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Modi's Energy Policy Sucks


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Modi's Energy Policy Sucks

Opinion » Lead

Updated: December 12, 2014 01:56 IST

Good intent not enough for good policy

Rakesh Sood
Comment (15) 

In order to deliver on its promise of an independent nuclear programme, unencumbered by foreign pressure, and uphold the importance of nuclear power in India’s energy mix, the Modi government will have to find a way out of the impasse created by the present civil liability regime

The Indian Civil Liability for Nuclear Damage Act (CLNDA) of 2010 is a good example of how good intentions alone do not lead to good policy. After obtaining a historic waiver from the Nuclear Suppliers Group in 2008, which enabled India to engage in international civil nuclear commerce and acquire new technology for Gen 3 nuclear power plants, India adopted the CLNDA whose ambiguous provisions have adversely impacted expansion of nuclear power generation capacity. These provisions may be well intentioned but the open-ended liability law makes all vendors, domestic and international, reluctant to engage with the Nuclear Power Corporation of India Ltd. (NPCIL). Since 2010, NPCIL has been unable to launch any new nuclear power project (Kudankulam 1&2 predate the CLNDA) and faces difficulties even in sourcing spares domestically for its indigenously designed Pressurised Heavy Water Reactors (PHWR).
Importance of targets
This reluctance has negative consequences because to sustain annual growth rates of 9 per cent till 2035, India’s power generation has to grow 6 to 7 times. From 225 GW of installed capacity today, covering thermal, hydel and renewables, it has to reach 1,200 GW by 2035. Nuclear generation accounting for 4.8 GW today could rise to 80 GW, which is consistent with India’s three-phase nuclear programme and the quest for long-term energy security. To meet this target, seven more indigenously designed PHWRs are expected to come on stream by 2017 taking capacity to 9 GW. In the second stage, with 10 Light Water Reactors set up with international collaborations (the United States, France and Russia), another 10 PHWRs and the proven prototype Fast Breeder Reactor, Indian nuclear generation should reach 30 GW, ready to transition to the third stage, based on the thorium generated U-233 cycle. However, the nuclear installed capacity remains static though capacity utilisation has gone up, thanks to imported uranium fuel.
The Bharatiya Janata Party’s election manifesto promised a “two-pronged independent nuclear program, unencumbered by foreign pressure and influence” and on the civilian side, reiterated the importance of nuclear power in India’s energy mix, while committing to “invest in India’s indigenous Thorium Technology Programme”. To deliver on this, the Modi government will have to find a way out of the impasse created by the present liability regime. It needs to be understood that this is necessary not in order to import Gen 3 reactors from foreign sources, but even if NPCIL chooses to follow the indigenous route because Indian vendors are equally concerned about the open-ended and ambiguous provisions of the CLNDA. Earlier, NPCIL included a “hold harmless” clause in its contract with Indian vendors absolving them of liability, but this is no longer possible after the CLNDA.
International liability regimes
A peculiarity about international nuclear liability law is the concept of “channelling.” In order to encourage its private sector to enter the nuclear power sector, the U.S. introduced “economic channelling” through the Price Anderson Act (1957) under which victims can initiate lawsuits against the power plant operator and other parties (designer, equipment vendors, etc), consistent with tort law. However, in order to make it easier for victims to claim compensation in case of an accident, the operator bears the entire financial liability burden and is obliged to take out omnibus insurance, to indemnify the vendors. The operator nevertheless enjoys right of recourse against designers, vendors, constructors, etc. In 1979, following the Three Mile Island accident, the victims sued the operator, the designer and the constructor. While settlement was done by the operator, the operator had sued the designer and this suit was settled out of court. Operators accepted economic channelling but with a financial ceiling and a limited time frame within which liability claims would be admissible. For the victim, the advantage was strict liability (the victim does not need to prove negligence), a single forum and a single applicable law.
However, when U.S. companies began exporting know-how and technology to Europe, they were not willing to bear liability for a nuclear accident in a foreign country. Harvard Law School and the Atomic Industrial Forum came up with a report promoting “legal channelling” and with the U.S. government’s support, this became the international norm beginning with the Paris Convention in the Organization for Economic Cooperation and Development (OECD) in 1960, the Vienna Convention in the International Atomic Energy Agency (IAEA) in 1963 and the 1997 Convention on Supplementary Compensation (CSC). India signed the CSC but finds it difficult to ratify it because of inconsistency with domestic legislation.
Ambiguities in CLNDA
The key point in “legal channelling” is that victims can only sue the operator and no civil suits can be initiated by the victims or the operator against the vendors, designers or contractors, and, the law of torts is set aside. The rationale used in the Harvard Report was that post delivery, vendors lose control over their products and services and accidents could be caused on account of poor management. Incidentally, while the U.S. has been a strong promoter of “legal channelling” abroad, domestically, it has maintained “economic channelling” which retains applicability of tort law albeit in a modified manner.
The concept of “channelling” was justified on the grounds that the nuclear industry was in its infancy, insurance markets and pools were not well developed and open-ended tort law applicability would make insurance costs impossible to define. The situation is different today and there is a growing feeling that “legal channelling” is no longer needed. The CLNDA rejects channelling and introduces “supplier liability,” more in keeping with today’s thinking. However, while protecting the interests of the victims, it ends up making the notion of “supplier liability” somewhat infinite and open-ended, generating legitimate concerns on the part of the vendors, leading to the current impasse.
There are two contentious provisions in the CLNDA. Section 17 allows the operator (NPCIL at present) to have right of recourse for nuclear damage against a supplier on three counts — if it is provided in the contract, if it is on account of equipment having “latent or patent defects” or provision of “substandard services”, or if there has been intent to cause damage. The first and third counts are consistent with international regimes; the second provision raises questions. These terms are neither defined nor is there guidance as to what standards would apply in an Indian court. Further, analysis of reactor incidents has indicated that it is impossible to identify a particular component or equipment as the defective one which could lead to unending litigation. However, in order to safeguard the victims’ interests, the operator’s right of recourse only kicks in after payments for nuclear damage have been made. In other words, the CLNDA retains the strict and exclusive liability principles associated with “channelling.” Section 46 provides that the provisions of the CLNDA are “in addition to, and not in derogation of, any other law,” which has the effect of making the supplier subject to Indian laws that apply to any industrial accident including criminal liability, tort law, etc, leaving potential liability open-ended and insurance difficult to manage.
Under the CLNDA, a set of Rules was promulgated in 2011. Rule 24 was intended to address these concerns but failed to do so and generated further questions. It limits the operator’s right of recourse vis-à-vis the supplier, both monetarily and in terms of a time frame. However, while it is clear that Rule 24 applies to the first part of Section 17, there are questions about its applicability to the second part.
The way forward
To resolve this, the Modi government will need to follow certain guidelines. First, the problem needs to be identified as first and foremost, a domestic vendor problem and not misconstrued as addressing foreign vendors’ concerns. Second, it has to be addressed in an open and transparent manner involving all stakeholders including civil society and media, and not by stealth or clever fixes which end up in embarrassing dead-ends. The two principles of safeguarding victims’ interests, in terms of both strict and exclusive jurisdiction, and prompt redress of damage claims, have already been accepted and are not undermined by any redistribution of rights and obligations between the operator and the suppliers. Given the slow pace of litigation in India, “channelling” would be beneficial to victims but cannot coexist with general applicability of tort law. Therefore, just as Rule 24 constrains parts of Section 17, definitions of new terms and rules have to be developed to ensure that supplier liability is neither open-ended nor infinite. Second, cascading insurance premiums should not render nuclear power economically unviable.
Finally, we need to think in the long term. Tomorrow, the nuclear power sector could be opened up to private operators as is the case with other power generation. As the repository of power reactor technology, NPCIL will then be the design provider and would hardly like to be faced with the CLNDA as it currently stands. Good intentions need a vision to translate into good policy.
(Rakesh Sood, a former Ambassador, was the Prime Minister’s Special Envoy for Disarmament and Non-Proliferation from September 2013 to May 2014.)

 V Gupta  
Thank you for writing and clarifying an issue which has been a muddle for me. Our media has failed miserably to explain what this issue is about other than tuck at nationalistic chords. I am sensitive to making responsible parties pay proper compensation promptly given our experience of Bhopal tragedy. Of course, in that case our politicians and Babus can hardly be seen as blameless. At the same time, given India's desperate need for energy, we need to get going on. Our politicians herefore have managed to present this issue as if it concerns foreign suppliers only. You rightly cast the issue as impacting domestic providers first. Nobody sensible anywhere would want to take on unknown, unlimited liability. We must find a way to move forward in a way that will allow responsible and ethical businesses to get on with the job. While nuclear energy has its downside, it is not clear what other viable options India has.

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