The Nuclear Liability Bill: What lies Beneath

Written by  //  August 18, 2010  //  National Politics  //  2 Comments

The recent controversy over The Civil Liability for Nuclear Damage Bill, 2010 (“the Bill”) has been healthy for a number of reasons. It has exemplified the vibrancy of India’s civil society, assuaged fears that Parliament is not merely a forum for acrimonious haranguing of political opponents, given credence to the existence of principled opposition parties especially considering the low electoral value of such a bill and most significantly for having shown that the spirit of enquiry and criticism is alive and well in India. While it is hoped that the controversy is ultimately brought to rest by a responsive government, a responsible opposition and a discerning civil society, before the Parliament ultimately approves the Standing Committee’s recommendations and the final version of the Bill, it is imperative that all aspects of the controversy are brought to light, debated and discussed. A few such aspects and perspectives, which have hitherto escaped the public eye, are discussed below.

First, as per the Atomic Energy Act, 1962 only the government is allowed to operate nuclear establishments. Though a 1987 amendment allowed private participation, it was only to the extent of a 49% stake in a government company which would operate the nuclear plant. Given the predominantly governmental ownership of nuclear plants, it is anomalous that the Bill envisages a two-tier liability regime, with the operator bearing the primary liability (capped at Rs. 500 crores) and the central government, the secondary liability beyond the said amount. If the Atomic Energy Act is not amended, the only effect of such a two-tier liability regime will be to limit the proportionate liability to be borne by the private minority stakeholder in the nuclear establishment, should such an establishment have any private participation in the first place. The passage of this Bill and the depositions made before the Standing Committee on Science and Technology, Environment and Forests, which has been entrusted with recommending suitable amendments to the act, however suggest that the rationale behind a two-tier liability are far from being this modest. Recent news reports have indicated that representatives of the Central Government have already deposed before the Standing Committee, that the liability limits proposed in the Bill are necessary “for the operating company to take insurance cover.” Further, subsequent to the signing of the 123 Nuclear Agreement with the United States of America, it has been long expected that the central government will move a legislation before Parliament to amend the Atomic Energy Act, 1962 in order to facilitate wholly owned private companies to operate in India. The Bill’s silence in this regard is thus a disingenuous effort by the government to divorce the bill from one of the key rationales behind its formulation— incentivising private operators to enter the nuclear industry in India by capping their liability in the event of a nuclear accident.

Incentivising private nuclear operators is not per se reprehensible, despite the government’s lack of candour in this regard. However the key question is the extent to which such incentives are provided and whether this implies a trade-off on other necessary attributes such as safety or victim compensation. It is in this context that the capping of operator liability becomes a significant question. Though capping of operator liability in respect of nuclear accidents is internationally accepted, being incorporated in the Paris Convention, Vienna Convention, the Protocol to the Vienna Convention and the Convention for Supplementary Compensation for Nuclear Damage, the Bill is startling for capping the entire liability in respect of a nuclear incident and also the relatively minuscule liability it foists on private operators. Clause 6(1) of the Bill categorically limits the maximum liability in respect of a nuclear incident at 300 million SDR which is approximately Rs. 2045 crores. To be sure, this is not the maximum liability to be borne by the operator: On the contrary, this is the entire pool of liability pursuant to a nuclear incident, of which a maximum of Rs. 500 crores will be borne by the operator [Clause 6(2)] and the remaining by the central government [Clause 7]. Such a provision is unprecedented in international treaties and comparative foreign legislations. Besides, it is squarely antithetical to the jurisprudence of the Supreme Court which has read in full compensation as a public law remedy under Article 21. The Supreme Court has also incorporated the doctrine of ‘polluter pays’ from international environmental law and has held that the polluter, i.e. the entity responsible for causing the environmental damage, must bear the entire cost of restitution. By limiting compensation, which includes damages for victim injury and environmental harm to Rs. 2045 crores, the Bill rides roughshod over Supreme Court precedent, departs from international best practices and deals a body blow to victim compensation pursuant to a nuclear accident. As the Bhopal Gas tragedy demonstrates, compensation payable pursuant to nuclear accidents may be much greater than the limits set by the Bill. Despite this experience, setting a surprisingly low maximum limit for compensation symbolically diminishes the value, the government accords to human life in India.

The low amount of total compensation pursuant to a nuclear accident also allows the Bill to set an even lower liability cap for operators. At Rs. 500 crores, the maximum amount borne by the operator is less than 1/4th of the entire amount which is payable. This is an insignificant proportion of liability and much lesser than international conventions which contain like provisions. According to the Vienna Convention, as amended by the 1997 Protocol, liability of an operator can be set at any amount not below 300 million SDR. It can be reduced, provided the government compensates for the balance, to 150 million SDR. This is equivalent to Rs. 1023 crores, more than double the liability cap on an operator in India. Other treaties such as the Convention on Supplementary Compensation for Nuclear Damage and most comparable national legislations too have equal or higher caps. Hence by capping the entire liability in respect of a nuclear incident and setting a startlingly low cap on operator liability, the bill goes too far in incentivising nuclear operators at the cost of victims and their fundamental right to receive full compensation for losses suffered.

A red herring insofar as liability caps are concerned is Clause 46 of the Bill. By far the most ambiguously worded clause, it presents a curious compromise of interests regarding concurrent liability for nuclear damage under other legislations. Ordinarily, if a special legislation has been created to determine damages with respect to nuclear incidents, common sense would dictate that the special legislation be comprehensive and oust other remedies. Only such specialisation would justify the infrastructure and resources in creating a distinct administrative machinery. Though Clause 46 suggests this interpretation, it can equally be read as permitting concurrent actions against operators under other legislations in force. If this latter conclusion if correct, then the Bill loses its raison d’être. Not only does it fail to oust other remedies against operators, which would be a fundamental rationale for a special legislation that offers itself as an incentive to private operators, equally it creates a procedural nightmare for victims as it sets up multiple forums to sue. This ambiguity, embodied by an unhappily worded provision, is indicative of poor drafting at best, and confused governmental policy at worst. Either way, it leaves a lot to be desired.

Finally, in terms of the institutions the Bill creates, it does little to avoid fundamental conflicts of interest. It vests the Atomic Energy Regulatory Board, the regulator under the Atomic Energy Act, 1962 with the power to notify a nuclear incident which will trigger the operation of the bill. In other words, for the bill to become operational the regulator must admit to its own regulatory failure! Besides, the independence of Claims Commissioners and the members of the Nuclear Damage Claims Commission who adjudicate claims arising out of nuclear incidents are not adequately safeguarded. They are appointed by the government, may themselves be current or retired government servants and can also be removed by the government. Their terms, and the salary of the Claims Commissioners too are contingent on the government. Given the fact that irrespective of the future possibility of private operators, all nuclear plants are currently owned and operated by the government, there is a fundamental conflict of interest between the adjudicating institutions set up by the bill and the government which will be a defendant should claims out of a nuclear incident arise. The failure to adequately safeguard the independence of these adjudicatory institutions taints them with an institutional bias and thereby casts doubts regarding their legitimacy.

Prime Minister Manmohan Singh at the Nuclear Security Summit in Washington in April spoke about “the need to restore public faith in nuclear power”. The Bill understandably would be a key medium to enable such restoration. However as it currently stands and as the debates surrounding the Bill demonstrate, it is skewed in favour of nuclear operators, pays inadequate heed to interests of victims, sets up institutions which are systemically flawed and represents governmental ambivalence on key issues. Addressing these concerns and setting up a balanced civil liability regime for nuclear accidents, consonant with international practice and Supreme Court precedent would go a long way in restoring public faith and assuring citizens that the Bill has been drafted with their interests uppermost in the government’s mind.

2 Comments on "The Nuclear Liability Bill: What lies Beneath"

  1. Vipul August 18, 2010 at 9:40 pm ·

    I agree with you, but I would lay emphasis on it from a different angle. I don’t have anything in principle against nuclear energy, and the question of whether the benefits of having nuclear energy are worth the risks of catastrophe is a question of cost benefit analysis. The fact that private investors and their insurers are unwilling to put their money into nuclear energy without explicit liability caps indicates that, in their computation, the costs of catastrophe are higher than the benefits (profits) that they can generate. While this private cost benefit analysis by potential investors may not give conclusive results about the cost benefit trade-off to society, it comes pretty close.

    I am not saying that nuclear energy is unsafe in an absolute sense — it could be made very safe. But safe nuclear energy is more costly. My guess is that, especially in India, highly safe nuclear energy is simply not profitable.

    Cost-cutting to reduce safety would mean that the probability of accidents and catastrophes goes up. Liabilities and damages are a way of making sure that the investors bear (a large part of) this cost personally — so that they don’t compromise safety unnecessarily. Economists would call this the internalisation of externalities. Liability caps destroy this incentive, and re-externalise externalities, so to speak.

  2. Arghya August 23, 2010 at 5:28 am ·

    Vipul, I agree with you. The issue hence is to find the possibility of a balance which does not jeopardise safety in any way, while at the same time ensures profit. Practice from around the world indicates that this is possible and it should not be any different in India. If however, an optimal balance cannot be found or is not deemed politically acceptable, then safety should prevail and its negative effects in terms of a higher cost for nuclear energy must be borne.

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