Energy Security and Strategic Ties: Focus of PMs Australia -NZ trip

About 70% of uranium is currently imported. Despite India sitting on a sizeable pile of uranium reserves, the low grade mineral has posed a problem for the industry. Also the uranium reserves in the country are not sufficient to meet its goal of reaching 100 GW of nuclear power capacity by 2047. The task ahead is enormous, given the fact that the existing capacity is only one GW. 

The proposal was hanging fire for over a decade but has finally been pushed through, enabling India to plan for long term development of nuclear power plants. These will be in addition to the plans for small modular reactors that have been fast tracked in recent times. The latter will use thorium that is available domestically but large nuclear projects will need assured supplies of uranium from abroad.. The tie - up with Australia had therefore been high on the agenda for this summit level trip. 

While the visit to countries of the Indo-Pacific has wider strategic and economic implications, the highlight remains the uranium import deal. An India - Australia civil nuclear agreement had been concluded as far back as 2014 but the requisite administrative and legal arrangements to bring it into force had not been concluded till recently. These have finally been put in place. As a result, India can now rely on uranium supplies from Australia which has the world’s largest known reserves. 

The urgency of concluding the deal has obviously become greater in the backdrop of the ongoing U.S. - Iran war. It has underlined the need to reduce the country's reliance on imported fossil fuels. Enhancing nuclear power capacity will not only help to cut costly oil imports, but also enable reduction in carbon emissions and the prospect of attaining clean energy goals.  

The uranium import deal, however, is just the highlight of wider collaboration between the two countries in the area of critical minerals. This involves not just imports but development of Australia’s enormous reserves of critical minerals and rare earths. It has the largest lithium deposits, the second largest reserves of cobalt and the fourth largest reserves of rare earths. These are minerals needed to power nearly all products in sunrise industries including AI. The manufacture of electric vehicles, semiconductors and renewable energy are all dependent on the available of these raw materials. 

The partnership makes sense as India also has sizable reserves of rare earths, which are estimated to be the third largest in the world. With these complementarities, the two countries have gone ahead to create a Critical Minerals Corridor to build sustainable supply chains for lithium, cobalt, copper and rare earths.

While Australia has the advantage in geological reserves, it is looking for investment to move beyond extraction into creation of processing facilities. In fact, Resources Minister Madeleine King even pointed to an existing investment by the Adani group in the coal mining sector and urged that similar projects could be undertaken to extract key minerals. Such complementarity is likely to yield rich dividends especially as both countries are keenly aware of the need to expand availability of these minerals in the shortest possible time frame to meet demands of high tech industries.

The fact that China currently has a virtual monopoly in rare earths as well as being the foremost exporter of critical minerals like processed cobalt and lithium is an underlying concern of both sides. It is this worry that prompted the U.S. to set up the Pax Silica coalition which has 24 countries in its fold including both India and Australia. The initiative aims to create secure global supply chains of essential raw materials  needed for development of artificial intelligence (AI) systems and advanced computing. The intention is to cover the entire “silicon stack” ranging from minerals, to semiconductors and ultimately to AI data centres.

In addition, India and Australia are also cooperating under the Quad Critical Minerals Initiative which is reported to be seeking investment of as much as 20 billion dollars for this purpose. This investment would not be merely for extraction of ores, but also for processing of these minerals. The refining of minerals is a key element of the strategy as China may not have the world’s biggest reserves of either cobalt or lithium but is ahead of others by having set up processing facilities. It has thus become the biggest supplier of processed cobalt, lithium and other minerals like antimony so they can be used in batteries and other industries. In other words, the two countries have a deep convergence of purpose in critical minerals and rare earths which goes beyond merely raising bilateral trade flows. 

At the same time, the need to raise trade volumes remains a significant aspect of the economic relationship. Here again energy dominates as the subcontinent has sourced coal supplies from Australia’s mines ever since the 18th century. The traditional import continues to take up a big share of bilateral trade. Indian investment in the country’s coal mines, as mentioned earlier, is now being viewed as a starting point for moving towards projects in other mineral resources. Liquid natural gas (LNG) is also being purchased  from Australia and volumes may go up, given New Delhi’s need to diversify sources of energy supply in the backdrop of the West Asia conflict.

Exports are equally focused on energy with the list being headed by refined petroleum products. Pharmaceuticals are also in huge demand as are handicrafts. The proposed comprehensive free trade agreement is still in the works, but this would enable tariff cuts to give deeper access to the Australian market. Currently bilateral trade volumes are of the order of 34 billion dollars annually.

While the Australia leg of the Prime Minister’s tour was predominantly on economic issues, the strategic and defence component of the Quad partnership was also given considerable attention. This is significant especially in the context of the recent revival of interest in the Quad by the U.S. In fact, the subsequent visit to New Zealand was largely to ensure a strategic outreach to the Indo-Pacific region. 

The forty year wait for an Indian Prime Minister to visit Wellington indicates that this is a country that has not been accorded sufficient importance. Any dialogue related to the Indo-Pacific region cannot have meaning without bringing New Zealand on board. It has to be seen whether Mr. Modi’s assurance that there will not be such a long wait for the next visit is actually met in the coming years. 

In any case, this trip has achieved several political and economic goals including strengthening energy security and the strategic partnership with countries that are potential long term allies.