Special Report: Nuclear Law and Liability Developments in India (Part 3 of 3)

INTRODUCTION

In early May, we started this special series on the developments in nuclear law in India. In Part 1, we examined the key historical and legal developments in India’s nuclear law regime. In Part 2, we then turned to the recent India-US trade deal and asked whether the deal would finally resolve unanswered questions as to the extent of liability for foreign suppliers of nuclear technology and supplies.

This week, in the final post of this series, we explore the establishment of the India Nuclear Insurance Pool (INIP) by drawing on multiple sources, including the recent talk by Els Reynaers-Kini – a Partner at M.V. Kini law firm in Mumbai – at a Mindfirst seminar in Toronto. To conclude, we ask what may come next for nuclear law and nuclear development in India and suggest a number of issue areas in need of further exploration and discussion.

THE INSURANCE POOL

On May 27, Els Reynaers-Kini gave a talk at a Mindfirst seminar on developments in nuclear liability in India. One of the key aims of her talk was to discuss the practical implications for Canadian parties interested in establishing commercial exports of civil nuclear energy technology and uranium.

One of key roadblocks to increased foreign investment and trade in India’s nuclear sector has been the 2010 Civil Liability for Nuclear Damage Act (the Act). The Act uniquely expanded the scope of liability beyond the operator to the suppliers of the technology used in the civilian nuclear energy sector. Under s 17(b) of the Act, a specific right of recourse was granted to the operator, enabling them to pursue damages against suppliers where…

…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.

Earlier this year, US President Barack Obama travelled to India and, together with Indian Prime Minister Narendra Modi, announced that both countries had agreed on a new foreign investment framework for nuclear technologies. While the announcement was met with great fanfare, left unresolved was the specific insurance and liability regime that foreign suppliers would be subject to under the Act.

Under s 8 of the Act, it is mandatory for the operator to take out an insurance policy or other financial security. However, as Ms. Reynaers points out in her talk, up until recently, insurance policies only provided coverage for “cold zones,” areas where no nuclear reactions take place. Bank guarantees, as another form of financial security, were not enough to cover the liability risks and thus a new insurance structure was needed to accommodate the operators and the suppliers.

After months of newly invigorated negotiation, in June the Indian government formally announced a new insurance pool of Rs. 1,500 crore (US $234 Million) that will provide coverage to operators and suppliers. The pool will be managed by the state-owned reinsurer, GIC Re. The fund will cover the risks of the liability for the operator, pursuant to s 6(2) of the Act and suppliers under s 17 of the Act. As Ms. Reynaers also noted in her talk, premiums will be roughly 2% of the insurance amount and will vary depending on a number of facts considered under the the Department of Atomic Energy (DAE)’s Probabilistic Safety Assessment study.

The announcement of the INIP’s formation will, in the long-term, likely be seen as a major turning point in the story of India’s nuclear energy development. It is, in a sense, a compromise of public policy and business – allowing for the right of recourse under the Act while building in security and certainty for foreign suppliers and the operators of India’s current and future nuclear power plants.

NUCLEAR POWER AND INDIA: WHAT’S NEXT?

As of July 2015, there is a great deal of activity in India’s nuclear sector. Deals are being signed for new reactors, and GIC Re is already talking about ways in which they want to enable the INIP to be a “one-stop” facility for covering all nuclear risks. For perspective on growth in the Indian nuclear sector overall, see the graph below.

indias_nuclear_power_capacity_2016

 

Source: World Nuclear Association

In the long run, India hopes to supply 25% of its electricity from nuclear power by 2050. While the road up until this point has been rough, India is uniquely positioned to leverage it’s massive population and increasing industrialization to spearhead development. In addition, the country’s cutting edge research into fast reactors and the thorium fuel cycle will help it develop a stronger presence in the nuclear sector beyond it’s own borders (for a current snapshot of the industry, see the the “Heavy Engineering in India” report by the WNA here). In short, there are tremendous opportunities now not only for foreign suppliers working in India, but India’s own industry players abroad.

Returning back the INIP now, in the coming months and years, careful attention must be paid to the exact structure of the contractual arrangements between suppliers and operators in India. As Ms. Reynears pointed out in her concluding slides, it will be crucial that precise definitions are laid out and that parties remain cognizant that the INIP is only advisable for suppliers (while it is mandatory for operators). However, if a supplier chooses to not take part in the INIP coverage, the INIP/GIC Re can still try to establish fault in Indian courts against the supplier.

In summary, in the short term the establishment of the INIP has ameliorated many of the concerns of foreign suppliers and local communities alike. As we discussed earlier, it both allows for recourse against those who may be at fault, while also building in some security and certainty for those suppliers who may find themselves liable. It is, thus, a compromise. However, as we noted above, there are many details and angles to the INIP that will require careful navigation by all parties involved. Let’s hope that, in time, the experience will be a smooth one and that India can continue towards its nuclear goals.

 

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