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India liability bill seen shaking up nuclear trade, liability regime

By Ann MacLachlan, Paris; Yanmei Xie, Washington

September 9 - India's new nuclear liability law could end up preventing foreign vendors from supplying equipment or technology, jeopardize India's domestic nuclear equipment suppliers, and topple the legal principles that have governed nuclear commerce for 50 years, analysts and legal experts said this week.

But they also said if suppliers accept the bill's provisions, it would allow India to show it is a global power that sets its own rules for others to follow.

Unlike national laws in 28 countries and the four international conventions in the area of nuclear liability, India's law does not channel liability for nuclear damage exclusively to the operator of a nuclear installation. Instead, it allows the operator recourse against a supplier for defective parts or services.

It also does not protect operators or suppliers from liability claims that victims of nuclear damage could lodge under general Indian tort law or any other law, such as an environmental protection law.

Among other provisions, the Indian liability law raises operators' liability for nuclear damage to 15 trillion rupees (about US$320 million) and sets up a special commission to deal with victims' claims.

The liability amount was tripled in one of 18 amendments the government proposed to the bill before introducing it into the Lok Sabha, the lower house of parliament, in a concession aimed to win support for the bill from the opposition. (Listen to a related podcast on nuclear third-party liability and the world nuclear industry.)

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"There is a huge amount of consternation" about the bill, Seema Desai, an analyst with the Eurasia Group in London, said in an August 31 interview. She said that if the bill is not amended, "there is a question about the entire global liability regime" underpinning world nuclear commerce.

Representatives of suppliers in the US, France and Russia that are planning to supply reactors to India have refused comment on the bill.

Passage of the Civil Liability for Nuclear Damage Bill 2010 was hailed by some of the Indian media, and by some Indian politicians, as a landmark that would open a $150-billion market for nuclear power plants to foreign suppliers.

But politicians also said the bill could be changed if suppliers balk at the liability provision. During the bill debate in the Rajya Sabha, India's upper house, August 30, Minister of State for Science and Technology Prithviraj Chavan said the liability bill can be amended if and when needed.

As of August 31, the bill had passed both houses of parliament and awaited signature into law by India's president, a formality.

Supplier support

If the Indian law is maintained as passed this week, according to analysts, it would force suppliers to India's nuclear program to seek insurance that is not available on the market.

That, in turn, could force governments to provide special support to their national vendors, such as loans with below-market interest rates, or to assume part of the liability.

If governments were unwilling to do that, it would take those vendors out of the market. If commercial insurance were made available, the analysts said, it would be so expensive it would raise the cost of nuclear power plants in India.

This "unprecedented situation" could favor suppliers whose governments are ready to provide support that would make doing business in India "a more viable commercial prospect," said Desai.

Under that scenario, US suppliers might be at a disadvantage to their state-owned rivals.

Julia Schwartz, head of legal affairs at the OECD Nuclear Energy Agency, said that "the French and the Russians haven't been very vocal" in complaining about the provisions of the liability bill.

"The Americans say that's because in the event of a problem in France … the French government will back up any [liability] claims" against Areva because it is state-owned," she said.

Jack Spencer, research fellow on nuclear energy for the Heritage Foundation, a conservative think tank in Washington, DC, said it's "a good thing" the US industry is not state-owned.

"But because many other supplier countries around the world are state-owned or have strong state interest in them, they are able to defer a lot of that liability onto the state," he said.

But a French legal source, who declined to be identified because of the sensitivity of the issue, said the French government had refused to provide any backing for operators -- including state-owned EDF -- seeking additional financial security under the revised Paris Convention, sending companies back to the insurance market.

The revised convention, signed in 2004, is not yet in force because the insurance market will not provide coverage for the convention's expanded scope.

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