Liability risks transferred to taxpayers: price of Modi’s diplomacy

Brahma Chellany | Hindutan Times

United States President Barack Obama’s recent India visit has opened new avenues to expand bilateral cooperation and place it on firmer foundations. In a visit heavy on pageantry and symbolism, the India-US civil nuclear deal took centre-stage, with the two sides announcing a breakthrough to start implementing it commercially — a development that could potentially open the path for Japan and Australia to sign nuclear deals with India.

Unveiled almost 10 years ago, the India-US deal — with its many twists and turns — has hogged the limelight in virtually every bilateral summit since 2005. In its arduous journey toward implementation, the deal has spawned multiple subsidiary deals, each of which has been hailed as a major breakthrough.

US President Barack Obama and Prime Minister Narendra Modi

US President Barack Obama and Prime Minister Narendra Modi

The latest deal on a deal has centred on two issues — nuclear accident liability and the administrative arrangements to govern the bilateral nuclear cooperation pact. Despite this understanding, there is little prospect of the deal’s early commercialisation.

The newest breakthrough actually raises troubling questions. It contrives a model to shift to Indian taxpayers the liability risks for nuclear accidents, thus undermining India’s domestic law, the Civil Liability for Nuclear Damage Act, which pins the liability on suppliers of nuclear-power plants and equipment. It will circumvent the central principle enshrined in that law — the right of recourse against nuclear suppliers, including manufacturers and designers.

Japan’s 2011 Fukushima disaster followed its 1999 Tokaimura fuel plant criticality accident. America’s General Electric (GE) built or designed all the three Fukushima reactors that suffered a meltdown, yet GE went scot-free because Japan’s dual liability laws indemnify suppliers, making plant operators exclusively and fully liable. It was to avert such a situation that India’s law, despite being watered down under US pressure, armed the State-run plant operator with the right of recourse, given India’s own bitter experience over the 1984 gas leak from an American-owned Bhopal plant that killed about as many people as the Fukushima disaster.

Supplier liability is a well-established international concept applied widely. But the global nuclear power industry is controlled by a powerful cartel of a few State-controlled or State-guided firms that insist the plant operator assume absolute liability so that they face no downside risks and can concentrate on profits. For them, supplier liability ends with delivery of the plant or equipment.

A multiplicity of international conventions, however, muddies the liability issue. A majority of the world’s reactors remain outside the Vienna and Paris conventions, even as the US and France champion rival conventions — the former backs the Convention on Supplementary Compensation (CSC), and the latter the older Paris Convention and Joint Protocols. The 1997 CSC has still not come into force, although Japan’s recent entry as the CSC’s sixth member opens the path for it to take effect.

The paradox is that America’s domestic law allows suppliers to be held liable, yet Washington has sought to shield its exporting firms by insisting that India accept operator’s strict liability and restrict claims to the jurisdiction of just Indian courts.

Under the compromise worked out, US concerns are to be addressed through an Indian legal contrivance labelled a “memorandum of law” — essentially an executive action — and a Rs 1,500-crore ($245-million) ‘India Nuclear Insurance Pool’, which is to be set up jointly by State-run insurance companies and the central government. A number of countries have nuclear insurance pools, but they do not have an India-type law upholding supplier liability. India’s law calls for a fund to specifically address government liability but the proposed insurance pool has a broader intent to deflect supplier liability.

It is the “memorandum of law” — designed for, and enforceable in, the Indian system — that is at the heart of the new accord. It is aimed at stemming the right of recourse against suppliers and permitting tort claims to be pursued only in India, thus blocking victims from filing claims in the supplier’s home country. The Indian law’s rules already limit liability in amount and in time.

The India-US arrangement, although claimed to be “squarely within our [Indian] law,” constitutes “a risk-transfer mechanism,” as the external affairs ministry has admitted. Under it, the Indian government is effectively scrubbing the limited right of recourse and transferring the liability risk to Indian taxpayers wholly. US officials say the two governments are in agreement over India’s attorney general-backed “memorandum of law”. But how can a “memorandum of law”, with no legislative imprimatur, supersede and effectively gut a statute?

Despite India’s latest yielding, the nuclear deal is unlikely to be operationalised any time soon. First, the contrivance fashioned threatens to open a can of legal worms. Second, at a time of skyrocketing reactor-construction costs, the crash of oil prices has made nuclear power’s economics more unfavourable. Nuclear power is already the world’s most-subsidy-fattened energy industry. Third, grassroots opposition is growing to new nuclear power plants in India, especially against the Fukushima-type multi-reactor parks earmarked for foreign vendors.

As if to compound its risks, India is to import — as Japan did at Fukushima — prototype reactors not in operation anywhere in the world. Prototypes usually face major teething troubles and carry greater long-term risks.

If a serious accident were to occur, India would be saddled with staggering, lasting costs. Japan’s Fukushima-disaster bill has been conservatively estimated at $105 billion, or 429 times higher than the Indian insurance pool’s capital. Japan is now establishing a new State-backed compensation institution to be funded by utilities and government bonds totalling $42.5 billion. This surpasses the $13.6 billion cover provided by America’s Price-Anderson Act, with another $10 billion pledged by the department of energy.

The Price-Anderson Act, a subsidy measure, has been mocked by independent US groups as “Half-Price Anderson.” India’s contrivance can be labelled “Free-Ride Anderson.”

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