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Updated: October 15, 2012 00:03 IST

A liability for our nuclear plans

M. R. Srinivasan
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Tough provisions in the 2010 law are making it difficult to move ahead even with projects designed and built by India

In the context of the ongoing debate on Kudankulam, the question of nuclear liability has come to the fore again. As a person who engaged with this question almost 50 years ago, I would like to throw some light on the subject. As a lead member of the Indian team negotiating the Tarapur contract with the Americans, it fell to my remit to address this matter. General Electric and Westinghouse, who were the serious bidders, explained to us the practice in the United States whereby the owner-operator of the plant assumed the nuclear liability risk. The operator indemnified suppliers of equipment because the financial risk of a nuclear accident, though very remote, could not be reasonably factored in by the chain of suppliers involved in a nuclear project, in their contracts. The owner-operators of nuclear power plant, who were mostly investor-owned utilities, were asked to take insurance up to a limit available in the market. The U.S government assumed liability beyond the insurable limit up to another limit set under the Price-Anderson Act, passed by the U.S Congress. The limit set under the Price-Anderson Act has been increased progressively from time to time.

Protection in the contract

General Electric, chosen to build Tarapur, wanted an indemnity protection similar to what it was extended in the U.S. Initially, it insisted that there should be legislative protection. On the Indian side, we felt it was premature to pass a law as we were then thinking of building only a small number of nuclear power units to demonstrate the economic feasibility of nuclear power under Indian conditions. We persuaded G.E. that a protection in the contract, which was in any case approved by the Government of India, would be adequate. When an agreement with the Atomic Energy of Canada Ltd. (AECL) was drawn up for building the first two reactors at Rajasthan, a similar indemnity protection was extended to AECL and its suppliers. Since India took up building nuclear power units of its own design, indemnity protection has been a part of nearly all supply contracts.

One may ask, in hindsight, if India did the right thing in extending such nuclear liability protection in the past. If we had not done so, we would not have been able to import our first two reactors from the U.S., nor the second pair from Canada. There is no doubt whatever that India gained a great deal by building the Tarapur reactors with U.S. collaboration. India learnt early the problems of operating nuclear power units in our grid systems and also in managing a complex nuclear installation with our own engineers and technicians. In the case of cooperation with Canada, India was able to get the basic knowhow of the pressurized heavy water reactors (PHWR). Thereafter, we progressed on our own to design and build 16 PHWRs in seven locations. Now we are building four 700 megawatt PHWRs of our own design. Four more will follow soon and possibly another four will also be built, thus making a total of 12 PHWRs of 700MW each. Therefore, early cooperation with Canada helped us to become a designer and builder of nuclear power plants.

Let us look at the way an owner-operator manages a nuclear power plant. Even where a plant has been supplied by a single entity under a turnkey contract, many vendors, often running into thousands, would have supplied many components. During operation, the operator incorporates many changes and modifications to improve the reliability, ease of operation and efficiency. They may or may not have been done in full consultation with the original suppliers of equipment. Chances that sub-suppliers would be consulted on changes are very small. Moreover, nuclear power plants operate for 50 years or longer; our first two Tarapur reactors have in fact completed 43 years. So on objective grounds, the operating entity being solely responsible for nuclear liability is grounded in sound reason. There are about 430 reactors operating in 30 countries the world over. All of them, without exception, have been built under arrangements where nuclear liability flows to the operator. The operator, depending on the political system prevailing in the country, covers the risk to the extent possible by insurance. The government of the country takes up the liability beyond the insurance limit; it may also define an upper limit to its own liability, through legislation. Under the Convention on Supplementary Compensation, a multilateral convention, participating states can also share the liability risk to a defined extent.

India took up the task of drafting a nuclear liability Act whose primary purpose was to ensure prompt compensation to any member of the public who might have suffered injury, death or damage to property due to a nuclear accident. Much of the debate in India took place in the context of the Bhopal tragedy, which was also being considered by Parliament at the same time. In this atmosphere, the legislation that was passed included a right of recourse for the operator against the supplier in case of latent or patent defects or wilful misconduct. We must remember that for our own projects based on our own technology, we depend on a large number of Indian suppliers. The value of these contracts may run into several hundred crores or maybe as low as a crore or less. These suppliers cannot be expected to cover themselves for large value risks of long duration. Therefore, under the rules to be drafted, the Department of Atomic Energy has tried to inject realism by defining the duration of the risk to be the product liability period or five years, whichever is less, and a cap on the risk being the value of the contract. We find that long-standing suppliers of DAE and NPCIL are unhappy to go along even with these caps, as they feel that carrying large contingent liabilities on their books hurts their credit ratings. They, therefore, prefer to move to non-nuclear activities, even though they have acquired valuable nuclear expertise on work done earlier.

In much of the debate in the media and in our courts, it is often suggested that the nuclear liability legislation has been written to suit foreign MNCs.

The fact is that after 2008, when India signed nuclear cooperation agreements with the U.S, France and Russia (and some other countries), not even one contract for the import of reactors has been signed to date. With France, discussions have covered technical and safety issues, and commercial discussions are in progress now. In the case of the U.S., the discussions are still on technical and safety issues. Only in the case of Russia was an agreement signed in 2008 for Units 3 and 4 at Kudankulam, essentially as an extension of the agreement covering Units 1 and 2. Prices have been derived for Units 3 and 4 using the earlier price as a basis. The loan agreement also is based on the earlier pattern.

The 2008 agreement

The 2008 agreement provides that India would extend indemnity protection for Units 3 and 4, on the same lines as Units 1 and 2. I had in fact negotiated the earlier agreement in 1988, in keeping with the prevailing international practice. If India wants the Units 3 and 4 agreement to comply with its 2010 liability legislation, there is a danger that the entire 2008 agreement may be reopened.

Some of our legal experts point out that the law of the land is “Polluter Pays”. This may be so on paper. In practice, all our thermal power stations are putting out carbon dioxide, which is a pollutant. Are they paying for that? Similarly, all our cities are putting out sewage and solid waste to the environment. Again, sadly, they are not paying for that. In fact nuclear energy poses the least pollution hazard; there is no fly ash, acid rain, or carbon dioxide released into the environment. Units 1 and 2 of Kudankulam were built under a contract entered into in 1988 (and renewed in 1998), before our liability legislation of 2010. We are finding great difficulty in moving ahead with Indian designed and built projects due to some of the provisions of the 2010 legislation. We must arrive at a solution whereby electric power generation growth is assisted to the maximum extent possible, while ensuring that the safety of the people is in no way adversely impacted. With regards to Kudankulam 1 and 2, the delay of one year has already pushed up the tariff from Rs. 3 per KWH to Rs 3.25 per KWH. Any further delay will similarly increase the cost of power to the consumers.

(M.R. Srinivasan is a member of the Atomic Energy Commission and a former chairman of the Atomic Energy Commission)

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An important difference between India-designed-and-built npps and those imported nut, bolt, washer & vessel: it is NPCIL [GOI] who is responsible for design & tech specifications, selecting supplier, and extensive QA regime at all stages of contract execution. This is particularly true of the nuclear as well as safety related systems. Thus "indemnity model" offered to the (particularly indigenous) supplier would be a reasonable way. But, foreign npp vendors tend to preclude any of the above activities to be undertaken by GOI, mostly due to IPR issues. So, indemnity model may not be adequate, although I agree that TAPP1&2 and RAPP1&2 are exceptions as explained by Dr M.R. S. Also Liability law has loop hole. GOI's recourse to compensation from foreign npp vendor for defective supply may never fructify. It would be tortuous and probably impossible to prove that it was the sole reason for the accident. Usually in npps accidents (if at all) happen because of a collusion of several causes

from:  Udhishrtir
Posted on: Oct 17, 2012 at 17:53 IST

Thanks to the author for articulating the procedural policies so well.
This is a very informative article. The logic behind indemnifying
suppliers is valid to a large extent because there are far too many
intricacies in design, setup and running of nuclear power plants. Just
because contingent liabilities adversely affect the credit rating of
Indian suppliers, enforcement of civil liability should not be done
away with as safety concerns of the local citizens assume far more
significance than credit ratings of those profit making entities. By
making sure that the operator is held responsible for any lapses, the
government can ensure that the operator gives due importance to
overall quality of the plant. Our ever increasing energy demands do
not permit us to neglect nuclear sector as a substantial source of
energy and therefore some kind of mechanism has to be in place not
just to ensure safety of such plants but also to reward people
responsible for safe operation of plants.

from:  Ravi
Posted on: Oct 17, 2012 at 15:59 IST

This article in a away justifies the people's apprehension that commercial interests of the
suppliers of nuclear power plants are more important than their,the people's, safety and life.
Thank you, Dr.Srinivasan.

from:  K.Vijayakumar
Posted on: Oct 16, 2012 at 20:03 IST

As a retired nuclear engineer, I found the article to be very
informative and sensible.
The nuclear equipment and fuel suppliers cannot be expected to take
on the cost of compensation in the event of a rare nuclear accident.
This is because the nuclear power plant is bought by either a
government or a large company with adequate resources.Once the
government or the company completes the safety and economic study;
then only the operator of the nuclear plant (government of India in
this case) is liable. It is worth mentioning that safe operation of
a nuclear plant has more to do with maintenance and training of the
personnel than equipment design and manufacturing.
The bigger question (as noted in earlier articles in The Hindu) is
whether nuclear power is the right choice for India. I believe that
a large percentage, probably close to fifty percent, of electricity
production in India should be from nuclear power. With power cuts in
large cities like Bangalore, there is no other choice.

from:  G. John
Posted on: Oct 16, 2012 at 19:47 IST

We need to see the issue from a people's perspective and not from the
Operator or manufacturer's perspective as they both are commercial
entities whose goal is profit.

from:  Baskar
Posted on: Oct 15, 2012 at 14:08 IST

Mr Srinivasan has written an article based on his experience and possibly existing international practices. But then something has been followed in the past does not justify that we should continue to do so. The nuclear liability law has been made after much deliberation if anything it will focus more attention on all aspects of safety and it highlights the true cost of nuclear energy. Was Fukushima Nuclear Disaster a 'Black Swan' moment which has now changed our perception on what was believed earlier? Surely that must be the reason why there is a rethink on nuclear technology in many nations today. Germany, France and Japan too.

from:  Singh
Posted on: Oct 15, 2012 at 13:47 IST

It is indeed necessary to keep the liability with Nuclear Operaters for any incident/damages. As for any idustry/sector the liability lies with the operators. The other conditions of reactor malfunctioning must be sorted out among Operator and Supplier based on thir terms of aggrement. There are sesceptibility for nuclear energy but it is one the clean and best resource availbale to cater the growing energy need of the country.

from:  Ajay Kumar Yadav
Posted on: Oct 15, 2012 at 13:35 IST

When we talk about the development of our nation we add some extra
words to it like sustainable and safe.In contrast to the nuclear
liability first we need to make our system and technology reliable and
less hazardous.Though all kind of industries power plant
(thermal,hydro etc) poses all kind of natural and climatic risks but
nuclear energy is the main victim in this case.Why cant't we take take
the liability as the standard practice around the globe?Why all the
time such issues are covered behind dirty politics.
Development is the need of the time and power is the main tool for
this.World showing trust on us and after a long wait we have been
considered by the NSG. Far back in 80's Union Carbide was not the need
of India and they were welcomed by some powerful political
circle.Result we all know and this time it is our requairment and we
need to make our system strong enough to take take maximum advantage
out of nuclear energy.

from:  Mayank Kanga
Posted on: Oct 15, 2012 at 12:42 IST

Beggars cant be choosers.In the beginning when we were starters, terms
and conditions can be different and we have to accommodate. But when
we say we have attained the status of nuclear power, have mastered,
indigeneous know how available etc, it has to be different. If we are
self reliant in this area why we depend on foreign powers and
companies.Nuclear safety, disposal are very important areas now - when
we start many things we do'nt know we have to admit. Cost of nuclear
power include these also.But people concerned should keep the interest
of the nation and people in their mind rather than only the technical
points.

from:  Gopalan
Posted on: Oct 15, 2012 at 10:56 IST

MR Srinivasan should also know that people are also sensible enough to
disagree with the government and his claims on liability.Why will Indian
tax payer or myself pay money for a faulty foreign product for which
even the manufacturing company is not willing to give any liability ?
Polluter Pays.... "Thermal plants are not paying" is not a justification
...Soon the people will ask the thermal plants also to pay ...

from:  Amirtharaj Stephen
Posted on: Oct 15, 2012 at 09:36 IST

Thanks to Dr. M.R. Srinivasan and The Hindu for offering clarity on the
complex issue of nuclear liability which was beyond comprehension to
most of us. While there could few critics who are qualified to offer
critical suggestion, vast majority were frightened in to mass hysteria
by few of the so called leaders having a political ax to grind.
Naturally the truth is causality and devil takes the interest of the
country. I am reminded of moral of the poems of John Godfrey Saxe/The
Blind Men and the Elephant.

“So, oft in theologic wars
The disputants, I ween,
Rail on in utter ignorance
Of what each other mean,
And prate about an Elephant
Not one of them has seen!”

from:  N.G. Krishnan
Posted on: Oct 15, 2012 at 09:22 IST

The upshot is that the nuclear equipment suppliers cannot (rightly) be
expected to take on the humongous costs for compensation -- in the
event of a rare accident. Insurance companies and the governments too
have no choice but to insist on legal caps on their own liabilities,
never mind the actual costs involved.
The obvious inference is that the "actual costs" (in the event of a rare accident) are expected to be significantly higher than the liabilities that the promoters and primary beneficiaries of these plants find it worthwhile to take on. Is it thus any wonder that protests come from precisely those sections who would benefit the least as also are sure to be grossly under-compensated in case of accidents, however rare? Nor is it any wonder that these are the guys who are kept out of the negotiation and
decision making process. They can only protests after the fait
accompli....

from:  Anand Nair
Posted on: Oct 15, 2012 at 08:58 IST

Finally a very sensible article in The Hindu. The 2010 Nuclear Liability Act does NOT make sense. It is the operator of the facility who must assume liability with proper insurance. If the operator of the facility is not competent to thoroughly check the facility for technical defects before assuming the responsibilities for operating it, they shouldn't be operating it in the first place. In the case of Bhopal the local operators were completely responsible for operation of the plant. They had to test the technical features and make sure all parts were working before operating it. It is impractical to go after a supplier (and there are thousands of suppliers) for a small part some 50 years after they supplied the part. Assuming liability by the operator of the plant is part and parcel of the ongoing techincal maintenance of the plant, which is also the responsibility of the operator.

from:  K. Raghunathan
Posted on: Oct 15, 2012 at 07:29 IST

I congratulate the author for his highly informative presentation on this vexed topic. Extensive slogan mongering, dharnas, bandhs, eye-catching tricks can lead only to vitiating the atmosphere and effectively prevent the administrators from taking relevant and appropriate decisions.The need of the hour is for leaders like Patel, Shastri etc who can act quickly and resolutely.

from:  R.Srinivasan
Posted on: Oct 15, 2012 at 06:11 IST

The author seems to be selling the idea of Russian non-liability also
for Units 3 and 4. Perhaps opinions such as these serve as the
groundwork for formally inking agreement to this effect.Presently, on
the Kudankulam project, Russia carries NO liability. Also, if the
Russians are able to assure that they have learnt from the Chernobyl
disaster and that the current plant is "perfectly safe and state-of-
the-art",why are they shying from undertaking liability? To add to
this perfidy, the GOI is NOT making public the Kudankulam project
agreement details. To put things in proper perspective,there should be
judicial inquiries not only to probe Kudankulam project but also into
the defence contracts over the past five decades -- the 500+ MiG
crashes so far is a sufficient reason for such an inquiry.

from:  Jay Ravi
Posted on: Oct 15, 2012 at 01:35 IST
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