Why India's Nuclear Liability Law Is Harming Indian Interests

Ted Jones

The following is a guest post by Ted Jones, Director of International Supplier Relations for NEI.

In a post published this week on the New York Times’ India Ink blog, M.V. Ramana and Suvrat Raju discussed U.S.-Indian commercial nuclear cooperation in the context of nuclear liability law. They argue that the divergence of the Indian liability law from international practices is minimal and justified by the Indian public interest.

 But the authors are deeply misinformed about the attributes, purposes and effects of nuclear liability law. As a result, they misunderstand features of the Indian liability law that could undermine India’s public safety interest.

A basic principle of nuclear liability law – embodied in the international conventions as well as the national laws of nuclear energy countries – is channeling of absolute and exclusive legal liability to the operator of the plant. A second basic principle is limitation of the amount of liability borne by the plant operator. The authors characterize the principles of nuclear liability law as a “subsidy to the nuclear industry” that has allowed suppliers to “have escaped unscathed in the past.” But these features promote important goals – including deployment of the safest and best technologies the private sector has to offer, economic rationalization of insurance, and alignment of legal liability with responsibility.

A few points to consider:

• Rationalization of liability. Channeling liability to the plant operator makes economic sense, because insuring a single plant is simpler and therefore cheaper than separately insuring the plant’s hundreds of suppliers. In assuming the liability risk of its suppliers, the plant operator factors the liability cost into the procurement contracts. As a result, the suppliers effectively pay their share of liability costs. They have never “escaped unscathed.”

• Role of the regulator. The authors fail to recognize that in the nuclear energy industry – very unlike their examples of the chemical and oil and gas industries – a strong regulator plays a unique role. In the United States and India, the nuclear regulator ensures safety at every phase of plant development and operation, and this role has important ramifications for liability. After a power plant component has been rigorously scrutinized and licensed, it is appropriate for the legal liability associated with that component to shift away from it supplier. Imposing exclusive and absolute liability on the utility, which will operate and maintain it, aligns legal and functional responsibility and serves the public safety interest.

• Worldwide acceptance. In the authors’ vivid account, nuclear liability principles were imposed on the world by the “powerful governments” of the United States and Europe, which “extracted these legislative concessions for their companies, as they expanded to build reactors around the world.” This ignores that the United States and Europe first adopted the same nuclear liability principles in their home countries for domestic reasons. Contrary to their claim that the United States bullied India to adopt nuclear liability, India’s Department of Atomic Energy adopted a liability law based on the international model for similar domestic reasons, years before the United States and India agreed to collaborate in nuclear energy. Likewise, India made its own decision to adhere to the IAEA’s Convention of Supplementary Compensation (CSC) in order to obtain the convention’s unique benefits of international support, not because the U.S. supports it.

• India’s radical departure from international practice. The authors claim that the Indian liability law “largely copied” the CSC model law. The CSC model law, consistent with longstanding and widespread international practice, allows two exceptions to the basic principle that absolute and exclusive liability be channeled to the plant operator. The first exception, reflected in Article 17(a) of the Indian law, permits the plant operator legal recourse against a supplier if the parties so agree by contract. The second exception, reflected in the Article 17(c) of the Indian law, permits the operator legal recourse if the supplier has intentionally caused damage. To these limited exceptions, the Indian law adds a third, in Article 17(b): where “the nuclear incident has resulted as a consequences of an act of the supplier or his employee, which includes the supply of equipment or material with patent or latent defects or sub-standard services.” The authors, who are not lawyers, claim that “this clause does not seem significant,” but Indian and international legal experts have consistently concluded that 17(b) undermines the channeling principle and the purpose of nuclear liability.

• Broad dissatisfaction with the Indian law. The authors single out “strenuous demands made by the United States and industry,” but ignore the many other stakeholders who have faulted the law. Nuclear Power Corporation of India Ltd (NPCIL), the sole plant operator, warned in a statement on the eve of the Indian parliament’s approval of the liability law that 17(b) would “defeat the purpose” of the law. The statement predicted that if the clause remained in the law, “no manufacturer, Indian or foreign would be able to serve the nuclear power industry.” NPCIL’s prediction has been accurate, as it has failed to conclude any major contract since 2010. Despite years of contract negotiations for Kudankulam units 3 and 4, Russia and India have yet to overcome the nuclear liability issue. Russia initially sought to grandfather the two power plants under an existing intergovernmental agreement that absolves Russia of any legal liability for an accident at Kudankulam units 1 & 2. More recently, Russia has indicated that it would demand an increase in the agreed price for the plants, in consideration of costs associated with the Indian liability law. Similarly, the French have been unable to conclude a contract for the first pair of Areva power plants at Jaitapur, in large part due to concerns about liability. Indian suppliers, too, have been reluctant to agree to contracts with NPCIL. As former Atomic Energy Chairman Anil Kadkodkar warned in 2010, India’s private sector may suffer the greatest impact from the law, because it impedes their collaboration with foreign nuclear companies globally, not just in India.

• Public interest. The authors invoke the Bhopal catastrophe to justify Article 17(b) of the Indian law, but the Bhopal case illustrates why it is essential that India establish an effective liability regime. If such an effective national and international liability regime existed for the chemical industry, the victims of Bhopal would have received swift, certain and adequate compensation, supplemented by other countries and administered by a dedicated national tribunal. But instead of a liability regime, Bhopal’s victims were forced to contend with a litigation regime that is by its nature slow and uncertain, and which often provides inadequate compensation. To this day, many of Bhopal’s victims have never received compensation.