Does a Rs 15-billion insurance cover serve the expanding nuclear business in India? Even though the target of 63 GWe of nuclear power by 2032 set by its National Energy Policy looks far too ambitious to achieve, the scaled-down 22 GWe would also need more insurance cover.
It is one of the key themes for global nuclear industry captains and Indian insurance companies, as they gather for the two-day India Nuclear Business Platform in Mumbai this week. It also makes private companies reluctant to invest in the Indian nuclear projects, giving state-run ventures like those from Russia and France an advantage over them.
The Indian reinsurance company, GIC-Re, with the four state-run insurance companies, is in a difficult position to try to convince the foreign companies that the sum is adequate for now. The Indian government had set up the Rs 15-billion India Nuclear Insurance Pool on June 12, 2015, to provide cover corporate liability against any accident at nuclear plants. The cover comes under India’s Civil Liability for Nuclear Damage Act of 2010 (CLND Act). The pool was created as India stepped out to solicit more investment in its power sector by nuclear power developers.
The sum agreed to essentially caps the liability of the insurers, even as project developer companies are told that their liability is unlimited. The Indian government claims, not incorrectly, that the risks are quite unlikely, so making the pool a larger sink only leads to larger demand for greater capital from GIC-Re and the four insurance companies. Though there are seven other Indian insurance companies with stakes in the pool, such as ICICI Lombard and Tata AIG, their stakes are narrow. The big money comes from the government-run New India Assurance, National Insurance, United India and Oriental Insurance, each of which contributes Rs 3 billion to the corpus.
There is a way out, if the foreign project developers are allowed to buy their insurance covers from abroad. That route is, however, blocked since it would mean the foreign insurance companies would have the right to inspect the power plants being developed in India, before they offer any cover. India’s offering them that path is ruled out since the cornerstone of its nuclear policy is that several of its nuclear facilities are outside the pale of inspection by any foreign entity. So the only option available for the project developers is to buy insurance cover through India’s Civil Liability for Nuclear Damage Act of 2010. As per a government release, the pool “will address liability related concerns of suppliers under the CLND Act 2010 and will pave the way for Indian as well as foreign suppliers to participate in the Indian Nuclear Power Projects”.
At the India Nuclear Business Platform, GIC-Re will sell the argument to 33 foreign companies (see table) that investors from abroad should not be daunted by the puny size of the Indian nuclear pool. Each claim-free year means the sum assured contributed to by the participating companies grows, which would add to the size of the pool — as it has indeed begun to do so. It also makes sense financially, as there are not too many bidders abroad to buy the reinsurance cover. At the least, they demand a high price, which the GIC-Re sees as a drain on the country’s foreign exchange reserves.
It is essentially a matter of perception, said a senior official at the Insurance Regulatory and Development Authority of India. “India has never reneged on an international commitment, which too the companies should factor in,” says a government official. Irdai does not have a direct role in the topic as it is a commercial dialogue between the GIC-Re-led consortium and the nuclear project developers. He said it is impossible that all claims will not be met.
As of now, India is developing eight nuclear power projects. Russia is already in a pole position in the market, but hopefully for the others, India plans to bid out more. In this context, the meeting is expected to see more push back by the attendees to relax the rules for buying insurance. India knows it is among the few shrinking list of countries where the business is expected to grow. Switzerland, for instance last year, has joined the list of countries to shutter its nuclear power projects in a decade. So India will want to keep its policies going.