Tough provisions in the 2010 law are making it difficult to move ahead even with projects designed and built by India
In the context of the ongoing debate on Kudankulam, the question of
nuclear liability has come to the fore again. As a person who engaged
with this question almost 50 years ago, I would like to throw some light
on the subject. As a lead member of the Indian team negotiating the
Tarapur contract with the Americans, it fell to my remit to address this
matter. General Electric and Westinghouse, who were the serious
bidders, explained to us the practice in the United States whereby the
owner-operator of the plant assumed the nuclear liability risk. The
operator indemnified suppliers of equipment because the financial risk
of a nuclear accident, though very remote, could not be reasonably
factored in by the chain of suppliers involved in a nuclear project, in
their contracts. The owner-operators of nuclear power plant, who were
mostly investor-owned utilities, were asked to take
insurance up to a limit available in the market. The U.S government assumed liability beyond the insurable limit up to another limit set under the Price-Anderson Act, passed by the U.S Congress. The limit set under the Price-Anderson Act has been increased progressively from time to time.
insurance up to a limit available in the market. The U.S government assumed liability beyond the insurable limit up to another limit set under the Price-Anderson Act, passed by the U.S Congress. The limit set under the Price-Anderson Act has been increased progressively from time to time.
Protection in the contract
General Electric, chosen to build Tarapur, wanted an indemnity
protection similar to what it was extended in the U.S. Initially, it
insisted that there should be legislative protection. On the Indian
side, we felt it was premature to pass a law as we were then thinking of
building only a small number of nuclear power units to demonstrate the
economic feasibility of nuclear power under Indian conditions. We
persuaded G.E. that a protection in the contract, which was in any case
approved by the Government of India, would be adequate. When an
agreement with the Atomic Energy of Canada Ltd. (AECL) was drawn up for
building the first two reactors at Rajasthan, a similar indemnity
protection was extended to AECL and its suppliers. Since India took up
building nuclear power units of its own design, indemnity protection has
been a part of nearly all supply contracts.
One may ask, in hindsight, if India did the right thing in extending
such nuclear liability protection in the past. If we had not done so, we
would not have been able to import our first two reactors from the
U.S., nor the second pair from Canada. There is no doubt whatever that
India gained a great deal by building the Tarapur reactors with U.S.
collaboration. India learnt early the problems of operating nuclear
power units in our grid systems and also in managing a complex nuclear
installation with our own engineers and technicians. In the case of
cooperation with Canada, India was able to get the basic knowhow of the
pressurized heavy water reactors (PHWR). Thereafter, we progressed on
our own to design and build 16 PHWRs in seven locations. Now we are
building four 700 megawatt PHWRs of our own design. Four more will
follow soon and possibly another four will also be built, thus making a
total of 12 PHWRs of 700MW each. Therefore, early cooperation with
Canada helped us to become a designer and builder of nuclear power
plants.
Let us look at the way an owner-operator manages a nuclear power plant.
Even where a plant has been supplied by a single entity under a turnkey
contract, many vendors, often running into thousands, would have
supplied many components. During operation, the operator incorporates
many changes and modifications to improve the reliability, ease of
operation and efficiency. They may or may not have been done in full
consultation with the original suppliers of equipment. Chances that
sub-suppliers would be consulted on changes are very small. Moreover,
nuclear power plants operate for 50 years or longer; our first two
Tarapur reactors have in fact completed 43 years. So on objective
grounds, the operating entity being solely responsible for nuclear
liability is grounded in sound reason. There are about 430 reactors
operating in 30 countries the world over. All of them, without
exception, have been built under arrangements where nuclear liability
flows to the operator. The operator, depending on the political system
prevailing in the country, covers the risk to the extent possible by
insurance. The government of the country takes up the liability beyond
the insurance limit; it may also define an upper limit to its own
liability, through legislation. Under the Convention on Supplementary
Compensation, a multilateral convention, participating states can also
share the liability risk to a defined extent.
India took up the task of drafting a nuclear liability Act whose primary
purpose was to ensure prompt compensation to any member of the public
who might have suffered injury, death or damage to property due to a
nuclear accident. Much of the debate in India took place in the context
of the Bhopal tragedy, which was also being considered by Parliament at
the same time. In this atmosphere, the legislation that was passed
included a right of recourse for the operator against the supplier in
case of latent or patent defects or wilful misconduct. We must remember
that for our own projects based on our own technology, we depend on a
large number of Indian suppliers. The value of these contracts may run
into several hundred crores or maybe as low as a crore or less. These
suppliers cannot be expected to cover themselves for large value risks
of long duration. Therefore, under the rules to be drafted, the
Department of Atomic Energy has tried to inject realism by defining the
duration of the risk to be the product liability period or five years,
whichever is less, and a cap on the risk being the value of the
contract. We find that long-standing suppliers of DAE and NPCIL are
unhappy to go along even with these caps, as they feel that carrying
large contingent liabilities on their books hurts their credit ratings.
They, therefore, prefer to move to non-nuclear activities, even though
they have acquired valuable nuclear expertise on work done earlier.
In much of the debate in the media and in our courts, it is often
suggested that the nuclear liability legislation has been written to
suit foreign MNCs.
The fact is that after 2008, when India signed nuclear cooperation
agreements with the U.S, France and Russia (and some other countries),
not even one contract for the import of reactors has been signed to
date. With France, discussions have covered technical and safety issues,
and commercial discussions are in progress now. In the case of the
U.S., the discussions are still on technical and safety issues. Only in
the case of Russia was an agreement signed in 2008 for Units 3 and 4 at
Kudankulam, essentially as an extension of the agreement covering Units 1
and 2. Prices have been derived for Units 3 and 4 using the earlier
price as a basis. The loan agreement also is based on the earlier
pattern.
The 2008 agreement
The 2008 agreement provides that India would extend indemnity protection
for Units 3 and 4, on the same lines as Units 1 and 2. I had in fact
negotiated the earlier agreement in 1988, in keeping with the prevailing
international practice. If India wants the Units 3 and 4 agreement to
comply with its 2010 liability legislation, there is a danger that the
entire 2008 agreement may be reopened.
Some of our legal experts point out that the law of the land is
“Polluter Pays”. This may be so on paper. In practice, all our thermal
power stations are putting out carbon dioxide, which is a pollutant. Are
they paying for that? Similarly, all our cities are putting out sewage
and solid waste to the environment. Again, sadly, they are not paying
for that. In fact nuclear energy poses the least pollution hazard; there
is no fly ash, acid rain, or carbon dioxide released into the
environment. Units 1 and 2 of Kudankulam were built under a contract
entered into in 1988 (and renewed in 1998), before our liability
legislation of 2010. We are finding great difficulty in moving ahead
with Indian designed and built projects due to some of the provisions of
the 2010 legislation. We must arrive at a solution whereby electric
power generation growth is assisted to the maximum extent possible,
while ensuring that the safety of the people is in no way adversely
impacted. With regards to Kudankulam 1 and 2, the delay of one year has
already pushed up the tariff from Rs. 3 per KWH to Rs 3.25 per KWH. Any
further delay will similarly increase the cost of power to the
consumers.
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