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Liability put on the back burner?

 MPost |  2015-01-26 23:35:20.0  |  New Delhi

New Delhi and Washington have finalised the terms and conditions for operationalising their 2008 civil nuclear cooperation agreement, after US President Barack Obama and Indian Prime Minister Narendra Modi had intervened.

A significant take away from their meeting at Hyderabad House was that US officials had agreed to withdraw their demand for tracking nuclear materials sourced from third parties in reactors operated by American companies. Washington’s insistence on monitoring the use of any material or equipment in a US-operated reactor had threatened to derail talks between both nations. Demanding parity with standard global practices adopted by other countries, India was willing to agree to inspections, only by the International Atomic Energy Agency (IAEA).  To end this impasse Obama has decided to use his executive powers to waive off the intrusive tracking processes. As per the final agreement, IAEA will monitor India’s use of nuclear material and equipment.


However, the bone of contention between both Washington and New Delhi remain the contents of section 46 of the nuclear liability law, which makes US-based suppliers vulnerable to tort claims. This section empowers ordinary citizens to file tort claims (claim for damages) against suppliers in a civil liability suit. It was a clause, many in the American nuclear industry, saw as an attempt to open their companies up to potentially unlimited liability. US negotiators have been trying to pressurise their Indian counterparts to dilute sections of the nuclear liability law that holds suppliers directly liable, in case of a nuclear accident. Under widely followed global norms, the liability lies with the operator.

Since all nuclear power plants in the country are run by government-owned Nuclear Power Corporation of India Ltd (NPCIL), under global norms, the Government of India would have to pay for damages in case of an accident. However, under the 2010 Indian nuclear liability law, which was passed by both houses of Parliament, equipment suppliers are ultimately responsible for paying damages in case of an accident. This piece of legislation, many commentators believe, has held back American firms like Westinghouse Electric Company and GE-Hitachi from proceeding with the construction of reactors.

To find a way around the liability clause, New Delhi has offered to set up an insurance pool to compensate companies that have won the right to construct reactors.  The plan laid out by state run General Insurance Company of India (GIC Re) and other public sector undertakings proposes that insurance would be bought by foreign companies contracted to build nuclear reactors in India. These foreign companies, however, would then recoup the cost of the premium paid to GIC Re by charging a higher amount to its consumers in India.

In other words, it can be safely assumed that New Delhi may have found ways to circumvent the nuclear liability law, by inadvertently shifting the burden of a nuclear accident to the retail consumer, since companies will be charging more from them in the future. Until that time the public exchequer insures for any nuclear liability. Before today’s settlement, American companies were afraid that in the event of an accident, anyone affected could file a civil liability suit against the suppliers as well as operators. Those fears, however, have been laid to rest. 

Therefore, as per the agreement, the Government will essentially subsidise nuclear energy. As and when their nuclear reactors start producing energy, the consumer will pay for it through higher energy costs.

The line taken by the present government will suggest that by not agreeing to the tracking clause it has ensured India’s autonomy in the procurement process. In not addressing the liability issue more comprehensively, however, it has engendered a potential Union Carbide-like situation where the victims could end up receiving paltry compensation for their losses. As it stands now compensation for any losses suffered in case of a nuclear accident are currently capped at Rs 1500 crore. To put this figure in perspective, the clean-up of the Fukushima meltdown cost $20 billion. The irony is that under the US-liability regime, operators are allowed to sue American suppliers for recovery of damages in the event of an accident. It is on this basis that Metropolitan Edison, the operator of the Three Mile Island nuclear plant, sued its supplier Babcock Wilcox after the infamous 1979 nuclear accident.

In addition, a US court in California last October allowed American sailors affected by the Fukushima nuclear accident of 2011 to sue the operator, TEPCO, as well as its suppliers, including  General Electric, EBASCO, and Toshiba Westinghouse company. The suppliers were, according to the plaintiffs, “responsible in part for the design, procurement, maintenance, management, or servicing” of the facility. Why the Indian government will agree to such double standards, when it comes to liability laws, is perplexing.

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