G Balachandran: Limits to changes in nuclear liability bill

Any Indian Bill that goes beyond global conventions on supplier liability will result in denial of nuclear equipment by foreign suppliers

In the days to come, the Standing Committee on Science and Technology will be hearing from experts in various fields about their views on the Civil Liability for Nuclear Damage Bill. No doubt a number of amendments/modifications to the Bill will be suggested by these experts. This article outlines the limits to the changes that can be made without having serious detrimental effects on the future of India’s civil nuclear programme. It deals only with substantive elements that do not require a legal interpretation of the Constitution. These legal issues will be addressed by the courts later, if required.

Section 17 (b)
Section 17(b) is an almost verbatim copy of Article 4(1) of the Korean Act on Compensation for Nuclear Damage. Article 4(2) of the Korean Act is a modified version of Article 17(a). Article 17(c) is the standard format in all international conventions. In reality, Article 17(b) and Article 17(c) are not much different. The addition of Article 17(b) does not add much to Article 17(c). It can be dropped without detracting from the force of Article 17. On the other hand, retention of Article 17(b) should have no influence on the behaviour of international suppliers. All major nuclear equipment suppliers — the US, France, Canada, Germany, etc. — have been supplying reactors and nuclear equipment to Korea without raising any objection to Article 4(1) of the Korean liability Bill. Hence they can have no objection to Article 17(b) either.

 

Therefore, even though Article17(b) does not add much to Article 17(c), it can be retained in the Indian Bill without having any detrimental effect.

Operator liability
According to Section 6(2), the liability of the operator has been capped at Rs 500 crore. The Vienna Convention does not set any maximum limit to operator liability and India cannot sign the Paris Convention which is restricted to the members of Organisation for Economic Cooperation and Development only. Hence the operator liability can be set at any level by India and still be in line with international conventions on nuclear liability.

Therefore, Section 6(2) can be modified, if so desired by the Committee, to include any finite level of liability or even unlimited liability.

Maximum liability
Maximum liability set in Article 6(1) will have to be adjusted according to the level set in Article 6(2), keeping in mind the following:

a)Maximum liability cannot be less than the operator liability.

b)In the case of unlimited operator liability, maximum liability should also be unlimited.

c)In particular, operator liability and maximum liability can be the same, without requiring any public subsidy except in extreme circumstances as explained in Section 4 of this Note.

Public subsidy
A liability Bill will have to take into account a situation where the total compensation exceeds the maximum liability defined in Section 6(2). There is no specific format on this issue in any of the international conventions. It is entirely up to the Indian legislature and the executive to decide on this matter. The longer report gives some examples of how other countries have tried to address this matter. The current version of the Bill is silent on this matter and this needs to be resolved.

The Committee, therefore, needs to examine this issue and make amendments to the Bill to reflect some consensus between the executive and the legislature on how compensation will be given in cases where the total compensation exceeds maximum liability or where the total resources available with the operator are insufficient to discharge compensation obligations, i.e. the operator becomes insolvent.

Financial security of the operator
While in principle, it is open to set the financial security to be provided by the operator under Section 8 to any amount, not more than the operator’s liability, practical considerations, especially from the viewpoint of the insurer, have to be taken into account. Two options are available:

a) Private insurers, either individually or in a cooperative manner, as a consortium, are willing to issue insurance to the extent specified under Section 8. Views of the insurance companies need to be taken into consideration before deciding on the financial security limits.

b)If private insurers are not able, or willing, to insure up to the limit of financial security, the government may choose to underwrite the shortfall, charging the operator a premium for issuing such guarantees. This system is followed in some countries.

Insurance limitations
At present, international insurers, who perhaps asked for reinsurance by Indian insurance companies, are unwilling to underwrite insurance policies which have environmental liabilities. This may be cross-checked with the Insurance Regulatory and Development Authority. In such a case, only Indian insurers will have to bear the full insurance liability or the government may have to give guarantees.

Time limitation
Section 18 of the Bill specifies a period of 10 years for extinction of the right to claim. This can be modified to extend the duration, again taking into account insurance companies’ ability and willingness to extend the period. Generally, insurers are reluctant to insure for a very long claim period. This, too, can be discussed with the insurance industry. If insurers are willing to do so, a longer period of 20 to 30 years can be proposed. If they are unwilling, the government may have to guarantee financial security.

Operator cess
This is a suggestion that hasn’t been considered in the Bill. A Re 0.05 cess per unit of electricity generation will net approximately Rs 360 crore per year from the operation of a 1,000 Mw plant. India will soon have a 10,000 Mw capacity which is expected to reach 20,000 Mw, if not more, by the end of this decade. The 10,000 Mw capacity will yield Rs 360 crore per year and 20,000 Mw will give Rs 720 crore per year. Such a move will build a nuclear liability reserve in excess of Rs 10,000 crore within a decade. And even much larger reserves can be expected if the plans to build nuclear capacities of 40,000-50,000 Mw are realised by the 2030s and 2040s.

Final cautionary note
If it is felt that India’s long-term energy security will require substantial reliance on nuclear power, and that plans to have that will be realised in a shorter period with imports of reactors and equipment, then any Indian Bill that goes beyond the norms of international conventions in assigning supplier liability will result in denial of reactors and nuclear equipment by foreign suppliers, and hence will be counterproductive. This is an absolute bottom line condition as of today. As a major nuclear supplier in future, India will do well to influence changes in this. Today, however, it cannot do so. Therefore, changes in supplier liability need to be carefully drafted. The current Section 17 formulation is good and should be retained.

The author is visiting fellow, Institute for Defence Studies and Analyses