Nuclear law is asset, not liability

Economic Times
25 September 2014

Siddharth Varadarajan

On the eve of every major diplomatic encounter between India and the United States, it has become customary for nuclear industry lobby groups and major reactor suppliers to complain about how the Indian law on nuclear liability is preventing them from doing business in the country.

This time, as Narendra Modi readies to meet Barack Obama in Washington, domestic contractors who supply components to Indian nuclear power plants have added their voice to the chorus of demands for a rethink of the law.

Though the Department of Atomic Energy had long felt the need for standalone legislation to cover the question of liability in the event of a nuclear accident, the Civil Liability for Nuclear Damages Act, 2010 was the specific product of the India-U.S. nuclear deal in which India, inter alia, promised the U.S. it would “take all steps to adhere to the Convention on Supplementary Compensation for Nuclear Damage (CSC).” Adhering to the CSC, in turn, requires passing a domestic liability law consistent with the provisions of the Convention. Broadly speaking, this means having domestic legislation channeling all liability for an accident on to the nuclear operator and providing strict liability so that a victim of a nuclear accident need not establish fault before being entitled to compensation.

The U.S., and most nuclear industry critics, take the view that India’s law is not consistent with CSC because it includes two provisions not mentioned in the Convention and not normally found in the liability laws of other countries. Section 17(b) broadens the scope of the operator’s right of recourse against a supplier in the event of an accident resulting from patent or latent defects in the equipment supplied. And Section 46 says “the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being in force, and nothing contained herein shall exempt the operator from any proceeding which might, apart from this Act, be instituted against the operator.”

Despite the Indian government’s effort to soften the blow via subsidiary rules (which are themselves subject to legal challenge from those who feel these are too permissive), the critics contend that all suppliers remain vulnerable to claims from the operator (via 17(b)) and tort claims from the general public (via 46) and that this will make it impossible for them to do business.

These arguments are specious and self-serving. First, the Indian law is fully compatible with the CSC. As Dr. Jitendra Kumar, legal advisor to the DAE, has noted, Article XII(2) of the CSC itself says: “[N]othing in this Convention shall prevent any Contracting Party from making provisions outside the scope of … this Convention, provided that such provision shall not involve any further obligation on the part of the other Contracting Parties, (..)”. The additional provisions in the Indian law may increase the obligation of supplier companies but not of contracting parties.

Second, Indian component suppliers were exposed to unlimited liability via tort claims for equipment supplied before 2010. If that didn’t prevent them from bidding for nuclear projects, why are they hesitant today?

In any case, the DAE has carried out a probabilistic safety assessment (PSA) for different components to try and quantify the financial risk any supplier may be subject to in the event of a nuclear accident. On the basis of this PSA, the General Insurance Corporation plans to develop a suitable insurance product which vendors can then purchase for variable premia.

Third, the Indian law breaks welcome new ground by adding a layer of supplier responsibility. The CSC and other liability regimes have their origins in an era when nuclear power was an infant industry and suppliers needed to be indemnified from excessive damages. Today, that is hardly the case. The Fukushima accident is a reminder of how design defects – in that case, the location and capacity of the back-up generators for the reactors – can manifest themselves years later. Sharing the liability burden will encourage a closer working relationship between vendor and operator and lead to the maximization of safety from the design to decommissioning stages.

At the March 2013 meeting of the Nuclear Law Association in Mumbai, Dr. Kumar hinted that what big suppliers really fear is the global impact of the paradigm shift India is effecting. The Indian law “does away with some outdated notions of nuclear liability, in particular the restricted view of legal channeling,” he said, and may influence the way the rest of the world looks at the question of nuclear liability. That is also perhaps the reason why the U.S. (and France) recently made a renewed pitch for countries to pass domestic laws embodying the CSC’s liability principles.

India’s approach will increase the insurance burden and cost of nuclear power but this will allow policy makers to make a more transparent cost-benefit comparison between different power sources and lead to a more rational nuclear-conventional mix.

(A shorter version of this article appeared in print)