The doors to India´s nuclear ambitions, it seems, suddenly opened last month, with a slew of handshakes and opportunities. With the government adding momentum for pushing India towards next phase of nuclear renaissance, foreign as well as domestic nuclear suppliers eye enormous opportunity give or take a liability clause. Pradeep Pandey evaluates the environment.
After a lull of almost two years after the Fukushima catastrophe, global worries over the most efficient and the most controversial energy resource seem to be giving way to commercial anxieties and a shift in markets. While nuclear suppliers such as the US, Russia and France have shown interest in reviving their talks with countries interested in setting up civil nuclear plants, the UK government has sealed its agreement with French-owned EDF to build the first new British nuclear power station in 20 years.
These developments indicate that global rise in demand for electricity may once again trigger the race for peaceful usage of nuclear energy globally. Although debate on whether having or not having in use of such a double-edged energy resource will continue, increasing numbers of countries are anxious to use alternative methods of energy production but are wary of nuclear energy safety issues after the Japan incident.
´India is not well enough equipped to be called energy-sufficient or energy-secure,´ said Shah Nawaz Ahmad, Senior Adviser India, World Nuclear Association, ´so to go for safer nuclear energy options is quite reasonable. India has 30 per cent of total world Thorium reserves, and so has the capability to become a prominent player in global nuclear energy.´
India´s rising prospects
With a string of activity in the global nuclear market, India is working towards revitalising its Civil Nuclear Programme, as the post-US dialogue buzz builds up in corporate and policy corridors. Recently, state-run Nuclear Power Corporation of India (NPCIL), the sole owner and operator of all the nuclear power plants in the country, signed a deal with US nuclear supplier Westinghouse. The deal will eventually pave the way for NPCIL to gear up the plan for developing 6,000 MW nuclear park at Mithi Virdhi in Gujarat, in association with Westinghouse. The US supplier will supply six nuclear reactors of 1,000 MW capacity each for this project.
Another US company General Electric (GE) is also expected to sign agreement. Negotiations with France and Russia are in advanced stages as Areva of France and Atomstroyexport of Russia has entered into an initial agreement with NPCIL for supplying reactors to NPCIL. India has grandiose plans of setting up about 64,000 MW of nuclear capacity by 2030ùand the momentum, suddenly, seems right. The country plans to have several more mega nuclear parks, all together creating a nuclear renaissance in India.
Issues around the Civil Liability for Nuclear Damage Act, meanwhile, continue to haunt. Prime Minister Manmohan Singh has visited all the above mentioned nuclear supplier states in order to ensure conducive trade relations, with nuclear relations on priority. Following this, officials at Planning Commission, NPCIL and concerned departments such as Department of Atomic Energy and Atomic Energy Commission have been busy in formulation of strategy for next stage. Nevertheless, the nuclear liability issue is at the centrestage of discussion even among the domestic manufacturers.
The government has repeatedly affirmed that the contracts with potential nuclear suppliers will be subject to Indian law. Foreign suppliers as well as domestic vendors have raised a number of questions with regard to the manner in which the Civil Liability for Nuclear Damage Act 2010 and its associated rules will apply to their contracts.
´Since these queries involve questions of law, the Department of Atomic Energy (DAE) sought the opinion of the Ministry of Law and Justice on these issues. This will be examined by the DAE and NPCIL,´ says CBS Venkataramana, Additional Secretary, DAE.
The contracts, which will have to be approved by the competent authority of the government, will be fully consistent with Indian law. There is no question of Indian law being violated or diluted, Venkataramana says. As of now, the government has admitted that this will apply to our projects with Russia, France and the US.
A segment of industry people also saying that India is changing the Civil Liability for Nuclear Damage Act centres around this being done to serve the interests of US suppliers like Westinghouse, while this will hit Indian firms. Meanwhile, a group of local vendors approached the DAE saying these norms should not be applicable on domestic players. Many firms have joined hand with global suppliers to take advantage of emerging opportunity.
For example, L&T has partnered with global suppliers to produce such equipment; others like HCC are in the business of doing the civil works for even existing plants. In the case of French firm Areva that is supplying nuclear plants to India, while the initial two plants will have a 40 per cent local component including the construction costs, this will rise to 60-70 per cent by the time the 6th and 7th reactors are commissioned.
Under the current law, if there is a nuclear accident, the operator will pay for the immediate damages, the operator in this case is NPCIL. This will be what is called a æno faults´ compensation; that is, it doesn´t matter whose fault it is, NPCIL will pay up Rs 1,500 crore immediately and if more is needed, the government will pay up.
Indian manufacturers supply equipment, machines, etc. to NPCIL based on NPCIL design, specifications and recommended quality plans. The components, sometimes even raw materials, manufacturing process, methods of inspection are specified by NPCIL. The entire process, companies say, is carried out under close surveillance by NPCIL. The law gives NPCIL, the operator, the right to recourse, but NPCIL can choose to waive that right. That's what the domestic companies are pushing for. However, it all depends upon the government´s course of action further.
Once the nuclear power plant has been built, the operation and maintenance is the sole responsibility of NPCIL. ôWe cannot accept liability for something that is built according to others' specifications, and maintained by them,´ an executive with a private player said, who was not willing to be named. For three years, Indian companies like L&T, BHEL, Godrej & Boyce and Walchand have quietly expressed disappointment to the Indian nuclear establishment. BHEL even went to the extent of putting out a statement that it would not supply to NPCIL, but was forced to retract under pressure.
Under the Civil Liability for Nuclear Damage Act, 2010, the liability limit per operator per event is estimated at Rs 1,500 crore. It plays a major role in the hastening of financial aid to be provided to victims while operators and suppliers need an insurance cover on such unwarranted, huge losses. However, the government´s initiatives have taken a backseat on account of various issues such as lack of assessment of financial risk, which has raised a hot debate after the meltdown of the Fukushima nuclear reactors.
Whither insurance pool?
Another major cause why nuclear suppliers are worried of is that the insurance pool for nuclear plants proposed by reinsurer GIC Re has not taken off. It was mainly because the government and its agencies are unable to arrive at a consensus with international reinsurers on inspection of the facilities.
´GIC Re is still in talks with the government and international reinsurers in order to resolve the issue of inspection of nuclear plants,´ said AK Roy, Chairman, GIC Re. Earlier, the state-owned GIC Re, the sole official reinsurer, had mobilised support of about $78 million from local general insurers for the proposed nuclear insurance pool for nuclear installations in the country.
Given that the Nuclear Civil Liability Act provides for a cover of $320 million for operator liability for each event and each plant, GIC Re is seeking the cover for the remaining $242 million from overseas nuclear pools. ´There are some issues with the Department of Atomic Energy, which does not allow international inspectors to inspect the area. Underwriting policies without inspecting the risk is not feasible,´said Roy.
The proposed pool will cover material damage and the civil liability arising out of any harm to the hot and cold zones of nuclear plants. The cover limit for both property damage and third-party liability will be decided on the basis of several factors. There are 26 nuclear insurance pools across the world for providing cover in case of nuclear accident. The pool size varies with the size of a plant, the machinery used and the levels of radiation expected.
According to sector experts, it would be difficult to form an insurance pool in a country without proper understanding of financial risk and well-placed security measures for handling such cases to avoid heavy loss. Currently, neither the Indian Atomic Energy Act nor the Environmental Protection Public Liability Insurance Act, 1991, has the jurisdiction over accidents due to radioactivity. Some insurers are also sceptical over the government´s preparedness for providing adequate information required before one gets into such business. ´For domestic players, it´s totally a new business with hassles at various levels,´ said a senior analyst with a broking company.
In many parts of the world, the nuclear industry functions under special laws. There are usually two major entities involved in constructing and running a nuclear plant a supplier, such as Westinghouse or General Electric, and the operator, which is typically a utility company. In India, the case is different, ownership and operation of a plant is with the NPCIL, which is a government entity. So, in any case either the liability would have to be taken by the government or the public. The government´s recent efforts should enable the country in achieving capability at least in meeting the minimum requirement of energy in future.
However, to create conducive environment for the corporate participants, it would need to consider the necessary reforms on the proverbial war footing.