Don’t believe the hype on U.S.-India civil nuclear deal

Brahma Chellaney, Nikkie Asian Review

43675476.siA “breakthrough understanding” on the stalled civil nuclear deal between India and the U.S. took center-stage in a recent summit between U.S. President Barack Obama and Indian Prime Minister Narendra Modi in New Delhi. It stands out as the only substantive advance in a presidential visit heavy on pageantry and symbolism. But the publicity surrounding the supposed breakthrough was overblown, and the celebrations can only be described as premature.

The deal was portrayed internationally as opening the path for U.S. companies to bag multibillion-dollar reactor contracts, and for Japan and Australia to sign similar deals with India, which plans to ramp up its capacity to generate nuclear power by importing two dozen commercial reactors within the next decade. Currently, nuclear power represents barely 2% of India’s total installed power capacity.

Since it was unveiled in 2005, the U.S.-India nuclear deal — with its many twists and turns — has hogged the limelight at virtually every bilateral summit between leaders of the two countries. In its arduous journey toward implementation, the deal has spawned multiple subsidiary agreements, each of which has been hailed as an important breakthrough.

The latest understanding centers on two issues — nuclear accident liability, and administrative arrangements to govern the bilateral nuclear cooperation agreement required under Section 123 of the U.S. Atomic Energy Act. Obama announced that “we achieved a breakthrough understanding on [the] two issues that were holding up our ability to advance our civil nuclear cooperation.” However, there is still little prospect of early commercialization of the deal.

The newest “breakthrough” is short on specifics and raises troubling questions. It contrives a model that shifts the liability risks for nuclear accidents to Indian taxpayers, thus undermining India’s domestic law, the 2011 Civil Liability for Nuclear Damage Act, which holds suppliers, designers and builders liable in case of an accident. The breakthrough compromise has been designed to circumvent the central principle enshrined in that law — the right to bring civil legal action for damages against suppliers in the event of a nuclear accident caused by defective equipment, components or designs.

Remembering Fukushima

Consider Japan’s 2011 Fukushima disaster. General Electric of the U.S. built or designed the three Fukushima reactors that suffered core meltdowns, yet GE escaped penalties or legal action after the disaster, despite a fundamental design deficiency in the reactors, because Japan’s law indemnifies suppliers, making plant operators exclusively and fully liable. It was to avert such a situation that India’s law armed the Nuclear Power Corporation of India, the state-run plant operator, with the right of recourse to suppliers. India’s sensitivity on this point reflects its bitter experience over a 1984 gas leak from a chemical plant in Bhopal that killed as many as 3,000 people shortly after the accident. The plant was owned by Union Carbide of the U.S.

Supplier liability is a well-established legal concept, applied in many business sectors around the world to deter suppliers from taking undue risks. But the 2011 Act makes India an outlier in terms of current international standards on civil nuclear liability. The global nuclear power industry is controlled by a powerful group of a few state-controlled or state-supported companies that push an opposite norm — that plant operators assume absolute liability so that suppliers face no downside risks.

Too many conventions

Globally, the liability issue has been muddied by a multiplicity of international conventions, protocols, and supplementary conventions introduced since 1960. A majority of the 34 states with civil nuclear power generation capacity have signed one or both of two main conventions, or revised versions of the two. Some of the states that did not sign these conventions, including heavyweights such as the U.S., Canada and Japan, have signed the 1997 Convention on Supplementary Compensation for Nuclear Damage, seen by some as a step toward a unified global liability treaty.

This network of overlapping international arrangements makes liability a complex issue. Some important nuclear power states have not signed any international agreements, including China, South Korea, Taiwan, Pakistan and Iran. India has signed but not ratified the CSC. But the conventions have some key points in common, including assigning exclusive liability to plant operators, mandatory insurance coverage of the operators’ liability, and exclusive jurisdiction of the courts in the country where the accident occurs. India’s domestic law follows this template, but also gives the operator the right to recover damages from suppliers.

     The paradox is that U.S. domestic law allows suppliers, designers and builders of nuclear plants to be held legally liable in the event of accidents, although the 1957 Price-Anderson Act restricts economic liability to operators. Yet the U.S. has sought to shield its exporting firms from claims made by foreign customers by insisting that India and other importing countries accept operators’ strict liability and limit all claims to the jurisdiction of their own courts.

Under the compromise worked out by Obama and Modi, U.S. concerns about India’s legal approach are to be addressed through a legal contrivance called a “memorandum of law” — essentially an executive order — and a $245 million “India Nuclear Insurance Pool,” which is to be set up jointly by India’s state-run insurance companies and its federal government. A number of countries have nuclear insurance pools, but most do not have a legal framework that makes suppliers potentially liable for accidents, as India’s 2011 Act does. For this reason, the memorandum calls for an insurance pool that would address both operator and supplier liability, preventing damages claims against foreign supplier companies.

This arrangement, although claimed by New Delhi to be “squarely within our [Indian] law,” constitutes “a risk-transfer mechanism,” as the Indian foreign ministry has admitted. Under the arrangement, the Indian government is effectively scrapping the right of recourse to foreign suppliers provided by Indian domestic law and transferring the liability risk to Indian taxpayers, offset partly by the modest insurance pool. U.S. officials say the two governments are in agreement over India’s memorandum plan, which they view as a creative solution. But how can a “memorandum of law,” with no legislative imprimatur, reinterpret a statute in a way that effectively guts it?

First, the contrivance being fashioned as part of the understanding between the two leaders threatens to open a legal can of worms. U.S. officials are advising American companies to do their own risk assessments, even though Obama’s deputy national security adviser, Ben Rhodes, affirmed in New Delhi that “in our judgment, the Indians have moved sufficiently on these issues to give us an assurance that the issues are resolved and that there is a path open to implementation and investment here.” No details have been announced by either government on the resolution of another sticking point: a U.S. demand that India accept nuclear-materials tracking and accounting arrangements that go beyond the safeguards system approved by the International Atomic Energy Agency. The same obstacle has held up conclusion of a Japan-India nuclear deal. It is now up to U.S. companies to decide whether to do nuclear business in India.

Second, at a time of skyrocketing reactor construction costs, the crash of oil and gas prices has made nuclear power’s economics more unfavorable. Nuclear power is already the world’s most subsidy-fattened energy industry. Since the 1980s, average international costs for nuclear power have jumped from $1,000 per installed kilowatt to nearly $8,000. Few new reactors are under construction in the West, and the International Energy Agency has warned that “uncertainties continue to cloud the future for nuclear.”

Modi has emphasized that reactor imports will be governed by “technical and commercial viability.” The deal’s commercialization, however, will be dictated not by the market but by the extent to which the Indian government is willing to fork out subsidies to support high-priced electricity generated from imported reactors.

India is in negotiations with four foreign supplier companies — Areva of France, Russia’s Atomstroyexport, Westinghouse, owned by Toshiba of Japan, and GE-Hitachi, jointly owned by GE and Hitachi of Japan. The latter two are both based in the U.S. Under the plans, the companies will each be confined to a single site, on which they will build multiple reactors that will be operated by the state-owned nuclear power company, thus freeing the foreign vendors from the problem of producing electricity at marketable rates. Currently, negotiations are stuck over the price of power. India has offered Areva, with which negotiations are most advanced, a price of 11 U.S. cents per kilowatt hour — more than twice the average price of electricity from indigenously built reactors. The state-controlled French company is holding out for a much higher price.

Not in our backyards

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The U.S.-built Tarapur atomic power station, located near Mumbai, is India’s oldest nuclear power plant.

Finally, grassroots opposition is growing to new nuclear power plants in India, especially against the Fukushima-type multi-reactor parks earmarked for foreign vendors. Building six to eight giant reactors in a single complex raises additional safety issues, as highlighted by the triple Fukushima meltdown. Local communities want nuclear power plants to be located in someone else’s backyard.

Worse still, India plans to import — as Japan did at Fukushima — prototype reactors that are not in operation anywhere in the world, including GE-Hitachi’s Economic Simplified Boiling Water Reactor, which only recently received U.S. regulatory approval, Westinghouse’s AP1000, criticized in the U.S. for supposed design failings, and Areva’s Evolutionary Pressurized Reactor, which is under construction in France and Finland but has suffered major cost overruns and delays. Prototypes usually face major teething troubles and carry greater long-term risks.

     If a serious accident were to occur, India would be saddled with staggering long-term costs. Japan’s Fukushima disaster bill has been conservatively estimated by an Osaka City University study at $105 billion, or 429 times higher than the Indian insurance pool’s capital. Japan is now establishing a state-backed compensation institution to be funded with government bonds totaling 5 trillion yen ($42 billion) and by utilities. This fund surpasses the $13.6 billion cover currently provided by the U.S. Price-Anderson Act, with another $10 billion pledged by the U.S. Department of Energy.

The Price-Anderson Act, which provides subsidies to the U.S. nuclear power industry by underwriting insurance costs, has been mocked by independent U.S. groups as “Half-Price Anderson.” India’s contrivance can be labeled “Free-Ride Anderson.” Yet it is unlikely to resolve all the tricky issues bedeviling the nuclear deal’s commercialization.

BrahmaChellaney-icon_small_150Brahma Chellaney is a professor of strategic studies at the independent Center for Policy Research in New Delhi and author of “Water: Asia’s New Battleground,” winner of the 2012 Bernard Schwartz Award.

(c) Nikkie Asian Review, 2015.

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