India’s Nuclear Energy Programme On The Right Track, But Obstacles Remain

During Prime Minister Modi’s visit to the United States (US) in June 2016, the two countries reached an important milestone on long-pending civil nuclear cooperation by announcing “the start of preparatory work on site in India for six AP 1000 reactors to be built by Westinghouse Electric Co.” In this regard, the two countries also welcomed the announcement by the Nuclear Power Corporation of India Ltd (NPCIL) and Westinghouse Electric to immediately begin engineering and site design work and to finalise contractual arrangements by June 2017.

Taking place a year after the historic ‘breakthrough understanding’ reached between India and the US, the joint statement of Modi-Obama summit highlighted various steps taken by their respective governments, especially India’s ratification of the Convention on Supplementary Compensation (CSC) in February this year and the launch of Indian Nuclear Liability Insurance Pool (INIP) to move forward on bilateral civil nuclear energy cooperation.

Although the US hailed India’s ratification of the CSC as an important step towards the creation of the global liability regime, the ratification seems to have not helped in assuaging risk perceptions of certain US and possibly French suppliers for supplying nuclear reactors to India. The divergent perceptions of risks by the leading international suppliers is not only puzzling but raises pertinent concerns over India’s CSC ratification as well as the breakthrough understanding reached between India and the US on civil nuclear liability last year.

In this context, I analyse the evolving nuclear liability framework in India and examine issues related to the participation of international as well as India’s domestic industry in country’s nuclear energy programme.

I) India & Civil Nuclear Liability

Since the enactment of Civil Liability for Nuclear Damage Act (CLNDA), 2010, India’s nuclear energy programme has failed to see any new reactor construction with the exception of Kudankulam 3 & 4 projects by Russia’s state-owned Atomstroyexport (ASE). At the domestic front, India’s nuclear energy giants, mainly the NPCIL, have faced considerable difficulties for the past five years to source critical components for its various ongoing projects at Rajasthan Atomic Power Station (RAPS) Unit 7 & 8 and Karapara Atomic Power Station (KAPS) Unit 3 & 4. More important, however, the NPCIL has failed to commence construction work on new sites such as Gorakhpur in Haryana state, where land acquisition was completed in 2013 for building four 700 MWe indigenously designed Pressurized Heavy Water Reactors (PHWRs).

To initiate project activities for the proposed four units of Gorakhpur Haryana Anu Vidyut Pariyojana (GHAVP), the NPCIL issued tenders for the supply of major equipment and components such as end-shield assemblies and associated components in August 2014. In a pre-bid meeting held before the bid submission for the manufacturing and transportation of the tendered components, several Indian suppliers expressed concerns over the suppliers liability clause specified in ‘special contract conditions’ of the tender and demanded liability exemption under the CLND Act. The tenders reportedly lapsed, and the NPCIL could not initiate construction activities at the Gorakhpur site. Also, for some of the ongoing projects such as Rajasthan Atomic Power Station (RAPS) Unit 7 & 8 and Karapara Atomic Power Station (KAPS) Unit 3 & 4, the NPCIL has reportedly faced difficulties in sourcing components and sub-systems.

On the international front so far, the NPCIL has been able to sign only one commercial contract with Russian Atromstroyexport (ASE) for Unit 3 & 4 at the Kudankulam site, where ASE has already completed construction of Unit 1 & 2. The contract for building Unit 3 & 4 at Kudankulam was reportedly signed in April 2014 between NPCIL and ASE. The Russian federation, for long, demanded that all new reactors to be built at the Kudankulam site be kept out of the purview of India’s nuclear liability law since the inter-governmental agreement for setting up additional units at Kudankulam predates India’s civil nuclear liability law.

In this regard, the Indian government had sought legal opinion from erstwhile Attorney General Mr Goolam Vahanvati on whether a liability exemption can be granted to Russia for building additional units (3 & 4) at the Kudankulam site. The Attorney General responded to government’s query by stating that it would be legally permissible for NPCIL to grant such exemption from operators’ ‘right of recourse’ required by the CLND Act. This legal opinion has since then been reflected in various policy pronouncements of the Indian government, including the Frequently Asked Questions (FAQs) on civil nuclear liability released by India’s Ministry of External Affairs. However, for reasons of public policy as cautioned by the Attorney General, the contract for building Unit 3 & 4 at Kudankulam has reportedly taken into account costs arising from suppliers’ liability that will be covered by the liability insurance pool floated under the aegis of India’s General Insurance Co.

The India-US nuclear cooperation has progressed further after the two countries reached a breakthrough understanding on nuclear liability during President Obama’s visit last year. As part of this understanding, India signed the ‘Convention on Supplementary Compensation’ (CSC) in February this year and also launched a liability insurance pool to cover the liability of operators as well as suppliers of nuclear plants.

The Obama administration lauded India’s efforts to address liability issues and assured full support to leading US firms to help ink contractual agreements that will enable them to get a share in India’s nuclear market. As a result, the Westinghouse Corporation has moved forward on the nuclear agreement with India; however, the General Electric (GE) continues to hold back due to concerns over nuclear liability. The Westinghouse Corporation has agreed in principle to start the preparatory site work for six AP 1000 reactors, though the final contract is expected to be signed only by June 2017.

In the case of France, the French firm EDF too, reportedly expressed concern over India’s liability law while offering fresh pricing proposals for proposed six EPR units to be built at the Jaitapur site in Maharashtra. France, which recently acceded to the ‘1988 Joint Protocol Relating to the Application of the Vienna and Paris Conventions’, has demanded that French entities be subject to ‘binding’ international principles of liability as enshrined in India-France nuclear cooperation agreement signed on 30 September 2008. While the French entities acknowledged the steps taken by India, such as the launch of nuclear insurance pool to address suppliers’ concerns, it nevertheless remains to be seen how India and France will move forward on civil nuclear energy cooperation, amidst concerns over pricing and liability.

II) India and CSC

On 4 February 2016, India formally submitted the much-awaited instrument of ratification of the Convention on Supplementary Compensation (CSC) to the International Atomic Energy Agency (IAEA), which entered into force on 4 May 2016.

The CSC is a free-standing instrument open to all states for becoming members where states can become a party to it without acceding to the Vienna or Paris Conventions. In that case, however, the CSC requires the joining state to have a national legislation that is in conformity with the provisions of the Convention and the Annex.

The need for India to join the international regime on nuclear liability such as the CSC was long-felt for a variety of reasons. Not only does CSC provide for prompt compensation to the victims of nuclear accident on a no-fault liability basis but also guarantees supplementary financial assistance from the international community in managing the compensation claims that might arise in the event of a nuclear incident.

After the Indian Parliament had enacted the CLND Act in September 2010, the Indian government signed the CSC in December 2010; however, it took more than five years for India to ratify the Convention. The US welcomed India’s ratification of the CSC, notwithstanding the apprehensions successive US administrations had expressed over the compliance of CLND Act with broad principles of the CSC.

On several occasions in the past, the US officials, as well as legal experts in India and abroad, debated the conformity of India’s CLND Act with the CSC. For instance, Article 10 of the Annex to the Convention stipulates that national law may provide the operator with a right of recourse only:

(a) if this is expressly provided for by a contract in writing; or

(b) if the nuclear incident results from an act or omission done with intent to cause damage, against the individual who has acted or omitted to act with such intent.

Section 17 of India’s CLND Act stipulates that the operator of the nuclear installation, after paying the compensation for nuclear damage in accordance with Section 6, shall have a right of recourse where:

(a) such right is expressly provided for in a contract in writing;

(b) the nuclear incident has resulted 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;

(c) the nuclear incident has resulted from the act of commission or omission of an individual done with the intent to cause nuclear damage.

A close reading of the two sections above shows that Sections 17 (a) & (c) included in the CLND Act are very much in consonance with the CSC. Section 17(b), which, arguably, goes beyond what the CSC provides, has been the cause of considerable unease among the US policymakers and nuclear industry suppliers.

The Principal Deputy Assistant Secretary, Bureau of South and Central Asian Affairs, State Department, Geoffrey Pyatt had outlined concern on compatibility between the CSC and the 2010 Nuclear Liability Act as follows:

On its part, India however, always held that the CLND Act was broadly in conformity with the CSC and that Article XVIII (a) of the CSC only requires the acceding state to declare that “its national law complies with the provisions of the Annex to the Convention.”

Furthermore, the Indian officials have justified the inclusion of Section17 (b) on the grounds of Article XII (2) of the CSC, which stipulates that “nothing in this Convention shall prevent any Contracting Party from making provisions outside the scope of the Vienna or the Paris Convention and of this Convention, provided that such provision shall not involve any further obligation on the part of the other Contracting Parties....”.

Subsequently, through the release of ‘Frequently Asked Questions’ (FAQs) on civil nuclear liability, the Indian Government unambiguously stated that “The provisions of the CLND Act are broadly in conformity with the CSC and its Annex...and that the CLND Act is compliant with the Annex to the Convention.”

During President Obama’s visit to India in January 2015, the two countries announced a “breakthrough” on these diverged interpretations. A year has passed since then, and the finer details of what the two countries agreed upon have yielded some gains for civil nuclear cooperation. The US has hailed India’s ratification of the CSC as an important step towards creating a global nuclear liability regime, and there has been little dissension from the US over India’s CLND Act. While it is not clear how the debate over conformity of India’s CNLD Act with internationally established principles, especially the principle of ‘legal channelling’, may unfold in the future with CSC’s future expansion, at this juncture the US administration at least appears content with India’s CSC ratification and keen on moving forward on nuclear cooperation.

III) Liability Insurance and Nuclear Industry

Another crucial impediment for nuclear suppliers, whether Indian or foreign, has been the absence of a suitable insurance product to cover the risk for nuclear suppliers. Section 8(1) of the CLND Act requires that the operator of the nuclear installation take out an insurance policy or such financial security covering his liability before commencing operation of the nuclear installation. Accordingly, in June 2015, the Indian Government announced the setting up of India nuclear insurance pool (INIP) with a capacity of Rs 1,500 crore under the aegis of India’s General Insurance Corporation (GIC), along with several other Indian insurance companies, on 12 June 2015, thereby becoming the twenty-seventh nuclear insurance pool in the world.

The pool will cover the liability of the nuclear operator under Section 6(2) of the CLND Act and the suppliers under Section 17 of the Act. The GIC has recently announced the issuance of first policy cover for a premium of approximately Rs 100 crore to 21 nuclear plants under the NPCIL. The pool is expected to issue suppliers’ insurance policy separately. The premium for suppliers’ insurance is likely to be calculated based on a probabilistic assessment of risk for individual and group of components used in a nuclear reactor.

The pool has been launched amidst difficulties faced by the NPCIL to source equipment for two of its indigenous reactor projects under construction from the domestic suppliers, who have long-demanded a waiver from recourse liability stipulated by the CLND Act. The attitude of the Indian suppliers towards INIP will, therefore, be a crucial determinant of future expansion of India’s indigenous programme.

IV) Prospects for Nuclear Industry

Since the enactment of India’s nuclear liability law in 2010, the policy framework for enforcing liability has evolved considerably in terms of addressing concerns of the suppliers at home and abroad.

First, India’s ratification of the CSC raised an expectation of rapid progress on deals for American companies to build new reactors in India. The CSC ratification, however, is clearly not a pre-condition for international suppliers to participate in India’s nuclear energy sector. In the event of any accident, the Indian courts would decide on lawsuits only in accordance with the CLND Act and that the CLND Act will principally override the CSC.

The decision of the suppliers to participate in India’s civil nuclear expansion would, thus, be based purely on their interpretation of the various sections of the CLND Act, including those pertaining to recourse and concurrent liability. This is clearly evident from the divergent risk perceptions of US entities such as Westinghouse and General Electric (GE), wherein the latter has chosen to stay out of the Indian market despite India’s allocation of a site for building as many as six nuclear reactors.

Second, given the improbability that the Indian Parliament will amend the CLND Act to address suppliers’ concerns, the resolution of the impasse over suppliers liability has to be found through a set of administrative measures, including a suitable insurance mechanism. Another important measure, in this regard, is the rules notified under the CLND Act, which have limited the quantum and the duration of the supplier’s liability to that of operator’s liability, which is Rs 1500 crore, and for a period of initial license issued by the Atomic Energy Regulatory Board (AERB), which is five years.

The legality of the liability rules, however, is under challenge in India’s Supreme Court through a Public Interest Litigation, which disputed the constitutional validity of the CLND Act and the rules therein. While it remains to be seen how India’s Apex Court might approach the issue of constitutionality, it will nonetheless set an important precedent for supplier’s liability in the Indian context.

In conclusion, the complexities in India’s nuclear liability framework do not augur well for the large-scale expansion of nuclear energy sector that the country has set out to achieve in the years ahead. Furthermore, the Indian liability framework might have consequences for the global liability regime, which are not fully crystallised just yet.

While the current policy efforts at devising administrative measures to get around the liability hurdles are commendable, they appear insufficient in terms of offering predictability and assurances required by the nuclear suppliers in India and abroad. Till such confidence is restored between the operator and the suppliers, new nuclear power capacity addition in India is likely to be delayed further with no real breakthrough in sight.