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Have American Nuclear Companies Trapped Indian Prime Minister?

By Buddhi Kota Subbarao. Ph.D.

21 September, 2013

Why the American nuclear companies continue to voice concerns about India's Civil Liability for Nuclear Damage Law? This question becomes more baffling when the American nuclear giant Westinghouse, which claims that its latest design of AP 1000 Pressurised Water Reactors (PWR) are the safest in the world, leads the pack of companies seeking to dilute India's Civil Liability for Nuclear Damage Law. If their reactors are as safe as they claim, then the American companies should be fully confident that there would be no occasion for their equipment to fail leading to claims for nuclear damage. What is going on behind the scenes?

Behind the scenes a great deal of effort is underway to trap Indian Prime Minister to agree to the argument that India's Civil Liability for Nuclear Damage Law, which allows the operator of a nuclear plant to seek damages from the supplier in case of a nuclear incident due to supply of equipment with latent and patent defects or sub-standard services, is not consistent with the International Convention on Supplemental Compensation (CSC).

Certain segments of Indian political class and Indian nuclear establishment are jointly and severally striving to show merit in the argument that India's Civil Liability for Nuclear Damage Law and the International Convention on Supplemental Compensation (CSC) are in conflict and therefore there is a need to go by the International Convention in order to facilitate India's entry to the international mainstream civil nuclear commerce. It makes the Indian Prime Minister get trapped from all sides.

Now there is an allegation against Indian Prime Minister Dr.Manmohan Singh, that he has caused steps to dilute India's nuclear liability law with the intention of pleasing the US President Barack Obama during Prime Minister's visit to the United States in the last week of September 2013.

There are headlines in mainline media in India, “ Manmohan may carry nuclear liability dilution as gift for U.S. companies.” Combination of nuclear commerce and politics does help leaders of developing countries to ascend to great heights but they can remain at those heights only if the commercial interests are ensured.

To understand the issue let us recall the relevant provisions of The Civil Liability For Nuclear Damage Act, 2010 and the Civil Liability for Nuclear Damage Rules 2011, put in place by India.

At present, the Operator of nuclear power plants in India is Nuclear Power Corporation of India Limited (NPCIL), a Public Sector Enterprise under the Department of Atomic Energy (DAE), Government of India. Under Section 17 of India's Civil Liability For Nuclear Damage Act, 2010, the Operator has been provided with a right of recourse which means when a nuclear incident occurs causing loss of life and damage to property, the Operator shall have the authority to initiate action for compensation as provided in Section 17, which reads:

“The operator of the nuclear installation, after paying the compensation for nuclear damage in accordance with section 6, shall have a right of recourse where-

(a) such right is expressly provided for in a contract in writing;

(b) the nuclear incident has resulted as a consequence of an act of supplier or his employee, which includes supply of equipment or material with patent or latent defects or sub-standard services;

(c) the nuclear incident has resulted from the act of commission or omission of an individual done with the intent to cause nuclear damage.”

Clause (a) allows compensation as provided in a written contract between the Operator and the supplier of equipment. Clause (b) allows recovery from the supplier if the loss causing nuclear incident is as a result of supply of equipment or material with patent or latent defects or sub-standard services. The American nuclear companies are troubled by this clause (b). It is to the credit of Political Parties in Opposition in Parliament (Lok Sabha and Rajya Sabha) that they could take a firm stand to get the clause (b) incorporated in Section 17 of the Act.

However, to be fair to the United States, it must be said that even Russia, the supplier of nuclear reactors at Koodankulam, Tamilnadu, and France, the proposed supplier of nuclear power plant at Jaitapur, Maharashtra, are also troubled by this clause (b). According to Che Guevara, capitalism is a contest between competing wolves.

The attempt of Russians to escape the burden of clause (b) is by claiming that the reactors they sold India should be treated as exempt because the contract predated the legislation. The French have reluctantly acquiesced to the Indian liability law, but they made the cost of French reactors prohibitively high. US companies, especially Westinghouse, remain deeply concerned about their financial exposure.

As if it is to assuage the fears of American nuclear companies, the Manmohan Singh Government drafted and got approved by the Parliament the Civil Liability for Nuclear Damage Rules 2011. It appears, the Opposition in both houses of Parliament was not alert to Rule 24 which has the potential to ignore and neglect the stringency of clause (b) of Section 17 of the Act, 2010.

Rule 24 of Civil Liability for Nuclear Damage Rules 2011, is cleverly worded to overcome the fangs of clause (b) of Section 17 of The Civil Liability For Nuclear Damage Act, 2010.

Using Rule 24, Government linked causes (a) and (b) of Section 17 of the Act and thereby the provisions for recourse afforded to the Operator in the event of a nuclear incident are entirely shifted to clause (a) of Section 17, namely to the contract, and thereby nullified the provisions of the dreaded clause (b) of Section 17 of the Act.

Section 17 of the Act specifies three circumstances namely clauses (a), (b) and (c)  under which the operator can seek recourse.  Rule 24 is cleverly worded to gravitate the operator's “right to recourse” towards the contract under Section 17(a). Under a contract, the recourse available to the operator may be less than his liability.

Rule 24(1) states: “A contract referred to in clause (a) of Section 17 of the Act shall include a provision for right of recourse for not less than the extent of the operator's liability under Section 6(2) of the Act, or the value of the contract itself, whichever is less.' A clarification is provided under Explanation-2, “For the removal of doubts it is clarified that an operator's claim under this rule shall in no case exceed the actual amount of compensation paid by him up to the date of filing such claim.” The maximum liability of Operator is Rs.1500 crores under Section 6(2) of the Act. Rule 24(1) cleverly precludes the operator from seeking any ‘consequential damages' from the supplier.

Explanation 1 under Rule 24(2) defines the term ‘product liability period' thus, ‘ “‘product liability period” means the period for which the supplier has undertaken liability for patent or latent defects or sub-standard service under a contract.'

If we incorporate into Rule 24(2) the definition of  the term ‘product liability period', Rule 24(2) reads, ‘The provision for right of recourse referred to in sub-rule 24(1) shall be for the duration of initial licence issued under the Atomic Energy (Radiation Protection) Rules, 2004, or ‘the period for which the supplier has undertaken liability for patent or latent defects or sub-standard service under a contract', whichever is longer.”

For quite some time, the duration of initial licence is stipulated as five years by India's Atomic Energy Regulatory Board (AERB). It is purely a time limit to periodically stop and review the overall operational & safety management of a facility by the operator. It has no direct connection with the supplier or his supplies. There is no sustainable logic in bringing licensing period into Rule 24(2). It appears, it is done just to enable an ‘either-or' provision, with one end-point as low as five years.

 The intent of the Parliament appears to be that the contract specified under Section 17(a) would not restrict the right to recourse under Section 17 (b) and other provisions of the Act including Section 46 of the Act which provides, “ The provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being in force, and nothing contained herein shall exempt the operator from any proceeding which might, apart from this Act, be instituted against such operator.”

No doubt, Rule 24 can be challenged before an appropriate Court for neglecting and ignoring the intent of Parliament in passing Section 17 of the Act. Rule made under the Act cannot be in conflict with the Act.

Though the Indian Government has done its bit to dilute its own nuclear liability law by notifying in November 2011 the cleverly made Civil Liability for Nuclear Damage Rules 2011, the United States has evolved its own strategy to dilute India's Civil Liability for Nuclear Damage Law. The strategy is to make India consult International Atomic Energy Agency (IAEA) on its nuclear liability law as a means to ensure the objective of joining international mainstream civil nuclear commerce.

United States embarked upon this strategy at the end of 2012 when its Principal Deputy Assistant Secretary of State for South and Central Asian Affairs Geoffrey Pyatt has released on November 30, 2012 an official statement "India's nuclear liability law is not in line with the international nuclear liability principles reflected in the Convention on Supplementary Compensation for Nuclear Damage,"

The official statement by Geoffrey Pyatt went on to say, "Current liability law and regulations impose the risk of a heavy financial burden on equipment suppliers seeking to enter the Indian market and expose such companies to the risk of significant financial penalty in the event of a nuclear accident, neither of which is consistent with international standards,"

"Without a law consistent with this Convention in place, companies from the United States as well as other nations will find it difficult to participate in India's nuclear power expansion plans," Pyatt stated.

US Government has embarked on an all-out effort to make India look to IAEA to find ways to save the American nuclear equipment suppliers, seeking to enter Indian market, from the risk of a heavy financial burden in the event of a nuclear accident.

US Government saw the need to intensify its efforts to push India to come under the umbrella of IAEA, after the Indian Prime Minister Manmohan Singh had met US President Barack Obama on the side-lines of the ASEAN summit in Bali in November, 2012, and had made it clear that India will work within the 'four corners' of its domestic laws, indicating that it will not give in to any pressure from outside. Manmohan Singh had also assured Obama that India will also ratify the Supplementary Convention (for nuclear damage).

GW Bush, Barack Obama, Hillary Clinton, John Kerry, Joe Biden and a host of other high US Executives meticulously discharge their duties to promote nuclear power business in India. They are for the Corporates and the Corporates are for them.

US Secretary of State John F. Kerry's recent visit to New Delhi in June 2013 was to sell nuclear reactors built by Westinghouse Electric Company to India. Westinghouse President and CEO Danny L Roderick told Energy Daily , a publicly known e-newsletter, “Secretary Kerry's efforts to move discussions forward with an announced goal of reaching commercial agreement in the September timeframe to support licensing and site development of AP1000 reactors in India are proving to be invaluable,”

Replying to the address welcoming him to India, Secretary Kerry said, “I'm also proud of the work that we did on the Civil Nuclear Agreement that Nancy referred to when she introduced me. When I was Chairman of the Senate Foreign Relations Committee, we guided that agreement through the United States Congress, and I was privileged to work with Prime Minister Singh in helping to try to create the capacity for it. That agreement demonstrated our mutual confidence of our strategic partnership. So we look forward to realizing the full implementation as soon as possible, including making progress on the efforts of Westinghouse and GE-Hitachi to construct nuclear power plants in India.”

US Vice-President Joe Biden's visit (July 22-25, 2013) was the first by a foreign dignitary to India after the Koodankulam Unit 1 attained criticality on July 14, 2013.  The matter of Nuclear power projects for American companies was on the top of Biden's agenda. He started where Secretary John Kerry left off in June 2013. US company Westinghouse is looking forward to building 6,000 MW of nuclear power projects in Gujarat. Similarly 9,500 MWe GE reactors made in the US are slated to come up at Kovvada, in Srikakulam District of Andhra Pradesh.

The connecting links are clear – US Westinghouse, US GE and Japan's Toshiba Corp are joint sellers of nuclear power plants and India is the buyer.

To get a more up to date recent picture on the perceptions of the American leaders on the perceived tough challenge posed by India's nuclear liability law, there can be no better event to examine than the Senate confirmation proceedings of Nisha Desai Biswal, President Barack Obama's Indian-American nominee for a key post in South Asia.

"I think that the 123 agreement was a transformational agreement between the relationship between the United States and India”, Nisha Biswal said at her confirmation hearing on September 12, 2013, for the post of Assistant Secretary of State for South and Central Asia.

“India's nuclear liability law posed a tough challenge for implementing the 'transformational' Indo-US nuclear deal though there is a very strong desire to move forward.” Nisha Biswal said replying to questions from the members of Senate Committee.

"But since that deal was enacted, I think that there has been very slow and halting progress because of the nuclear liability law in India and the hindrances that that has posed to advancing civil nuke cooperation," she said.

If confirmed, Biswal, currently Assistant Administrator for Asia at the US Agency for International Development (USAID), will be the first Indian-American to be appointed as Assistant Secretary of State in the State Department.

"But I think it is going to be a political challenge for the Indians. And we look forward to working with them," Biswal, the daughter of first generation Indian-Americans, said. She acknowledged that there is a "very strong desire" to move forward on this in India.

"I am hopeful, though, that we're making progress and that there seems to be some progress between Westinghouse and the Indian government and NPCIL on approving a small contract.” Biswal said.

"It is going to be a long and tough road to work through the issues with the nuclear liability law, but I think it's fundamentally in India's interests as well as in the interests of the United States to work through those issues so that we can progress with civil nuclear cooperation," she said in response to a question from Senator Tim Kaine, Chairman of the subcommittee on Near eastern and South and Central Affairs.

It is clear to the US Senators and the US Executive that India's nuclear liability law allows the Operator NPCIL to seek damages from the supplier in case of a nuclear incident due to supply of equipment with latent and patent defects or sub-standard services. The US says the Indian law is not consistent with the Convention on Supplemental Compensation (CSC).

"We're hopeful that that is something that can be announced in the near future and that that will pave the way for additional work in the months ahead," Biswal said hinting at the possibility of an announcement during Prime Minister Manmohan Singh's September 27, 2013 US visit.

There is no doubt, Indian Government is under tremendous pressure from the US to strike deals with American reactor builders like GE and Westinghouse, who see India's market for nuclear equipment worth above $175 billion.

There is also no doubt that If a foreign supplier's liability is limited, the Indian tax payer will have to pay in case of a nuclear accident like Fukushima in Japan, Russia's Chernobyl disaster or the Three-Mile Island accident in the US. The present estimate of the clean-up cost of Fukushima accident in Japan is 50-70 billion US dollars.

On September 4, 2013, the Department of Atomic Energy (DAE) referred the matter to Attorney General for India Goolam Vahanvati. In its reference to the AG, the DAE had sought confirmation “regarding the presumption that the existing provisions of section 17 of the Act facilitate the operator either to exercise his ‘right of recourse' by incorporating a clause in the contract or to waive his right or to limit the liability on the part of the supplier.”

Vahanvati reiterated his opinion given to the Government in October 2012 in the context of the Inter-Governmental Agreement between India and Russia , “Section 17(a) provides for recourse if such right is expressly provided for in a contract in writing. If the operator chooses not to incorporate such a provision in the contract, it would be open for him to do so.”

Whether the opinion of Attorney General (AG) can meet the eye of law is yet to be tested. Whether Indian Government have accepted the opinion of AG is also to be seen.

But AG's opinion effectively paves the way for the Operator, Nuclear Power Corporation of India Ltd (NPCIL), to ignore and neglect a right that Parliament explicitly provided in section 17(b) of the nuclear liability Act, 2010 to ensure that foreign suppliers don't get away scot-free if a nuclear accident is traced back to “equipment or material with patent or latent defects or sub-standard services.”

It shows, the lobbying of American nuclear vendors Westinghouse and GE with Washington and Delhi to have the troubling provision Section 17 (b) amended or removed, has not gone waste. Though India publicly sticks to the line that dilution of this provision is not possible, AG's opinion does open a door for the Indian Government to accommodate the U.S. demand when Prime Minister Manmohan Singh meets President Barack Obama on September 27, 2013.

Abraham Lincoln, counselling one of his Generals, Joe Hooker - who announced that he would have no mercy on Robert E. Lee before he actually fought a battle with him - said the following:

"Of all the animals, the Hen is the wisest, since it only cackles after it lays an egg."

Buddhi Kota Subbarao     is former Indian Navy Captain with Ph.D. in nuclear technology from Indian Institute of Technology, Bombay . He is practicing advocate of Supreme Court of India.

 His e-mail address:    [email protected]

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