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Comment (23) Piyush Goyal Ads by Google Don't Buy An Annuity.Modi's Energy Policy Sucks
Opinion » Lead
December 12, 2014
Updated: December 12, 2014 01:56 IST
Good intent not enough for good policy
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.)
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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