India's Nuclear Liability Act

As a nuclear weapons country and not being one of the five countries identified as a nuclear weapons state, India is excluded from the Nuclear Non-Proliferation Treaty (NPT). India can join the NPT only if it disarms and joins as a non-nuclear weapons state, something that the geopolitical situation in the South Asia region makes politically impossible.

States that are not party to the NPT are also excluded from nuclear trade by the Nuclear Suppliers Group (NSG). However, because of India’s impeccable record of nonproliferation, the pressing need to reduce the fossil fuel being burned by the world’s second most populous country, and the tremendous market potential for Western countries, the NSG in 2008 decided to grant India a waiver, opening its international vendor market to India. This unique exemption was a consequence of years of negotiations and strong support from many influential countries, particularly the United States.

Subsequent to receiving the NSG exemption, the Indian government has entered into agreements with France (September 2008), Russia (December 2008), and the United States (October 2008) for the supply of nuclear technology and material. India and the IAEA signed a nuclear safeguards agreement in February 2009. Other agreements have been signed with Canada, Kazakhstan, the United Kingdom, South Korea, Mongolia, Australia, and Argentina. Negotiations are ongoing with the EU and Japan.

As a condition of its entry into the international nuclear energy market, India was required to enact a domestic nuclear liability law. In 2010, the Indian parliament approved the CLNDA.

Liability Thresholds

Many have criticized the act’s liability threshold of approximately $330 million as inadequate. Comparisons are made to the Bhopal gas tragedy in which a toxic gas leak from a chemical plant owned by Union Carbide led to the deaths of thousands and damages paid in the region of $1 billion, an amount still considered to be inadequate and the subject of severe criticism.

Controversial Inclusion

The most controversial provision introduced by the CLNDA is the principle of supplier liability. When India’s ruling party presented the act to the Indian parliament, its provisions were similar to those found in international conventions such as the CSC and the Paris or Vienna Convention. Liability was channeled exclusively to the operator of the nuclear power plant, and the supplier could be held liable only in limited circumstances. However, trade union and civil society representatives argued that foreign suppliers would not bother with safety compliance if a system permitted them to escape the consequences of liability. (Fifty years earlier, in International Problems of Financial Protection against Nuclear Risk, the same argument was put forward to reject the concept of supplier liability.) Advocates of supplier liability also pointed out that defects in the supplier’s technology or services might not be noticed by the operator until after the operator has commenced operation of the nuclear power plant.⁷⁰

Indian legislators concluded that the act should reflect Indian interests and well-being, and thus suggested that “there should be a clear cut liability on the supplier of nuclear equipment/material in case they are found to be defective.”⁷¹ The intention was to ensure that compensation would not be inadequate for victims of a nuclear accident.

The act as finally promulgated contains a right of recourse that the operator can claim against the supplier in cases where “the nuclear incident has resulted as a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent or latent defects or sub-standard services.” (The act also contains other controversial provisions, all of which are presented in a brief analysis in Appendix C.)

Is the New Principle of Supplier Liability Acceptable to Supplier Countries?

The United States, France, and Russia have consistently opposed the provisions of the CLNDA. Nevertheless, Russia already has an operational nuclear power plant at Kudankulam, and France is in the initial stages of work on the Jaitapur Nuclear Power Project in western India. Whether these countries accept the law will play a significant factor in determining the broader acceptability of the concept of supplier liability.

Russia

Recent reports indicate that the Indian government has determined that the next two reactors to be built in Kudankulam (i.e., Kudankulam 3 and 4) should be covered by the CLNDA. The Russian government has steadfastly opposed this position, arguing that the agreement between Russia and India for setting up the Kudankulam Nuclear Power Plant predates the act’s promulgation.

The Indian government has agreed that the supplier-liability provisions under the CLNDA do not apply to Kudankulam 1 and 2 (reactors that are already operational), an interpretation that is being challenged before the Indian Supreme Court. There is a strong likelihood that the court will decide that even Kudankulam 1 and 2 fall within the ambit of the CLNDA.⁷²

If India’s highest court determines that the CLNDA applies to all aspects of Kudankulam, the only way in which the intergovernmental agreement between Russia and India could supersede the act would be for the Indian parliament to pass a new law or amend the existing law. Until such action, all nuclear reactors in India, including Kudankulam 1 and 2, would be covered under the CLNDA, irrespective of any agreement with any foreign government. Amending the act appears to be a political impossibility at present. Russia may therefore be forced to accept that the act applies to all of its reactors in Kudankulam. In turn, this has led to various reports that the Russian government will renegotiate the price of the underlying contracts.⁷³ These reports now appear to be correct as Russia already seems to have arrived at a preliminary agreement with the Indian authorities in what is being considered an acceptance of the principle of supplier liability under the CLNDA.⁷⁴ At this stage, the agreement is still being finalized, but the principles agreed upon by both India and Russia appear to be modeled on a commercial understanding that Russia would purchase insurance for each component that it supplies to the Indian operator and the cost of this insurance would be included in the price of the product supplied. This would result in an escalation of costs for each component and consequently an escalation in the price of nuclear power. Nevertheless, this would amount to an acceptance of the principle of supplier liability and if such an agreement were to be finally signed between India and Russia, it would mark a watershed moment in international nuclear liability jurisprudence.

France

Although France has also consistently opposed the provisions of the CLNDA, in a recent interview French President François Hollande stated, “Regarding civil nuclear liability, we obviously respect Indian law. It is the sovereign decision of a country that has witnessed catastrophes like the Bhopal gas tragedy.”⁷⁵

While Hollande’s statement does not constitute definitive acceptance of or willingness to be subject to the CLNDA, many Indian reports have interpreted it as a positive indication. Further, French conglomerate AREVA has already made substantial investments in India and seems unlikely to abandon its potential investments there simply because of the CLNDA. While there has been no statement from the French authorities that they would not go ahead with investments in India in the nuclear energy sector because of the CLNDA, if Russia and India arrive at an agreement, there is a strong possibility that France would follow the same model in relation to supplier liability.

United States

The United States has consistently maintained the position that until India synchronizes the CLNDA with the CSC and ratifies the CSC, U.S. companies such as GE and Westinghouse will not take part in nuclear power projects in India.

Recently, the principal deputy assistant secretary of state for South and Central Asian affairs, Geoffrey Pyatt, urged the Indian government to consult with the IAEA to ensure that the Indian liability law accomplishes the objective—shared by the United States and India—of moving India into the international mainstream of civil nuclear commerce, stating, “India’s nuclear liability is not in line with international nuclear liability principles reflected in the CSC.”⁷⁶ Pyatt also clarified that the current liability law imposes a risk of heavy financial burden on equipment suppliers seeking to enter the Indian market and exposes them to significant financial penalties in the event of a nuclear accident.

Recent reports indicate that the Indian government is proposing some sort of waiver by which certain provisions of the Indian liability law would not apply to U.S. nuclear suppliers.⁷⁷ This view, however, has been criticized, and it would be extremely difficult for the Indian government to exempt only American companies from certain parts of the Indian liability law.⁷⁸

On June 13, 2013, Westinghouse and the Nuclear Power Corporation of India Limited (NPCIL) signed a memorandum of understanding (MoU) for an early works agreement in relation to the Westinghouse AP 1000.⁷⁹ While the MoU is silent on issues of liability, this does indicate a willingness on the part of both India and the United States to work together to address the issue of supplier liability. Thus, the situation with regard to the United States is evolving, but it does suggest that the United States will continue lobbying with India until the CLNDA has been changed to bring it in line with prevailing international nuclear liability principles, or at least until the CLNDA is diluted in relation to its application to U.S. nuclear supplier companies.

Japan

In the aftermath of Fukushima, will Japan consider a supplier liability model similar to the one introduced by India? This is an uncomfortable question for suppliers. Critics have pointed out that the nuclear industry and its suppliers made billions building and operating the reactors at Fukushima, yet the Japanese government and its citizens are bearing a substantial portion of the liability arising from the disaster. Greenpeace Japan is leading efforts to ensure that Japanese law is amended to introduce the concept of supplier liability in line with the CLNDA.⁸⁰ Although the likelihood of such an amendment being passed may not be high, discussions about supplier liability, which prior to the Fukushima incident were practically unheard of, are now an increasing part of the public discourse.

As noted in the introduction to this paper, 1,400 plaintiffs have filed a lawsuit against the supplier companies that manufactured the reactors at the Fukushima nuclear power plant. The goal of the plaintiffs in this lawsuit is not economic compensation, but rather to raise awareness with respect to the issue of supplier immunity from nuclear liability. Clearly, this indicates a strong movement in Japan to introduce an element of supplier liability in the operation of nuclear power plants.

The Way Forward: Alternatives

Politically, the Indian government probably cannot at this point limit the already expanded concept of supplier liability. The question that therefore arises is whether foreign countries and suppliers will accept India’s nuclear liability law.

Instead of opposing the CLNDA and insisting on its amendment (as the United States is doing), an alternative model for France and Russia (one that is reportedly being contemplated by both countries) would be to renegotiate their contracts/agreements with the Indian government. For instance, the following points could be renegotiated:

1. Price escalation: The present system of excluding supplier liability is primarily driven by a desire to make nuclear energy cost-effective; it allows nuclear operators to channel the costs of insurance so that suppliers do not also have to budget for such insurance. If every supplier were to take out its own insurance, the cost of such insurance (which in the nuclear sector is significantly high) would be passed on to the operator and ultimately to the consumer. Therefore, if supplier liability is accepted as a principle, nuclear supplier countries will insist that the extra cost of such insurance be factored into the costs to be borne by the operator. That is, supplier countries would balance the additional liability being imposed on them by increasing the cost of their product. Russia ostensibly is adopting this line of negotiation in relation to the reactors at Kudankulam for which construction has not yet begun.
2. At the time of delivery of any product related to a nuclear power plant, suppliers could insist on receiving a certificate of satisfaction from the operator noting that the product meets all specifications and is of the highest quality. The Indian operator could provide the certificate after appropriate testing or even after a period of time of using the product. The supplier would then insist on the operator’s assurance that, having tested and deemed itself fully satisfied with the product, the operator agrees contractually that the product of the supplier does not suffer from any “patent or latent” defects as envisaged under section 17(b) of the CLNDA.
3. Compliance of the supplier with quality assurance programs or manuals prescribed by the Indian operator could also be documented to serve as future proof that the product supplied did not suffer from any defects.
4. The supplier could then also insist that the Indian operator indemnify the supplier against any action or claim that might be brought against the supplier by any third party.

In order to benefit from the massive commercial potential of India’s civilian nuclear energy sector, France and Russia may want to focus their resources on contractual negotiations rather than on changing the law.

If they do pursue this approach, it would mark a watershed moment in international nuclear liability law. Even tacit acceptance of the concept of supplier liability by countries such as France and Russia would have the effect of inviting a broader examination of the principles of legal channeling that have underpinned international nuclear liability law for the last five decades. Countries that are on the threshold of accepting civilian nuclear energy—particularly those within the South Asia and ASEAN regions—might also explore the possibility of adopting laws similar to India’s CLNDA. And if major suppliers accept the principle of supplier liability in India, they would have difficulty denying a similar right to other nations. The possibilities and challenges thrown up by the CLNDA, though still in the realm of speculation, are exciting and have the potential to alter in fundamental ways the present discourse on international nuclear liability.

ENDNOTES

⁷⁰ See State of India, Department-Related Parliamentary Standing Committee on Science and Technology, Environment and Forests, “Two Hundred Twelfth Report on ‘The Civil Liability for Nuclear Damage Bill, 2010,’” August 18, 2010, http://www.prsindia.org/uploads/media/Nuclear/SCR%20Nuclear%20Liability%20Bill%202010.pdf.

⁷¹ Ibid., 19.

⁷² Mohit Abraham, “Defective Law on Nuclear Liability: India Walks Alone on Nuclear Jurisprudence,” The Economic Times, http://articles.economictimes.indiatimes.com/2012-12-20/news/35933839_1_nuclear-liability-kudankulam-nuclear-damages-act.

⁷³ See, for example, “Reactors to Cost Double,” Indian Express, December 20, 2012, http://www.indianexpress.com/news/reactors-to-cost-double-russia/1047796/; and “More Liabilities Will Push Up Kudankulam Costs: Russia,” Indian Express, October 15, 2012, http://www.indianexpress.com/news/more-liabilities-will-push-up-kudankulam-cost-russia/1016840/.

⁷⁴ Kasturi, “India Cracks N-liability Barrier with Russia.” See also “Russia Concedes India’s Nuke Liability Law Terms,” The Free Press Journal, http://freepressjournal.in/russia-concedes-indias-nuke-liability-law-terms/.

⁷⁵ Indrani Bagchi, “We Are Building Same Reactors for Ourselves That We Are Selling to India: Hollande,” Times of India, February 14, 2013, http://timesofindia.indiatimes.com/india/We-are-building-same-reactors-for-ourselves-that-we-are-selling-to-India-Hollande/articleshow/18504284.cms.

⁷⁶ “US Advises India to Consult IAEA on Nuclear Liability Law,” Samay English, December 1, 2012, http://english.samaylive.com/world-news/676519035/us-india-iaea-geoffrey-pyatt-international-atomic-energy-agency-.html.

⁷⁷ Sandeep Dikshit and J. Venkatesan, “Manmohan May Carry Nuclear Liability Dilution as Gift for US Companies,” The Hindu, September 19, 2013, http://www.thehindu.com/news/national/manmohan-may-carry-nuclear-liability-dilution-as-gift-for-us-companies/article5142882.ece.

⁷⁸ Mohit Abraham and M. P. Ram Mohan, “Don’t Waver Now on Nuclear Liability,” The Hindu, September 20, 2013, http://www.thehindu.com/opinion/lead/dont-waver-now-on-nuclear-liability/article5147177.ece.

⁷⁹ “Westinghouse and Nuclear Power Company of India Limited Sign Memorandum of Understanding for Early Works Agreement,” Westinghouse Press Release, as reported by Reuters, June 13, 2013, http://in.reuters.com/article/2012/06/13/idUS133717+13-Jun-2012+PRN20120613.

⁸⁰ Kumi Naidoo, “Fukushima Disaster: Holding the Nuclear Industry Liable,” The Guardian, March 11, 2013, http://www.guardian.co.uk/sustainable-business/fukushima-nuclear-industry-disaster-liable.