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.

 

Summary report for Future of Nuclear seminar – Nuclear Liability Developments in India, May 27

On May 27th attendees of the Future of Nuclear seminar series had the privilege to hear Els Reynaers discuss recent nuclear liability developments in India. Specifically, the discussion focused on the practical implications for Canadian parties interested in establishing commercial exports of civil nuclear energy technology and uranium.

A review of India’s current energy mix, as well as the country’s ambitious projected energy scenarios provided context for the discussion. By 2050, India wishes to meet 25% of its electricity needs through nuclear energy, a significant increase from the roughly 2% the industry currently represents. Thanks to key international developments, specifically a 2008 exception from Nuclear Supply Group (NSG) guidelines that previously restricted the transfer of technology, it seemed India was on-route to meeting their targets with the help of foreign participation.

Nevertheless, for this union to be successful, foreign nuclear vendors, regulators, and suppliers had to navigate India’s Civil Liability for Nuclear Damage Act (CLND). It is precisely here where the challenges lie. Chief among them were issues regarding the value and time frame of supplier liability, as well as what constitutes a supplier and the right to legal recourse in the event of a nuclear incident.

In response, the recent India-US agreement represents a commitment to address the stipulations of the CLND and so encourage foreign partnerships. The recently launched India Nuclear Insurance Pool (INIP) serves this purpose by providing funds to cover both operator and supplier liability risks and thus generate investor confidence.

Towards the end of the discussion, insightful questions were brought forth that spoke of support as well as the need to delve into the details of both the CLND and INIP. For partnerships to thrive, it is key that the aforementioned challenges be addressed. While we await the finalization of the India-US agreement and INIP policies, the lines of communication between interested parties will be kept open.

Written by Alejandra Tobar, B.Sc. Candidate, University of Toronto

 

Special Report: Nuclear Law and Liability Developments in India (Part 2 of 3)

Introduction

Last week, in Part 1 of this Special Report, we explored the history of India’s nuclear law liability regime and the passing of the 2010 Civil Liability for Nuclear Damage Act. We ended by highlighting how the 2010 Liability Act effectively drove a wedge between international suppliers and India’s nuclear industry by exposing suppliers to increased liability in the event of accidents.

Today, in Part 2, we will discuss and analyze the recent India-US agreement on nuclear trade and liability. In addition, we will canvas news reports and opinion pieces to get a sense of the reaction’s of industry experts and observers.

Part 2: The India-US Agreement

In January of this year, U.S. President Barack Obama visited India to meet with Prime Minister Narendra Modi. One of the key goals of the president’s trip was to formalize an agreement on nuclear development and liability issues.

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(Image Source: Reuters via the BBC)

As a report by Dan Roberts in The Guardian notes, the threat of tough Indian compensation laws – specifically the 2010 Liability Act – had “frustrated US hopes of an export boom in the energy sector.” As of May 2015, the details of the deal are still being finalized. However, certain baseline elements are set. As this Reuters report lays out, the deal sets a framework for the US nuclear industry to enter commercial talks with India’s nuclear operators by resolving two concerns, inspections and liability.

On the issue of liability specifically, the agreement upholds the strict liability regime and the supplier liability provisions of the 2010 Liability Act. However, to address supplier concerns, India will establish an insurance pool to cover liability up to a hard cap. The insurance pool, which would be backed by the state of India, would cover operator liability of up to 15 billion rupees (around $250 million US). Any recourse sought by the operator against a supplier could not be exceed this figure. In addition, insurance premiums for suppliers would be a fraction of the amount paid by the operator of the plants.

The Reuters report also highlights that in the event of a large scale incident, the Indian government would cover additional costs up to $420 Million (US) and, for additional funds, the report says that India would need to join the IAEA Convention on Supplementary Compensation for Nuclear Damage (CSC).

Following the India-US agreement, India has made it clear that the 2010 Liability Act will not be amended. A report from the India Express highlights the government’s position that

the foreign suppliers of the reactors cannot be sued for the damages by victims of a nuclear accident but can be held liable by the operator who has the right of recourse that could be operationalised through the contract between the operator and the supplier.

As a result, the agreement should not be viewed as a reform of India’s liability laws, but as an agreement to work within those laws by establishing an insurance pool for the operators and suppliers. In retrospect, it is clear that it was very important that India maintain its liability regime, as public and political opinion favoured increased liability for foreign suppliers following the Bhopal disaster in 1984. The agreement thus establishes a mechanism that keeps this regime in place while allowing for increased international nuclear trade.

Reactions to the Agreement and Concluding Thoughts

Reactions to the agreement have been mixed in the ensuing days and months. Partly, this is due to the fact that many of the details of the insurance pool have yet to be finalized. In an interview with Germany’s Deutsche Welle (DW), Mycle Schneider, an independent international consultant on energy and nuclear policy, shared concerns about the deal;

apparently, no specific document was signed. The Indian government reportedly announced its plan to set up a 122 million USD insurance fund to cover operators and suppliers from liabilities in case of an accident. Senior US nuclear industry officials stated they need to understand the “fine print” of the insurance. Equipment suppliers are keeping the champagne on ice, as one Indian business journal commented.

Mr. Scheinder, when asked if he expects the Indian market to become more appealing for US companies, says that “there is no real market for foreign companies in India, unless they bring their own funding. Under free market condition, it is not possible anymore to build a nuclear power plant anywhere in the world.”

A recent article on Monday by Ran Chakrabarti, an Indian lawyer, echoes similar skepticism.

It remains to be seen whether the Act and the Rules set out a balanced framework, encouraging suppliers to dip their toes into the Indian nuclear energy market, yet protecting the legitimate interests and concerns of the public in the event of a nuclear accident.

Given the complexity of nuclear development and the liability regime in India, it’s clear that this agreement will not be a panacea for all of the industry’s problems. As we’ve seen in these criticisms, and throughout India’s history, the role of foreign companies and governments in trade and development has been at times troublesome and, at other times, even disastrous.

However, India is growing at incredible rates and, as we explored in Part 1, lacks access to domestic energy resources such as coal and oil (which have driven China’s much faster economic growth). As a result, nuclear energy can help provide for a better base capacity for the country as it continues to also develop renewables such as wind and solar. In Part 3, to be published in the coming weeks, we will explore the future of nuclear in India and also focus on the ongoing finalization of the US-India agreement.

Topic announced for May 27 seminar

We are pleased to announce the topic for the next Future of Nuclear seminar: on May 27, Els Reynaers will speak on the recent breakthroughs in India regarding nuclear liability and trade:

The recent Indo-US political breakthrough: A catalyst towards effective commercial negotiations in civil nuclear trade?

U.S. President Obama’s visit to India on 25 January, 2015 led to a significant political breakthrough between the two nations which should finally enable commercial negotiations in the civil nuclear sector to materialize.  The legal contours of the political understanding became clearer after the Ministry of External Affairs, Government of India, published an “FAQ and Answers” on India’s Civil Liability for Nuclear Damage Act, 2010 – a law with unique characteristics.  One of the key outcomes of this recent denouement is the creation of an Indian Nuclear Insurance Pool (INIP) that would offer a nuclear insurance liability policy not only to the nuclear operator in india but also its suppliers.  On May 27, Els Reynaers will discuss these legal and insurance-related developments in India, and what it means for Canadian nuclear vendors, regulators, and suppliers.

To learn more about this event, and to register to attend, click below:
http://futureofnuclearseminar7-nuclear-liability-india.eventbrite.com/?aff=futureofnuclear