India May Cap Liability for Nuclear Accidents, Open Door for GE Investment
India is set to introduce a revised bill to cap liability for nuclear accidents, resolving a two- year standoff that’s kept companies including General Electric Co. out of the nation’s $175 billion atomic energy market.
Nuclear Power Corp. of India will have to pay a maximum 15 billion rupees ($322 million) in the event of an accident, triple an earlier proposal, a panel of lawmakers recommended in New Delhi today. The state-owned operator may then seek damages from suppliers if their equipment is defective, the panel said.
Prime Minister Manmohan Singh’s government had to make the Civil Liability for Nuclear Damage Bill more stringent to ensure passage before U.S. President Barack Obama visits India this year. The legislation may enable U.S. companies to compete with state-run European rivals as India boosts nuclear power generation 13-fold by 2030 to drive economic growth.
“It’s a significant step toward clearing the way for U.S. suppliers” and other private suppliers, said V. Namasivayam, executive director of PricewaterhouseCoopers LLP’s India government and infrastructure practice. “If the operator has a limited liability of 15 billion rupees, the supplier cannot be charged with more than that,” he said, adding the provisions will shield private suppliers from lawsuits.
Stronger Clause
Operators would first have to pay compensation for an accident and then use contracts to seek money from suppliers for defective equipment, according to report of the cross-party committee of members of parliament.
“In case an incident takes place it would be difficult to prove and establish the fact that it was a willful act or gross negligence on part of the supplier,” according to the report. “Hence there should be clear cut liability on the supplier on nuclear equipment or material in case they are found to be defective.”
That strengthens a clause in the original bill that stated suppliers of nuclear equipment to Indian plants may face claims in the event of a “willful act or gross negligence.”
“Like any other commercial organization answerable to shareholders, we believe that a supplier like ourselves has to limit its liability,” said M.V. Kotwal, senior executive vice president of Larsen & Toubro Ltd.’s heavy industries division. “We’re not in a position to have an open-ended kind of a contract.”
Larsen & Toubro, based in Mumbai, signed a preliminary agreement with General Electric and partner Hitachi Ltd. in May 2009 to build nuclear power plants in India.
Liability Clauses
Jagdeep Ghai, Nuclear Power’s finance director, said the monopoly operator already had liability clauses for equipment defects in contracts it signed with suppliers.
“Bringing this into a parliamentary law gives it more weightage,” Ghai said in Mumbai. “These are safeguards upon safeguards.”
Singh agreed to consider making changes to avoid a clash with the opposition, which said the bill unfairly bailed out foreign companies. It was not immediately clear if the proposed amendments, which are not binding on the government, would be enough to win Singh majority support in parliament.
The Congress party-led ruling coalition’s main rival, the Bharatiya Janata Party, and Communist members walked out parliament when the bill was first presented to lawmakers in May.
The original legislation proposed a 5-billion rupee compensation cap for companies operating reactors in India. Overall liability can reach about $450 million, with the additional amount borne by the government, according to the bill.
The panel also suggested the government may raise the caps when required. Lawmakers recommended extending the period during which victims can claim damages to 20 years from 10 years.
Sovereign Immunity
European nuclear providers, including Paris-based Areva SA and Russia’s Rosatom Corp., are covered by sovereign immunity because they are fully or partially controlled by governments.
India won access to atomic fuels and technology in September 2008 when the 45-member Nuclear Suppliers Group lifted a three-decade ban on exports to the country on a U.S. proposal.
India’s installed power generation capacity was 163,670 megawatts as of July 31, including 4,560 megawatts from nuclear plants, according to the Central Electricity Authority. The government aims to expand capacity to 286,756 megawatts by the year ending March 2017.
The nation may produce 60,000 megawatts of nuclear energy by 2030, Shyam Saran, then special envoy to the prime minister, said in January 2009.
To contact the reporter on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.
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