“India can’t reinvent the language on liability," said Jeffrey Immelt, CEO of General Electric (GE), announcing the decision not to invest in India and put his company to risk. With these words, the veneer of success from the January “understanding" between India and the US on India’s civil nuclear liability disappeared into thin air. Immelt’s announcement is also a blow to India’s nuclear energy ambitions, which have reportedly already been lowered from the target of 63GW to 27.5GW in 2032.

During Prime Minister Narendra Modi’s visit to the US in September 2014, the sagging relations between the two countries received a fresh lease of life. Among other things, a contact group was established with a mandate to advance the implementation of civil nuclear energy cooperation which had been in limbo since the Indian Parliament passed the Civil Liability for Nuclear Damage (CLND) Act, 2010. Later, Modi invited US president Barack Obama as the chief guest for the Republic day parade on 26 January 2015.

It was the first time a US President was invited for the biggest national celebration. It was also the first time a US President was visiting India twice during his tenure. The symbolism was undoubtedly rich. “But how can you deliver substance within four months?" the skeptics asked. With the visit announced, the contact group took the cue and met thrice in New Delhi, Vienna and London within a span of a little more than a month.

While addressing the media after the talks, Obama announced the “breakthrough understanding" on civil nuclear cooperation. Modi followed by expressing his pleasure with the two nations “moving towards commercial cooperation, consistent with our law, our international legal obligations, and technical and commercial viability".

Since the difficult questions refused to vanish, the ministry of external affairs (MEA) released a compendium of frequently asked questions and their answers. The MEA release claimed that the CLND Act, 2010 is compatible with the Convention on Supplementary Compensation for Nuclear Damage (CSC) which rules out supplier liability in case of a nuclear incident. Section 17(b) of the CLND Act, 2010, however, provides the operator with the right to recourse when the incident has occurred as “a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent or latent defects or sub-standard services". This section, despite a laboriously persuasive interpretation by MEA, has successfully deterred GE from investing in India.

Another headache for the probable investors has been around the amount of compensation. Section 6(1) limits the maximum liability to the rupee equivalent of 300 million Special Drawing Rights or SDRs (a little less than 2,800 crore) of which the operator is liable for a maximum of 1,500 crore (section 6(2)). The gap will be bridged by the government of India. A mechanism of an insurance pool put on the table to cover the risks of operators and suppliers failed to convince GE. The insurance premiums will have, claims MEA, minimal impact on the cost of power plants.

If the liability exceeds the stipulated 300 million SDRs, the government of India can access international funds under the CSC once it is party to it. As things stand today, India has not ratified the convention. According to MEA’s release, CLND Act, 2010 provides the basis for India joining the CSC, a claim which is tenuous at best, given the divergence on liability clause. The big question is: Can the foreign reactor suppliers depend on Indian courts to deliver the same interpretation as MEA in the aftermath of a nuclear incident, god forbid if it were to occur?

Another major US-based supplier, Westinghouse, is yet to decide on investing in India. They have spent the last eight months examining the fine print of US-India “understanding"; it won’t be a big deal if they spend the next eight doing the same. What further complicates the matter is the stake held by Japanese company Toshiba in Westinghouse and the non-existence of an Indo-Japan civil nuclear cooperation treaty.

Government spokespersons may quote the progress of civil nuclear cooperation with France and Russia to offset the setback with GE. The status of cooperation with Russia indeed looks better. One of the two Russian built reactors at Kudankulam is already in operation. The two countries have agreed to build at least 12 more reactors in India in the next two decades.

The deal with French company Areva, however, has serious chances of running into rough weather. After years of negotiation, Areva agreed to lower the cost of power produced at Jaitapur Nuclear Power Plant (JNPP) from its initial quote of 9.18 to 6 per unit. But Areva’s financial woes have severely crippled its ability to deliver this project. Areva’s projects in Olkiluoto (Finland) and Flamanville (France) are witnessing protracted delays.

During Modi’s France visit, Areva and Larsen and Toubro (L&T) signed a memorandum of understanding (MoU) “to explore avenues of collaboration for the future Jaitapur project". L&T, by supplying critical parts, can help bring down the costs of the project and make it viable. The progress in Areva’s EPR reactors at Taishan in China also offers a ray of hope.

Currently, India’s nuclear installed capacity is below 6 GW which is merely 3.5% of total electricity generation in the country. Any rapid progress is unlikely, given the uncertainty around India’s liability clause, financial woes of reactor suppliers and increased cost of nuclear energy in post-Fukushima world. The “breakthrough understanding" with the US does not help either.

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