Indo-US nuke deal: India may throw in sovereign guarantee

Seeking to remove the hurdles in operationalising the Indo-US nuclear deal ahead of US President Barack Obama's visit beginning Sunday, the Indian government may throw-in sovereign guarantee to address the concerns of foreign suppliers over the nuclear liability law.
Another option, which was being explored, was issuing of catastrophe bonds or a blend of catastrophe bond and sovereign guarantee, government sources said, adding that the idea of catastrophe bond was suggested by the Insurance Regulatory Development Authority (IRDA).
Government sources said, the Department of Atomic Energy (DAE) and Ministry of Finance has been working on the issue on "day-to-day basis" to end the deadlock between India and the US over the liability clause under the Civil Liability Nuclear Damage (CLND) Act 2010, which was one of the issues discussed between the officials of India and the US during their meeting here which concluded late last night.

According to the sources, progress was made during the two-day meeting of Indo-US Contact Group here, but some lingering issues may require resolution at the political level.
According to the CLND Act 2010, the operator is required to set aside Rs 1,500 crores in case of a disaster and pay the affected parties. The operator can seek Right to Recourse from the suppliers, which makes investment in the nuclear sector by foreign players more difficult.
The government had asked the General Insurance Company (GIC) to insure the atomic power reactors, but the public sector undertaking did not have the required monetary capacity.

Wary of allowing the foreign insurance companies in the nuclear sector, the government then decided to come up with a nuclear insurance pool, where many companies can pool in the resources to insure the reactors.

"Even if the four government insurance companies pool in their resources, they could only set aside Rs 750 crores, which is half the required amount. As per the global norm, they could only pledge 3 per cent of their net worth for creation of a new pool. This is half the amount of what is required," said another government source.
"The Ministry of Finance had expressed its inability to fill in this gap with sovereign guarantee, citing that they had exceeded the limit for the year. However, the Department of Financial Services has now conveyed to the DAE that it was now ready to give sovereign guarantee to overcome the shortfall," the sources said.

Catastrophe bonds emerged from a need by insurance companies to alleviate some of the risk they would face if a major catastrophe occurred, which would incur damages that they could not cover by the premiums, and returns from investments using them. The concept of catastrophe bond is usually practiced in the US and the Europe.