It will almost definitely mean a higher cost to any nuclear deal concluded with U.S. companies than was earlier anticipated

Negotiations between the nuclear contact group over the past two months paid off on Sunday, and Prime Minister Modi and President Obama announced a “breakthrough understanding” that would allow the commercialization of the Indo-US civilian nuclear deal launched in 2005.

The breakthrough also signaled a significant diplomatic victory for India’s stand that it would not dilute its liability law, although it will almost definitely mean a higher cost to any nuclear deal concluded with US companies than was earlier anticipated.

In effect, Indian officials were able to convince US officials to clear the logjam by transferring the “risk assessment” to the commercial operators and suppliers, i.e. GE-Hitachi and Westinghouse.

For the last few years, talks on the civilian nuclear deal’s “administrative arrangements” had been stalled after the US raised objections to India’s Compensation for Nuclear Liability and Damages law of 2010. The law included two sections, 17(b) and 46, which the US felt would indemnify companies supplying nuclear reactors and parts to India beyond what was required by international law or Convention on Supplementary Compensation (CSC).

Speaking to the media, Foreign Secretary Sujath Singh said that the US had given up its reservations without any assurances from the Indian side on diluting the law in any way. A senior official, who was part of the negotiating team that met in New Delhi, Vienna, and London since early December told The Hindu that the change in US stand came for two reasons: firstly, a significant push by Prime Minister Modi and President Obama who wanted to see progress before they met in Delhi, and the US team’s realization that the Indian government was bound by parliament that would not allow any change in the law itself. “Once they realised there was no way we could change our laws, they put their mind to what it really means. After consulting their lawyers, the US officials saw our side,” said the official.

It didn’t start out as easily, in the first meeting in early December,when the nuclear contact group first met, a US negotiator told The Hindu. “We didn’t expect any movement, and thought we were meeting just to keep the leaders happy,” he disclosed, “But when Indian negotiators came back with two new proposals, we thought, this was something we could take to the lawyers.”

The Hindu had reported on January 3rd, that those proposals involved an enhanced insurance pool with a liability package of atleast $200 million, as well as a clarification or explanation of section 46 of the liability law. While the insurance pool plan will certainly drive up the cost of building the reactors with companies GE Hitachi and Westinghouse, it helped to “sweeten the deal” as far as the US officials were concerned. Speaking to journalists after the Modi-Obama meeting on Sunday, president Obama’s deputy national security advisor Ben Rhodes said, “ In our judgment, the Indians have moved sufficiently on these issues to give us assurances that the issues are resolved.”

However it will be important to see how American nuclear companies react to the “breakthrough” as well. When contacted by The Hindu, the President of the US India Business Council Diane Farrell called the agreement “A good first step. But we will still need some more technical commentary about some of these proposed changes and solicit a response from our companies.”

The agreement may face political hurdles here too. D.Raja, of the CPI, one of the left parties that opposed the nuclear deal told The Hindu the agreement represented a “compromise by the Modi government”. “Where is the need to offer an insurance pool to the Americans, which our taxpayer will have to pay for, “ he asked , demanding more clarity from the government, saying it had “gone behind parliament’s back.”

With this hurdle cleared, however, officials pointed out India will be better placed to conclude negotiation on nuclear deals with other fuel and reactor supplier countries like Russia, France, Australia and possibly even Japan. Meanwhile PM Modi announced that India has also won US assurances of support for its membership in four nuclear regimes: the Nuclear Suppliers Group, Wassenaar Arrangement, Australian group and the Missile Technology Control Regime (MTCR).