Kill the nuclear liability Bill
Low accident liability and legal immunity mean reactor builders will have perverse incentives for malpractices
Brahma Chellaney Mint March 11, 2010
The Civil Liability for Nuclear Damage Bill is an unparalleled piece of legislation: It aims to make foreign builders of nuclear reactors in India immune from legal action, however culpable they may be for a catastrophic accident. And it caps their liability at a ridiculously low Rs500 crore ($109 million) despite the billions of dollars in profit they are set to make. Yet, the government set the parliamentary process for the Bill’s consideration in motion under unusual circumstances—it circulated it to members on 8 March when Parliament was in turmoil over the women’s reservation issue.
Two issues stand out about the liability Bill. For one, it is an anti-market measure: It constitutes a generous Indian state subsidy to foreign firms. By seeking to shield foreign reactor builders from the weight of the financial consequences of severe accidents, the Bill shifts the main burden for accident liability from the foreign supplier to the Indian taxpayer.
Illustration: Jayachandran / Mint
For another, it weakens nuclear safety. After all, to grant foreign reactor builders legal immunity upfront and to turn their legal liability for an accident into mere compensation pegged at a pittance is hardly a way to advance nuclear safety.
Broadly, the anti-market features of the government’s proposed import of nuclear power reactors are manifold. First, the Bill seeks to help foreign firms cut their costs of doing business in India by requiring them to take accident liability insurance for a mere $109 million. The actual liability, according to the Bill, will be of the state operator, which will run foreign-built plants. The state operator, in turn, with make the foreign builder liable up to $109 million through the construction contract. Second, the government is merrily procuring land for foreign reactor builders. It has designated nuclear parks for foreign-origin reactors, reserving separate sites exclusively for US, French and Russian firms.
Three, reactor deals will be signed government-to-government without open bidding and transparency, just the way India has entered into contracts for US arms worth billions of dollars in recent years. Four, foreign firms are being freed from the task of producing electricity at marketable rates. The government will run the reactors through the state operator, subsidizing the high-priced electricity generated. And five, foreign suppliers will bask under legal immunity.
The liability Bill essentially is intended to help out the two US reactor exporting firms, Westinghouse and General Electric (GE) which, unlike their state-owned French and Russian competitors, are in the private sector. With India committed to importing at least 10,000MW of nuclear power generating capacity from the US, Washington has been zealously prodding New Delhi to enact the liability law. But in bending backwards to create a friendly business environment for US firms, the government is making the Indian taxpayer assume the principal financial burden in the event of a major accident.
Actually, the Bill symbolizes the latest in a string of conditions thrust on India under the much-trumpeted nuclear deal, which was approved by the US Congress in 2008 but whose nuclear energy benefits are unlikely to start flowing until nearly a decade from now, as the average global lead time for reactor construction has stretched to eight years. Under the deal, India got no legally binding fuel supply guarantee to avert a Tarapur-style cut-off, and no right to withdraw from its obligations under any circumstance, though the US has reserved the right for itself to suspend or terminate the arrangements if it holds India not to be in compliance with stipulated terms.
India is still negotiating with the US to secure the right to reprocess foreign-origin spent fuel under international inspection. The state department has notified the US Congress in writing, though, that “the proposed arrangements and procedures with India will provide for withdrawal of reprocessing consent” by the US.
Prime Minister Manmohan Singh had repeatedly promised to bring the nuclear deal to Parliament and “abide” by its decision. For example, he stated on 30 June 2008: “I have said it before, I will repeat it again, that you allow us to complete the process. Once the process is over, I will bring it before Parliament and abide by the House”.
Yet, no sooner had the process ended, than the government signed the 123 Agreement with the US, sidelining Parliament. Having given no role to Parliament on the main deal, the government now wants the two Houses to pass a special law to provide foreign companies with accident liability protection. In fact, as has been publicly revealed, the Bill was approved by the cabinet after the Prime Minister’s Office rode roughshod over objections raised by the finance and environment ministries to its provisions.
The Bill’s stated objectives and reasons seek to create the meretricious impression that it is designed to bring India in compliance with international nuclear liability instruments. The plain truth is that India is under no obligation to enact liability legislation. If India wants, it can follow the example of Russia, which has refused to pass legislation to waive or cap accident liability for its foreign suppliers. Or it can follow the lead of Germany, which has limitless liability and demands €2.5 billion ($3.4 billion) security from each plant’s operator.
Indeed, efforts to harmonize international rules on liability and compensation have been frustrated by the failure to bring all relevant international instruments into force. As the powerful World Nuclear Association—the lobbying arm of 180 nuclear firms, including GE, Westinghouse and Areva—admits, “States with a majority of the world’s 440 nuclear power reactors are not yet party to any international nuclear liability convention, relying on their own arrangements.”
Take the case of the US: It has its own domestic liability law, the controversial Price-Anderson Act, but it is not party to the main international instruments—the Vienna Convention of the International Atomic Energy Agency (IAEA) or the Paris Convention of the Organisation for Economic Cooperation and Development (OECD).
In 1988, to bridge the geographical scope of the Vienna and Paris conventions, a joint protocol was adopted. Then in 1997, another protocol amended the Vienna Convention to set the limit of the operator’s liability at not less than 300 million special drawing rights, or SDRs ($458 million).
The US has now become party to IAEA’s 1997 Convention on Supplementary Compensation for Nuclear Damage, or CSC, which recognizes the potential trans-boundary consequences of Chernobyl-type nuclear disasters, and thus seeks a common approach on compensation. Compensation is distinct from liability. CSC, as the name suggests, is about compensation, to be paid “supplementary” to the liability limit. To join CSC, a state must be party to the Vienna or Paris conventions, or certify that its national law complies with the CSC annex on liability. The supplementary compensation under CSC is to be provided through contributions by state-parties on the basis of their installed nuclear capacity and a United Nations rate of assessment.
The Indian government has misleadingly juxtaposed its liability Bill with CSC, which has not even entered into force.
In theory, the Bill seeks to emulate the Price-Anderson Act, the US system of indemnification for legal liability. But in reality, it picks the worst elements from both worlds—the US system and IAEA’s Vienna Convention.
The Vienna Convention has no upper ceiling on liability, only a minimum one (300 million SDRs, also reflected in CSC). But the minimum is so low that few countries have pegged liability to that level. For example, Japan’s operator liability now is 120 billion yen ($1.33 billion), while liability in Finland is unlimited, with each plant licensee required to take at least €700 million ($950 million) in insurance coverage.
The Price-Anderson system, for its part, provides for more than $10.5 billion in liability payouts for each disaster through a complex formula that includes insurance coverage carried by the reactor that suffered the accident, retrospective premiums from each of the operating reactors in the US, and a possible 5% surcharge. The US government assumes liability for any accident only above the $10.5 billion figure, which is inflation-adjusted every five years and thus variable.
The Indian Bill, by contrast, pegs maximum liability, as its clauses 6 and 7 state, at “the rupee equivalent of 300 million SDRs”, or Rs2,087 crore ($458 million)—that is, 23 times lower than the private-sector fund available under the Price-Anderson system. Of this, the total possible liability of the foreign supplier has been limited to a trifling Rs500 crore. The Union government will be liable for damages in excess of Rs500 crore but up to Rs2,087 crore.
The Price-Anderson Act—effectively a subsidy measure—has been severely criticized by independent groups in the US, where it has been mockingly called “Half-Price Anderson”. The legislation the Indian government is seeking to push through can be labelled “Free-Ride Anderson”. Under it, the reactor builder is free to rake in unlimited profits without a real liability on product safety.
What is worse is that while the Price-Anderson Act permits economic (but not legal) channelling of liability, thereby allowing lawsuits against any party, the Indian Bill grants foreign suppliers immunity from legal action by introducing legal channelling of all liability to the Indian government. It not only turns the “polluter pays” principle on its head, but also forecloses the possibility of victims suing the foreign reactor builder for additional damages even in Indian courts.
With the improvement in reactor safety systems, chances of a nuclear accident are admittedly low. But the consequences of a single nuclear accident would be colossal, with a serious radioactive release likely to cause lasting public health problems, including genetic damage passing on to future generations. Though it did not kill anyone, the 1979 partial core meltdown at the Three Mile Island nuclear plant in the US led to 14 years of clean-up costing at least $1 billion. Little surprise that Washington has been pressing New Delhi hard on the liability issue.
More fundamentally, creating an artificial market with open-handed subsidies, land acquisition for foreign firms, abysmally underrated accident liability, and electricity supply at state-supported rates is no way to meet energy needs, or to reduce carbon emissions, or to help India’s poor. The Bill should be seen for what it is—an anti-market measure designed to promote unfair business practices and cartelization by rigging commercial terms in favour of select foreign suppliers.
Indeed, the Bill sends out a jarring message: Indian lives are cheap. It is a message at odds with India’s pride in being the world’s largest democracy.
Brahma Chellaney is professor of strategic studies at the Centre for Policy Research in New Delhi. Comment at email@example.com
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