Exempting suppliers of nuclear plants is likely to make them pay less attention to safety and encourage them to take greater risks.

In the past few years, where debates on nuclear energy are concerned, the Indian Parliament seems to have operated on a schedule set by the United States President. Once again, the Congress and the Bharatiya Janata Party have reached an eleventh-hour agreement on the Civil Nuclear Liability bill, in time to have it passed before Barack Obama's visit in November. This is a revealing indicator of the kinds of pressures that operate on the Indian political establishment; these external pressures are also reflected in the contents of the liability bill.

One of the key modalities of the draft bill is that, barring a very insufficient “right of recourse,” it indemnifies suppliers of nuclear plants and channels liability for a nuclear accident to the operator of the plant. In future nuclear commerce, these suppliers are likely to be large multinational corporations (like G.E. or Westinghouse) while the operator will be a public sector corporation. So, the point of this clause is to insulate these foreign companies from the consequences of accidents including those that occur because of a design failure. While all multinational suppliers, including those from France and Russia, would prefer such a clause, it is the U.S. that is most insistent on this issue because its companies are not backed by public finances and hence run the risk of bankruptcy if they have to pay damages for a serious nuclear accident.

To defend this, the government has trotted out the argument that not only is this clause necessary to implement the Indo-U.S. nuclear deal, it follows the precedent set by liability regimes throughout the world. So, it is worthwhile to understand the history and motivation for these international conventions including the Convention for Supplementary Compensation (CSC) that the Indian liability bill follows.

After World War II, European governments were keen to adopt nuclear power but lacked the necessary technical expertise. On the other hand, American companies were keen to sell their nuclear plants but were unwilling to accept responsibility for accidents. So, the U.S. Atomic Industrial forum (an industry group) recommended legislative intervention to make it impossible for anyone to file a liability claim against atomic suppliers. These suggestions were made in a report called the “Harvard report,” which included a draft legislation in its annex. In a few years, this annex went on to become the Paris convention and all future international liability legislations have insulated nuclear suppliers.

Ironically, the U.S. under its own Price-Anderson Act does allow victims to sue suppliers. In fact, this is the reason that it did not accede either to the Paris convention or even to later agreements like the Vienna convention. When it finally engineered the Convention on Supplementary Compensation in 1997, it included a “grandfather clause” that would allow it to keep this aspect of its tort law unchanged while forcing newer signatories like India to renounce their right to take action against suppliers.

India's decision to join the CSC is not only a surrender to a manifestly unfair international regime but will also have an impact on the safety of nuclear installations in India. Insulating suppliers from responsibility implies that their job is done, once they have persuaded the regulatory authority, by whatever means, of the safety of their design. This has several implicit dangers.

The first is that suppliers are constantly trying to balance safety concerns with the need to make their design economical. For example, recent reactor designs adopt what are called “passive” safety measures, instead of the traditional “active” measures, not because these are inherently safer but because they are cheaper. This, combined with the ideological proclivity of the nuclear industry to assume that its designs are safe (not unlike the claims made by the oil industry about the safety of offshore drilling), means that suppliers tend to err on the side of economics rather than safety. Allowing potential claims against suppliers would help redress this imbalance.

Second, the Indian regulatory authority — the Atomic Energy Regulatory Board (AERB) — is ill-prepared to vet new plant designs. In contravention of international conventions on this issue, the AERB is, in effect, not independent of the Department of Atomic Energy (DAE) that is charged with developing nuclear power in India. A few months ago, the British regulatory agency refused to certify designs presented by Areva and Westinghouse. In India, it is hard to imagine the AERB doing something similar. Not only would it face a paucity of resources and lobbying by manufacturers, it would come under intense pressure from its parent body.

Finally, indemnifying suppliers means that they have no incentive to share safety concerns with the operator if they come to light after the plant has been sold. This is far from being a theoretical concern. In the accident at Three Mile Island (TMI), which occurred partly because of a design-failure, the Kemeny Commission, appointed by Jimmy Carter, noted that “several earlier warnings that operators needed clear instructions for dealing with events like those during the TMI accident had been disregarded by Babcock & Wilcox (B&W) [the supplier of the TMI reactor].”

To summarise, protecting suppliers from lawsuits creates a classic example of, what in insurance parlance, is called a “moral hazard”: insulating a party from risk has a distorting effect on its behaviour. In particular, indemnifying suppliers is likely to make them pay less attention to safety and encourage them to take greater risks.

The proponents of the bill also raise the spectre that making suppliers liable could lead to a scenario where the operator and supplier engage in long drawn out litigation to apportion responsibility, while the victims are left in the lurch. In fact, there is a very simple solution to this problem. The liability, for a nuclear accident, should be made “joint and several” between the operator and the supplier.

Under “joint and several” liability, the victim could collect all the damages owed to her from either party. For example, if the supplier had more cash on hand than the operator, the victim could choose to collect all her compensation from the supplier. If a court later found that it was operator error that caused the accident, the supplier would be entitled to recoup its costs from the operator. However, the victim would get her money first and would be free of this battle between the two big companies.

In fact, the current bill already states that “where more than one operator is liable for nuclear damage, the liability of the operators so involved shall ... be joint and several.” So, the government cannot possibly argue that the concept of “joint and several” liability has any inherent problems. However, it is imperative that this be extended to the supplier of the nuclear plant as well.

In the draft bill, the liability of the operator is already strict; this means that the victim does not need to prove that the accident occurred as a result of negligence but merely that she sustained damage. It would be better to make this liability “absolute” which, in brief, refers to strict liability with no exceptions. The nuclear claims commission, which the government plans to set up, should be empowered to assess this damage and ensure that the supplier and the operator compensate the victim in whatever proportion she chooses.

It is true that these provisions would make it hard for India to accede to the CSC and for U.S. suppliers to sell nuclear plants to India. However, the Indian Parliament is charged with framing laws that benefit the Indian people; it has no obligation to American corporations.

(The authors are physicists at the Harish-Chandra Research Institute (Allahabad) and Princeton University (New Jersey) respectively. MVR is also the author of a forthcoming book on nuclear power in India. The views expressed in the article are personal.)

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