Global instability and disruptions in energy supplies have fuelled governments worldwide to reconsider their energy security strategies. They are focusing more on developing diverse and domestically based supplies and some are turning towards nuclear energy as a viable path towards achieving this.

India is one of the top energy-consuming countries in the world and is expected to surpass the European Union by 2030. To meet its growing energy demand, India plans on growing its nuclear sector at pace over the next decade. In 2022, India’s Ministry of Environment, Forest and Climate Change shared a long-term low-carbon development strategy, citing aims to triple nuclear power capacity by 2032.

Historically, India was excluded from the international nuclear trade after acquiring nuclear weapon capabilities. As a consequence, the country still does not allow foreign investment into its nuclear power sector, meaning domestic companies play a central role in developing and operating nuclear power stations, supplying components and helping build them.

To date, the subcontinent has 19 reactors in operation (and four under the status of ‘suspended operation’) with a total net capacity of around 6.29 GW. It is hoping to increase this almost threefold to a total capacity of 22.48 GW by 2031.

Globally, with a growing number of countries announcing plans to invest in nuclear, the policy landscape is evolving and opening up opportunities. With the increasing urgency of climate considerations and carbon emission targets, nuclear power is being advanced as a significant player in a secure global pathway to net zero. However, concerns surrounding safety and waste dominate the public’s perception, and drive restrictions on nuclear power.

To date, the [Indian] subcontinent has 19 reactors in operation, with a total net capacity of around 6.29 GW, and is hoping to increase this almost threefold to a total capacity of 22.48 GW by 2031.
 

Balancing the Indian government’s ambitious vision to grow its nuclear energy strategy with the general public’s concerns therefore poses future challenges to the national sector. Hence, India must look back to move forward, learning from previous trends in the nuclear energy sector to inform its future.

Development of India’s nuclear energy sector
In the 1960s, India made its first foray into the nuclear sector by building two small General Electric boiling water reactors. However, international collaboration quickly stopped when India carried out its first nuclear test in May 1974 and began developing nuclear weapons, while refusing to sign the Treaty on the Non-Proliferation of Nuclear Weapons. Various international sanctions were imposed, which excluded India from nuclear trade. Only the Soviet Union pursued its nuclear cooperation with India during this period.

However, since the 2005 Civil Nuclear Cooperation Initiative between India and the US, India has been reinstated in the international nuclear community. At present, the country has signed Agreements on Cooperation and Peaceful Uses of Nuclear Energy with 13 countries. 

As per India’s 2006 Integrated Energy Policy, the country aims to achieve energy security for all its citizens irrespective of their ability to pay for it. For it to achieve energy independence, India needs to reduce its dependence on the import of fossil fuels. Yet, based on its current policies, India’s combined import bill for fossil fuels is projected to triple over the next two decades, with oil the largest component by far.

In meeting growing demand for energy, India’s policymakers are keen to adopt ‘safe, clean and convenient forms of energy’ at the lowest cost and in a technically efficient, economically viable and environmentally sustainable manner. Currently, the nation devotes nearly 3% of its GDP to energy investment, and an increasing share of this investment is going into clean energy. Looking beyond 2050, policymakers view nuclear energy as the most potent means to attaining long-term energy security and energy-independent status.  

Today, India is second in the world, after China, in terms of the number of reactors being constructed. One of India’s primary goals for 2031 is to ensure the energy needed to sustain a growth rate of 8–9% becomes available. This opens opportunities for large-scale investment in the nuclear energy sector.

Despite the momentum, steps towards increasing India’s nuclear energy capacity will continue to meet delays arising from several factors: 

• The civil liability for nuclear damage law has been a source of concern for suppliers, and more specifically foreign suppliers. 
• There are inherent challenges in developing and building nuclear power plants on budget and on time. 
• Several nuclear power projects have met with protests from the local population owing to the nature of nuclear energy. 
• There may also be delays due to the sanctions imposed on the only country currently involved in the Indian nuclear sector, Russia.

With this in mind, it is important that all parties are well-informed about the legal pitfalls they may face while working their way along the delicate path needed for the growth of nuclear energy in India.

Mitigating legal risks 
Nuclear power plant projects have a long history of disputes. The stringent process unique to the nuclear industry can lead to delays in the issuance of licensing approvals, which can then delay the planned construction schedule. Moreover, if the applicable regulations change during the construction period, the contractor may have to adapt its work to the new standards.

For example, after the 9/11 terrorist attacks in the US, regulators required design changes to consider the possibility of a plane crashing into a nuclear power facility. Likewise, after the Fukushima Daiichi nuclear accident in Japan in 2011, regulators required design changes to address similar plant vulnerabilities.

India is no different. And delays have already occurred in the construction of some nuclear power plants. However, disputes in the nuclear sector can be avoided, or mitigated, if there is proper understanding and management of the associated risks from an early stage.

First, risks can be managed during the procurement and contract drafting stage. The construction contract must specify and define the objectives in the order of their priority, such as scope of work and performance requirements, price and time of completion. Contract management is also important and helps to identify and mitigate risks arising from misunderstandings between the parties.

Further, if a claim arises during the project, it should be fairly and efficiently addressed in the manner provided in the dispute resolution clause in the contract. Claims should not be allowed to accumulate, and a proper system must be in place for presenting and responding to claims by the parties.

Future nuclear development in India
Nuclear power plant projects in India often attract protests, as well as resistance from the local population and civil rights groups. The Supreme Court’s current role in balancing the general public’s concerns with the government’s vision to develop the nuclear energy sector in India appears to be a step in the right direction.

More broadly, disputes are likely to arise due to the increased rate of investment by foreign entities and increased focus on the sector. International arbitration is likely to be the preferred choice of dispute resolution due to the involvement of foreign players and the requirement of particular expertise in the field. Anticipating that disputes could occur in construction, investment or commercial arbitration, it will be important for the concerned parties to focus on early risk management, which must be followed diligently throughout the life of the project or contract.

While India appears to be taking steps in the right direction in this regard, it does not mean that projects in the nuclear sector can be dealt with in an easy manner. A great deal of care and planning by all relevant players is essential for projects and contracts in a sector regulated like no other.

*Any views expressed in this article are strictly those of the authors and should not be attributed in any way to White & Case LLP.