India Risks Nuclear Isolation With Break From Chernobyl Accord

India’s push to end a three-decade ban on buying nuclear equipment from abroad may founder on laws passed by its own parliament.

Lawmakers in New Delhi approved a bill last night that makes suppliers and builders of atomic reactors potentially liable in the event of an accident. That’s broader than a 1997 accord signed by more than 80 nations in the wake of the Chernobyl disaster that limits compensation claims to operators.

The bill, intended to open the world’s second-fastest growing atomic energy market by setting a legal framework, may deter companies from bidding for $175 billion of contracts. India needs suppliers including GE Hitachi Nuclear Energy and Westinghouse Electric Co. to meet its target of boosting nuclear power generation 13-fold by 2030 to drive economic growth.

“India needs to realize if they don’t satisfy international liability standards, equipment vendors won’t supply,” said Mark Hibbs, a Berlin-based nuclear policy analyst at the Carnegie Endowment for International Peace. “There are many other opportunities” in Western Europe, the U.S., Canada, Japan and South Korea that are all expanding capacity, he said.

Prime Minister Manmohan Singh’s ruling Congress Party had to rewrite the Civil Liability for Nuclear Damage Bill to ensure it passed before U.S. President Barack Obama visits India this year. The government, which lacks a majority in parliament, had to insert a clause to allow compensation claims against suppliers to gain enough votes to pass the bill.

‘Not Practical’

“This clause doesn’t appear in any domestic legislation in any other country” and runs counter to international convention, said Sudhinder Thakur, executive director at Nuclear Power Corp. of India, the nation’s monopoly operator. “If you supply $2 million of equipment, how can you be held liable for up to $300 million over 80-odd years? It’s not practical.”

The bill sets a 15 billion rupee ($322 million) cap on payouts by Nuclear Power Corp. with the government responsible for damages beyond that. After paying compensation, Nuclear Power Corp. can seek money from suppliers for defective equipment or materials, according to the bill.

“Suppliers and service providers would be liable beyond their terms of supply,” Chandrajit Banerjee, director general of the Confederation of Indian Industry, said in a statement yesterday. “Such kind of long-term insurance coverage for suppliers is not available globally and hence would stall the growth of the nuclear manufacturing industry in India.”

Bhopal Gas Leak

The opposition have fought any attempt to shield foreign suppliers from liability, bolstered by public outrage over the December 1984 leak of poisonous gas at a Union Carbide Corp. factory in Bhopal city, which killed 3,800 people. Midland, Michigan-based Dow Chemical Co., which acquired Union Carbide in 1999, says all liabilities were settled in a $470 million settlement in 1989.

“If it leads to contracts where, as a supplier, you face undefined liabilities connected to the main nuclear liability of the plant, it will really not be possible for major suppliers to participate,” said M.V. Kotwal, senior executive vice president of Larsen & Toubro Ltd.’s heavy industries division. “The liability has to be limited to a certain amount and a certain time.”

Larsen & Toubro, based in Mumbai, signed a preliminary agreement with GE Hitachi, a venture between General Electric Co. and Hitachi Ltd., in May 2009 to build nuclear power plants.

Chernobyl Meltdown

None of India’s biggest prospective suppliers, including GE Hitachi Nuclear Energy or Westinghouse Electric, is likely to sign contracts if they can be held liable for third-party damages, said the Carnegie Endowment’s Hibbs. GE spokeswoman Deepali Girdhar and Westinghouse spokesman Scott Shaw declined to comment on the legislation.

“Liability agreements were revised after Chernobyl to make crystal clear that the operator is responsible for liability,” said Hibbs by telephone from Berlin. “Firms would not agree to any arrangements which would leave undecided or vague what the operators’ liability were in the case of an accident.”

The meltdown at the Chernobyl plant in Ukraine, the worst nuclear accident in history, prompted an overhaul of nuclear liability conventions to help streamline compensation and litigation, and spread the financial burden.

The 1997 Vienna Convention on Civil Liability for Nuclear Damage channels liability for nuclear accidents to plant operators irrespective of fault. A supplementary convention allows operators to draw upon a central fund of at least 300 million International Monetary Fund special drawing rights ($455 million) to help pay for damages.

Possible Disputes

The system helps to simplify litigation and pool payouts in a sector where one reactor can have thousands of suppliers and claims.

“The method for handling claims and damages is being changed fundamentally,” said Suhaan Mukerji, a New Delhi-based lawyer, who is advising the industry on the bill. “It raises the possibility of disputes between operators and suppliers.”

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.

The government aims to expand its nuclear capacity to 60,000 megawatts by 2030 from 4,560 megawatts at the end of July. India’s total power generation capacity was 163,670 megawatts as of July 31, according to the Central Electricity Authority.

The legislation passed last night needs the approval of the upper house of parliament and the consent of President Pratibha Patil before it becomes law.

The bill “enables India to enter into nuclear commerce with other willing countries in order to widen its development options in meeting its energy requirements,” Singh told the lower house of parliament before the vote. “Our government has tried to complete the journey towards ending the regime of nuclear apartheid.”

To contact the reporter on this story: Natalie Obiko Pearson in Mumbai at npearson7@bloomberg.net.

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