Union Carbide’s preoccupation with maintaining a majority stake in its Indian subsidiary led to cost-cutting on waste disposal systems

On June 26, U.S. Federal Court Judge John Keenan declared that the U.S.-based Union Carbide Corporation (UCC) and Warren Anderson were not liable for damages caused by the toxic wastes dumped in Bhopal. Neither could the two be asked to clean up, he ruled. That responsibility, Keenan said, lay solely with UCC’s Indian subsidiary, Union Carbide India Ltd (UCIL).

Keenan argues that UCIL consulted with “UCC about its waste disposal plans and on non-environmental business matter like its strategic plan. However, nothing in the evidence suggests the necessity of UCC’s approval for the actions about which plaintiffs complain.”

What documents say

Official UCC documents unearthed by Bhopalis through a process under U.S. law known as “discovery” suggest otherwise. The one thing that drove the design process towards disaster was UCC’s preoccupation with maintaining a majority stake in UCIL. In 1973, with the Foreign Exchange Regulation Act (FERA) set to change, UCC was worried about losing its majority stake in UCIL. The MIC-Sevin pesticide project was conceived because such core sector projects were eligible for exemption under forex rules that limited foreign stakes in Indian companies to 40 per cent. However, the Indian government also required that 25 per cent of project budget be raised through Indian equity.

At the then estimated $28 million, UCIL’s pesticide project would have diluted UCC’s stake to below 50 per cent. A 1973 UCC memo is clear: “Our specific objective is not to accept any conditions which would reduce our equity below 51 per cent.” To do this, UCC decided to underinvest. The $28 million project was to be executed at $20 million, 25 per cent less than originally budgeted.

The first underinvestment is detailed in a 1973 Capital Budget Plan of the UCC management committee. That committee, which included Anderson, knew that “The comparative risk of poor performance … is considerably higher in the UCIL operation than it would be had proven technology been used throughout.” But the committee went ahead and ratified a decision to use unproven technology arguing that “UCIL finds this business risk … acceptable, however, in view of the desired long term objectives of minimum capital and foreign exchange expenditures.” The note specifically acknowledges that the carbon monoxide and I-napthol processes have not been tried commercially elsewhere, and that “the waste streams arising out of this combination of materials is new and, accordingly, affords further chance for difficulty.”

Waste handling

On three occasions — in 1973, 1977 and 1981 — UCC considered shutting down the Indian subsidiary’s agricultural products operations. On all three occasions, it decided against the proposal.

Instead, it opted for austerity keeping in mind the need to retain a controlling stake in UCIL. That was possible only by keeping the pesticide project going.

Compromises on the waste handling system were an integral part of the belt tightening exercise. UCC’s plant in Institute, West Virginia, had a more evolved waste management system. It discharged treated waters to the Kanawha river. The underfunded Bhopal plant was expected to construct huge open air tanks to evaporate untreated wastewater containing cyanide, arsenic, cadmium, lead, phenols and carbaryl pesticides. A UCC memo from July 1972, when the project was being conceptualised, records that the solar evaporation ponds posed the risk of contaminating groundwater and releasing toxic naphthol emissions to air.

The design for the evaporation ponds was fatally constrained by the need to cut corners — a need geared solely towards ensuring UCC’s majority stake in UCIL. A January 1977 memo documents a meeting between UCIL and its contractor for constructing the evaporation ponds. The document states that the following was discussed and agreed: “UCIL emphasised the need for reduction for cost of the Pond as much as possible and it was informed by them that certain seepage/effluent from the pond can be accepted by them provided there is corresponding reduction in the cost.”

UCIL told UCC it was opting for a plastic liner in the place of the more expensive and less permeable clay liner mentioned in UCC’s guidelines criteria. UCC did nothing to stop it. By 1982, within three years of operation, telex messages sent to UCC recorded that the ponds were already leaking. Again, UCC did nothing. Between 1984 and 1994, when it retained a controlling stake on UCIL, it refused to clean up the environment.

The Keenan judgment

Keenan states in his 56-page judgment that UCC was merely a shareholder, and had no “duty of care” in preventing its subsidiary from causing harm. Far from being a mere shareholder, UCC had actually sanctioned the $20 million for the pesticide project despite glaring design deficiencies.

Keenan’s history of rejecting Bhopalis’ claims and parroting UCC’s lines is as old as the disaster itself. In 1986, Keenan dismissed compensation suits against Carbide filed by Bhopal victims, thereby denying them the substantial jury awards that would have resulted from a U.S. trial. Endorsing Carbide’s arguments, he ordered that India had a well-developed judicial system, and that UCC could be expected to abide by the ruling of Indian courts. Belying Keenan's faith in UCC and Anderson’s respect for Indian law, both parties are still absconding from Indian courts.

Indeed, it is the Bhopalis’ misfortune that all their cases in the U.S. have come up before Judge Keenan. Even this case was dismissed by Keenan three times. Each time, it was reinstated by the Appeals court. This time too, Bhopalis will appeal.

(Nityanand Jayaraman is a writer, and volunteer with the campaign for justice in Bhopal.)

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