Sabotaging India's Nuclear Liability Act to Help US Suppliers

During Obama's visit, the US and Indian governments announced that they have at last found a way around India's Civil Liability for Nuclear Damages Act, 2010. Instead of the US nuclear suppliers having some liability for their supplies, as envisaged in the Act, all the liability would now be carried by the Indian side, defeating the intent of the Act. In case of any nuclear accident taking place due substandard or faulty supplies, the suppliers will be covered by an insurance pool of Rs. 1,500 crore. Indian public sector insurance companies would put in Rs. 750 crore in this pool, the Indian government shelling out the other Rs. 750 crore.

It also appears to have been agreed that a Memorandum of Law would be issued by the Modi government that would in effect modify the Section 46 of the Act. To nullify an Act of Parliament by an executive interpretation is patently illegal. Only the Parliament or the judiciary can interpret laws; this is not the prerogative of the government of the day.

Of course there is no transparency in these agreements and we are learning their provisions only through official “leaks”.

The Nuclear Liability Act had capped the liability of the operator due to any nuclear accident to the rupee equivalent of 300 million SDR's ($450 million) or Rs. 1,500 core in 2010. In Section 17 of the Act, it was further specified that the nuclear 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.

Image Courtesy: en.wikipedia.org

This clause was discussed in great detail in the Standing Committee of the Parliament on Science & Technology, Environment & Forests in 2010. It was rightly felt that India could not afford to provide a free pass to the suppliers of nuclear equipment worth billions of dollars.

What is the cost of nuclear reactors compared to the liability that the suppliers would have to carry? Based on recent contracts for nuclear plants abroad, the cost of the 10 Westinghouse reactors of 1,000 MW is likely to be in the range of $50 billion. This is not the full cost of the plant but only the cost of the reactor island.

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

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 a time – 50's and 60's – when the nuclear industry was relatively small and the risks high. Things have changed considerably since then and it was in this light that the India Parliament created some liability, even if it was small, on the nuclear suppliers.

The Modi government transferring the nuclear suppliers' liability to itself is essentially letting them completely off the hook for supply of any substandard or defective equipment. The lack of any liability is a perverse incentive to the suppliers to build substandard 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 total lack of concern for the Indian people.

The cost of a Fukushima disaster is of the order of $ 100 billion, the cost almost entirely borne by the Japanese government. It brings out how the nuclear industry is being subsidised by governments by taking over all its liabilities.

The second part of the concern expressed by the US nuclear suppliers is Section 46 of the Act. This states that other laws (for example, criminal liability), would hold good for anything not covered under this Act. If the supplier wilfully caused a nuclear accident, they could be prosecuted under existing laws irrespective of not having any civil liability for damages. Again, this is a part of standard laws operating in any existing hazardous industry and it is only the nuclear industry that refuses to abide by what is standard practice.

Does India have no other option? India has the simple option of building nuclear plants based on its own technology and designs. Indian nuclear equipment suppliers have raised the issue that the contract value of their supplies for indigenous nuclear plants is well below the $450 million liability they could conceivably carry under the Act. An insurance pool to cover their risks beyond the contract value would have addressed this concern and would have limited their liability to their contract value.

The US nuclear suppliers have their contract value in tens of billions of dollars, very different from that of the Indian suppliers. Even this small liability of $450 million, against their contract value of tens of billions, was not acceptable to them. Instead, they were demanding a no-liability regime for the past 4 years, which is what the Modi government has now cravenly accepted.

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