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IASbaba’s Daily Current Affairs – 7th June 2017

ENERGY SECURITY

TOPIC: General Studies 3

Technology, Energy Security

Achievements of Indians in science & technology; indigenization of technology and developing new technology.

Nuclear electricity: Expensive, Hazardous and Antithetical to equity

Why in news?
The government has recently approved the construction of ten 700 MW Pressurized Heavy Water Reactors (PHWRs). Even though the PHWRs are expensive, the department of atomic energy persists with them because it lacks the expertise required to build and operate cheaper light-water reactors (LWRs). The imported LWRs are more expensive than the domestically built PHWRs.

Background:
India has a flourishing and largely indigenous nuclear power programme and expects to have 14.6 GWe nuclear capacity by 2024 and 63 GWe by 2032. It aims to supply 25% of electricity from nuclear power by 2050.
The proposed new reactors will amount to 7,000 MWe (megawatt electric), i.e. will more than double the country’s current installed nuclear capacity of 6,780 MWe, a little over 2% of power generated from all sources in the country.

A bad year for nuclear power :

Westinghouse, the largest historic builder of nuclear power plants in the world, declared bankruptcy, creating a major financial crisis for its parent company, Toshiba.
The French nuclear supplier, Areva, went bankrupt a few months earlier and is now in the midst of a restructuring that will cost French taxpayers about €10 billion.
The U.S. Energy Information Administration announced that it expects the share of nuclear electricity in the U.S. to decline from about 20% in 2016 to 11% by 2050.
The newly elected Presidents of Korea and France have both promised to cut the share of nuclear energy in their countries.
The Swiss have voted to phase out nuclear power.

India and nuclear power:

Both Areva and Westinghouse had entered into agreements with the Indian government to develop nuclear plants. Areva had promised to build the world’s largest nuclear complex at Jaitapur (Maharashtra) and Westinghouse would build six reactors at Kovvada (Andhra Pradesh). The collapse of these companies shows that India’s agreements with Areva and Westinghouse were fiscally irresponsible. If these projects had gone ahead we would have left with billions of dollars of debt, and incomplete projects.
These reactors are commercially untested, since the largest PHWRs constructed so far in India are the 540 MW twin units at Tarapur.
Nuclear electricity is likely to be costly. A rough estimate suggests that the cost of electricity during the first year of operations at these reactors is likely to be around Rs. 6 per unit at current prices. The Central Electricity Regulatory Commission’s published tariffs show that almost all currently operating Indian coal, natural gas and hydroelectric power plants produce cheaper electricity. Even prices for solar power have dropped below those of nuclear power. For example, the winning bid at the auction for the Bhadla Phase-IV Solar Park in Rajasthan held last month was Rs. 2.44 per unit, which is fixed for 25 years.
Other sources of electricity have shorter gestation periods.
While announcing its decision, the government claimed that these plants would “generate more than 33,400 jobs in direct and indirect employment”. But this number ceases to be impressive when viewed in the context of the planned capital expenditure of Rs. 70,000 crore. The relevant factor in assessing the employment opportunities provided by a project is not just the total number of jobs produced but the ratio of the jobs produced to the capital invested. In contrast, solar photovoltaic sources were more than six times as labour intensive, creating about 0.87 job-years per gigawatt-hour of electricity.
Bad fit for climate change. The government also argued that these reactors would bolster “global efforts to combat climate change”. Nuclear power poses its own set of threats to the environment and public health, and is therefore an inappropriate tool to mitigate climate change. All nuclear reactors produce radioactive waste materials because each fission event involving nuclei of uranium or plutonium gives rise to radioactive elements called fission products. Some of these remain radioactive for hundreds of thousands of years. Despite decades of research, nuclear waste remains an unavoidable long-term problem for the environment.
Nuclear reactors are also capable of catastrophic accidents, as witnessed in Fukushima and Chernobyl. A single nuclear disaster can contaminate large tracts of land with radioactive materials, rendering these areas uninhabitable for decades. More than 30 years after the accident at Chernobyl, about 650,000 acres are still excluded from inhabitation.
The people’s concerns. Local communities are keenly aware of the hazardous nature of nuclear power. Since the 1980s, every new site chosen for a nuclear plant has been greeted with a protest movement. The risks and costs are borne overwhelmingly by poor rural communities, who consume only a tiny fraction of the electricity that is generated.
The story of nuclear plants in India has been fraught with delays and opacity.

Conclusion:
With the changed international scenario for nuclear energy as source of power, and disadvantages of nuclear electricity over other sustainable energy sources like solar, hydro etc. we need to have a comprehensive re-evaluation of the role of nuclear power in the country’s energy mix. The path to sustainable development run through a source of electricity that is expensive and hazardous.

Connecting the dots:

Critically analyse the importance of nuclear power as source of energy in making India energy secure in a sustainable manner. Discuss the advantages and disadvantages nuclear electricity has over other sources of energy.

NATIONAL

TOPIC: General Studies 2

Bilateral, regional and global groupings and agreements involving India and/or affecting India’s interests

Effect of policies and politics of developed and developing countries on India’s interests

India-EU FTA- what ails it and way forward

Background

In 2016, India terminated its bilateral investment treaties (BIT) with 57 countries.
This meant that the countries’ companies in India and Indian companies in those countries can no longer make use of the controversial arbitration procedures called ISDS.
However, lapse of these BITs will not necessarily have any visible impact on capital flows into India as existing investments will retain the past protections. Though, the lack of a BIT means the present FDI flows are certainly less than they could have been.
India is now looking forward to replace the individual treaties with EU countries with a single India-EU free trade agreement. However, these negotiations showed no signs of closure.
But, a decision by European Court of Justice (ECJ) saying that European Commission cannot alone finalise a FTA and it needs approval from national parliaments to have a trade deal poses new challenges for India to have FTA with EU.
ECJ held that since the ISDS provision allowed the removal of the disputes from the jurisdiction of the courts of an EU member state, it could not be done without the consent of the member states.

BITs

They are often detrimental for developing countries, as they provide extensive protection for foreign investors through the ISDS arbitration procedures.
Investors who believe they are effected by policy changes can claim billions from the state. This gives businesses an undesirable power position.

Investor-state dispute settlement (ISDS) mechanism:
It is a system through which individual companies can sue countries for alleged discriminatory practices.

Examples in India:
In the recent past, many multinationals including Vodafone Group and Sistema have dragged India to international arbitration, citing treaty violation.

The position now:

India brought out a new model BIT in December 2015, intending to replace its existing Bilateral Investment Promotion and Protection Agreements (BIPAs) and future investment treaties.
This step was taken after India was dragged into international arbitration by foreign investors who sued for discrimination citing commitments made by India to other countries in bilateral treaties.

Model BIT:

The revised model BIT will be used for re-negotiation of existing BITs and negotiation of future BITs and investment chapters in Comprehensive Economic Cooperation Agreements (CECAs)/ Comprehensive Economic Partnership Agreements (CEPAs) / Free Trade Agreements (FTAs).
The new Indian Model BIT text will provide appropriate protection to foreign investors in India and Indian investors in the foreign country, in the light of relevant international precedents and practices.
It also states for a refined Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust local remedies before commencing international arbitration along with other provisions such as national treatment, protections against expropriation etc.
A BIT increases the comfort level and boosts the confidence of investors by assuring a level playing field and non-discrimination in all matters while providing for an independent forum for dispute settlement by arbitration. In turn, BITs help project India as a preferred foreign direct investment (FDI) destination as well as protect outbound Indian FDI.
The model excludes matters such as government procurement, taxation, subsidies, compulsory licenses and national security to preserve the regulatory authority for the Government.

India and EU- way forward:

During PM’s recent meeting to Germany, both the head of states agreed on the need to resume India-European Union (EU) free trade agreement (FTA) talks.
These negotiations, covering trade, investment protection and intellectual property, have remained deadlocked since 2013.
However, the ECJ decision will impact the EU’s ongoing FTA negotiations with India among other countries. This has led to EU to consider other options

It could decide to discard the ISDS clauses in all its future FTAs. So, FTAs may be negotiated where disputes between investors and states would be resolved using the state-state dispute settlement (SSDS) mechanism. This can be a positive outcome for India given its protectionist stand on BITs and ISDS.
EU could negotiate an FTA with ISDS provisions subject to the treaty being approved by all EU member states. But there is very less chance of all EU member countries ratifying such FTAs.
There is a possibility of negotiating an FTA without an ISDS provision but make ISDS provisions a subject matter of an optional protocol provided this is permitted under EU law. The optional protocol could theoretically bind the EU’s partner country and only those EU member countries that ratify it and thus give their consent to the removal of investor-state disputes from their jurisdiction.

Introduction of Multilateral Investment Court (MIC):

It is an appellate mechanism provided for in EU-Canada FTA
Here, it aims to fight the vices of current ISDS system based on ad hoc arbitration.
It aims to bring in tenured-judges with expertise in international investment law (IIL) unlike the party-appointed arbitrators, many of whom are not experts in IIL
It also envisions to usher in transparency in the ISDS system and introduce an appellate mechanism to correct errors of law made by tribunals of first instance, which is missing in the current ISDS system.

Challenges for India:
Currently, the model BIT includes arbitration rules such as

A foreign investor to litigate in national courts for at least five years before approaching an international tribunal.
Method of dispute resolution in the Indian Model BIT is based on ad hoc arbitration through party-appointed arbitrators though the possibility of creating an appellate mechanism is recognised.

However, now India has to reconsider its ISDS negotiating strategy with EU if it opts for optional ISDS:

If India will allow foreign investors to submit cases to international tribunals without first resorting to domestic courts as provided in Model BIT?
If India will accept the creation of a bilateral investment court system with tribunal members being appointed for a five-year period and with an appellate mechanism?
If India is prepared to accept the proposal of setting up a MIC and submit to the jurisdiction of such a court?

Conclusion:
It is a good opportunity for India to rethink the best way of approaching the ISDS. India should actively engage with EU for the FTA negotiations and create a robust and transparent international judicial system like the MIC that would protect foreign investment from state’s any regulatory exploitation.

Connecting the dots:

What do you understand by FTAs and what is its impact on India’s economy?
Recently, India and EU looked forward to finalise the FTA but ECJ’s ruling on finalisation and arbitration needs a revised strategy. What are the challenges pertaining to ECJ decision and way forward? Discuss.