Nuclear Liability Act and its Rules: The Tail Wagging the Dog

The Civil Liability for Nuclear Damages Rules notified on November 11, 2011 does what the US Government has been demanding of India – completely dilute the liability of the nuclear suppliers. This is in complete violation of all basic jurisprudence. No rule can override the basic act itself: this is precisely what these Rules are doing.

 

The timing of it is also equally important. Hilary Clinton came in July 2011 and ticked off the Indian government that if they wanted to continue with the special relations with the US, they would have to pay the price of allowing GE and Westinghouse to sell reactors in India. And the only way the US companies would sell equipment in India is if they havezero liability. This is the gift that Manmohan Singh carried with him in form of Rules to the ASEAN meeting where he was meeting Obama.

 

What are the key elements in Civil Liability for Nuclear Damages Act that has now been virtually nullified by the Rules? The Act clearly laid down the provision of a right to recourse by the nuclear operator in the article 17 of the Act. If there was an accident and the operator was held liable for damages, he could recover the damages from the supplier provided he could show that the accident was due to defective supplies or services. This is what the nuclear suppliers from the US were not willing to accept. According to them, irrespective of defective supplies, they should have no liability whatsoever – the liability should be borne entirely by the operator, in this case the Government owned Nuclear Power Corporation.

 

What has now been done is to nullify Article 17 of the Act in THREE different ways. One is what has already been high-lighted in the media reports – the right to recourse has been restricted to either the period of granting of initial license or the product liability period, whichever is longer. Normally, a product liability period is a standard warranty period, generally of 12 months after commissioning of the plant. The initial license period is again generally of 5 years duration.

 

Normally, an operator will have to secure a license before he can start construction. Since the plant construction takes more than 5 years, the initial license period would have expired even before a nuclear plant is commissioned. So with this clause, the Government has effectively limited the period of recourse only to the warranty period. If an accident takes place after 12 months, the supplier will then have no liability.

 

The other three clauses all limit the amount of liability. The clause 24 of the Rules state that the amount of liability in the right to recourse will be up to the operator's liability if this is provided explicitly in the contract or the value of the contract, whichever is less. As the contractor will not agree – given this choice – of including such a liability in his contract, this effectively limits the liability only to the value of the contract.

 

The key issue here is that all liability regimes carry what are known as consequential damages. This is the position in Indian law as well. If by your action you have caused damage to persons or the environment, you are liable for the full value of the damages. There is no restriction that the damages are limited only to the value of your contract or investment. By limiting the amount to the value of the contract, all consequential liability as exists under the current liability regime and even under the original Liability Act is being removed.

 

The third way that liability is being diluted is vide explanation 2 to Clause 24 of the Rules, the operator's claim shall in no case exceed the actual amount of compensation paid by him up to the date of filing such claim. This is quite preposterous as a rule. By this clause, the accident has to take place, the compensation claim would have to filed by the victims, should be settled and paid by the operator, all within the first 12 months of the operation of the plant, if the operator has to exercise his right of recourse. This is as good as no recourse at all!

 

In any case, the total claim of the operator under this right to recourse in the original Act would not have exceeded Rs. 1500 crore as this is the limit of the operator's liability. Any damages beyond this is to be borne by the Government – this is the weakness in the Liability Act itself. We had pointed out when the law was passed that this was a very weak liability regime as the damages from a nuclear accident is in billions. The bill for the Fukushima disaster is already over $52 billion! A nuclear reactor supply contract in itself will be in billions of dollars. That while collecting billions of dollars for supplying a nuclear reactor, the nuclear suppliers are not willing to take on a liability of mere $300 million, speaks volumes about the confidence they have about their technology.

 

Why is liability important in supply of all products? The simple issue is that if there is no liability regime, companies can supply sub-standard material with impunity. The liability regime that has evolved in law is precisely to prevent such behaviour by rapacious private capital. By limiting liability in this, way what the Indian Government is giving a carte blanche to nuclear suppliers to play with the safety of the Indian people.

 

When the Liability Act was being discussed in the Standing Committee of the Parliament, all these clauses were examined in details. A number of attempts were made by the ruling party MP's including the Chairman of the Committee, Subirami Reddy to water down the right to recourse and limit it to the warranty period or only if it was explicitly included in the contract. Both these were rejected by the Parliament. So the legislative intent has been clearly violated by the UPA Government – the Rules notified are substantive changes to the content of the legislation and are clearly illegal.

 

The viability of nuclear energy is closely connected to its cost. And one of the costs is the hazard it poses. Amongst all hazardous industries, the nuclear equipment industry is the only one that argues that it should carry no liability for hazards. This is because it perceives the risk to be too high of such an accident, while claiming in public that the risks of a nuclear accident are very low.

 

I do not believe unlike some of my friends that nuclear energy cannot be made reasonably safe. However, there is a cost associated with making nuclear energy reasonably safe. It is this cost that the nuclear industry does not want to pay. This is why the chorus of the US nuclear suppliers that they must have no liability for any accident that takes place, even if it is due to faulty or substandard equipment. They can cut corners and reduce costs with impunity – the risks are going to be borne by the people. Reducing liability is therefore nothing but hidden subsidy to nuclear suppliers using tax payers money with Indian people carrying all the risks.

 

The costs of nuclear energy have risen continuously. Contrary to public opinion, nuclear energy did not get killed in the west due to accidents such as Three Mile Island or Chernobyl. The real reason it collapsed was due to its very high time and cost overruns. And both these occurred when the regulatory authorities had to take action to reduce risk of accidents. In most technologies, cost reduces as the technology matures. Nuclear technology is the only one where the cost has risen as the technology has matured.

 

The reactors being built today, the two Areva reactors – one in Olkiluoto, Finland and Flamanville, France – both are having huge cost and time overruns. So this aspect of nuclear industry has not changed. The nuclear renaissance much hyped by the US and the nuclear industry felt a nuclear chill even before Fukushima, due to high cost and project delays.

This UPA Government has now a well-earned reputation of being too clever by half. It believes that as it has a clever bunch of lawyers within the Union Cabinet, they can draft things in legalese which people are too dumb to understand. The problem is that fooling the people is not possible all the time – it finally catches up. And this is what is increasingly happening to the UPA.

 

Even the very limited liability that the Liability Act passed by the Parliament has been virtually thrown away to please the US and its nuclear industry. Even though the US has reneged on its own commitments – fuel enrichment and other dual use technology will not be available to India. That even after Fukushima an Indian Government with its own memories of Bhopal would play with safety of nuclear plants is criminal. The Indian Parliament should assert its will and reject this violation of the Liability Act through this travesty of Rules.

 

Image Courtesty: flickr.com