Brahma Chellaney

The government’s nuclear-accident liability bill seeks to burden Indian taxpayers with a huge hidden subsidy by protecting foreign reactor builders from the weight of the financial consequences of severe accidents.

The vaunted civil nuclear deal with the United States came into effect in 2008, with the U.S. Congress attaching a string of conditions to the ratification legislation, the Nuclear Cooperation Approval and Non-Proliferation Enhancement Act (NCANEA). The Indian Parliament was allowed no role to play, not even to examine the deal’s provisions. But having sidelined Parliament on the main deal, the government now wants it to pass a special law to provide foreign companies with liability protection in case of nuclear accidents. Such a law has been demanded by U.S. firms, which, unlike their state-owned French and Russian competitors, are in the private sector.

It is important to remember that the promises on which the deal was sold to the country have been belied, one by one. For example, Prime Minister Manmohan Singh had exulted in 2008 that the deal “marks the end … of the technology-denial regime against India.” Yet, just last month, his Defence Minister conveyed to U.S. Defence Secretary Robert Gates India’s “concerns regarding denial of export licences for various defence-related requirements of the armed forces” and other “anomalous” technology restrictions.

After the 123 Agreement was clinched, Dr. Singh told Parliament in 2007 that an “important yardstick has been met by the permanent consent for India to reprocess.” But in 2010, India is still negotiating with the U.S. to secure a right to reprocess spent fuel. The U.S., in any event, has no intention of granting India “permanent consent,” with the State Department having notified Congress that the proposed arrangements with India “will provide for withdrawal of reprocessing consent.” The biggest fiction, of course, was to present the deal as the answer to the country’s burgeoning energy needs. Nuclear energy cannot be a reasonable solution for any country because plants take too long to build and cost far too much. The first plant to be set up under the deal is likely to generate electricity, in the rosiest scenario, not before 2016.

In a more-plausible scenario, the timeline may stretch up to 2020, given the three reactor-exporting countries’ record. While the U.S. has built no plant in many years, Russia is still struggling to complete its much-delayed twin reactors in Kudankulam, India. As for France, its two new plants under construction, one in Finland and the other at home, are billions of dollars over budget and years behind schedule.

The bigger question, which New Delhi consistently has shied away from discussing, is about the cost of electricity from foreign-built reactors. India’s heavily-subsidised indigenous nuclear power industry is supplying electricity at between 270 and 290 paise per kilowatt hour from the reactors built since the 1990s. That price is far higher than the cost of electricity from coal-fired plants. But electricity from foreign-built nuclear reactors will be even dearer. That, in effect, will increase the burden of subsidies on the Indian taxpayers, even as the reactor imports lock India into an external-fuel dependency.

To compound matters, the government’s Civil Liability for Nuclear Damages Bill, proposed to be introduced in the upcoming Parliament session, amounts to yet another tier of state subsidy, even if a hidden one. The bill is designed to shield foreign-reactor builders from the weight of the financial consequences of severe accidents. It shifts the primary burden for accident liability from the foreign builders to the Indian state. Although its text has not yet been made public, the bill is said to cap total compensation payable in the event of a severe radioactive release at Rs. 2,250 crore ($483 million), with the liability of the foreign supplier restricted to a trifling Rs. 300 crore ($64.6 million).

That represents an Indian taxpayer subsidy to foreign firms to help slash their cost of doing business in India. Each foreign reactor will carry a price tag of several billion dollars. Given that India has agreed to award contracts specifically to U.S., French and Russian firms, each such foreign supplier is expected to build more than one twin-reactor plant. India indeed has agreed in writing to import at least 10,000 megawatts of nuclear power-generating capacity from the U.S. alone. While each such firm stands to rake in billions of dollars in profit from the Indian market, its accident liability is being capped virtually at a pittance.

The partial core meltdown almost 31 years ago at the Three Mile Island nuclear plant in Pennsylvania didn’t kill anyone, but it led to 14 years of clean-up costing $1 billion. Despite India’s own bitter experience over the Union Carbide gas catastrophe at Bhopal, the government wants the Indian taxpayers to carry the can for foreign reactor builders. Why cap liability on terms financially prejudicial to Indian interests?

Worse still, India — instead of facilitating open market competition — is seeking to protect foreign firms from the market. From procuring land for them for reactor construction to freeing them from the task of producing electricity at marketable rates, India is doing everything to rig the terms of doing business in their favour. By designating nuclear parks for foreign-built reactors, the government has reserved reactor sites exclusively but separately for the U.S., France and Russia. In the same way it has signed billions of dollars worth of arms contracts in recent years with the U.S. without any competitive bidding and transparency, New Delhi is set to award nuclear contracts on a government-to-government basis.

India’s nuclear-accident liability bill aims to help replicate what U.S. nuclear firms presently enjoy in their domestic market, where the Price-Anderson Act caps the industry’s liability for a severe radioactive release. But for each accident, the Price-Anderson liability system provides more than $10.5 billion in total potential compensation through a complex formula that includes insurance coverage carried by the reactor that suffered the accident, “retrospective premiums” from each of the covered reactors in operation in the U.S., and a 5 per cent surcharge. Washington assumes liability for any catastrophic damages from an accident only above the $10.5 billion figure (which is inflation-adjusted every five years and thus variable).

Why should a poor country like India assume liability from a ridiculously low threshold? In fact, to cover claims of personal injury and property damage in the event of a catastrophic nuclear accident, India — given the density of its population and the consequent higher risks — must also maintain a large standby compensation pool, but without the state being burdened.

Another troubling aspect of the proposed Indian legislation is that while the Price-Anderson Act permits economic (but not legal) channelling of liability, thereby allowing lawsuits against any party, New Delhi is granting foreign suppliers immunity from legal actions — however culpable they may be for an accident — by introducing legal channelling of all liability to the Indian state (which will run the foreign-built plants through its Nuclear Power Corporation of India Limited). What will it do to nuclear safety to free foreign suppliers upfront from “the precautionary principle” and “the polluter pays principle” and turn their legal liability for an accident into mere compensation, that too at an inconsequential level?

To be sure, without a cap on liability damages in India, U.S. firms would be exposed to unlimited liability. But in its effort to help create a congenial environment for them to do business in India, should the state gratuitously assume the principal financial burden in the event of an accident? The proposed Indian cap is well below international levels. Japan, for example, has boosted its plant operator liability to120 billion yen ($1.33 billion). Under the OECD’s 2004-amended Paris Convention, total liability was set at €1.5 billion ($2.04 billion), with the operator’s share being nearly half. Germany, for its part, has unlimited operator liability and demands € 2.5 billion ($3.4 billion) security from each plant’s operator.

After the 1986 Chernobyl disaster, with its transboundary consequences, international efforts were initiated to harmonise rules on liability and compensation. But those efforts have been stymied by the failure to bring all relevant international instruments into force. States with a majority of the world’s present 436 nuclear power reactors are not yet party to any international liability convention. Many countries still maintain a “wait and see” approach. For example, China, Japan and the U.S. are not party to any international liability convention, while Russia — a party to the Vienna Convention since 2005 — has refused to pass legislation to waive or cap accident liability for its foreign suppliers. China has yet to erect a formal domestic liability regime, although its State Council in 1986 issued an administrative legal document as an “interim” liability measure.

When a number of nuclear-generating countries are yet to adopt domestic legislation in this field, let alone ratify international conventions, why is New Delhi in a rush to pass a bill that caps liability on terms weighted in favour of foreign suppliers? Parliament indeed should seize the opportunity offered by the liability bill to scrutinise the nuclear deal in its entirety.