Q&A: A M Naik, Chairman and Managing Director, Larsen & Toubro

'Finally, consumers will bear the cost of unreasonably high liability'

The controversial Civil Liability for Nuclear Damage Bill, 2010, has been tabled in Parliament after the word ‘intent’ was removed by the government from clause 17(b). But Indian industry is not happy, especially with the supplier-related clauses. A M Naik, chairman of Larsen & Toubro, India’s leading private nuclear equipment supplier, speaks to Arijit Barman on why such steps will make the sector commercially unviable. Edited excerpts:

What are your concerns on the supplier clauses in the proposed CNL Bill?
Typically, around 300–400 suppliers/service providers (including SMEs) are engaged for each nuclear plant. The Bill has introduced a special cause 17, whereby after settling the CNL claims, the operator shall have a right to recourse against the suppliers. This clause on suppliers beyond their terms of supply, for 60 years of plant life + 20 years of claim liability period is neither practical nor justifiable. Any clauses requiring unreasonably high liability would deter participation from major suppliers.

Will this move make equipment supply business commercially unviable?
Yes, if retained in toto. As all suppliers are commercial organisations, they would not be in a position to accept contracts with unlimited liability. In case of unreasonably high liability, most suppliers would not be in a position to obtain insurance coverage to back these orders and hence will not be able to contribute to the programme or would have to pay extremely high premiums for insurance coverage during the plant life. The costs of this insurance coverage would be transferred to the plant operator and ultimately to the consumers. All this, put together, would deter large scale participation in the programme by the Indian nuclear industry.

How do you see the way forward under the bill in its current form?
It is necessary that conditions existing in current contracts with current levels of liability, both in terms of cost and time, be applied. As NPCIL (the government’s Nuclear Power Corporation) has been extremely supportive to Indian industry, we are confident a clear path on clause 17 will emerge between NPCIL and L&T. We have a joint venture to manufacture nuclear forgings. The facility at Hazira is at an advanced stage of implementation.

You have always been bullish on the growth of the nuclear business. Will the bill run contrary to this bullishness?
We have a substantial role to play in the nuclear power indigenisation programme through our manufacturing and EPC (engineering-procurement-construction) capabilities. We have signed MoUs with almost all the international nuclear technology suppliers, who have been selected for technology transfer and cooperation in India’s nuclear power ambition. In this respect, I still maintain that L&T is bullish in its nuclear programme, provided Clause 17 is suitably modified.

How then, in your view, should it be structured?
Currently, suppliers of critical nuclear components have a defined liability (both in terms of amount and time), typically ranging from 24 to 30 months post commissioning, with defined cost implications. In order for a contract to be feasible, it is necessary that the recourse applicable on any such contract is in proportion to the value of the contract. Hence, it is essential that the contracts have clearly defined and limited liability both in terms of magnitude and time (on the lines of existing contracts with NPCIL).

In most countries like USA & France, there is no consequential supplier liability under civil nuclear Acts. The liability is clearly defined in the contracts between customer and vendors. Even in the Bhopal Gas case, the public insurance liability bill enacted after the tragedy holds the owner/operator responsible for the complete liability arising out of any accident involving common people. Why, then, single out nuclear power generation with dual responsibility for CNL?

The proposed expansion of the nuclear power programme in India is widely expected to open up international markets for Indian equipment manufacturers. Will that also get impacted?
For exports, all Indian laws have to be in consonance with international laws to enable Indian players, including us, to export nuclear equipment. As far as clause 17(b) is concerned, our laws already provide clauses for suitable action against all possible conditions mentioned in clause 17(b). All dispute resolutions, however, have to be proved through existing judicial systems, as there is no special institution mentioned in the CNL.