Resolving the nuclear liability deadlock

ANUPAMA SENARGHYA SENGUPTA

January 6, 2015

By putting in place a comprehensive, fair and pragmatic legislation on civil nuclear liability, there is no reason why India cannot reap the long-term benefits of civilian nuclear energy and resolve a prickly foreign policy issue

On January 26, Barack Obama will become the first U.S. President to attend India’s Republic Day celebrations. It will also mark nearly 10 years since the first announcement on the India-U.S. civil nuclear agreement. In contrast to those heady days when the promise of nuclear power meeting India’s gargantuan energy needs was in the air, the present situation is bleak. A target of installing 63 Gigawatts of nuclear capacity by 2032 has been reduced to 27.5 Gigawatts and none of the landmark deals envisaged has been struck. The Civil Liability for Nuclear Damage (CLND) Act, 2010 which contains a speedy compensation mechanism for victims of a nuclear accident has been deemed responsible for this deadlock. Specifically, provisions on recourse liability on suppliers (Section 17(b)) and concurrent, potentially unlimited liability under other laws (Section 46) have been viewed as major obstacles in operationalising nuclear energy in India and bilateral relations with key supplier countries.

A question of recourse

Under Section 17(b), a liable operator can recover compensation from suppliers of nuclear material in the event of a nuclear accident if the damage is caused by the provision of substandard services or patent or latent defects in equipment or material. This is contrary to the practice of recourse in international civil nuclear liability conventions, which channel liability exclusively to the operator. Specifically, it contradicts Article 10 of the Annex to the Convention on Supplementary Compensation for Nuclear Damage (CSC), an international treaty which India has signed.

“U.S. President Barack Obama’s visit is an opportunity to address misgivings over the nuclear liability law and to also meet foreign governments and the supplier community halfway on the issue.”

That Section 17(b) is contrary to the global norm is undeniable. However when the global norm itself is inequitable, there are justifiable reasons to depart from it. The inclusion of Section 17(b) recognises historical incidents such as the Bhopal gas tragedy in 1984 for which defective parts were partly responsible. The paltry compensation paid to the victims was facilitated by gaps in legislation and an extraordinarily recalcitrant state machinery. This is not a peculiarly Indian phenomenon — accidents such as Three Mile Island occurred partially due to lapses on the part of suppliers. More recently, forged quality certificates were detected for parts supplied to nuclear plants in South Korea. That Section 17(b) incentivises supplier safety and reduces the probability of a recurrence of such instances is equally undeniable.

A step too far

India can retain Section 17(b) while ensuring compliance with its international legal obligations in two ways. First, the CSC allows countries to make reservations to certain provisions in treaties despite being signatories to them. India could make a reservation to Article 10 of the Annex to the CSC since it satisfies the requisite criteria for making a valid reservation under the Vienna Convention on the Law of Treaties, thereby excluding its application. Second, Article XV of the CSC implies that the rights and obligations of States under general rules of public international law are exempt from the application of the CSC. One such principle of international law is the “polluter pays principle” — applicable both to the state and private entities. The principle comes into operation via the mechanism through which compensation can be recovered from a polluting entity for the environmental harm it causes. Exercising either of these options will allow India to retain Section 17(b) without violating the international treaty regime.

However in pursuing the safety of supply, Section 17(b) goes too far in keeping liability for suppliers entirely open-ended. If liability on suppliers is unlimited in time and quantum, the possibility of getting adequate insurance cover will reduce. Even if such insurance is available, it could make nuclear energy economically unviable. To address this, Rule 24 of the CLND Rules dilutes the right of recourse conferred by Section 17(b) by limiting compensation payable by suppliers to a specified amount and for a specified time period. Both these are made standard terms of the contract entered into between the supplier and operator.

Though the end that Rule 24 seeks to achieve is justifiable, the means adopted are questionable. Rule 24 arguably violates Article 14 of the Constitution of India because there is no specific power in the CLND Act to limit liability in the manner that Rule 24 does. Further, the terms of the contract potentially dilute Section 17(b), which gives operators an untrammelled right to proceed against the supplier by way of recourse. It is a basic principle of law that a contract cannot violate the provision of a statute — if it does so, it is opposed to public policy. For these reasons, Rule 24 should be deleted. The limitation on time during which the supplier can be held liable should be inserted by means of a provision in the main Act. This will ensure that not just the end but also the means of limiting liability are legally tenable.

As far as the limitation on the amount is concerned, without Rule 24, the liability for each supplier potentially extends to the general liability cap of Rs.1,500 crore. If all suppliers have to be insured up to this value, insurance costs will be unnecessarily pyramided. To address this, countries with a history of nuclear power have in place mechanisms to provide for insurance coverage through international insurance pools where insurers, operators and states share the risks of an accident, providing access to a wide pool of compensation. There are about 26 such pools in existence, which also provide reinsurance to each other. Insurance pools typically require members to be signatories to an international convention (such as CSC), and to allow reasonable inspections of their nuclear installations.

While provisions for the creation of a domestic insurance pool for operators exist in Sections 7 and 8 of the Act and Rule 3, they need to be made explicit and amended to include suppliers in order to prevent the pyramiding of insurance premiums. This is particularly relevant to India’s domestic nuclear suppliers who would otherwise need to individually take out coverage, which would be prohibitively expensive. In order to access international reinsurance pools, the Central government could utilise the provisions in Section 43 and 44 of the CLND Act (Power to Call for Information from Operators) to establish a satisfactory inspections regime.

Sanctity of a special mechanism

Finally, Section 46 of the CLND Act contradicts the Act’s central purpose of serving as a special mechanism enforcing the channelling of liability to the operator to ensure prompt compensation for victims.

Section 46 provides that nothing would prevent proceedings other than those which can be brought under the Act, to be brought against the operator. This is not uncommon, as it allows criminal liability to be pursued where applicable. However, in the absence of a comprehensive definition of the types of ‘nuclear damage’ being notified by the Central Government, Section 46 potentially also allows civil liability claims to be brought against the operator and suppliers through other civil law such as the law of tort. While liability for operators is capped by the CLND Act, this exposes suppliers to unlimited amounts of liability. Obtaining insurance coverage for any future liability costs on account of claims by victims in such a case would be next to impossible.

Section 46 should thus be limited to criminal liability, and should clarify that victims who suffer on account of ‘nuclear damage’ can institute claims for compensation only under the CLND Act and not by recourse to other legislations or Courts. A clarification issued by the Attorney General’s office, if not an amendment to the law itself, will provide much needed assurance to suppliers while furthering national interest.

The issue of the liability law has, for far too long, been a thorn in India’s bilateral relations especially with the United States. Mr. Obama’s visit provides a historic opportunity to address these misgivings and meet foreign governments, as well as the entire supplier community, Indian and foreign, halfway on the issue. This will signal the seriousness of the Government of India in setting its own house in order and put the ball firmly in the court of the supplier community. By putting in place such a comprehensive, fair and pragmatic legislation on civil nuclear liability, there is no reason why India cannot reap the long-term benefits of civilian nuclear energy and resolve a prickly foreign policy issue, the time for whose resolution has come.

(Anupama Sen is Senior Research Fellow, Oxford Institute for Energy Studies and Arghya Sengupta is Research Director, Vidhi Centre for Legal Policy. They are co-authors of a report, “Operationalising India’s Nuclear Agreements: Issues and Solutions on Nuclear Liability”.)