We need to know if the Modi government has given hidden assurances to the US administration.
A week after Prime Minister Narendra Modi and United States (US) President Barack Obama announced they had reached a “breakthrough understanding” on the question of liability for American nuclear suppliers in the event of an accident in India, there is still no clarity on the nature of the deal that has been struck. Other than saying “the deal is
done”, the Indian foreign secretary (since replaced) provided no details. Another official spoke of an insurance pool to be established by the public sector General Insurance Corporation with assistance from the Government of India, which would indemnify operators and suppliers against damage claims following a nuclear incident. But how this pool will operate and how the attendant risk premia will be calculated and apportioned is not known.
American objections to the Civil Liability for Nuclear Damage Act (CLNDA), 2010, have centred on two provisions that open the possibility for US vendors to be held liable for accident claims. The overall scheme of the CLNDA is to hold the operator of a nuclear plant strictly liable for an accident regardless of whose fault the accident is. This liability is capped at Rs 1,500 crore. Section 17(b) of the Act gives the operator the right to recover whatever he pays out as no-fault liability from his supplier, if the accident for which strict liability was channelled to him had resulted from an act of the supplier or his employees, including the “supply of equipment or material with patent of latent defects or sub-standard services”. Obviously, exercising this “right of recourse” would require the operator proving his charge in a court of law.
If the channelling of no-fault liability to the operator is intended to ensure that victims receive immediate compensation without going to court, the quantum of this liability is capped at Rs 1,500 crore to compensate the operator for taking on the burden of an accident that others might have contributed to. But Parliament wanted to make it clear that the rights of the victims went beyond and were not compromised by the government’s unwillingness to compensate them for their loss and suffering. That is why Section 46 says the CLNDA will be “in addition to and not in derogation of other laws in force” (such as ordinary tort law against anyone the victims feel is responsible for an accident), and that payment of civil damages would not exempt the operator from other proceedings, such as the filing of a criminal case.
The US administration says Section 17(b) of CLNDA lies outside the scope of the Convention on Supplementary Compensation (CSC), which India agreed to ratify, a claim the Indian government has always disputed. The US has also echoed the views of its companies that Section 46 will expose them to potentially unlimited damages in the event of an accident. While the proposed insurance pool is what has led the US to drop its objections to Section 17(b), it seems the Modi government has committed itself to providing a written legal assurance to the US that Indian victims will not be allowed to sue American suppliers under Section 46 of the CLNDA. Part of the understandings reached between the two countries during Obama’s visit is that the US will henceforth consider the Indian liability law – which Indian officials insist will not be amended – as compliant with the CSC.
So how is the circle being squared? Since US suppliers always had the option of buying insurance cover from any provider, the attractiveness of the proposed Indian pool probably lies in the low premium that might be charged. The lower the premium, the greater the extent to which Section 17(b) loses its effectiveness. As for Section 46, it is not clear how a mere memorandum from the Attorney General of India can prevent courts from admitting tort claims in the event of an accident. Only the courts or Parliament can alter the meaning of written laws. Perhaps the Modi government has assured the US side that the CLNDA will eventually be amended once the Bharatiya Janata Party completes its “creeping acquisition” of the Rajya Sabha. Either way, it is essential that the prime minister make public all assurances given to the US, and that the insurance pool idea also be subject to proper public scrutiny to make sure the Indian taxpayer does not end up subsiding Westinghouse or General Electric for an accident caused by defective equipment.
Ever since the 1960s, the manufacturers of nuclear equipment have been exempted from accident liability worldwide. While an “infant industry” argument might have had plausibility back then, there is no justification today for nuclear suppliers to be subsidised in this manner. The Indian Nuclear Liability Act broke ground by attempting to force suppliers to internalise the risk of an accident, just as companies operating in other hazardous industries must do. This might well lead to higher projected tariffs for the electricity their reactors will produce but given the kind of expenses involved in the clean-up of an accident – the final bill for the Fukushima disaster stretches anywhere from $15 billion to $100 billion – it is best that policymakers be aware of the true cost of nuclear energy when planning for increased capacity.
