India: Nuclear Power Projects In India And Liability Issues

Last Updated: 3 December 2009
Article by Sumeet Kachwaha

First Published in Construction Law International, Volume 5, Issue 1, March 2010.

[Transcript of talk delivered on 5th October 2009 at Madrid on the occasion of the International Bar Association Annual Conference]

My talk is in two parts. In the first part I propose to give a bird's eye view of our nuclear and power sector. In the second part I would like to talk about India's nuclear liability regime.

Part I

Current Power Situation:

On paper we are the 5th largest producer of electricity in the world. Our transmission and distribution system is the 3rd largest in the world. But these are misleading figures. In reality India has one of the lowest per capita power consumption in the world i.e. a mere 700 KW per annum. The transmission and distribution losses are about 40%. Power outrages are common with 16% shortfall at peak demand time.

The chronic power shortage India has faced over the decades has significantly impacted its GDP.

Coming to the nuclear sector: India has a unique position in the array of nations with nuclear capabilities. Our nuclear capabilities go back over five decades but our civil nuclear programme could not progress beyond a point. This was essentially because India did not become a party to the Non-Proliferation Treaty of 1970 (NPT). India could not become a member of the NPT because it exploded a nuclear device in 1974 and accordingly did not qualify as a Nuclear Weapon State under the NPT (under the NPT only countries which had weapon capability before 1970 were accorded the status of Nuclear Weapon State). It became politically impossible for India to sign the NPT because it would have to disarm its defence nuclear programme and join as a Non-Nuclear Weapon State. Further India considered the treaty discriminatory and unequal. However sitting out of the NPT cost India dearly because it got excluded from world nuclear trade. It had to largely do without technical or fuel assistance from other countries. Absence of fuel specially impacted India significantly because our indigenous resources of uranium are very modest.

Thus India desperately needed to get back into the nuclear family fold. The break through came on 2nd March 2006 when India and US signed a civil nuclear co-operation agreement. This paved the way for India entering into a safeguards agreement with the International Atomic Energy Agency (IAEA). In short India agreed to separate its civil facilities from its military facilities and subject its civil facilities to IAEA inspections and safeguards. India agreed to continue its unilateral moratorium on nuclear testing and not indulge in nuclear proliferation (something which it has never been accused of). In return, the 45 nations Nuclear Suppliers Group (NSG) granted a waiver to India allowing it to enter into nuclear commerce with other countries. This dramatic development ended a 34 year old moratorium on nuclear trade with India and made it the only country with nuclear weapon which is not a party to the NPT but is still allowed to carry out civil nuclear commerce with the rest of the world.

Current situation:

As on date India has about 15 small reactors and two mid-sized reactors (total 17 reactors) which together have a capacity of about 4120 MGW of electricity. In reality however most of our plants have been working significantly beneath their capacity (ranging from 50% to 85%). Currently, we have six nuclear power projects under construction which will add 3100 MW to our existing 4120 MW. Further the new projects which are planned till 2020 would total another 14000 MGW. This would make our cumulative capacity by 2020 at over 21000 MGW. This figure may look aggressive but our Prime Minister has gone on record to state that the target of 14000 MW by 2020 is capable of being far exceeded with India's entry into the Global arena. Even this target (of 14000 MGW) would translate into a vast business opportunity of US$ 80-100 billion.

At present the nuclear power projects account for only 2.78% of our total generating capacity. How important our nuclear power projects are can be gauged from the fact that our long term target is to generate 25% of our total electricity from nuclear sources.

Future trends:

The first trend is that India will intensify focus on fast breeder reactors. This is necessary as we have very modest reserves of uranium. Fast breeder reactors would cut short the need for natural uranium by 2/3rd. This would make the projects commercially viable. Connected with India's shortage of uranium in the 2nd trend and that is India's likely shift of focus towards thorium based reactors. While India does not have much uranium it has about 25% of the world's known thorium reserves. Therefore it is quite logical for India to focus here. India has already uniquely been developing a nuclear fuel cycle base on thorium.

In fact experts see India emerging as a leader in fast breeder reactor technology and thorium based nuclear fuel technology. Experts also see India emerging as a centre for meeting global demand for nuclear equipment. This is since it is envisaged that when foreign participants come to India, the Indian Government will mandate transfer of technology and indigenization of equipment manufactured. This would lead to joint ventures in India and transfer of technology to them and ultimately these joint ventures would cater not only to the Indian demand but global demand for nuclear equipment.

Nuclear Commerce already underway in past year:

Before I conclude the first part of my presentation I may briefly touch upon the nuclear commerce which has already taken place since we got the NSG waiver on 6th September 2008:

(i) On 30th September 2008, India and France signed a nuclear Civil Co-operation Agreement. Upon this the French major Areva has shown keen interest in India. It has entered into fuel supply agreement and MOUs with an Indian Government Company for setting up minimum 2 maximum 6, European Pressurized Reactors of 1650 MW each including life time fuel supply for these reactors.

(ii) An Indian engineering company called Larsen & Toubro has signed an MOU with US based Westing House Electric Company to manufacture nuclear power reactors.

(iii) On 5th December 2008, Russia and India signed a Civil Nuclear Co-operation Agreement. The Russian State controlled company (AtomStroyeksport) has firmed up deals for 4000 MGW nuclear reactors in addition to two that are already being constructed by them.

Besides, several fuel supply agreements have been entered into - with Areva, the Government of Kazakhstan and most recently (about a month back) with the Government of Namibia (Namibia is reported to have some of the best quality of Uranium in the world) and they have entered into a civil nuclear co-operation agreement with India on 31st August 2009. However many corporations and more specifically the US based corporations are going slow because India has not yet in place a nuclear liability regime.

Part II

India is neither a signatory to any relevant International Convention on nuclear liability, nor has it any domestic legislation in place on the subject. How important it is, specially for US companies that there should be such a legislation in place can be gauged from a statement from GE Energy: "the liability issue is a biggest remaining hurdle" for US companies to participate in India's nuclear commerce as plant operators or as equipment suppliers. This was stated at the time when US Secretary of State, Ms. Hillary Clinton was to visit India in July end. In fact to push for such legislation was amongst the agendas of her visit. A senior US Government official at that time stated: "we are hoping to see action on nuclear liability legislation that would reduce liability for American companies and allow them to invest in India".

However simple or straightforward it may seem at surface to have such legislation, this issue is very sensitive and explosive and has political and legal ramifications. In order to understand this better one needs to put the clock back by almost 25 years. In 1984 India had the unfortunate experience of having to face the worst industrial disaster ever, namely the Bhopal gas leak case which occurred in the city of Bhopal through a US controlled Company namely Union Carbide. This disaster led to thousands of people being killed and many more being injured. The activists and NGOs which came together then are still very much active. The issue is thus sensitive and politically charged. It is ripe for exploitation by political parties which can whip up sentiments. What has added the legal twist to the law of liability is that about one year after the Bhopal gas leak case another industrial accident took place in the city of Delhi called the Oleum gas leak case. This was nowhere near as catastrophic as the Bhopal gas leak but the Supreme Court of India seized upon this case to lay down the law for accidents in hazardous industry.

Having considered the issue our Supreme Court laid down a new law of liability for hazardous industries. It basically held two things: The first was that if there is a hazardous or dangerous industry and there is an accident in such industry, it has an absolute and non-delegable liability to compensate for all damages caused. In other words, the principle is of absolute liability, without negligence or fault and moreover without any of the exceptions which are there in the Common Law doctrine of Ryland v. Fletcher. The second thing the Supreme Court did in this case was in relation to the measure of compensation. It brought in the "deep pocket" theory. The court held that the measure of compensation would relate to the capacity of the enterprise to pay the damages. In other words, larger and more prosperous the enterprise, the greater would be the compensation payable by it. The Court used the expression "enterprise" and not legal "entity". Thereby roping in the group and the parent company.

Therefore this is the position in India for the past over 20 years for liability of hazardous industries. It is with this background that the Government of India would have to bring in a legislation aimed at limiting liability of multinationals for hazardous industry. It should be obvious to one and all that such legislation would run into all sorts of problems from day one. Politically it will be projected as a "sell out" to powerful multinationals. It would have to be a very determined State which can publicly profess sympathy for multinationals over ordinary citizens of the country (no matter how obvious the overall prudence of such a step may be). Political sentiment apart, a legal challenge to the validity of the legislation limiting liability would surely follow. The matter would end up with the courts. I would expect a constitutional challenge to be filed very quickly and parallels drawn from what happened in Bhopal and how multinationals should not be allowed to get away lightly. A court challenge would no doubt push (more specifically) the US involvement calendar back by several months and may generally have the effect of dampening enthusiasm of foreign players for some time but this would really be a blessing in disguise. It would remove the uncertainty of having such a legislation which runs contrary to current legal position. It would be like getting an advance ruling in hand as to legal position and indeed make the project more bankable.

I would also expect that notwithstanding the Oleum gas leak judgment (which lays down the some what harsh or extreme law described above), the courts would ultimately uphold the Nuclear Liability Act (assuming it is based on International Conventions and standard practice in most countries).

Conclusion:

Hence to conclude, I would say that India desperately needs to create its power infrastructure and the nuclear programme is integral to this vision. The Government has shown its commitment to push its agenda aggressively and take home the advantage it got by getting the NSG waiver. The immediate road may be somewhat bumpy specially on the nuclear liability legislation front but ultimately I would expect the field to be cleared and India becoming a happening market for nuclear power plants and ancillary industries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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