It’s a $182 billion question for India with no easy answer.

That’s the estimated amount the country plans to spend on nuclear power plants to meet Prime Minister Narendra Modi’s pledge to provide around-the-clock electricity, and end the nation’s blackout curse. With President Barack Obama set to visit India next week, officials and business leaders from both nations are meeting in London to discuss a legal obstacle that’s deterring new projects: Accident liability.

Most countries where nuclear-plant suppliers do business have enacted or subscribed to laws that protect the vendors from liability claims in the event of a nuclear accident. India is different and one reason is the world’s worst industrial accident. In December 1984, more than 10,000 people were killed or injured by a toxic gas leak from the Union Carbide Corp. fertilizer plant in the central Indian city of Bhopal.

Bhopal was more than 30 years ago, but it will overshadow nuclear talks between Obama and Modi during the U.S. President’s state visit starting Jan. 25.

Atomic power opponents in the country also point to the 2011 nuclear meltdown in Japan at Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant. That accident forced the evacuation of 160,000 people and will cost an estimated $196 billion to clean up.

India’s nuclear liability law, which was enacted in 2010 includes a means to sue equipment vendors in the case of an accident. The U.S. wants the law changed and the issue will feature in meetings between Obama and Modi, said two Indian government officials familiar with the plans, who asked not to be identified because they aren’t designated spokesmen.

‘A Deterrent’

“Liability law has been a deterrent,” Chris Gadomski, a nuclear-power analyst at Bloomberg New Energy Finance, said in a telephone interview. Companies that supply components for reactors could be on the hook for damages from an accident even though they have no control over the quality of plant construction. “I wouldn’t invest in, or build, a nuclear power plant with the existing law on the books.”

General Electric Co. is “optimistic” about the potential for India’s nuclear-power industry, though it’s “premature to comment” on negotiations, Dominic McMullan, a spokesman for the Fairfield, Connecticut-based company, said in an e-mail.

The office of Joseph Kruzich, spokesman at the U.S. embassy in New Delhi, said he wasn’t immediately available to comment by phone. A voice message left outside of office hours on Westinghouse Electric Corp.’s press inquiry number wasn’t returned.

Resolving Stalemate

The two nations are discussing ways to resolve the stalemate “within the four walls of our legal framework, our legislation,” Syed Akbaruddin, spokesman at India’s external affairs ministry, told reporters in New Delhi on Thursday. A group of company and government officials from both countries is discussing the issues in London, he said.

“There is intense activity within the government to resolve the liability issue and the U.S. president’s visit puts a timeline to attempt a resolution,” said M.V. Kotwal, president for heavy engineering at Mumbai-based Larsen & Toubro Ltd., which makes waste storage tanks and thermal insulation panels for nuclear plants. “The government is serious about pushing the nuclear sector.”

Bhopal’s Legacy

It’s cautious, too, because Bhopal remains a raw wound in India.

In 2010, a local court held eight executives of the company guilty of causing death due to negligence and sentenced them to two year’s imprisonment. They were soon released on bail, stoking street protests across the country and prompting Modi’s Bharatiya Janata Party, which was then in opposition, to harden its stance on accident liability regulations.

“It’s hard to imagine the same BJP will be softer on liability now when it runs the government,” said Hozefa Merchant, an anti-nuclear activist at Greenpeace India.

Yet, Modi needs reactors. Among the promises he made in his march to power in May last year was uninterrupted electricity for all of India’s 1.24 billion people. While the gap between demand and supply is as much as 4 percent during peak hours, there are parts of the country where people have no electricity at all.

Coal Dominated

Sixty percent of India’s 296 gigawatt capacity is fired by coal and Modi’s government has committed to expand its use of clean power.

India has 5.8 gigawatts of nuclear power-generation capacity, less than 2 percent of the total, and plans to increase it to 62 gigawatts by 2032.

“India is not in a position to do away with nuclear,” said Vaibhav Chaturvedi, a nuclear expert at New Delhi-based Council on Energy, Environment and Water. “It’s zero-carbon and it will be India’s answer to the climate challenge.”

According to India’s liability law, a nuclear plant operator is liable to pay compensation of as much as $300 million for each accident. The government will pay compensation beyond that amount.

The law gives the operator the right to seek compensation from suppliers. While the compensation will not exceed the operator’s liability, the government has the right to review the amount. The operator can also be subject to litigation under any other law of the land, leading to liabilities that suppliers believe can be passed on to them.

“India has put itself on a tricky position with this law,” Chaturvedi said. “If they keep it, suppliers won’t come. If they dilute it, there’s risk of massive backlash at home.”

‘Moral Pressure’

An agreement with the U.S. in 2008 helped India gain a waiver from the Nuclear Suppliers Group, a set of nations exporting atomic reactors and fuel.

The group had barred trade with any nation that hadn’t endorsed the Nuclear Non-proliferation Treaty, which India has refrained from signing. The group was formed in 1974, the year of India’s first nuclear test.

“It’s the U.S. that helped us re-enter the international nuclear trade, so there’s moral pressure on India to help American companies when it comes to our nuclear liability law,” said M.P. Ram Mohan, chairman of the Nuclear Law Association and a fellow at the New Delhi-based The Energy and Resources Institute. “The way out seems to be to provide adequate insurance for the Americans.”

Anti-Nuclear Lobby

India’s state-run General Insurance Corp. is working on a plan to insure liabilities, which may be acceptable to the suppliers “only if they could recoup their contribution to the fund by charging more for their reactor supplies,” the Washington-based Brookings Institution said in an e-mailed report.

While India has yet to finalize any supply contract with a foreign nuclear plant vendor since the waiver, local suppliers including Larsen have joined with their international peers to seek an amendment to the law.

That only fires up the anti-nuclear lobby.

“It’s anti-democratic and anti-national to dilute this law,” said G. Sundarrajan, a former software engineer-turned- anti-nuclear activist in the southern city of Chennai. “If the government waters down this law, there is no reason why citizens can’t file a case of sedition against the government.”

–With assistance from Jim Polson and Richard Clough in New York.

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