How Modi & Obama’s back-room boys broke impasse on n-deal in London

By Ajai Shukla

Business Standard, 27th Jan 15

Washington and New Delhi have announced that they have bridged the gulf that has deterred US nuclear power generation companies from entering the Indian market since 2008, when the US-India civil nuclear agreement was signed.

On Sunday, President Barack Obama hailed the “breakthrough” agreement after talks with Prime Minister Narendra Modi. Modi stating that India was “moving towards commercial cooperation (with the US in nuclear power generation), consistent with our law, our international legal obligations, and technical and commercial viability.”

Yet, the joint statement issued by the two countries contained no details of how both sides’ concerns have been met.

American interest in setting up nuclear plants in India had been stopped dead in 2010, when New Delhi passed a law called “The Civil Liability for Nuclear Damage Act, 2010” (hereafter Nuclear Liability Act). Departing from global practice, which makes only the nuclear plant operator liable to pay compensation in the event of a nuclear accident, India’s Nuclear Liability Act allowed for claims to also be made on the supplier of the nuclear plant and fuel.

US companies like General Electric and Westinghouse, which hope to supply reactors to India, argued that liability should rest with the operator alone. In India, the operator is the Nuclear Power Corporation of India (NPCIL).

India’s position hardened after the Fukushima Daiichi nuclear disaster unfolded from March 11, 2011, when a tsunami knocked out emergency power supply in the Japanese power plant, eventually displacing 150,000 people and triggering a cleanup operation that will cost some $200 billion.

Three major differences had emerged between the US and Indian sides over years of negotiations. The first was a US demand, first made in 2012, for “tracking” nuclear material supplied to India, on a “cradle-to-grave” basis. New Delhi flatly rejected this, on the grounds that the 2008 agreement with the US only permitted inspections by the International Atomic Energy Agency (IAEA), that too only within 14 plants placed under safeguards. The US has now dropped this demand.

The second sticking point was over Section 17(B) of India’s Nuclear Liability Law, which allows the Indian operator to recover costs from the supplier, if an accident were caused by defective materials or equipment. It was believed that this responsibility would encourage suppliers to adopt higher safety standards.

This impasse has been resolved by insuring suppliers against Section 17(B) risk, with General Insurance Corporation (GIC) --- India’s national re-insurer --- which will establish an insurance pool, from which damage payments could be drawn.

Bloomberg News quotes Amandeep Singh Gill, joint secretary of disarmament in India’s foreign ministry, as stating that GIC and four other public sector companies would set up an insurance pool valued at Rs 750 crore ($122 million), with New Delhi contributing more later.

“It appears as if the risk premium is low enough to not place a serious burden on the suppliers”, says Siddhartha Varadarajan of Shiv Nadar University.

The third point of dispute flowed from Section 46 of the liability law, which permitted nuclear accident victims to file tort claims for compensation under general principles of law. The US companies believe this would expose them to practically unlimited liability in the event of a nuclear disaster.

The government of India has now provided a written undertaking, apparently from the Attorney General, that this liability would not extend to the foreign supplier.

On Sunday, US ambassador to India, Richard Verma, said both sides had agreed that liability would operate “through a memorandum of law within the Indian system” and would not “require at this stage a legislative undertaking.”

Even so, it remains unclear how New Delhi’s undertaking would withstand the legal challenges that seems inevitable. “This would have to be embodied in some form in the liability law at a future stage”, says Varadarajan.

Verma admits that US companies would have to do their own risk assessment before entering the Indian market.

Danny Rodericks, chief executive officer of Westinghouse, told NDTV on Monday that “We need to look at the new things that have come out… we need to look at the fine print of that and go through (it) in detail.”

Rodericks also said that his Indian partners, like L&T, were anxious to get started on actual projects.

The agreement was reached in intensive negotiations between Contact Groups that Obama and Modi had set up in September specifically to break the deadlock. The groups met thrice over the last two months, including a three-day meeting in London last week where the deal was sealed.

India, which currently produces less than 5,000 megawatts of electricity (MWe) in nuclear power plants, hopes to increase this to 20,000 MWe by 2020, and to 63,000 MWe by 2032, meeting 25 per cent of its total needs by 2050.