Indian officials say the Obama visit broke a seven-year logjam in nuclear cooperation, opening the way for US firms to set up nuclear power plants in India. However, in Washington there is no jubilation, much caution, and some plain scepticism. Hope springs eternal, but the logjam has not yet been broken.
The Modi-Obama meeting whipped up a lot of fizz and optimism. Problem: the key issue is not political at all but commercial. The entities that must be convinced are not US presidents but heads of nuclear corporations like GE and Toshiba-Westinghouse. And no corporation so far is convinced that India’s nuclear liability law has ceased to be a hurdle.
Media reports seemed to suggest some specific deal for US suppliers. Actually, nuclear liability is relevant for equipment suppliers from not just the US but Japan, France and Russia too. All have voiced strong reservations about India’s liability law, and none has so far been convinced by Indian offers of insurance cover, which are roughly the same as those offered to Obama. Politicians and diplomats like to present every summit as a huge success, but that’s often hype.
In 2010, Parliament passed a nuclear liability law empowering victims of any future nuclear accident to sue foreign suppliers for unlimited sums. This huge potential liability has stalled any firm contracts despite extensive talks for five years.
Suppliers want India to conform to the standard international practice, placing the liability of any accident on the plant operator — the Nuclear Power Corporation of India — and not equipment suppliers. Without liability caps, suppliers say it’s too risky to sell equipment to India. Moscow took the risk in Soviet times, when the state owned all suppliers, but today even Russia seeks a liability cap. China has agreed to place the liability on its own nuclear operator, and so global equipment suppliers are helping it build a string of nuclear power plants. But Indian memories of the Union Carbide disaster at Bhopal remain so vivid that Parliament insisted on unlimited liability for suppliers. This has stalled all deals.
What exactly is the supposed breakthrough in Indo-US nuclear relations? The Washington Post quotes a US official saying the supposed breakthrough “is not a signed piece of paper, but a process that led us to a better understanding of how we might move forward.” Translation: lots of good intentions but no hard legal document that can end US corporate fears.
An Indo-US agreement was indeed reached on a completely separate issue — tracking the movement of US nuclear materials to ensure India did not divert these to military use. This was an additional roadblock in case of the US. But overcoming this does not settle the much bigger roadblock — unlimited liability — that all four supplier nations are complaining about.
What exactly did Modi offer Obama? One was a policy from Indian insurance companies offering up to $250 million of liability cover. In the event of a nuclear accident, the Indian government would provide another $420 million of cover. However, these are piffling sums that cannot persuade suppliers — they would have to pay maybe $100 billion if there was a nuclear accident. The oil company BP has already paid over $42 billion for an oil spill in the Caribbean and still faces additional suits. A nuclear accident would cost far more.
India has hinted that it might sign and ratify the Vienna Convention on Supplementary Compensation, which provides a larger global pool of insurance cover. Whether even this will persuade suppliers is far from certain. Different forms of insurance have been discussed with all suppliers in the past, but failed to carry conviction. The risks will remain huge unless India amends its law, and that looks politically impossible even if Modi were so inclined.
The attorney-general of India has produced a memo saying the Indian liability law is consistent with international conventions limiting liability, so foreign suppliers need have no fear. Can any such memo override India’s nuclear law? Very doubtful. Indian courts have in the past often disagreed with the attorney-general, so his assurances cannot be the last word.
In sum, the supposed “Modi-Obama breakthrough” is true only in regard to tracking Indian use of nuclear materials. There is no breakthrough on liability for nuclear power plants, only some ideas on how to move forward. Finally, it’s worth reiterating that it’s not enough to convince Obama, Hollande, Abe or Putin. Even if these political leaders are satisfied, that will mean nothing unless corporations like General Electric, Toshiba, and Areva are willing to take the financial risk of supplying India. That is not in sight today.