A ‘breakthrough’ that is no big deal

While the government may continue to say that the Civil Liability for Nuclear Damage Act remains untouched, it’s the government’s reading of that law which is problematic, especially as it is around an issue which concerns every Indian: as an energy consumer, a taxpayer, and a potential victim of a nuclear accident

Updated - August 31, 2016 11:47 am IST

Published - February 12, 2015 12:52 am IST

In an unusual move this week, the government sought to clear the air over the India-U.S. nuclear “breakthrough understanding” announced by U.S. President Barack Obama and Prime Minister Narendra Modi, with a detailed press release on the subject. The move was prompted by several questions being asked over how the two leaders had been able to announce a breakthrough in issues that have held up nuclear trade for five years. The bottom line, the government said, was that the Civil Liability for Nuclear Damage (CLND) Act of 2010 remained untouched. However, it is the government’s reading of that law that is problematic, especially as it concerns an issue which touches the life of every Indian: as an energy consumer, a taxpayer, and a potential victim of any untoward nuclear accident.

The energy basket Let’s be clear. The problem is not with the India-U.S. civil nuclear deal. After all, nuclear energy is something India has made a conscious move towards since 2000 in a bipartisan manner, with both the United Progressive Alliance and the National Democratic Alliance governments pushing ahead with it. By 2035, India’s projected energy demand is expected to grow by 132 per cent and India will surpass China as the world’s highest energy consumer according to the latest BP energy outlook report. Given India’s projected population growth, and the worldwide push for clean energy, it is clear that nuclear energy, with its low carbon content, and centralised land requirement, will form a key component of our energy mix. As a result, just last month, the government has tripled its target to 63,000 MW of nuclear energy by 2032, more than 14 times what is produced today.

The problem is also not about making special concessions to the United States. If it hadn’t been for the American administration led by President Bush, India would have had few options to build its nuclear energy programme, and access fuel and nuclear supplies from other countries. After the U.S. did the “heavy lifting” in getting India a legitimate place in the international nuclear regime, it would seem churlish to suggest that India should cut out U.S. businesses like GE and Westinghouse from the market simply because they demand more favourable terms than Russian or French ones do.

While the prospect of better relations that the nuclear breakthrough will engender between New Delhi and Washington is indeed a worthy cause, its worth must be weighed against the cost. In essence, in order to assuage U.S. supplier concerns over Indian liability laws, the agreement will end up being billed to the consumer multiple times, and ensure that the supplier pays virtually nothing at all.

Liability and cost To understand this conclusion, one must break up the “breakthrough understanding” Mr. Obama referred to, into two silos: liability and cost.

At every stage of the nuclear process, the government has negotiated to minimise the liability of the supplier (who could be U.S., foreign or Indian). To begin with, the Civil Liability for Nuclear Damage Act of 2010 itself capped all liability to 300 million Special Drawing Rights (SDRs) ($420 million or Rs.2,610 crore). The figure was arrived at in 2010 after much debate, but it would have been far higher today, given two events that followed.

The answers to frequently asked questions supplied by the Ministry of External Affairs seem to be deliberately aimed at easing the concerns of the suppliers, and not the concerned Indian consumer

First, in March 2011, a tsunami off the coast of Japan led to a technical fault and a meltdown at the Fukushima nuclear reactor plant. To date, nobody knows just how many people were affected by the leak, as officials didn’t categorise the casualties by “cause of death or injury” as that would affect the immediate compensation they received. In 2014, various estimates put the damages and clean-up between $100-$250 billion. Second, in September 2011, the U.S. government’s joint investigation team on the BP “Deepwater Horizon” oil spill off the coast of Mexico found that not only was the “operator” BP liable for the damages, but also Halliburton, that carried out the construction of a faulty well, and Cameron, the company that designed and manufactured a “blowout preventor stack”, that had malfunctioned. The investigation team’s report in 2011 was path-breaking and got the supplier, Cameron, to pay a settlement of $250 million. Given the experiences of the costs of a nuclear accident in today’s times, and how much liability every part of the process chain must bear internationally, Parliament and the Indian government may have revised the proposed cap to a much higher figure than the $420 million it is and made the CLND Act more stringent than it did then. In the unthinkable event of a nuclear blowout, it will be near impossible to get close enough to the melted core of a reactor to ever know just who was responsible for it; so the fault of the supplier will also be much more difficult to prove than in the BP case.

More questions than answers It is curious, then, that after the last round of negotiations, the Ministry of External Affairs (MEA) has put out an explanation that only seeks to reduce the liability that suppliers will face. The answers to frequently asked questions (FAQ) supplied by the Ministry of External Affairs (MEA) seem to be deliberately aimed at easing the concerns of the suppliers, and not the concerned Indian consumer. Under its explanation of section 17 (question 9), for example, it says the law “permits but doesn’t require an operator” to make the supplier liable in its contract for a nuclear reactor or part. It also says that a supplier can be sued for damages only “if it is expressly provided for in a contract in writing.” (question 8). What supplier would feel obligated under the circumstances to sign for liability in a contract, when it isn’t “mandatory” according to the government of the day? While the FAQ mentions that the state-run operator, Nuclear Power Corporation of India Ltd., “would” insist on such a clause, it doesn’t answer this basic question.

Nor does it answer what would happen in case the nuclear industry is privatised and the operator is no longer a state-owned entity.

Next, the MEA release does away with the right of recourse of a victim to sue the supplier in India directly (question 7) as well as in a “class action suit” in foreign courts (question 13) where it says that section 46 on tort law “does not create the grounds for victims to move foreign courts.” All of this is done under the cloak of conforming to the International Convention on Supplementary Compensation for Nuclear Damage (CSC 1997), but it doesn’t explain why the government is going to such great lengths to exclude the supplier for a law that had been debated so hard in the Indian Parliament only so that it would include the supplier. The contrast between Arun Jaitley’s article of September 2013, as Opposition leader, where he referred to the “hidden hand of nuclear vendors” and insisted on making liability for the vendor or supplier “mandatory” and just 15 months later, when as Union Finance Minister, he was a key part of the nuclear contact group meeting that hammered out this agreement, could not be more distinct.

Mounting costs Finally, we come to the cost of the breakthrough to the Indian consumer/potential victim. As a sweetener for suppliers, the MEA has spelt out a “nuclear insurance pool” for the Rs.1,500 crore that is the minimum required (questions 14 & 15) to be set aside by law. Curiously, while one tier of the pool will cater to operators, tiers 2 and 3 are meant for the same suppliers who have largely been insulated from any liability. The pool will be made up by the government and state-owned insurers administered by the General Insurance Corporation of India. In the unfortunate event of any incident, this pool would be used to pay damages immediately to the victims, the government would be liable for an additional Rs.1,110 crore, and after which the International CSC fund would bear residual damages (applicable only once India ratifies the CSC). The supplier, it is made amply clear, will pay nothing but a nominal premium to the insurance pool, which no doubt will build into the cost of supplies.

To make it simple, the Indian consumer/taxpayer will pay for the following: the cost of land allotted to the nuclear reactor, the costs of building and operationalising the reactor, the cost of the insurance pool run by state-owned companies, the costs of half the pool that the Central government will provide, the cost of electricity per unit (expected to be at least double that of existing reactors), the immediate damages disbursed by the insurance fund in the terrible event of an accident, the subsequent damages paid for by the Central government, and not to mention the legal costs if the government or operator decides to sue the supplier!

Confusing the consumer The real problem, then, is that nothing is “simply put” in the nuclear debate. Instead, clever, complicated and arcane language has been used to obviate the real meaning and obfuscate its consequences for the consumer. Such simplicity may also explain how the same set of Indian officials, negotiating with the same U.S. administration for more than five years over the same law, were able to produce a new and unique consequence, now being called the “breakthrough” in the nuclear deal.


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