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Claims in late January from US President Barack Obama and Indian Prime Minister Narendra Modi that they had reached an agreement on accident liability arrangements have been met with scepticism.

In a detailed analysis posted on the website of the (Indian) Institute for Defence Studies and Analysis, G. Balachandran writes:

"In a sort of official statement, US Ambassador to India Richard Verma was reported in the media to have said – although the US Embassy refused to either clarify or deny his having ever made such a statement – that the liability issue was to be resolved through a "memorandum of law within the Indian system" that would not require a change of the Indian law. Later on, the spokesperson of the Indian Ministry of External affairs clarified the situation by the mere statement that "We will indeed be providing you that information and that will be copious in nature, it will answer all your questions." This was done ... in a Frequently Asked Questions (FAQ) format, although this still leaves many questions unanswered. For instance, it does not answer how the understanding between the two sides will be formalised. On the contrary, the FAQ answers raise further questions that need to be answered. Obviously, a FAQ will not carry much weight in business decisions that have to be made in respect of nuclear transfers."¹

Pro-nuclear commentator Dan Yurman said:

"There is no signed piece of paper, joint communique, or treaty between the US and India that says US nuclear firms, including Westinghouse and GE Hitachi, will now be exempt from the provisions of a nuclear liability law enacted with the support of the BJP, the political party that swept PM Nodi into office. ... No one on the US side is buying it. Spokesmen for both Westinghouse and GE Hitachi were noncommittal in response to questions from the news media about the so-called "breakthrough" deal and the insurance pool. At best their responses have been lukewarm."²

Washington Post reporters Annie Gowen and Steven Mufson wrote:

"We've been characterizing it as a breakthrough or breakthrough understanding," said a senior U.S. administration official on Tuesday. But, the official said, "It is not a signed piece of paper but a process that led us to a better understanding of how we might move forward. ..."

The key issue will be whether the conflict between international law and Indian law can be waved away by a memorandum from India's attorney general. The memorandum would have to say that the 2010 liability law "doesn't mean what it says," said a Washington lawyer familiar with the issues but who asked for anonymity to protect his professional relationships. "The fear is that the U.S. government will say this is good enough," the lawyer added. "Even if the [Indian] attorney general comes out with a memorandum saying the law doesn't apply to suppliers, that's not binding on Indian courts."³

The Associated Press reported:

"India and America's declaration of a breakthrough in contentious nuclear energy cooperation has been met with a lukewarm response from industry and analysts. Few expect the potentially lucrative Indian market to suddenly become less complicated for U.S. nuclear companies."⁴

Other obstacles remain in addition to the liability issue, as energy and nuclear policy consultant Mycle Schneider told Deutsche Welle:

"In reality, there is no real market for foreign nuclear companies in India, unless they bring their own funding. Under free market conditions it is not possible anymore to build a nuclear power plant anywhere in the world. So if new reactors are built in India or elsewhere, the projects are highly subsidized, either by the government − the taxpayer − or the ratepayer."⁵

Schneider is a nuclear critic but his views on nuclear economics can also be found in the industry literature. World Nuclear News recently ran an article by Edward Kee from the Nuclear Economics Consulting Group, who notes that of the 69 reactors under construction around the world, only one is in a liberalized electricity market.⁶

References:

1. G. Balachandran, 10 Feb 2015, 'Some issues in respect of Indian's nuclear liability law', www.idsa.in/idsacomments/issuesinIndiansnuclearliabilitylaw_gbalachandra...
2. Dan Yurman, 8 Feb 2015, 'India's Nuclear Deal; Good for Diplomats; Bad for US Nuclear Firms', http://neutronbytes.com/2015/02/08/indias-nuclear-deal-good-for-diplomat...
3. Annie Gowen and Steven Mufson, 4 Feb 2015, 'Is the India nuclear agreement really the 'breakthrough' Obama promised?',
www.washingtonpost.com/world/is-the-india-nuclear-agreement-really-the-b...
4. Associated Press, 27 Jan 2015, India nuke deals still thorny for US despite 'breakthrough' www.washingtonpost.com/business/india-nuke-deals-still-thorny-for-us-des...
5. 28 Jan 2015, Breakthrough in US-India civil nuclear deal 'more symbolism than reality', www.dw.de/breakthrough-in-us-india-civil-nuclear-deal-more-symbolism-tha...
6. WNN, 4 Feb 2015, 'Can nuclear succeed in liberalized power markets?', www.world-nuclear-news.org/V-Can-nuclear-succeed-in-liberalized-power-ma...

In its efforts to promote nuclear commerce with the United States, India's Narendra Modi government has run into a dichotomy that lies at the heart of this industry. While multinational nuclear suppliers, such as G.E. and Westinghouse publicly insist that their products are extraordinarily safe, they are adamant that they will not accept any liability should an accident occur at one of their reactors.

The joint announcement by Mr. Modi and US President Barack Obama in January raised concerns that the government would move to effectively indemnify suppliers, contrary to the interests of potential victims. The list of "frequently asked questions" (FAQs) on nuclear liability released by the Ministry of External Affairs on February 8 confirms the suspicion that the Modi government is trying to reinterpret India's liability law by executive fiat in order to protect nuclear vendors (http://tinyurl.com/india-liability).

The government has disingenuously suggested that it achieved the recent "breakthrough" by establishing an insurance pool to support suppliers. However, to focus on this arrangement is to miss the wood for the trees as even a cursory analysis of the economics of nuclear plants shows.

A section in the Indian law called the "right of recourse" allows the Nuclear Power Corporation of India Ltd. (NPCIL) to claim compensation from suppliers up to a maximum of Rs.1,500 crore (US$240 million; €214m). This pales in comparison with the total cost of the six planned Westinghouse reactors at Mithi Virdi in Gujarat; estimates from similar plants under construction in the US suggest that this may be as high as Rs.2.5 lakh crore (US$40.1 billion; €35.8b). In the US, all nuclear plant operators must have third-party insurance for at least US$375 million (€335m), and suppliers could easily set aside a small portion of their profits to do the same for reactors sold in India.

Problematic principle

What suppliers are worried about is not the amount, but the principle. More concretely, if the law places some responsibility on suppliers, then a future Indian government could use this to gain leverage by forcing them to pay substantially more for a serious disaster. Moreover, their executives could be held accountable under other civil and criminal statutes in India. The FAQs released by the government are meant to reassure nuclear vendors on these counts.

The FAQs claim that the provision allowing the NPCIL a right of recourse "is to be read ... in the context of ... the contract between the operator and supplier." This goes beyond the law, where the right of recourse exists independently of a contract.

In 2010, when a parliamentary standing committee suggested such a linkage, its recommendation was rejected by the Cabinet after a public outcry. Although the FAQs later state that "a provision that was expressly excluded from the statute cannot be read into the statute by interpretation," this is precisely what the government is doing here.

The FAQs suggest that the government is also committed to the interests of the public sector NPCIL which "would insist that ... contracts contain provisions that provide for a right of recourse consistent with Rule 24 of CLND Rules of 2011." However, this is a cunning sleight of hand. A central element of these rules is that "the provision for right of recourse ... shall be for the duration of initial license," which is usually granted only for five years. In contrast, the promised lifetime of modern reactors is 60 years, and failure rates tend to increase in later years. Therefore, linking the right of recourse to a contract is an attempt to water down supplier liability to a meaningless level.

The FAQs also declare that suppliers cannot be "asked to pay more compensation in the future ... than currently provided under the law." However, this ignores the fact that the law itself has a provision for revising liability, which states that "the Central Government may ... from time to time ... specify, by notification, a higher amount."

A revision of the cap with time is only natural. Several decades from now, Rs.1,500 crore may be worth much less than it is currently. Therefore, the government's move to perpetually limit supplier liability to this nominal amount defies basic economic principles, and implies that victims will receive a lower compensation, in real terms, for future accidents.

Finally, the FAQs assert that the liability act, ipso facto, takes away the rights of victims to sue suppliers even under other laws. If this interpretation of the law is correct, then it implies that suppliers cannot be prosecuted even for criminal negligence.

Double standards

This provides a striking example of double standards. Under US law, suppliers can be held legally responsible for accidents. Consequently, for decades, the US refused to join any international convention that would require it to legally indemnify suppliers. When it engineered the Convention on Supplementary Compensation for Nuclear Damage, it inserted a "grandfather clause" to ensure that it would not have to alter its own law. In contrast, the Indian government seems willing to meekly surrender the rights of its citizens.

It is sometimes argued that India must make these concessions to "repay" the US for its help in facilitating India's access to international nuclear commerce. US policymakers pushed for such access in a calculated attempt to induce India to support its geostrategic objectives and to ensure that US companies would have access to the emerging Indian nuclear market. However, just because the Manmohan Singh government accepted this Faustian pact − and even cast an unconscionable vote against Iran at the International Atomic Energy Agency − does not mean that the country needs to repay this self-serving "favour" endlessly by bending its laws and spending billions of dollars on US reactors.

Although the question of liability is somewhat abstruse, it deserves greater public attention because it serves as a clear lens to understand the central conflict involved in India's nuclear expansion: the desire of nuclear vendors to have profitability without accountability and the interests of ordinary people who could be potential victims. The government's attempt to resolve this conflict in favour of the industry is a revealing indicator of its priorities.

M.V. Ramana and Suvrat Raju are physicists with the Coalition for Nuclear Disarmament and Peace. Ramana is the author of 'The Power of Promise: Examining Nuclear Energy in India', 2012.

Reprinted from The Hindu, 16 Feb 2015, www.thehindu.com/opinion/op-ed/comment-profitability-without-accountabil...