Jason Simpkins of Money Morning says that “…some analysts estimate that India’s nuclear energy sector could be worth as much as $200 billion.”

Here he shows us what majors are lined up for the deal:

India launched its first nuclear test in 1974, but the country refused to sign the global Treaty on the Non-Proliferation of Nuclear Weapons (NPT). As a result, the 45-member Nuclear Suppliers Group (NSG) banned India from global nuclear trade.

That ban was lifted last September when Washington pushed through a “waiver” that freed India from 34 years of sanctions.

Critics of the deal worry that by lifting the trade restrictions on India, the world’s “responsible” nuclear powers are undermining the NPT and could potentially reignite an arms race with India’s rival Pakistan. But the deal’s supporters see the decision as an act of good faith towards India that will enhance global ties and help that nation meet its growing energy demand, perhaps through a more eco-friendly method than burning coal and oil.

As it now stands, about 69% of India’s electricity is generated from coal, according to the World Coal Institute. Demand is projected to soar from 391 Megatonnes (a metric ton, also referred to as “Mt”) in 2002 to 758 Mt in 2030 – a 94% jump.

In fact, only one country is expected to have greater demand for coal during that period – China.

Up to now, one problem has been that India only has 17 nuclear reactors, which produce just 2.5% of the country’s electricity.

“India does not have much of energy option,” V. Raghuraman, an energy advisor to the Confederation of Indian Industry, told the Voice of America. “We are short of hydrocarbons. We are short of coal. We are short of everything. We need an energy mix. We need to make the ground today to prepare for the future.”

India would like to boost its nuclear energy capacity from by 60,000 megawatts (Mw) over the next 15 years, according to Raghuraman. That would more than double the contribution that nuclear power is making to India’s electricity grid. For that to happen, however, India would need to add 40 new nuclear reactors at a cost of roughly $80 billion.

This nuclear “explosion” will generate billions of dollars of new business for the world’s leading energy companies, as India scrambles to secure fuel, acquire equipment, upgrade its technology, and develop and train workers to build, operate and maintain the power plants.

“Today, since there has been a technology denial and fuel denial for the last more than three decades, India has developed an in-house program and there have been some capabilities, but surely these are not world class or also of the capacities which are required for future development,” said Raghuraman. “Which would mean we really need to access technology. We would like to look at accessing technology from all around, because the kind of capacities which we need are phenomenal.”

Global Powers Swarm India’s $200 Billion “Mega-Opportunity”

Last month, an 18-member delegation from the United Kingdom, headed by Lord Peter Mandelson, the British secretary of state for business, enterprise and regulatory reform, arrived in Delhi with executives of companies such as Urenco Enrichment Co., Thompson Valves Ltd., and the Weir Power unit of The Weir Group PLC.

That delegation was accompanied by an additional group from Canada, whose members included representatives from Atomic Energy of Canada Ltd., Cameco Corp. (CCJ), and SNC-Lavalin. Canadian Minister of International Trade Stockwell Day led the delegation.

“Canadian companies are well positioned to capitalize on opportunities and to work with their Indian counterparts to meet the needs of India’s civilian nuclear market,” Minister Day told Knowledge@Wharton, the University of Pennsylvania’s business journal. “India is very enthusiastic about using Canadian technology and resources to help build [its] nuclear energy capacity.”

India also entertained similar delegations from France, Japan, Russia, and even Kazakhstan.

All of these groups were eclipsed by the U.S. delegation, represented by 60 senior executives of 30 nuclear power companies.  The U.S. group spoke with a host of Indian companies, including Tata Power Co. Ltd., Larsen & Toubro Ltd. (PINK: LTOUF) and Punj Lloyd Ltd.

The representatives were originally scheduled to arrive in December, but their visit was delayed by the terrorist attacks in Mumbai.

“The robust presence here of the U.S. commercial nuclear industry, so soon after the unfortunate events in Mumbai, speaks of the commitment of our companies to partner with India in the coming nuclear renaissance,” Ted Jones, director for policy advocacy at the U.S.-India Business Council (USIBC) told Wharton.

Exactly how much money is at stake for these delegations is unclear, but some analysts estimate that India’s nuclear energy sector could be worth as much as $200 billion.

“It is premature to provide specific numbers as details of the work involved cannot be discussed with any of the foreign companies pending clearances from their respective governments,” said Larsen & Toubro Senior Executive Vice President M.V. Kotwal.  “An approximate assessment of the business potential available for Indian industry could be on the order of $1.5 billion to $2 billion a year after a couple of years.”

Even more optimistic is an L&T white paper, which takes a broader view.

“The Indo-U.S. nuclear deal will open two-way cooperation between India and the U.S. on key technologies in the areas of defense, nuclear energy, aerospace and aviation,” says the paper. “This is a business mega-opportunity of more than $200 billion.”

Who’s Profiting From India’s Nuclear Buildup?

Some energy companies are already landing big deals in India.

One of the first was Westinghouse Electric Co. LLC, which announced joint venture with Larsen & Toubro to build nuclear reactors at the conclusion of the United States’ five-day trade mission to Mumbai in January.

France’s Areva SA followed, agreeing to supply the Nuclear Power Corporation of India Ltd. with six reactors just two days after India said it would allow the International Atomic Energy Agency (IAEA) to inspect 14 of its reactors. NPCIL Chairman and Managing Director S.K. Jain said the deal was worth $12.3 billion.

Still more nuclear power contracts are expected in coming months.

Canada’s Cameco Corp. might be one of the companies to ink a deal. The Saskatoon-based Cameco is the world’s largest uranium miner, making it vital to the global supply.

India will require about 1,600 metric tons of uranium per year to achieve the energy output it desires

The cash-rich Cameco reported an 86% increase in revenue for the fourth quarter of 2008, and Chief Executive Officer Gerald W. Grandey remains optimistic that his company will continue to weather the global financial crisis.

“Our customers are well-established electrical utilities, many government-owned or with regulated rate structures. In tough times, they run their low-cost nuclear plants at full capacity, assuring demand for our products,” Grandey said in a conference call last Tuesday. “Our strategy of seeking price protection in our contracting has reduced the sensitivity of our revenue to softening spot prices and we are seeing the benefit now,”

Uranium use will increase 3% annually over the next 10 years, as new reactors are built around the world, Grandey said. A short-term loan taken last June to help finance investments in new assets has been extended on good terms, and Cameco has also received new credit of $100 million.

Among those scheduled to meet with Indian interests, was Australian Prime Minister Kevin Rudd. However, Rudd decided to postpone his visit when Indian Prime Minister Manmohan Singh became ill and underwent heart surgery.

When the two leaders do eventually catch up with one another, they’ll have plenty to talk about with respect to India’s nuclear buildup. Australia is the world’s second-largest uranium producer, trailing only Canada.  Australia exports about 10,000 metric tons of uranium a year – representing a $900 million injection into the domestic economy.

Because India hasn’t signed the NPT, Australia has so far been coy about selling uranium to that country. But since the Nuclear Suppliers Group waiver, India has signed intergovernmental civil nuclear cooperation agreements with France, Russia, the United States and Kazakhstan. If Australia does change its position, BHP Billiton Ltd. (ADR: BHP) will be a big beneficiary.

BHP is the second-largest commodities company in the world, mining steel, aluminum, copper, iron, nickel, titanium, diamonds and gold. It is also proprietor of the world’s largest uranium deposit, the Olympic Dam.

In addition to suppliers, India will need partners to build and operate its new energy grid.

Fenil Maru, an equity advisor at ICICI Bank Ltd (ADR: ICICI), told Knowledge@Wharton that India’s Bharat Heavy Engineering is “looking for a tie-up and has been in talks with Alstom SA, GE Energy, Russia’s Leningrad Metal Factory and Siemens AG (ADR: SI).”

Vendors such as GE Hitachi Nuclear Energy Inc., Toshiba Westinghouse, and Areva also could be enlisted to provide light water reactors, which will be necessary in nuclear parks with six to eight reactors at in a single location.

Source:  India’s Nuclear “Explosion” a Cash Generator for Global Energy Companies

It is a well managed bank with healthy financials. But after 119 years, it is valued at $3.6 b., less than half the valuation Ranbaxy, a private company, achieved in 47 years, which is less than half the time.

Okay, one may say it is in a different line of business. Fair comment. Compare ICICI Bank, with a market cap. of $ 22 b. with SBI, at $ 21b. Now SBI is no ordinary bank. It has a 200 year history and has an unbeaten record of uninterrupted dividend history for over 150 years, testimony to its financial strength and good management. With such a long history of success, why is it valued at one twentieth the value of China’s ICBC, with a market cap of over $ 450b. HDFC Bank, at $ 10.5b. is nearly 3 times PNB.

In oil and gas sector, Reliance Industries, also set up in 60s, has a valuation of $ 80 b., larger than that of ONGC, at $ 45b. even though ONGC has excellent financials. Take telecom. Bharti, an upstart, has a market value of $ 40 b. whilst MTNL, an erstwhile monopoly, is only $ 1.5b.

The reason is obvious to all but those in Government who are in denial of true facts. Government treats public sector companies as milch cows, irrespective of the fact that they have minority shareholders. ONGC is valued where it is because it has to bear a huge subsidy bill for petro products. Regrettably, most of this subsidy goes to people who don’t deserve to be subsidised, such as car owners for petrol, truck owners for diesel, the mafia who adulterate diesel with kerosene, for kerosene, and restaurants for LPG cylinders. ONGC, Oil India and GAIL pay the bill, but are still very profitable. IOC, HPCL and BPCL also pay the bill, and have been bankrupted.

There was a joke about the Chairman of a company asking his finance manager why their company’s share price was half that of their competitors when their performance and profitability was the same. A month later it had caught up, so he called in the finance manager, complimented him and asked him how he had achieved it. The manager said he had just spread a rumour…that the Chairman had resigned!

One thinks that if the Government were to resign from these companies they would be doing the companies and themselves a favour. But the disinvestment process is stuck, like a lot of other necessary and sensible reforms, in the quagmire of a failed politics.

The Government did not take the necessary and sensible decisions to hike petro product prices in line with rising oil prices, to sell companies which they have demonstrably failed to manage (look at the valuation differentials), and a whole host of other things, because of politics. The argument was that taking tough but necessary decisions would cost it votes in the next election.

Well, election time is near. Do they now think that subsidised petro product consumers are going to vote for them en masse? Why, then, have they spent Rs 200,000 crores a year subsidising them when a better targeting of subsidies to the needy would have probably cost less than a fifth of the amount?

Do they think farmers are going to vote for them when they continue to reel under inadequate financing, lack of fertiliser and unfair product pricing? Unlikely. Why, then, did they incur some Rs 100,000 crores on subsidising one bit of fertiliser, viz. urea. How much of this has gone to absentee farmers from Punjab and Haryana enjoying tax free income in Canada?

It is easy to spend money, but the spend must result in a gain in productivity. For example if a Government employs, say, 1 lac people, paying them Rs 100 to dig a hole, and another 1 lac, paying them Rs 100 to fill it, GDP will grow by Rs 2 crores without any increase in the nation’s productivity. Such spending thus results in increasing money supply, hence inflation, without increasing the economy’s ability to compete. Inflation has now hit 11%.

Not that the PM and his officials do not know all this; they have been hobbled by survival politics subjugating revival economics.

Investors know all this too, and react to it by selling shares. FIIs continued their selling last week, except on Tuesday, causing the market, which seemed to be rallying till Tuesday, to collapse. The BSE sensex ended the week at 14571, down 618 points. The NIFTY ended the week at 4347, down 170 points.

The market is at a crucial level. If it goes significantly below 14500, the sensex would then look for support at around 12,500. What are the factors that investors need to look out for.

Basically it is how domestic politics shapes up; next week there is a crucial meeting between the Government and its Left allies (is that the correct word?) over the nuclear deal with the US. There is no more time for waffling over this. If the Left continues to be obdurate and prefers to withdraw support, the 14,500 level can crack. Investors do not like political uncertainty and the withdrawal would lead to early elections. If, however, Mulayam supports the Government, it can survive and the nuclear deal can make progress. The market will rally sharply.

Added to this is the likelihood of a fall in global oil prices. A lot of the price rise in oil is now speculative with too much money chasing it. It is not a mismatch of demand and supply; in fact there are a lot of full oil tankers whose cargo cannot find buyers.

In USA consumption of petrol is likely to fall for the first time in 17 years, simply because prices of petrol have been raised. South East Asian countries like Indonesia, Thailand and Malaysia have raised prices 30-40%. They are not, perhaps, hobbled by ‘allies’ or maybe their political leaders have the necessary anatomical parts ours don’t.

So the next week is crucial. Since it involves trying to predict political behaviour it is anybody’s guess.

Source: Stark Contrasts in Creation of Value

The underlay of these two emotions are complacency and lethargy, respectively.

The current rally which took the sensex up from 14,700 to 17,700 may lead investor to become complacent, or sanguine, for old times sake. They ought not to. Better buying opportunities should come later.

The reason for the caution are that both domestic and global factors warrant a display of caution. General elections at the Centre are due next year, but expected to be called late this year as the ideological strains of smiling for a family picture will start telling and as a coalition Government turns into a collision Government. States like Karnataka are going to the polls shortly.

Governments, except under severe pressure as in 1991, tend to take foolish economic decisions. As elections approach, they compete even harder for foolishness, bordering asininity. Parties in Karnataka are promising things like free power, a complete waiver of farm debt and other things, in order to curry political support. This largesse, of course, comes from Government (hence tax payers) coffers and not from party coffers which, logically, it should. One way to bring a measure of sanity would be to ask political parties to bear a part of the cost (say 10%) of electoral promises from party funds!

Foolish decisions take their toll on companies and on the economy; thus on stokmarkets. The subsidy provided for petroleum products is estimated at Rs. 77,000 crores, comprising petrol (7,300), diesel (35,700) PDS kerosene (19,100) and LPG (15,500). This is borne by the Government and upstream and downstream oil & gas companies who are partly compensated for the losses through issuance of bonds. The downstream companies such as IOC, BPCL and HPCL are financially haemorrhaging and have become highly leveraged. They do not now, have money to import diesel without which road transport would come to a halt and economic growth would not be the expected 8.5% or more.

With crude oil prices relentlessly rising (they hit $ 126/b) the subsidy burden can only balloon and the foolishness of the subsidy policy only exacerbate. A rebalancing of our energy mix is needed and the main hope is gas, which, fortuitously, we have discovered in good measure. Gas, however, would remain buried under the sea until its pricing, now in dispute, is expeditiously resolved. We cannot afford the luxury of a slow moving judicial system; the issue has to be settled soon and with finality.

The foolishness of Government interference and its impact on companies is also evident in the telecom sector. In Mar 2006 BSNL, a wholly owned Government telecom company, launched a tender for some 45m lines. Being a Government entity, the tendering process was subjected to challenge by writ, and finally the tender was drastically pruned on ministerial instruction. BSNL, which then had 17.6m customers, grew to 40.7m customers two years later. Private sector Bharti Airtel, not subjected to meddling, has grown from 19. 5 to 62m customers in the same period.

Bharti is now seeking to expand overseas, by trying to acquire MTN of South Africa (not to be mistaken with MTNL, which Bharti would be reluctant to acquire, given the differences in work culture). BSNL is now opening a new tender for 93m. lines, worth some Rs. 40,000 crores, which would have equipment suppliers salivating and one hopes that the Government has learnt the errors of micromanaging and doesn’t do anything foolish to interrupt it.

Yet other examples of Government pre election actions are in its arm twist of steel companies in both public and private sector, to bring down prices, never mind higher input costs, which they have agreed to now. The prices would, naturally, play catch up once elections are over. Or in the ban on future trading in agro commodities in order to contain inflation is another. Even though a Government committee found no link between prices and futures trading, this was banned. Consequently prices of soya oil, e.g. have soared, instead of fallen!

In fact there is now an illegal market in Indore, called dabba market, which trades in commodities like soya oil and settles trades through the unofficial hawala route. The ban is completely irrational and only a gesture towards containing inflation, without success. The market for the commodity is being exported. If this is not Kafkaesque, what is?

In corporate news of interest, L&T is undertaking a restructuring which would involve hiving off of a dozen operating subsidiaries, thus unlocking a lot of value. The parent company would have a board to guide these subsidiaries and to manage the L&T brand, which is estimated to be worth $ 2b. It is one way to protect the company from takeover; perhaps the trigger was the likely sale by SUUTI (the SPV formed to take over distressed UTI 64 assets) of its 9.1% stake in L&T.

The US $ slid against the Euro and other major currencies, but, surprisingly, especially with elections around the corner, has strengthened against the rupee, which went up to over Rs. 41.5 to the dollar. Perhaps due to massive RBI intervention in buying the greenback.

Globally, too, there is need for caution. Warren Buffet has warned of further pain in the financial system, though not, thankfully, of a panic. Panic was caused by excessive fears of counter party risk having slowed credit growth and was averted by the actions of the US Fed whilst rescuing Bear Sterns. Poor quality securitised mortgages were exchanged for higher quality Government bonds. It seems to have worked in restoring confidence for now. The US Fed seems to have suggested an end to cuts in interest rates.

The sensex fell on all five days of trading last week, losing 862 points to end at 16737. Of the 30 stocks, only two, viz Tata Steel (which contributed 35 points) and HUL (1) were in the black. Major contributors to the decline were RIL (156), L&T (117) and ICICI (99). The Nifty lost 245 points to close at 4982.

It is possible that there could be another rally to take the sensex back to 17,500 levels. If and when that happens, remember the title of this column.