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Nuke bill’s success will depend on legal hair-splitting

delhi Updated: Aug 27, 2010 01:58 IST
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India’s nuclear energy future lies in the hands of corporate lawyers. Nuclear industry, both overseas and at home, are assessing how difficult the Civil Liability for Nuclear Damages Bill will make it for nuclear suppliers to do business in India. The initial reaction in the US has been negative. But the final word, say analysts and industry sources, will lie with insurance companies.

By including a clause on suppliers’ liability, the Indian bill seems to deviate from an international norm of holding the reactor operator solely liable for nuclear damages. The problem: such liability means nuclear suppliers must acquire insurance. Without this, they cannot sell components to an Indian reactor.

“In India such insurance is unavailable. Overseas, such coverage exists only for an assessable period of risk,” says Suhaan Mukerji, lawyer for Amarchand Mangaldas. Normally, for nuclear parts, this period is two years. A far cry from the 80 years that the bill calls for.

US industry, which cannot receive guarantees from their government, is particularly distressed. “The bill puts onerous burdens on suppliers,” says Ashley Tellis, a key negotiator of the Indo-US nuclear deal during the Bush administration. “As it stands now it could open the door to all kinds of litigation that would make it very difficult for Indian and international suppliers.”

Tellis fears the bill will cast a shadow on the coming visit of President Barack Obama. “There is going to be a reaction even before he goes to India. That reaction is not going to be very favourable.” One firm, Westinghouse-Toshiba, says a Washington lobbyist, is close to giving up on the Indian market.

France, whose nuclear power firm Areva is in talks to sell reactors to the Nuclear Power Corporation of India, is similarly concerned about the bill’s consequences. Even if the French government were to consider extending insurance, Areva had expected to outsource 60 per cent of the reactor parts to Indian suppliers. This would not be possible if the latter, say French officials, cannot get insurance. But without Indian parts, the reactor price would rise dramatically.

If the business is large enough, argues MR Madhavan of the Parliamentary Research Service, the market will provide insurance. “But the cost will be passed on to the customer. If the cost is too high, nuclear power will be unviable.”

Nuclear operators today pay insurance coverage of 0.3 to 0.5 per cent of the liability per annum. If a supplier were charged the same rate, he says, this would mean on the bill’s maximum liability of 15 billion rupees the premium would be Rs 75 million. “But if every supplier has to take this insurance, meaning multiple coverage for the same event, the cost of the power would be too high.”

The sense of chagrin with the US, however, will be greater because Washington worked hard to get the world to agree to lift the ban on selling India nuclear reactors. The US believes it had received assurance from India the bill would be compliant with the international Convention for Supplementary Compensation, where liability lies solely with the operator. Indian diplomats say they believe the bill remains CSC compliant. The State Department’s preliminary view is that it isn’t.

Senior Indian sources admit the bill was not quite what New Delhi had wanted. However, they say, getting some form of liability legislation was a necessary first step. If the suppliers do not come, they say, then it is possible India would revisit its nuclear legislation sometime in the future. Mukerji points out that if India signs the CSC, as its Department of Atomic Energy wants, then it would per force need to conform its domestic laws to the obligations of the international treaty.