A bill approved last week by the Indian Parliament that holds suppliers of nuclear reactors and raw materials liable in the event of an accident is raising concerns that it will scare away foreign businesses from India's lucrative energy market.
The legislation was approved in both houses of Parliament during the same week that the country's highest court reopened the Bhopal gas-leak case in response to a government petition seeking harsher punishment for corporate leaders responsible for the 1984 accident.
Together, the legislative and judicial actions — both years in the making — provide for an uncertain business environment in terms of civil liability, as Asia's third-largest economy aims to expand its nuclear energy capacity from 4,000 megawatts to 30,000 megawatts by 2020.
General Electric Co. and Westinghouse Electric Corp. are among the foreign suppliers seeking a share of India's estimated $150 billion worth of energy contracts, but the state-owned Nuclear Power Corp. of India Ltd. (NPCIL) said the legislation could deter those companies from the marketplace.
NPCIL Executive Director Sudhinder Thakur said in a statement that "no manufacturer, Indian or foreign, would be able to serve the nuclear power industry" in India under the civil liability bill, which makes suppliers of equipment for nuclear power plants, including raw materials, liable for 80 years after the construction of a plant in the event of an accident.
In addition, Ashley Tellis, a senior associate at the Carnegie Endowment for International Peace who was closely involved in negotiating the U.S. civilian nuclear deal with India, said the legislation will be "a significant deterrent not only to U.S. business but, equally importantly, to Indian and other international private business as well."
Companies in Russia and France, as well as the U.S., are considering nuclear energy contracts with India.
The George W. Bush administration struck the civilian nuclear agreement with India in 2006. The deal raised eyebrows by allowing nuclear commerce with India even though it is not a signatory to the nuclear Non-Proliferation Treaty.
Daryl Kimball, executive director of the Arms Control Association, said it is ironic that after the Bush administration "expended enormous political and diplomatic capital to exempt India from U.S. nonproliferation laws and [Nuclear Suppliers Group] guidelines — and damaging the global nonproliferation system in the process — the new Indian law may effectively deny U.S. nuclear supply firms access to the Indian market, which was a chief selling point for the deal."
Moreover, contrary to the Indian government's claims, analysts say the civil liability legislation is not compliant with the International Atomic Energy Agency's Convention on Supplementary Compensation (CSC).
"The CSC requires that all nuclear liability must be channeled absolutely and exclusively to the operator of a nuclear power plant; by the admission of the Indian government itself, the bill channels liability to the supplier as well. Hence, it is not CSC compliant," Mr. Tellis said.
The legislation's passage has set off alarm bells in U.S. industry.
The U.S.-India Business Council (USIBC), which includes top-tier U.S. and Indian companies among its members, said the absence of a CSC-compliant liability regime could "preclude involvement by the private sector — both Indian and foreign — and stymie India's multiyear effort to develop civil nuclear power."
U.S. officials declined to comment on the passage of the legislation, but analysts said they expect the Obama administration is not pleased with the development.
President Obama is scheduled to visit India in November.
"It's going to be interesting to see whether the Indians, now that they have passed this law, are going to stick to their guns or cave under possible U.S. pressure to reverse course," said Henry Sokolski, executive director of the Nonproliferation Policy Education Center.
The specter of the deadly gas leak at a Union Carbide pesticide plant in Bhopal in 1984 loomed over the liability discussions in India. At least 15,000 people were killed and 500,000 injured in the world's worst industrial accident.
Just last week, the Indian Supreme Court opted to review its 1996 decision to reduce the charges in the case from culpable homicide to negligence amid a national outcry for stiffer penalties for those responsible and more compensation for victims.
"A country that has experienced Bhopal is not about to open itself up to a nuclear version of such," Mr. Sokolski said, adding that the commercial value of the U.S.-India deal was always oversold.
"Now it has come up a total cropper. … This only builds on our legacy of being nuclear diplomatic chumps."
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