India nuke deal to clear next hurdle

NEW DELHI (Reuters) - India's atomic energy deal with theUnited States, now back on track after the government won aconfidence vote, NEXT (NXT.LO)faces objections from some countries overselling uranium fuel and technology to the nuclear power.

But analysts say the landmark agreement, worth at least $40billion (20 billion pounds) for the energy business in a driveto double India's share of nuclear power to around 5-7 percentby 2030, should pass international muster thanks to staunchU.S. support.

The pact, which would make India a de facto nuclear powerdespite not signing the Non-Proliferation Treaty and conductingnuclear tests in 1974 and 1998, ran into trouble after IndianPrime Minister Manmohan Singh's government faced a revolt byits former communist allies, culminating in Tuesday's vote.

With that battle won, analysts say India and the UnitedStates look well placed to muster support from theInternational Atomic Energy Agency and the Nuclear SuppliersGroup (NSG), the next steps needed before it goes to U.S.Congress for approval.

"There will be obstacles and some countries are scepticalabout the deal, but in the end it should get approved," saidSiddharth Varadarajan, diplomatic editor of The Hindunewspaper. "The commercial interests are just too compelling."

While the communists opposed the pact on the argument thatit would make India a pawn of Washington, for other critics itgives India, a nuclear outlaw for decades after it developednuclear weapons, too many rewards for little in return.

The deal will enable around 400 Indian companies to tie upwith major global nuclear firms such as GE, Westinghouse andAreva to develop India's civilian nuclear power, whilerequiring it to accept international monitors for itsfacilities.

But India still says the pact will allow it to carry outits own nuclear tests. India would still have the right tobuild a strategic nuclear fuel reserve, meaning it could betterresist a halt of international supplies after a nuclear test.

"It's excellent from an energy perspective, and from anational perspective we've managed to extract concessionswithout giving anything away," said Shankar Sharma,vice-chairman and joint managing director at First GlobalSecurities in Mumbai.

Those proliferation worries may see objections from suchNSG members as Canada, Ireland and New Zealand. Some countriesmay attempt to insert conditions like banning nuclear tests.

Although that would probably be a deal stopper for India,American pressure will probably prevail in the NSG.

The deal could run out of time to be passed by the U.S.Congress under the Bush administration.

But many analysts believe Washington will fast track thepact, fearful other countries may soon fill the gap.

"Once the NSG gives it approval, the way is open forcountries like France and Russia to deal with India," saidVaradarajan. "Washington knows this."

LOOKING AT CHINA

Indian policymakers often look at competitors like China,whose nuclear power programme is moving even faster thanofficial targets, and in a decade will be more than enough topower Spain.

In contrast, India's 17 nuclear power plants, capable ofproducing about 4,000 megawatts, are running at 55 percent ofcapacity because of fuel shortages.

The deal would double India's nuclear power contribution toaround 5-7 percent of its total power supplies over the nextquarter of a century, although pollution-spewing coal and oilwill still contribute around three-quarters of its energyneeds.

"It seems small but we're talking of 60,000 to 70,000megawatts," said Leena Srivastava, executive director at TheEnergy and Resources Institute.

That is equivalent to about half of India's current powercapacity, which the government estimates will need to grow byas much as 10 percent each year.

"It's going to be a huge quantum jump."

But that won't come soon enough to ease a shortfall of upto 17 percent of its total energy needs at a time when soaringcoal, gas and oil prices are straining a nation that importsabout 70 percent of the oil it consumes.

Indian firms, particularly those in construction and theenergy equipment sector like Larsen and Toubro, Bharat HeavyElectricals and India's biggest power producer NTPC, amongothers, could gain.

All these shares all rose on news of the deal.

(Additional reporting by Krittivas Mukherjee; Editing bySimon Denyer and Jonathan Leff)