Prabir Purkayastha, January 29, 2015

During the Obama’s visit, it was announced that the US and India have at last found a way around India’s Civil Liability for Nuclear Damages Act, 2010. Instead of the US nuclear suppliers having the responsibility — or liability – for their supplies, all the liability would now be carried by the Indian side. Indian public sector insurance companies would carry 50% of the Rs. 1,500 crore liability arising out of any nuclear accident due to a supplier’s’ fault, the rest 50% being borne by the Indian government. On the issue of the applicability of other laws apart from liability, a Memorandum of Law would be issued that would in effect modify the Act, without it going back to Parliament.

The first measure, transferring all liabilities of the suppliers on to Indian insurance companies and the government of India, is to defeat the intent of the Act that the nuclear suppliers should have some responsibility for the quality of their supplies. The second is try and interpret an Act of Parliament by the Executive – a patently illegal action. Only the Parliament or the judiciary can interpret laws. This is not the prerogative of the government of the day.

What did the Nuclear Liability Act lay down which is sought to be bypassed by the Modi government? The Nuclear Liability Act had capped the liability of the operator to rupee equivalent of 300 million SDR’s – or Rs. 1,500 core in 2010 – due to any nuclear accident. It had also incorporated that all claims due to such an accident will be channeled to the nuclear operator. As the only operator of nuclear plants is Nuclear Power Corporation (NPC), it meant that the maximum liability of NPC would be limited to only Rs. 1,500 crore. In the Section 17 of the Act, it was further specified that the operator had a right to recourse from the supplier, if it was found that the accident was due to the supply of faulty or substandard equipment. The right to recourse was limited to the amount that the operator had paid out, and in any case had an upper limit of Rs. 1,500 crore, the maximum liability of the operator.

Why did the Parliament put this clause in the Liability Act? This was discussed in great detail in the Standing Committee of the Parliament on Science & Technology, Environment & Forests in 2010. It was rightly felt that after the Bhopal disaster, India could not afford to provide a free pass to the suppliers of nuclear equipment worth billions of dollars. If the accident could be proven due to their faulty supplies, the nuclear operator should be able to recover the damages they incur from the supplier.

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What is the cost of a nuclear reactor compared to the liability that the supplier would have to carry? The 3rd unit of the Olkiluoto Nuclear Power Plant currently being built by Areva was originally supposed to be Euro 3 billion. Current cost estimates (2012) suggest that it will end up by costing Euro 8.5 billion ($ 9.64 billion). This is the cost of one single reactor. Similar costs hold for Hinkley Point C Power Station in UK, where the costs of the two 1600 MW reactors are Pound 16 billion ($ 24 billion). If we take the cost of the 10 Westinghouse reactors of 1,000 MW each to be less than half that of the above plants, even then the total cost for the reactors is likely to be in the range of $50 billion. This is the figure that media is also mentioning regarding the size of the Westinghouse’s contract. Of course the cost of the plants would be higher taking other costs into account.

The actual figures could be much higher, if these plants face similar cost and time overruns that Olkiluoto has suffered.

Against these costs of $50 billion, the total liability that Westinghouse as a supplier would have under the liability Act is less than $450 million; in other words less than 1% of the total cost of supplies! Even this small amount of liability is what Westinghouse is not willing to take on, for what Danny Roderick, the CEO of Westinghouse, calls “the safest reactors in the world”. In other words, they are not willing to put money where their mouth is.

Why are nuclear suppliers so unwilling to take on any liability that all hazardous industries do routinely? A number of industries deal with hazardous chemicals and carry liability insurance. Even Union Carbide had carried an insurance of $400 million against accidents. The unwillingness to take on liability stems from the US nuclear regime where the suppliers were exempted from any liability right from the beginning. It might have made sense at that time; the nuclear industry in the 50’s and 60’s was relatively small and the risks high. The US government then enacted legislation exempting the suppliers’ from liability and channelling all liability to only the operators. The operators were again given access to pooled insurance cover of $10.2 billion, beyond which the government carried all the additional cost of damages.

In India, the operators carry a liability of only $450 million, the rest being the liability of the government. Since the only operator in India is NPC, which is entirely government owned, such a low liability of the operator is essentially a cap on the suppliers liability. So when the nuclear suppliers talk of India’s liability regime, the amount of liability they are talking about is minuscule because of this cap compared to the cost of their supplies.

The Modi government by creating an insurance pool of Rs. 1,500 crore for the nuclear suppliers, is essentially letting them completely off the hook for any substandard or defective equipment they supply. The lack of any liability is an encouragement to the suppliers to cut corners and costs, knowing that they will not face any consequence for the supply of faulty or substandard equipment. This is actually a perverse incentive to suppliers to build riskier plants and risk the lives of Indian people.

For a country that has seen the worst industrial disaster in the world, namely the Bhopal gas disaster in 1984, this smacks of either amnesia or a lack of concern for the Indian people.

The second part of the concern expressed by the US nuclear suppliers is Section 46 of the Act. This states that other laws would hold good for anything not covered by this Act. It would mean other forms of liability, e.g., criminal liability, would hold good. It means that if the supplier wilfully caused a nuclear accident, they could be prosecuted under existing laws irrespective of civil liability for damages. Again, this are a part of standard laws operating in any existing hazardous industry. It is only the nuclear industry that refuses to abide by what is standard practice in any other industry.

It is interesting that initially, the US industry was pressing India to bring in legislation for nuclear liability. “Currently, India does not have a nuclear liability law covering its facilities. Therefore, concerns over nuclear liability would be a major impediment to any nuclear trade with India,” Omer Brown of the law firm Harmon, Wilmot and Brown had said in Dec 2003. “Most US nuclear suppliers would not be willing to work in India without nuclear liability protection.”

What they meant was India should create a liability regime where the suppliers would have no liability whatsoever. While the Indian Parliament rejected a no-liability regime for suppliers, the Modi government has now acceded to the demands of the US nuclear suppliers industry.

Does India have no other option? India has the simple option of building nuclear plants based on its own technology and designs. If damages are incurred, it can provide an insurance pool to back Indian suppliers beyond the contract value. In government contracts, all suppliers have direct and consequential damages liabilities. A standard clause from the suppliers side is to limit the

damages to the value of the contract. Indian nuclear equipment suppliers have raised this issue as their supplies for indigenous nuclear plants are well below the $450 million liability they could carry under the Act. An insurance pool to cover their risks beyond the contract value would have made some sense.

This obviously does not satisfy the US nuclear suppliers, as their contract value is in tens of billions of dollars, very different from that of the Indian suppliers. The Indian liability regime under the existing Act is quite soft on such suppliers, as the amount involved – as shown above – is less than 1% of their contract value. Even this small liability for which they could easily raise insurance is not acceptable to them. That is why they are insisting on a no-liability regime.

The insurance pool “solution” offered by the Modi government bypasses the intent of the Parliament. It might however stand the test of law. But liming the application of Section 46 by a “Memorandum of Law”, presumably an interpretation to be made by the Modi government to the US government would be a violation of law. The government does not have the right to interpret laws. Such rights belong to the Parliament or the judiciary.

In case the Modi government wants a valid interpretation of 46, they could refer it to the Judiciary under a Presidential Reference. That it does not want to do so, indicates its legal weakness. Whether this can persuade the US nuclear industry or not is another issue.

What is completely opaque in these negotiations is the actual agreement between India and the US governments. The only words we have are general statements and various official leaks stating what the agreement supposedly is. What the people need to see is a clear text of what has been agreed upon behind closed doors.

The other opaque part is the cost of electricity from such nuclear plants. If our figures are correct, the plants, 6 EPR’s of 1600 MW from Areva in Jaitapur, Maharshtra, and 10 AP1000 reactors from Westinghouse in Mithi Vridi, Gujarat are going to cost anything from 6-8 times that of coal-fired plants of similar size. Even solar thermal plants totalling up to similar capacity, are going to cost less than these nuclear plants. As we have argued in these columns earlier, at these costs, imported nuclear plants make no sense. This is apart from the risks of building a large number of nuclear plants in one location, the risks of accidents and the costs of long term storage of nuclear wastes and decommissioning costs of such plants. Simple techno-economics, without taking any of the above into account, dictates that India follow alternate routes for producing electricity. Even if a low-carbon or low fossil fuel path is to be chosen, imported nuclear plants are economically poor choices.

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