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Do nothing about the nuclear liability law

Arguably, there are several options available to policymakers when it comes to the Civil Liability for Nuclear Damage Act, 2010 (“Liability Act”). One of them, is to continue with status quo or the do-nothing option. There is no doubt that a decision is necessary on this front, either way. For instance, as Prime Minister Narendra Modi begins his visit to the US, some commentators believe that lack of progress on this front will “haunt” him during the visit.

It is interesting to note, that in recent times, agreements involving nuclear fuel have been cited as indicators of movement towards the resolution of this problem. It is unclear why this is the case, considering the scope of the Liability Act. Arrangements for nuclear fuel, unless tied together with supply of nuclear plants, are largely disconnected from the issue of nuclear liability bothering foreign companies looking for an entry into India. From all accounts, the problems connected to the Liability Act remain a concern for foreign companies.

It is difficult to find an indication that Indian policymakers are considering a radical shift in stance. When faced with public protests in light of reports that India was willing to dilute the requirements under existing law, the previous government was quick to clarify that no such proposal was on the cards. While the current government has shown commitment towards making India a business-friendly destination, there have been no indications that it plans to radically change existing law either. Leading policymakers in the previous government made it clear that there were no plans to diluting the liability clause under the Liability Act.

It is in this context that we must consider status quo or the ‘do-nothing’ option. Considering the potential in the Indian market, it is possible that foreign companies might blink first. For instance, the Russians seem to have found a way out in the short term. First, as discussed elsewhere, it is possible that new units may be “grandfathered” under old contracts. Second, working with Indian insurance companies to offset the risk is also another option before the companies. Whether or not this option is better than the others available to policymakers is another question. Additionally, it can also be argued that keeping foreign players out in this way may help develop India’s indigenous nuclear programme. Given the Modi government’s push in favour of indigenization in the defence sector, it is not impossible that such a move may be packaged similarly in case of the nuclear power sector, especially considering the fact that the Indian programme is based on use of thorium (relatively, an abundant resource in India). While it may seem like this approach has not worked till now, this is, by no means, an option not worthy of your attention.

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The Nuclear cake, with Kerry on top?

John Kerry’s visit to India was important in many ways. What was also on his agenda was the operationalising the Indo-US Nuclear Agreement. When Kerry announced his approval of the idea behind sabka saath, sabka vikaas, it was rightly understood the civilian nuclear programme would be an important part of discussions in New Delhi. Before his visit, policymakers were looking for ways to indicate India’s commitment to the programme, and more importantly, to opening the doors for foreign players.

Recently, the Indian government’s decision to ratify the IAEA Additional Protocol was highlighted widely. While it is, undoubtedly, a step which shows that India’s civilian nuclear programme is on the government’s agenda, it is unclear why it is being touted as a landmark event. This decision is, at best, one which shows that India is willing to stand by existing promises, as opposed to progress in this regard. Indeed, if India were to not ratify the Protocol, it would not make any sense at all, since the protocol was introduced especially for India after series of negotiations and merely relate to IAEA inspections of civilian reactors, leaving military ones untouched.

The decision to ratify the Additional Protocol itself has been widely appreciated, nevertheless, and it is likely that some stakeholders will now push for removal or a substantial amendment of the nuclear liability laws (even referred to as the “nuclear fog”) as part of continuing legislative ‘reform’. Prime Minister Narendra Modi is expected to discuss these matters extensively during his interaction with head of states from Japan, Australia, China and the USA over the next two months, and many are arguing the only way to truly move forward with foreign participation in India’s civilian programme is by addressing existing concerns relating to the liability law.

Previously, I have argued that some of the enthusiasm calling for major changes to the liability law is misplaced, especially considering how some commentators suggest that the current government’s majority in the house can be used to expedite the process. As concerns keep emerging about the manner in which the government may circumvent or dilute the liability law substantially, policymakers must ensure that while India must stand by promises which have been made before the international community and its people, the momentum is not exploited by some stakeholders to bring in legislative changes which may prove to be detrimental to India’s interests. Leading the charge, undoubtedly, will be the USA. What remains to be seen is whether the government can stand its ground on the issue of supplier liability (perhaps not acceptable in its current form).

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The Civil Liability for Nuclear Damage Act’s most problematic provisions involve the right of recourse? Think again.

After the Indo-US nuclear agreement was signed in 2008, the Liability Act’s right of recourse provisions were highlighted as potential deal-breakers. In my previous post, I discussed how the right of recourse itself does not seem to be problematic, but is definitely problematic in its current form. In any case, the relevant provisions have not only played a role in hampering international participating in India’s nuclear power industry, but have also (arguably) shifted the focus away from some of the other provisions of the Liability Act (Civil Liability for Nuclear Damage Act, 2010).

The decision to provide a wide definition of “nuclear damage” under S. 2(g) was appreciated across the board. Considering the events which followed the Bhopal Gas Tragedy, the decision to expand the definition of damage to include loss of life or property, personal injury, economic loss, loss of income, costs of preventive measures and even costs of measures of reinstatement of impaired environment, was received well. This was also largely in line with the definition provided under Article I (k) of the Vienna Convention on Civil Liability for Nuclear Damage (1997). Taken together with the wide definition of “nuclear incident” under S. 2(f), which included cases wherein there was a threat of damage as well, the framework in this regard seemed comprehensive.

So far, so good. What was added to the Liability Act, however, seemed to substantially affect the impact the Act would have on the public. S. 3 of the Act deals with the duty of the Atomic Energy Regulatory Board (AERB) to notify a nuclear accident. The use of the term “shall” indicates that the AERB is under an obligation to notify such an incident within 15 days. However, the proviso to this provision gives the AERB the power to avoid such notification if the “gravity of threat and risk involved” is found to be “insignificant”. S. 3(2) of the Act further allows the AERB to publicize such a notified incident “in such manner as it may deem fit”.

It is obvious, that while considering legislation such as this one, some room discretion has to be provided in light of specialized and technical nature of the activities involved. However, any possible concerns with provisions such as S. 3(2) can be laid to rest by providing an illustration laying down some of the means by which such an incident may be publicized.

S. 3(1), however, seems to be more problematic. First, because of the time period of 15 days provided for under the provision. The Committee on Subordinate Legislation had considered this question and came to the conclusion that such a time-frame may be required in view of complex nature of operations. While this in itself should not be problematic, the manner in which the government has dealt with public disasters in the past does not instill confidence. Second, the provision does not seem to have in-built safeguards or provisions to challenge decisions of the AERB, in case it arrives at the conclusion that a particular incident does not qualify as a nuclear incident under the Act. What does a resident from Kudankulam do when he is convinced that a radiation leak has affected him, his family or his property? The Rules under the Act (Civil Liability for Nuclear Damage Rules, 2011) also fail to remedy the situation. Rule 4 in fact further provides that the AERB itself will act on the operator’s report relating to the “occurrence of a nuclear incident” – such a report, under the Rule, has to be submitted “immediately” after any such incident.

Even if the notification itself could be glossed over as a formality by arguing that emergency and medical services would be supplied in any case, this issue can pose problems when it comes to the crucial issue of compensation. S. 13 of the Act deals with “Inviting application for claims by Claims Commissioner”. Any such application can be invited only “after the notification of nuclear incident under” S.3(1) of the Act. In short, if an incident has not been notified, you cannot put forth a claim for compensation even with clear signs of something as serious as radiation poisoning, under the Act. Considering how the object of the Act itself seems to include provision of “prompt compensation to the victims of a nuclear incident”, the manner in which this provision may impact citizens raises concerns.

Together with other provisions which I will highlight subsequently, these provisions make a strong case for a comprehensive review of the Act not restricted to the right of recourse provisions alone. Unfortunately, the right of recourse seems to be on the top of everyone’s agenda, relegating these equally (if not more) important issues to the background.

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Nuclear Liability Law: Right of Recourse

The right of recourse itself is not against India’s long-term interests

The crucial waiver from the Nuclear Suppliers Group (necessary to remove a crucial roadblock blocking supply of nuclear fuel) was secured on September 6, 2008. By February 2, 2009, India had signed an India-specific IAEA safeguards agreement as well. Why then, was there no rush of new nuclear power projects, as many predicted? If one had to cull out one reason why the Nuclear Liability Act has received flak internationally, it would be for the controversial right of recourse provision. S. 17 of the Civil Liability for Nuclear Damage Act, 2010 provides that the “operator” of a nuclear installation shall have such a right, where:

(a) such right is expressly provided for in a contract in writing;
(b) the nuclear incident has resulted as a consequence of an act of supplier or his
employee, which includes supply of equipment or material with patent or latent defects
or sub-standard services;
(c) the nuclear incident has resulted from the act of commission or omission of
an individual done with the intent to cause nuclear damage.

The fact that the presence of patent or latent defects can form the basis for extending liability to suppliers has several international stakeholders worried. Suppliers’ objections to this provision can be broken down into two aspects. The first is based on convention. Suppliers argue that as per settled international practice, liability must be borne by the operator alone. Indeed, this is backed by the international legal instruments like the Convention on Supplementary Compensation for Nuclear Damage. The second aspect is about problems which are more practical in nature, which may come along with such a provision. Consider a situation where a foreign firm supplies insignificant small engineering equipment (or even a pump) for a reactor. After handing it over to the operator (NPCIL, presumably) for commencing generation, what happens if there is an accident? Will the machinery manufacturer be forced to be a party to the dreaded Indian legal proceedings relating to claims of compensation? What kind or class of suppliers is covered by this provision?

Unfortunately, the Liability Act does not help us answer this question. While the term “operator” is defined under S. 2 of the Act, there is no such definition of a “supplier”. It is important for us to consider if it is wrong to include supplier liability within a domestic law, just because it may not be in line with international practice. At the time when such practices were introduced, there may have been several considerations before policy-makers. One among those was the understanding that support that had to be provided to an industry in its nascent stage, which highlighted the need to find a way to shield suppliers.

It is important (and indeed, possible) for India to re-consider if previous practices have to be followed in this regard. With a huge projected market size, there is no dearth of parties willing to be become a part of the Indian nuclear power success story. While that has translated into interest and pressure from firms, lobby groups and other countries, it can also give India an opportunity to define its nuclear policy on its terms (to some extent). While such a policy should not be vague or impose unnecessary burdens on the industry, what is equally true is that India should not shy away from using this opportunity to incorporate terms which are more in line with the times – focusing on today’s requirements and capabilities. It is also important to note, that while it can be argued that the current version of the Liability Act is not “in line” with international practice, it cannot be said to be “illegal” under international law.

Supplier liability in itself may not be problematic, if we can find a way to implement the idea in a proper manner. In fact, it is possible that the provisions may receive a better response from the industry with greater clarity in terms of policy.

However, the manner in which such a change has to be introduced is also important. The Vodafone experience is still fresh in the minds of investors, who will also be vary of any changes introduced via an executive action, as opposed to a legislative one. This is especially true because the introduction of the Civil Liability for Nuclear Damage Rules (2011) has not helped bring in any more clarity.

As the new government focuses on energy security, it would do well to use all bargaining chips at its disposal in order to ensure that India’s long-term interests are not sacrificed in order to secure short-term gains.

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India’s civil nuclear liability law

The Civil Liability for Nuclear Damage Act (hereafter “Liability Act”) was a controversial legislation introduced in 2010. While the surrounding controversy seems to have died down in light of other issues (Telangana/ upcoming Lok Sabha elections), it continues to remain a sore point for the government. Notwithstanding the fact that the Liability Act was intended to act as a tool to operationalise the Indo-US nuclear agreement, it seems to have had quite the opposite effect.

Recently, Prime Minister Manmohan Singh rated the conclusion of the Indo-US Nuclear Agreement as the best moment of his term[1]. Critics’ opinions have labelled the point as the worst moment for the country[2]. In order to analyse the Liability Act, it would also be important to consider the Indo-US Nuclear Agreement as a whole. The idea’s first form can be sourced from a joint statement issued on July 18, 2005 by the Indian Prime Minister and the President of the USA. Subsequent posts will provide an outline of the process which led to the Agreement and passing of the Liability Act in Parliament.

Today, critics point towards the negative impact of the Liability Act on two broad grounds. First, it is contended that it has failed to generate a tangible, positive impact on India’s domestic civilian nuclear power programme. This aspect is especially highlighted in light of the possible presence of equally efficacious alternatives which can help India achieve energy security. Second, it is also contended that these measures have de facto aligned India with the USA, and have led to a scenario wherein Indian foreign policy has been dovetailed to the USA’s policies.

With regard to the first issue, it has been argued that India possesses sufficient potential to harness energy from other sources, such as hydropower, solar power and wind energy. Additionally, it has also been pointed out that removing existing inefficiencies and redundancies from the system would raise output. For instance, it has been argued that India can add a significant chunk to its current power output by simply reducing transmission and distribution (T&D) losses – attributed to old, defective or faulty equipment. Some estimates suggest a loss of about 27%, while the adoption of international best practices can reduce this to about 7% – resulting in savings of about 40,000 MW.[3] For reference, the operational Kudankulam reactor generates about 1000MW.

With regard to the second ground, the concerns are more strategic in nature. Especially in light of the first ground, this issue assumes greater significance. Was this Agreement (and the Act) worth the costs that India will have to bear at the domestic and international front (especially considering the fact that these measures did not in any way guarantee participation of foreign fuel or reactor suppliers)?

Traditionally, India has shared a close relationship with countries such as Russia and Iran – countries which have helped India especially in fields such as defense and energy. For instance, before the US or Israel entered the picture, Russia was (by far) the biggest supplier of weapons and weapons systems to India. While ties continue to remain strong, the entry of other players has significantly altered the extent of India’s reliance. This can be seen in two ways – a diversified pool of suppliers reduces dependency on a single supplier. However, it may also change the way India is viewed internationally. Once a staunch Russian ally, will things change now? The Russians have always maintained (even before the NSG waiver) that they had complete faith in India’s non-proliferation record, which also translated into increased activity over the past decade[4]. Interestingly, the Liability Act has now given rise to some concerns in the Russian camp as well, in addition to those raised by almost every other supplier in the world[5].

Proximity with the USA also complicates matters for India’s long-standing and mutually beneficial relations with countries like Iran, with India’s increasing sensitivity to international pressure becoming apparent over the past few years. There are several other concerns as well – the impact on India’s indigenous research (thorium based/fast breeder reactors[6]), military nuclear programme and policy towards controversial instruments such as the NPT. The fact that the Agreement itself was seen as a strategic tool by the USA has been clear for quite some time now, and is underlined every now and then (with US officials expressing their intentions and assessing the impact on bilateral strategic ties)[7].

The Liability Act itself is problematic not just because of the manner in which it was introduced, but also (expectedly) because of its content. The provisions remain unsatisfactory for both the public, and the foreign supplier organisations. The Act places a cap on operator liability (which is, arguably, low considering the expected extent of costs involved with a nuclear accident), while also opening the possibility of extending liability to suppliers in case of patent/latent defects. International firms are especially concerned over the manner in which a supplier has been defined, potentially including a firm which manufactured a single pump, motor or assisted in design work. The Attorney General of India’s opinion – that the govt. may contract out of the liability provision, created quite a controversy before it was clarified that the government did not intend to do[8] (clearly, still not addressing the legal issue).

Several other problem areas have been identified – treatment of the parliamentary standing committee’s recommendations, provisions allowing the govt to grant exemptions from liability, standard of proof, jurisdiction of civil courts (except writ jurisdiction), role and powers of the Claims Commissioner, requirement for notification of nuclear accidents, among others. In this post, I have provided a background for the research project. In subsequent posts, I will discuss several important issues which are part of the project. As part of my research, I plan to assess:

  1. The terms of the Indo-US Nuclear Agreement and the manner in which it was negotiated
  2. The strategic impact of the Agreement and associated legislative changes (USA and India)
  3. Relevant provisions under the international civil nuclear liability framework
  4. Developments at the international front involving the IAEA/NSG
  5. Provisions of the Liability Act, extent of Parliamentary scrutiny and strategic implications
  6. Policy decisions/processes connected to the Agreement/Liability Act

[1] PM’s N-Deal that changed landscape of Indo-US ties stalled over Nuclear Liability Act, http://articles.economictimes.indiatimes.com/2014-01-06/news/45918562_1_india-us-ties-nuclear-liability-act-west-asia

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