More than liability, n-energy costs need to be addressed

Posted on 6th Feb 2015 by mohit kumar

The last few days have seen the revival of the dormant India-US nuclear deal, signed in 2008. It took six long years for the two countries to declare that issues relating to the deal have been resolved which was claimed as a breakthrough. While one could feel good at finding a solution "culminating towards commercial operation consistent with our laws and international legal obligations", as stated by Prime Minister Narendra Modi, without further details, no clear conclusions can be drawn.

The statements by Prime Minister Modi and US President Barack Obama made during their press conference support this assessment. So the question now is: How soon will the 'breakthrough' lead to accelerated addition of nuclear capacity, thereby addressing the issues of climate change and energy security.

Assuming the answer is sooner than later, there are several other questions which arise and which need to be addressed. Due to the lack of details, there is considerable speculation as to how an issue relating to the liability of suppliers, which dragged on for nearly four years, got resolved in such a 'breakthrough' manner. The fastest, but hardest, route to resolve the issue is to amend the relevant clause (s) of the Civil Liability Act of 2010. This being highly political in nature, keeping in mind the Bhopal tragedy and its aftermath and the commitment by the government not to dilute the Act, the possibility of amending it can be ruled out.

It is understood that an Indian insurance pool led by the General Insurance Corporation (GIC) will be formed to enable the operators and suppliers procure insurance to cover their liability. This idea has been in the air for quite some time now and the progress made is not known. An Indian media report indicated that "a conglomeration of India's largest public sector companies, including the state-owned General Insurance Corporation (GIC), can only provide coverage up to Rs. 900 crore ($146 million) of the required Rs.1,500 crore". Others suggest that only Rs.750 crore will be provided by the public sector companies and the government will supply the remainder to the insurance pool via instruments known as catastrophe bonds.

On the other hand, it has been reported in the US that "Indian and US officials said part of the solution to the liability impasse could be a $122 billion insurance scheme proposed by India. That would be funded by India's government and Indian nuclear companies and be managed by the General Insurance Corporation of India, according to Indian nuclear negotiator Amandeep Gill".

Obviously, there is no clarity on this issue and the Indian government has also not spelt out any details. If the insurance pool is totally Indian, it can be observed that the entire liability, in case of an accident, will have to be picked up by the Indian insurance companies and the Indian government. A serious accident like Fukushima could result in a heavy financial burden on GIC. Hopefully this has been analysed to keep risks well below the break point of the insurance companies.

One possible option for the government is to explore the possibility of the Indian insurance pool becoming part of the global nuclear insurance pool for which some conditions, like allowing reactor inspections, will have to be agreed to. It is interesting to note that organisations like the International Atomic Energy Agency (IAEA) and the World Association of Nuclear Operators (WANO) already inspect reactors from the safety point of view.

One other issue relates to Clause 46 of the Civil Liability Act of 2010 relating to application of other laws. US laws allow victims to directly claim damages from operators, suppliers and designers - though international liability conventions place the liability exclusively on operators. Clause 46 is similar to the US law. Hence, it should not come in the way of moving towards the commercial operation of the deal.

Assuming that all issues related to civil liability are resolved, the crucial issue of cost of energy will also have to be addressed. It is understood that a French offer is stuck because of high capital costs and high unit energy cost.

Lastly, from the Indian standpoint, the aspect of public acceptance/opinion will have to be seriously addressed. Otherwise, all the efforts put in to add new capacity will not only go waste but also negatively impact climate change.

(Rajgopal S. and Debapriya Das are with The Center for Study of Science, Technology and Policy (CSTEP), Bengaluru. The views expressed are those of CSTEP. They can be contacted at rajgopal139@gmail.com and priyadas@cstep.in)