revised cost implies an escalation of 99 per cent. According to the CAG, until March 1998 no further sanction had been issued.

As a result of this continued decrease in funding, the DAE reduced the target capacity for the year 2000 to 3,720 MWe in March 1994. This reduced target envisaged only Kaiga-1&2, RAPS-3&4 and TAPS-3&4. However, only Kaiga-1&2 and RAPS-3&4 are likely to b e commissioned before the end of 2000. The total installed capacity at the end of the century is, therefore, likely to be only 2,720 MWe (see Table 3). The first 500 MWe reactor at TAPS-3 is likely to go on stream only around 2005 or so.

According to Dr. Y.S.R. Prasad, Chairman and Managing Director (CMD) of the NPC, the sharply dropping value of the rupee was the main reason for the escalated cost of TAPS-3&4. Although there was no final financial sanction for Kaiga-3&4, work had starte d on TAPS-3&4 as well as Kaiga-3&4, he said.

These are now expected to be completed only by 2006-7, taking the total installed capacity - assuming that funds for Kaiga - 3&4 will come in - to 4,160 MWe. This year about Rs.800 crores has been provided mainly for the sanctioned TAPS-3&4, the remainin g works of RAPS-3&4, and pre-project activities of Kaiga-3&4, according to Dr. Prasad. In addition, there is the 2 x 1,000 MWe Koodankulam project, to be executed by the Russians under a joint Indo-Russian Cooperation Agreement, to which finances have be en committed (these include a soft loan from Russia to cover 80 per cent of the cost).

As a result of the Government's failure to adhere to the funding commitment, the NPC has been forced all these years to borrow funds from the open market at high interest rates of between 12 and 17 per cent. This higher expenditure, the CAG has observed, included Rs.1,443.77 crores to meet the interest payment on borrowed funds.

According to the DAE, since budgetary support was not adequate, the borrowing became necessary for the committed expenditure towards "advance procurement of materials". The cash flow problem had also been aggravated by the failure of the State Electricit y Boards (SEBs) to pay outstanding energy bills. Today, according to the NPC, the outstanding dues from the SEBs amount to over Rs.1,000 crores even after some recoveries were made in the last couple of years.

Owing to the reduced budgetary support, the NPC has, in fact, of late been forced to adopt a D/E ratio of 2:1 for its ongoing projects - not a healthy sign for any commercial enterprise. But the catch here is, as the DAE had submitted to the Parliamentar y Standing Committee, on the one hand, given the long gestation periods of nuclear projects, borrowing from the market is not an easy proposition. On the other, if the borrowings increase, the interest burden increases and would lead to debt service prob lems for the company. This had, indeed, led the Standing Committee to observe: "Large borrowings at higher interest rates, low budgetary support and longer getstation periods for the completion of projects would lead the Corporation into a debt trap unle ss the Government steps in with higher equity support."

The concept of advance procurement of materials was being implemented because it was felt that one of the prime causes of delays and long gestation periods in nuclear power projects was the long lead times in the delivery of critical equipment and materi al. For importing raw material and for the fabrication of finished goods, it took a lead time of three or four years, according to Dr. Prasad. Accordingly, the DAE/NPC had obtained financial sanctions for Rs.1,511 crores between 1986 and 1991 towards adv ance procurement of material/equipment for the six 500 MWe units and four 235/220 MWe units envisaged as part of the profile. Against these approvals, an expenditure of about Rs. 1,366 crores had already been incurred as of March 1995 as follows: TAPS-3& 4 - Rs.802 crores; RAPS 5-8 - Rs.265 crores; and Kaiga 3-6 - Rs.299 crores. However, owing to reduced budgetary support, equity paid by the Government towards advance procurement was only Rs.710 crores and the balance of Rs.656 crores was spent out of ma rket borrowings.

The DAE had told the Parliamentary Standing Committee that the interest burden on the borrowings alone was about Rs.262 crores until March 1995. Furthermore, these committed orders have resulted in a cost escalation to the tune of Rs.950 crores because o f foreign exchange variation, duty/tax changes and so on. The DAE had also stated that attempts were being made to short-close or cancel orders placed, limiting the supplies required only for two of the 10 units. Efforts would also be made to divert or d ispose of equipment/material procured beyond two reactor units, the DAE told the Committee.

Dr. Prasad, however, said that since the equipment and material were custom-made and specific to PHWRs, disposing them of would not be easy. He said that all work relating to reactors except TAPS-3&4 had been stopped and all related contracts closed. Fab rication continued only for TAPS-3&4, he said. "Of course, material and equipment procured will be used as and when funding becomes available for the power plants they are meant for because the profile is still valid. Only the time-frame has changed. Mor eover, these equipment would, in fact, cost more in the future because of cost escalation, exchange rate variation and so on," he said.

However, the CAG took a different view of the expenditure incurred towards advance procurement of material. Pointing out how various equipment and material worth Rs.1,069.61 crores, procured between January 1986 and September 1992, were lying unused at v arious sites, including manufacturers' sites, and in conditions leading to the deterioration of these, the CAG criticised the DAE and the NPC for trying to implement the profile without setting proper milestones."While the availability of funds was a con straint, no effort was made to reduce the number of plants and their capacity to match with the availability of funds. As a result, material had been procured for 10 plants whereas civil works had not commenced for any of them," the CAG said.

The timing for at least part of power generation, in CAG's view, could have been advanced within the resources available if matching action had been planned for all the related activities than merely concentrating on advance procurement that blocked subs tantial amounts of money. "Had the material been procured according to availability of funds and other related factors such as procurement of land, civil works and infrastructure been given corresponding importance, at least a part of power proportionate to the funds available could have been generated," the CAG remarked.

"It is their perception," is how Prasad reacted to the CAG's observations. "When a commitment for funding a particular planned programme has been made by the Government, one will go only according to that. How does one presume that money will not be made available. And any change in the plan will have to go through yet another process of review and approval," he said.

The fund-policy mismatch, therefore, raises the larger question of how to manage large projects of this nature which have longer gestation periods and where the technology is still nascent for private sector participation even though the Atomic Energy Ac t allows it now. Given that market borrowings are not easy, the government has an important role to play in the growth of nuclear power with proper funding or low interest loans.

Specifically, in the absence of an assured long-term funding, the policy of advanced procurement of materials would need a relook.

A criticism of the Government's funding policies, which the CAG could perhaps not make, was made by the 1995-96 Parliamentary Standing Committee in its December 1995 report. It said: "It is obvious from these successive downward revisions that unaccepta ble ad hocism has ruled the nuclear power programme of the government. It is evident that no serious thought has been given to financial planning before launching the programme. What is even more worrisome is that the synergetic consequences of cutting d own this programme appear to have not been fully recognised."

The consequences that the Committee referred to, besides the in-built escalating interest burden arising out of market borrowings, were that: the nuclear infrastructure, uranium mining, fuel fabrication, heavy water production and so on, developed at gre at cost, would remain under- or unutilised; the heavy investment made towards setting up specialised shop floors and developing a skilled manpower base by the public and private sector industries participating in the nuclear power programme would go wast e; and the indigenous nuclear R&D and technology base built over four decades would be "irretrievably lost".

The continuing lack of full commitment on the part of the Government has led the NPC to consider new strategies to ensure the continuance of the power programme. According to Dr. Prasad, experience with the Indian industry has shown that in civil constru ction and electrical engineering components of the nuclear power plant, a maturity now exists to handle large subsystems on their own. "In our country, we do not have architectural engineering enterprises, like Bechtel, to perceive and design the entire power plant. The NPC has to take up that role and develop expertise in architectural engineering. We will now do that and award contracts for building entire large subsystems - turbine and other electrical equipment, civil works and so on - to industries . They will then not be dependent on cash flow from the NPC. They can raise money in the market, procure materials and equipment and build for any project that has government sanction in principle. Industry is ready for it and the Nuclear Industries Foru m was formed with this idea. The core nuclear part can be handled by NPC," says Dr. Prasad.

Whether this is a feasible idea remains to be seen as the Indian nuclear power programme sets up targets for the next century. The target year for 10,000 MWe has now been pushed to 2020. As of now the fund gap is staring the NPC in the face though the op eration of the plants during the last couple of years has shown a marked improvement in the management of the programme. Maintaining a fairly consistent high-capacity factor in the plants, the successful en-masse coolant channel replacement in RAPS-2 in quick time (and that too with entirely in-house techniques and technology), the quick commissioning of Kaiga-2 and RAPP-3 in spite of use of new material in the reactor dome (after Kaiga-1 concrete delamination incident in May 1994), the imminent commiss ioning of Kaiga-1 and RAPP-4 in the year 2000 and the successful trial operation of RAPS-1 for over a year at a higher power of 150 MWe - achieved by improved integrated plant operation software - are indicative of better management. However, the increas ing capital cost of over Rs. 6 crores/MWe and a tariff of Rs. 3.8 per KWh when RAPS-3&4 go on steam - largely due to the funding mismatch - are indicative of a governmental failure in supporting the nuclear power programme.