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.

First Thoughts on NSG Waiver

The NSG waiver finally clears the decks for India to engage in nuclear commerce with the world. Political reactions were varied as expected. The Congress went into hyperbole while the BJP repeated the questions it has raised before. Given the sequence of events at the NSG that led to this approval, India cannot afford to be under any illusion that it will be able to conduct another test and continue to keep its waiver - that will almost certainly trigger the end this deal and everything associated with it (claiming that even if the US were to sanction us, other countries may be willing to play ball is simply unrealistic). Sinha's point that India has surrendered the right to conduct future tests is, in practice, therefore close to the truth.

The text is yet to be made available and analyses may be expected to follow in the days to come. Daryl Kimball has posted his view already. He makes one noteworthy claim: "In addition, in the course of the NSG meeting, the United States confirmed that participating NSG governments expressed assurances that they did not intend to transfer enrichment or reprocessing technology to India." If this is true, then the expectation seems to be that other countries will toe the US line in terms of what they will or will not sell to India. Any notion that India can somehow manage to circumvent US arms control regulations may also end up being belied by events.

The CPI, citing Pranab Mukherjee's statement yesterday, preposterously claimed that India has surrendered its right to future research and development! Apparently, the party is not talking about conducting future nuclear tests but of our research efforts for Thorium-based technology, something not pertinent to the issue here. One can read Mukherjee's full statement on the MEA website - there is absolutely no mention of R&D at all.

China, it turns out, was one of the last holdouts waiting to be convinced about the deal (see this news item). Apparently, it took a call from Condoleeza Rice for the Chinese to give the final okay to the text of the deal. It was previously reported that though China was not taking the lead in opposing it, the other holdouts like Austria and New Zealand were working with its tacit support. I am driven to speculate from this: did China have something to do with the communists' unrelenting opposition to this deal? Is that also the reason The Hindu has been actively promoting opposition to the deal by prominently and extensively publishing letters against it? The paper has no doubt provided space for various points of view in its op-eds but for one thing, there have been more articles against it than in its favor and secondly, the 'Letters to the Editor', a fairly accurate bellweather of the prevailing editorial sentiment clearly points to an antagonism belying its initial disposition to the contrary.