Tuesday, June 15, 2010

Turning the Nuclear Bill from Liability to Asset: A Response to Siddharth Varadarajan

Siddharth Varadarajan’s op-ed today in The Hindu about why the nuclear liability bill is flawed is a familiar theme. I have addressed most of these points in an earlier post and will not repeat them again here. It suffices to mention that I explained there why legal channeling makes more sense than economic channeling, what the basis for operators’ liability cap amount is (or at the very least, ought to be assuming the GoI is doing it according to the rationale) and what the issues with the operators’ right to recourse under section 17(b) are. What follows is a short follow-up to that post.

It is true that the entire nuclear liability regime began as an attempt to protect the American nuclear manufacturers from foreign liability. The regime, however, does not distinguish between Americans and others and as it stands today, protects suppliers from all countries with membership in any of the liability conventions. That includes India’s own domestic industry which is expected to play an important role in building nuclear power plants. It is not surprising then that this group is strongly supportive of the bill and efforts to exclude suppliers from liability.

It is obvious that section 17(b) does not alter the rights of victims of the disaster; there are several reasons to doubt whether it will offer any benefit to consumers/tax payers either despite the explicit provision to collect for damages from the supplier. Firstly, in the event of such a provision being passed by parliament, it is extremely doubtful that any supplier will venture into the business without insurance cover at the risk of losing all of its assets. So, if we assume that arrangements are worked out amongst suppliers and possibly including operators, the next question is whether such an arrangement will add assets which would not be available were operators alone to purchase it (otherwise, there is no advantage at all: operators pay for the insurance instead of suppliers or both do so having entered into a mutual arrangement but regardless of who purchases it, the assets remain the same, total amount up to the cap is covered and will be paid out to third parties in the event of an incident). The answer to that is probably in the negative given how insurance systems work. Nuclear insurance pools are mostly regional or countrywide, not global (barring very limited global coverage offered in some instances such as the $50 million by ANI). Also, even if some Indian company specialized in a different line of business such as making automobile parts and insured against tort damages decides to venture into supplying parts for nuclear plants, the much higher damages involved will entail a much greater risk which will likely prevent coverage from being extended to its nuclear manufacturing arm. Thus, the insurance asset pool is not going to expand merely by bringing suppliers within the ambit of the law – in fact, the heightened risk may very well serve to incentivize the opposite - which begs the question why it is needed at all.

Varadarajan wants section 17(b) to stay along with the removal of the operators’ cap which means full liability or at least up to 300 million SDR for operators. As explicated in the previous post, the question is what that will do to the operating cost of the plant and in consequence, to the consumer/tax payer who has to bear the burden of the increased cost of electricity/subsidy. My guess: it will be beyond the ability of the consumer or the state government to purchase it and the enterprise might well turn into another Enron type of disaster. The article is silent on this question.

As mentioned in the previous post, capping liability to operators and suppliers does distort the true cost of running the plant but not doing so, it is feared, will render the effort prohibitively expensive and impractical. Properly enforced regulations are partly the answer but critics would argue that this is not adequate. Besides rhetoric, the author offers no solution to this conundrum. The optimal solution I can think of is a compromise where liability limits are capped at low levels initially but are gradually raised as the industry grows out of its infancy and its capacity is increased. History of the US Price Anderson Act and nuclear liability legislation in several other countries suggests that this may be a feasible course for India to follow as well.

Lastly, the whole point of strict liability and the separate mechanism for adjudicating claims is to allow victims to obtain compensation without having to meet the higher standard of tort law. If victims are free to pursue tort remedies in addition to this, it raises the question whether the caps and channeling requirements laid down by this law are meaningful at all. If extended litigation in courts is not preempted and the prospect of unspecified damages having to be paid looms large over the heads of operators and suppliers, it is entirely possible that the purpose of this law will stand completely defeated. This is an important concern and a strong case therefore exists to amend this provision to preclude such a possibility if the GoI is intent on creating a workable arrangement to develop the nuclear industry.

The bottom line is that the purpose of this legislation will not be fulfilled unless hard compromises are made. The question is whether the government has the courage to do so or would rather give in to populist impulses and end up passing a version too diluted to make meaningful change possible.


Aquatic Ugadi said...

In Wall Street Journal, no lftist rag it, Richard A. Epstein writes:


BP Doesn't Deserve a Liability Cap

The best way to deter future spills is to expose drillers to the full costs of any mistake...

In Chindu, Varadarajan writes:

Nuclear operators, suppliers don't deserve a liability cap

The best way to deter a future accident is to expose suppliers and operators to the full costs of any accident...

Both arguments make sense.

Anonymous said...

Indians are not new to plagiarisism. Atleast you expect the better, if not original, from the writers of The Chindu. It looks like that atleast few lines have been reproduced and paraphrased from WSJ article. One might be tempted to call it a coincidence.
So much so for The Chindu's strategic affairs editor.

Nandini Bannerjee

Prasad said...

Nandini Banerjee, if you see you will realise both articles came on same date so much for your accusation! I think Aquatic Egadi was making the point that their arguments are both equally valid.

Let us keep this blog civilised, for civilised and sensible critique of Chindu and not make it abusive like you are trying.

Anonymous said...

Well done Prasad. It is indeed important to highlight the importance of civility when some one points out the POSSIBILITY of plagiarism from a strategic affairs editor. May be it was a mere coincidence of a writeup from a LSE/Columbia educated journalist who in the past was similary accused of plagiarism both in academic and journalism. I am sure it is a mere conincidence from a writer who thinks 'exactly' (or similarly) the way many western writers think.

Professor Sudhir Gupta