Profitability without accountability

With the Indian government acting in favour of the nuclear industry, contrary to the interests of potential victims of a disaster, the question of liability deserves greater attention

Published - February 16, 2015 12:50 am IST

SELL OUT? “The move to perpetually limit supplier liability to a nominal amount defies basic economic principles, and implies that victims will receive a lower compensation, in real terms, for future accidents.” Picture shows the Kudankulam nuclear power plant in Tirunelveli district, Tamil Nadu. Photo: N. Rajesh

SELL OUT? “The move to perpetually limit supplier liability to a nominal amount defies basic economic principles, and implies that victims will receive a lower compensation, in real terms, for future accidents.” Picture shows the Kudankulam nuclear power plant in Tirunelveli district, Tamil Nadu. Photo: N. Rajesh

In its efforts to promote nuclear commerce with the United States, the Narendra Modi government has run into a dichotomy that lies at the heart of this industry. While multinational nuclear suppliers, such as G.E. and Westinghouse publicly insist that their products are extraordinarily safe, they are adamant that they will not accept any liability should an accident occur at one of their reactors. The joint announcement by Mr. Modi and U.S. President Barack Obama last month raised concerns that the government would move to effectively indemnify suppliers, contrary to the interests of potential victims. The list of “frequently asked questions” (FAQs) on nuclear liability released by the Ministry of External Affairs on February 8 confirms the suspicion that the Modi government is trying to reinterpret India’s liability law by executive fiat in order to protect nuclear vendors.

The government has disingenuously suggested that it achieved the recent “breakthrough” by establishing an insurance pool to support suppliers. However, to focus on this arrangement is to miss the wood for the trees as even a cursory analysis of the economics of nuclear plants shows.

A section in the Indian law called the “right of recourse” allows the Nuclear Power Corporation of India Ltd. (NPCIL) to claim compensation from suppliers up to a maximum of Rs.1,500 crore ($240 million). This pales in comparison with the total cost of the six planned Westinghouse reactors at Mithi Virdi in Gujarat; estimates from similar plants under construction in the U.S. suggest that this may be as high as Rs.2.5 lakh crore. In the U.S., all nuclear plant operators must have third-party insurance for at least $375 million, and suppliers could easily set aside a small portion of their profits to do the same for reactors sold in India.

Problematic principle What suppliers are worried about is not the amount, but the principle. More concretely, if the law places some responsibility on suppliers, then a future Indian government could use this to gain leverage by forcing them to pay substantially more for a serious disaster. Moreover, their executives could be held accountable under other civil and criminal statutes in India. The FAQs released by the government are meant to reassure nuclear vendors on these counts.

The FAQs claim that the provision allowing the NPCIL a right of recourse “is to be read … in the context of … the contract between the operator and supplier.” This goes beyond the law, where the right of recourse exists independently of a contract.

In 2010, when a parliamentary standing committee suggested such a linkage, its recommendation was rejected by the Cabinet after a public outcry. Although the FAQs later state that “a provision that was expressly excluded from the statute cannot be read into the statute by interpretation,” this is precisely what the government is doing here.

The FAQs suggest that the government is also committed to the interests of the public sector NPCIL which “would insist that ... contracts contain provisions that provide for a right of recourse consistent with Rule 24 of CLND Rules of 2011.” However, this is a cunning sleight of hand. A central element of these rules is that “the provision for right of recourse … shall be for the duration of initial license,” which is usually granted only for five years. In contrast, the promised lifetime of modern reactors is 60 years, and failure rates tend to increase in later years. Therefore, linking the right of recourse to a contract is an attempt to water down supplier liability to a meaningless level.

Just because the Manmohan Singh government accepted the Faustian Indo-U.S. nuclear pact does not mean that India needs to bend its laws and spend billions of dollars on U.S. reactors

The FAQs also declare that suppliers cannot be “asked to pay more compensation in the future … than currently provided under the law.” However, this ignores the fact that the law itself has a provision for revising liability, which states that “the Central Government may … from time to time … specify, by notification, a higher amount.”

A revision of the cap with time is only natural. Several decades from now, Rs. 1,500 crore may be worth much less than it is currently. Therefore, the government’s move to perpetually limit supplier liability to this nominal amount defies basic economic principles, and implies that victims will receive a lower compensation, in real terms, for future accidents.

Finally, the FAQs assert that the liability act, ipso facto, takes away the rights of victims to sue suppliers even under other laws. If this interpretation of the law is correct, then it implies that suppliers cannot be prosecuted even for criminal negligence.

Double standards This provides a striking example of double standards. Under U.S. law, suppliers can be held legally responsible for accidents. Consequently, for decades, the U.S. refused to join any international convention that would require it to legally indemnify suppliers. When it engineered the Convention on Supplementary Compensation for Nuclear Damage, it inserted a “grandfather clause” to ensure that it would not have to alter its own law. In contrast, the Indian government seems willing to meekly surrender the rights of its citizens.

It is sometimes argued that India must make these concessions to “repay” the U.S. for its help in facilitating India’s access to international nuclear commerce. U.S. policymakers pushed for such access in a calculated attempt to induce India to support its geostrategic objectives and to ensure that U.S. companies would have access to the emerging Indian nuclear market. However, just because the Manmohan Singh government accepted this Faustian pact — and even cast an unconscionable vote against Iran at the International Atomic Energy Agency — does not mean that the country needs to repay this self-serving “favour” endlessly by bending its laws and spending billions of dollars on U.S. reactors.

Although the question of liability is somewhat abstruse, it deserves greater public attention because it serves as a clear lens to understand the central conflict involved in India’s nuclear expansion: the desire of nuclear vendors to have profitability without accountability and the interests of ordinary people who could be potential victims. The government’s attempt to resolve this conflict in favour of the industry is a revealing indicator of its priorities.

(M.V. Ramana and Suvrat Raju are physicists with the Coalition for Nuclear Disarmament and Peace. Ramana is the author of The Power of Promise: Examining Nuclear Energy in India, 2012.)

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