India: The Long Road to Nuclear Trade

By Hendrik Tammen (Enricopedia), http://commons.wikimedia.org/wiki/File:Nuclear_power_plant_blue.svg

July 5, 2013: The Indian press recently carried several stories reporting some forward movement toward sale of U.S. nuclear reactors to India. A closer look at the state of play suggests that we are indeed inching forward toward the nuclear trade made possible by the India-U.S. Agreement on Civil Nuclear Cooperation, but the finish line is still agonizingly far.

The problems come from three sources. Some of them affect all potential international suppliers of nuclear reactors:

  • U.S. procedural and legal constraints
  • Indian processes
  • Indian liability law

One year ago – on June 13, 2012 – Westinghouse issued a press release announcing that it had signed a Memorandum of Understanding with the Nuclear Power Corporation of India, Ltd. (NPCIL) agreeing to negotiate an Early Works Agreement supporting future construction of nuclear power plants in Gujarat. In early 2013, Westinghouse obtained the necessary authorization from the Department of Energy to release design information to the Indian authorities, making possible the beginning of site surveys by Westinghouse and design evaluation by NPCIL. However, the Hyde Act, which made possible civilian nuclear trade with India, imposes on the U.S. government reporting requirements that make it necessary to track each transaction in detail.  As a result, exports of nuclear technology to India need to be authorized on a case by case basis.  The imposition of these “new” requirements by Congress in the final Hyde Act amendment has been a source of irritation with the Indian government, which believes it is only obligated to comply with the terms of the 123 Agreement.   This has made for a slow approval process.

Ordinarily, the first contractual step toward selling a reactor in India would be the conclusion of an Early Works Agreement, which permits the supplier company to begin with essentially non-nuclear aspects of preparing the site and obtaining certification of the reactor by India’s nuclear regulatory authorities. There are many complications in negotiating such an agreement, not the least of which is that NPCIL has little experience dealing with the U.S. supplier companies.

One of the biggest is Indian law. In 2010, India passed a liability law which explicitly gives nuclear plant operators the right of recourse against suppliers in the event of an accident at a nuclear reactor. The United States and other potential supplier countries objected strenuously at the time. The United States pointed out that this was at variance with global norms, including the IAEA-sponsored Convention on Supplementary Compensation, which India has signed and which put the liability burden on the operator. In the case of the negotiations for early works agreements, liability puts a huge question mark on any cost estimate, and no company will want to sign any undertaking that could be construed as implicitly assuming that burden.

This suggests that the target date of September that Secretary Kerry and Indian Foreign Minister Salman Khurshid announced for signing a contract may be over-ambitious. But the more fundamental problem is how to deal with the liability law down the road.

Because of the massive potential risk involved, all potential suppliers, including Russia and France, have tried to steer around this problem. Russia has argued that its supply contracts predate the liability law and should be grandfathered. France is reportedly seeking to reflect liability in the purchase price – but the price increase may come as a shock. Other proposals that have surfaced involve innovative corporate structures that would in practice cap liability. The Indian government has urged suppliers to wait for the implementing regulations, but has not indicated how it might be possible to work around what seems to be the plain language of the law.

The result is that nuclear reactor projects are moving at a glacial pace across the board. There is speculation about the possibility of amending India’s legislation, some time after new elections expected in spring 2014. This is strengthened by comments S.K. Jain made soon after he stepped down in 2012 as head of NPCIL, indicating that the current liability law put an unacceptable administrative burden on NPCIL and the operators.

In what may be the ultimate irony, there are indications that the hitherto solid support for nuclear power in India may have a few cracks. There was a good deal of quiet concern after the Japanese nuclear disaster following the 2011 tsunami and earthquake. The start of construction at the Russian-supplied plant in Kudankulam, in southern India, was greeted with massive protests. A retired senior Indian diplomat who had served as his country’s representative to the IAEA said in a public speech in Washington that it might be that, in the post-Fukushima world, a massive nuclear power program was no longer a good idea for India. He stressed – correctly – that this is very much a minority view, but with an election looming in less than a year, it may add to the cautious approach the Indian government is taking.

Teresita C. and Howard B. Schaffer

2 Comments

  1. Ainslie Embree says:

    Many thanks – informative and much needed clarification!

  2. Balachandran says:

    What is your opinion on the consequences of no commercial nuclear reactors deal between India and US- as would be the case with other countries as well? There is no likelihood of any amendment to the Indian nuclear liability act which has the right of recourse- which US as well as companies from Russia and France as well don’t like. India promised to ratify the CSC by 2011 and which has not been done yet and the US seems to have dropped that idea. I suspect the same will happen to the promised nuclear deal by September or whatever. So the question is: Will that affect the India-US bilateral strategic partnership not at all/ a bit perhaps/ little bit in the short term but not in the long term/ quite a lot. depending on that one can evaluate whether it will be useful to devote sometime to figure out various ways in which the dilemma can be resolved without amending the law and without saddling the suppliers with a possible indeterminate liability for an indeterminate time period.

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