Putting victims at the centre of liability law

Siddharth Varadarajan IN THE HINDU

The Nuclear Liability Bill needs to be amended to ensure adequate compensation in the event of an accident.

The bill must be amended to allow for a proper level of compensation, well beyond the Rs. 2,050 crore “maximum amount of liability”

It extinguishes claims for compensation for damage made more than 10 years after an incident. An unconscionable limit

The nuclear liability bill is currently being reviewed by the Parliamentary Standing Committee on Science & Technology, Environment & Forests. There are several clauses and concepts that need to be amended to ensure the legislation meets its intended purpose.

1. The “maximum amount of liability in respect of each nuclear incident” is fixed at 300 million Special Drawing Rights, approximately Rs 2,050 crore. This figure is too low and can’t possibly cover the kind of nuclear damage a major incident would cause to human life, property and the environment. Since the government wants to accede to the IAEA’s Convention on Supplementary Compensation (CSC), 300 million SDRs has been chosen as national cap so as to receive compensation from countries that are parties to the CSC beyond that. One assumes the government will have to provide compensation above whatever limited sums come from the CSC. Some explicit commitment to this effect, therefore, is essential.

It is worth noting that the CSC will only enter into force if a country with a major nuclear programme like Japan accedes. That is unlikely to happen soon. If every country in the world joins the CSC, a maximum of 300 million SDRs would be available. But since the CSC will never attract universal adherence, the best a member state can hope to receive is around 50 million SDR. Either way, these are not substantial sums. Thus, the Bill must be amended to allow for a proper level of compensation, well beyond the Rs. 2,050 crore “maximum amount of liability”. Since the CSC says the compensation amount a signatory specifies prohibits discrimination between national and cross-border victims of a nuclear accident, some national cap may be necessary. But legal language is needed to assure the people that the government will compensate them fully in the event of an accident.

2. Like the national cap, the liability of nuclear operators is also capped too low at Rs. 500 crore for each incident. The bill says the government shall be liable for nuclear damage exceeding that amount. Two amendments are needed to protect public interest. First, the law must clarify that the cap applies only to public sector operators. Second, the Rs. 500 crore cap is low even for a public sector operator. It creates a double social cost. The fact that the operator is not forced to internalise the cost of damages he may cause will lead to the under-provisioning of safety. And, to the extent to which the operator cap is a subsidy towards the true cost of nuclear power, this would lead to the over-optimal share of nuclear power in India’s energy mix. Depending on the extent to which society wishes to subsidise nuclear energy, the operator cap should be set at some point between Rs. 500 crore and Rs. 2,050 crore. The higher figure would be more in keeping with enlightened liability regimes in other countries.

Some argue that raising the operator limit will increase insurance costs. But nuclear plants around the world take out property insurance for sums several times higher than their accident liability and this does not affect the viability of nuclear power. Insurance premia, in any case, represent a very small fraction of the total cost of a nuclear plant worldwide.

3. The operator’s right of recourse against suppliers under 17(b) should be preserved and perhaps strengthened to include defective equipment and design flaws. India should leverage its mammoth imports to get the supplier to accept a measure of liability in the commercial contract itself. Moreover, the right of recourse must be for the total damage caused by the supplier’s negligence and not be limited to the operator’s liability cap.

Since 17(b) deviates from the right of recourse envisaged by the CSC, India may have to enter a reservation if it accedes to the convention. Alternatively, it can adopt the liability bill but stay outside the convention like South Korea, which faces no impediment in doing business with U.S. suppliers. Not signing the CSC will also preserve the right of Indian victims to approach the courts of the country to which a nuclear supplier belongs in the event of an accident involving their negligence.

4. The bill extinguishes claims for compensation for nuclear damage made more than ten years after an incident. This limit is unconscionable. There is no reason why Indian law should impose such a limit for injuries to humans, especially when the Vienna and Paris conventions on nuclear liability allow a 30 year claim period. In Bhopal, many illnesses are manifesting themselves years after the original incident, and affecting subsequent generations. Physical damage may also require more time to assess. Twenty-five years after the Bhopal disaster, there is still uncertainty about liability for plant remediation. Certainly no claim was brought against Carbide on the question of site clean up within 10 years.

5. It is unsettling that the bill leaves the assessment of damages and claims for a nuclear accident to an executive rather than judicial body. While there is no reason to assume judges will be more sympathetic to nuclear victims than bureaucrats, the prohibition of judicial oversight embodied in clauses 16 and 35 cannot be justified. These will have to be amended or deleted, especially in order to end the ambiguity about the victim’s right to file tort claims.

6. Ironically, nearly half the bill’s clauses deal with the service rules etc of the officers who will process compensation claims rather than victim rights. As far as the composition of Nuclear Damage Claims Commission, it is shocking that more attention is paid to the bureaucratic qualifications of commissioners rather than their knowledge or competence to assess damage claims. In line with the complete exclusion of the health ministry and health professionals from the drafting process, the bill envisages no role for health and environment experts. Amendments are needed to remedy this.

7. Clause 46 says the Act’s provisions “shall be in addition to, and not in derogation of, any other law for the time being in force” and that the operator will not be exempted “from any proceedings which might, apart from this act, be instituted against [him]”. According to officials, the stated intent of this clause is to preserve the victims’ right to file tort claims. It also raises the possibility of criminal liability in the event of negligence on the part of the operator or, presumably, the supplier. But Indian tort law is poorly developed. As for criminal prosecutions, nothing more needs to be said in the light of Bhopal. Thus, for this clause to have any meaning, it must be accompanied by clauses that would facilitate tort claims.

The law ministry should also be asked to clarify what the intent behind mentioning only the “operator” in this clause is. Is it to simplify the filing of victim claims by channelling fault-liability on to the operator leaving him to recover damages from suppliers via his right of recourse? If so, does this mean tort claims cannot be filed against anyone other than the operator? Given the unhappiness over the Bhopal settlement of $470 million – the Centre, in a sense, channelled the claims of victims through itself but sold them cheap — the Standing Committee must ensure the nuclear bill does not dilute the victims’ right to file tort claims against any party in the event of an accident.


A scientifically naïve bill

NEW INDIAN EXPRESS First Published : 02 Apr 2010 12:42:00 AM IST

Oddly enough in the Civil Liability for Nuclear Damage Bill-2009 the operator’s liability has been capped at Rs 300 crore (it is reported that this figure has become Rs 500 crore) instead of SDRs and it is just horrifying to think that if an accident occurs a few decades hence, whether with the proposed compensation the victims will receive enough compensation to feed themselves for even a few months. The provision that the government may increase or decrease the cap amount on the operator’s liability would most likely benefit the operator in due course of time. Such departures from the international conventions cannot but be viewed as against the welfare of the Indian victims. If at all it was essential that the operator’s maximum liability be fixed in local currency whether at Rs 300 crore or 100 crore, this ought to have been linked to the Cost of Consumer Index or the Cost of Inflation Index (CII) as annually announced by the Indian authorities.Further the bill describes that subject to others provisions, every application shall be made within a period of three years from the date of knowledge of nuclear damage by the person suffering from such damage while another provision states: ‘The right to claim compensation for any nuclear damage caused by a nuclear incident shall extinguish if such claim is not made within a period of 10 years from the date of incident notified …’. The nuclear damage as discussed above does not mean immediate loss of life or personal injury or loss of, or damage to property it may manifest several decades later in form of cancers of genetic abnormalities. For such well-documented nuclear damages the bill does not provide any succour as is available under the protocols to Vienna and Paris conventions where the limitation period is fixed at 30 years. The bill appears to have been drafted without proper application of mind and without considering the data available from Hiroshima and Nagasaki survivors. The scientific naivety of the bill cannot be denied.

Is the capping of compensation necessary?

This is most crucial point. Historically the concept of capping the maximum liability of the operator was evolved in Fifties and early Sixties of the last century considering that the nuclear industry was then an unexplored area but had a great potential for human welfare and if it had to grow, it needed private industry participation. At the same time, this industry was fraught with catastrophic accidents causing such huge damage to life and environment that if the industry had to compensate fully as per the common law of torts, it would go bankrupt. Hence the industry was reluctant to participate and demanded protection in some form of subsidy from public funds. All the international conventions and national laws of nuclear power countries framed in those days maintained this philosophy. Whether almost six decades later in the year 2010, the fully matured Indian nuclear industry can still demand this kind of subsidy from the state is highly debatable. Undoubtedly research and development activities in any industry are continuing processes and are not unique to the nuclear industry alone but none of the other industries are being provided such preferential protection by the state.

Is the capping of compensation rational?

The dynamic maturity of nuclear industry in the United States is well reflected in the Price-Anderson Act 1957 wherein initially the operator’s maximum liability was limited to $60 million and the government was to take-up a further liability of $500 million. In its 1982 amendment the operator’s liability was increased to $160 million and that of the government was decreased to $400 million still making the total maximum liability to $560 million. In the 2005 amendment, the government’s share became zero and the total liability of the operator increased to $10,761 million and all of it has to be assured and indemnified. In the bill presented in India, allegedly mooted on pressure from the US nuclear industry, the maximum amount of compensation is totally out of tune with the US Act itself and also with current amendments proposed under the Vienna ($493 million) and Paris ($2,383 million) Conventions and Convention on Supplementary Compensation ($986 million). The Bhopal gas case should have also served as another guideline for setting a maximum liability limit on the nuclear operator although a nuclear accident would be far more catastrophic. In the Bhopal gas tragedy the compensation was settled at $470 million on March 3, 1991. Taking the recent (2009) Cost Inflation Index of 632 with that of 1991 as 199, it would have been understandable if the maximum liability had been capped at $1,500 million in 2009 instead of $468 million as proposed in the bill.

Is the capping of compensation beneficial?

This issue may be discussed in two parts. Firstly, the operator’s liability being limited to a meagre sum of just Rs 300 crore (reportedly Rs 500 crore now), it does not provide sufficient incentives to the operator to prevent nuclear accidents. It is true that operation of nuclear installations is strictly regulated by rules and guidelines laid down and regularly reviewed and updated from time to time by international and Indian regulatory authorities, there still remains ample scope for the operator to innovate further safety and preventive measures as it is the operator who has more on-hand information on its installation than the regulatory authorities. In the absence of such incentives the operator is more likely to follow routinely the obligatory regulations and would shy away from innovating newer strategies for preventing accidents. The end result is, the operator turns complacent.Secondly, the state’s liability for the balance of the compensation is an indirect subsidy towards the nuclear industry. It results in an artificial competition in favour of the nuclear operator who ought to have absorbed the full cost of risk in the value of the product at the consumer end. Thus the cost of electricity from nuclear reactors becomes artificially more competitive leading to its unrealistic public appreciation and an undue state favour as against other alternative sources of energy like solar which are less hazardous and less polluting and ought to be encouraged from public funds.

Is the capping of compensation adequate? .

It is almost impossible to predict the cost of damage in a nuclear accident without being fraught with severe criticism and uncertainties. Before the Price-Anderson Act came into being, the US Atomic Energy Commission Wash-740 report estimated that in a worst nuclear accident the cost of damage to property alone would reach $7billion in the Fifties of the last century. This estimate has been revised to $17billion in 1964-’65. Yet in a later study WS-1400 during 1975 the estimated personal injuries were 3,300 early fatalities and 45,000 early illnesses that had to be added to the above property loss. In November 1982 the US Nuclear Regulatory Agency had sponsored yet another programme CRAC2 (Calculation of Reactor Accident Consequences) that estimated cost of US reactor accident to be as high as $314 billion. In July 1986, the United States General Accounting Office (GAO) report stated that a $6.5billion limit on liability would cover 95 per cent of the reactor accidents in the country but a serious accident could be up to 10 times greater. The maximum liability limited to 300 million SDRs as provided in the Civil Liability for Nuclear Damage Bill-2009 is not only ridiculously low but it is totally absurd.

Is the capping of compensation ethical and constitutional?

As said earlier the damage in nuclear accidents should be partitioned into personal damage to life and property and the damage to the environment and ecology. In case of damage to life and property of persons the basic principle of Tort Law is that the injurer be obliged to fully compensate the victim. The compensation for damage to environment is regulated by the international principle of ‘Polluter Pays’ as has been repeatedly held by the Supreme Court of India. A legislative enactment putting a cap on the liability of the injurer would be highly unethical and a blatant violation of Environmental Laws and Constitution of India.At the first instance we should remember that the population living around Indian nuclear installations would be, by and large, uneducated and economically very weak and shall depend solely on the compensation. Unlike in the developed world, they are not covered under any insurance scheme either for life, or property or for medical treatment. Any limit on the compensation to the affected persons fixed by legislation greatly favours the commercial establishments and the elected representatives ought to remember that their basic duties are to protect the interests and welfare of their electorates. Can they go to the people and say that we can give you only limited compensation but please vote for me?Secondly, it is pertinent to point out that the injury to the environment and ecology and sustainable development of the country has frequently been a subject matter before the Supreme Court of India. India has formulated its Constitution and enacted multitude of legislation that are commensurate with India’s cultural ethos, economy and policy of sustainable development. Hence, in the matter of Vellore Citizens Welfare Forum v/s Union of India decided on August 28 1996 the Hon’ble Supreme Court stated: “It is no doubt correct that the leather industry in India has become a major foreign exchange earner and at present Tamil Nadu is the leading exporter of finished leather accounting for 80 per cent of country’s export. Though the leather industry is of vital importance to the country as it generates foreign exchange and provides employment avenues it has no right to destroy the ecology, degrade the environment and pose a health hazard.” Their Lordships further stated quoting from an earlier judgment that “Once the activity carried on is hazardous or inherently dangerous, the person carrying on such activity is liable to make good the loss caused to any other person by his activity irrespective of the fact whether he took reasonable care while carrying on his activity. The rule is premised upon the very nature of the activity carried on” and “Consequently the polluting industries are absolutely liable to compensate for the harm caused by them to the villagers in the affected area, to soil and to the underground water. The Polluter Pays principle as interpreted by this court means that the absolute liability for harm to the environment extends not only to compensate the victims of pollution but also the cost of restoring the environmental degradation…. and as such the polluter is liable to pay the cost to the individual sufferers as well as the cost of reversing the damaged ecology”. As recently as on May 12, 2006, in the matter Karnataka Industrial Development Board Supreme Court reiterated the rule earlier laid down in Indian Council for Enviro-Legal Action & Ors v/s Union of India as “The Polluter Pays principle demands that the financial cost of preventing or remedying damage caused by the pollution should lie with the undertaking which caused the pollution, or produce the good which cause pollution. Under the principle it is not the role of government to meet the costs involved in either prevention of such damage, or in carrying out the remedial action, because the effect of this would be to shift the financial burden of the pollution incident to the tax payer.”The Indian nuclear industry has reached full maturity despite its 35 years of isolation due to sanctions imposed by the world community and is now a willing partner in the process of globalisation without compromising its interests and principles. It is not a signatory to NPT or CTBT or any of the abovementioned conventions of civil nuclear third party liabilities. Hence India ought to have drafted the legislation more suitable to its own ethos and needs.(Concluded)

(B B Singh has been a scientist at BARC and with the IAEA. He now practises law at the Bombay High Court)

Ignoring lessons of Bhopal and Chernobyl

Brahma Chellaney IN THE HINDU

The government’s nuclear-accident liability bill seeks to burden Indian taxpayers with a huge hidden subsidy by protecting foreign reactor builders from the weight of the financial consequences of severe accidents.

The vaunted civil nuclear deal with the United States came into effect in 2008, with the U.S. Congress attaching a string of conditions to the ratification legislation, the Nuclear Cooperation Approval and Non-Proliferation Enhancement Act (NCANEA). The Indian Parliament was allowed no role to play, not even to examine the deal’s provisions. But having sidelined Parliament on the main deal, the government now wants it to pass a special law to provide foreign companie s with liability protection in case of nuclear accidents. Such a law has been demanded by U.S. firms, which, unlike their state-owned French and Russian competitors, are in the private sector.

It is important to remember that the promises on which the deal was sold to the country have been belied, one by one. For example, Prime Minister Manmohan Singh had exulted in 2008 that the deal “marks the end … of the technology-denial regime against India.” Yet, just last month, his Defence Minister conveyed to U.S. Defence Secretary Robert Gates India’s “concerns regarding denial of export licences for various defence-related requirements of the armed forces” and other “anomalous” technology restrictions.

After the 123 Agreement was clinched, Dr. Singh told Parliament in 2007 that an “important yardstick has been met by the permanent consent for India to reprocess.” But in 2010, India is still negotiating with the U.S. to secure a right to reprocess spent fuel. The U.S., in any event, has no intention of granting India “permanent consent,” with the State Department having notified Congress that the proposed arrangements with India “will provide for withdrawal of reprocessing consent.” The biggest fiction, of course, was to present the deal as the answer to the country’s burgeoning energy needs. Nuclear energy cannot be a reasonable solution for any country because plants take too long to build and cost far too much. The first plant to be set up under the deal is likely to generate electricity, in the rosiest scenario, not before 2016.

In a more-plausible scenario, the timeline may stretch up to 2020, given the three reactor-exporting countries’ record. While the U.S. has built no plant in many years, Russia is still struggling to complete its much-delayed twin reactors in Kudankulam, India. As for France, its two new plants under construction, one in Finland and the other at home, are billions of dollars over budget and years behind schedule.

The bigger question, which New Delhi consistently has shied away from discussing, is about the cost of electricity from foreign-built reactors. India’s heavily-subsidised indigenous nuclear power industry is supplying electricity at between 270 and 290 paise per kilowatt hour from the reactors built since the 1990s. That price is far higher than the cost of electricity from coal-fired plants. But electricity from foreign-built nuclear reactors will be even dearer. That, in effect, will increase the burden of subsidies on the Indian taxpayers, even as the reactor imports lock India into an external-fuel dependency.

To compound matters, the government’s Civil Liability for Nuclear Damages Bill, proposed to be introduced in the upcoming Parliament session, amounts to yet another tier of state subsidy, even if a hidden one. The bill is designed to shield foreign-reactor builders from the weight of the financial consequences of severe accidents. It shifts the primary burden for accident liability from the foreign builders to the Indian state. Although its text has not yet been made public, the bill is said to cap total compensation payable in the event of a severe radioactive release at Rs. 2,250 crore ($483 million), with the liability of the foreign supplier restricted to a trifling Rs. 300 crore ($64.6 million).

That represents an Indian taxpayer subsidy to foreign firms to help slash their cost of doing business in India. Each foreign reactor will carry a price tag of several billion dollars. Given that India has agreed to award contracts specifically to U.S., French and Russian firms, each such foreign supplier is expected to build more than one twin-reactor plant. India indeed has agreed in writing to import at least 10,000 megawatts of nuclear power-generating capacity from the U.S. alone. While each such firm stands to rake in billions of dollars in profit from the Indian market, its accident liability is being capped virtually at a pittance.

The partial core meltdown almost 31 years ago at the Three Mile Island nuclear plant in Pennsylvania didn’t kill anyone, but it led to 14 years of clean-up costing $1 billion. Despite India’s own bitter experience over the Union Carbide gas catastrophe at Bhopal, the government wants the Indian taxpayers to carry the can for foreign reactor builders. Why cap liability on terms financially prejudicial to Indian interests?

Worse still, India — instead of facilitating open market competition — is seeking to protect foreign firms from the market. From procuring land for them for reactor construction to freeing them from the task of producing electricity at marketable rates, India is doing everything to rig the terms of doing business in their favour. By designating nuclear parks for foreign-built reactors, the government has reserved reactor sites exclusively but separately for the U.S., France and Russia. In the same way it has signed billions of dollars worth of arms contracts in recent years with the U.S. without any competitive bidding and transparency, New Delhi is set to award nuclear contracts on a government-to-government basis.

India’s nuclear-accident liability bill aims to help replicate what U.S. nuclear firms presently enjoy in their domestic market, where the Price-Anderson Act caps the industry’s liability for a severe radioactive release. But for each accident, the Price-Anderson liability system provides more than $10.5 billion in total potential compensation through a complex formula that includes insurance coverage carried by the reactor that suffered the accident, “retrospective premiums” from each of the covered reactors in operation in the U.S., and a 5 per cent surcharge. Washington assumes liability for any catastrophic damages from an accident only above the $10.5 billion figure (which is inflation-adjusted every five years and thus variable).

Why should a poor country like India assume liability from a ridiculously low threshold? In fact, to cover claims of personal injury and property damage in the event of a catastrophic nuclear accident, India — given the density of its population and the consequent higher risks — must also maintain a large standby compensation pool, but without the state being burdened.

Another troubling aspect of the proposed Indian legislation is that while the Price-Anderson Act permits economic (but not legal) channelling of liability, thereby allowing lawsuits against any party, New Delhi is granting foreign suppliers immunity from legal actions — however culpable they may be for an accident — by introducing legal channelling of all liability to the Indian state (which will run the foreign-built plants through its Nuclear Power Corporation of India Limited). What will it do to nuclear safety to free foreign suppliers upfront from “the precautionary principle” and “the polluter pays principle” and turn their legal liability for an accident into mere compensation, that too at an inconsequential level?

To be sure, without a cap on liability damages in India, U.S. firms would be exposed to unlimited liability. But in its effort to help create a congenial environment for them to do business in India, should the state gratuitously assume the principal financial burden in the event of an accident? The proposed Indian cap is well below international levels. Japan, for example, has boosted its plant operator liability to120 billion yen ($1.33 billion). Under the OECD’s 2004-amended Paris Convention, total liability was set at €1.5 billion ($2.04 billion), with the operator’s share being nearly half. Germany, for its part, has unlimited operator liability and demands € 2.5 billion ($3.4 billion) security from each plant’s operator.

After the 1986 Chernobyl disaster, with its transboundary consequences, international efforts were initiated to harmonise rules on liability and compensation. But those efforts have been stymied by the failure to bring all relevant international instruments into force. States with a majority of the world’s present 436 nuclear power reactors are not yet party to any international liability convention. Many countries still maintain a “wait and see” approach. For example, China, Japan and the U.S. are not party to any international liability convention, while Russia — a party to the Vienna Convention since 2005 — has refused to pass legislation to waive or cap accident liability for its foreign suppliers. China has yet to erect a formal domestic liability regime, although its State Council in 1986 issued an administrative legal document as an “interim” liability measure.

When a number of nuclear-generating countries are yet to adopt domestic legislation in this field, let alone ratify international conventions, why is New Delhi in a rush to pass a bill that caps liability on terms weighted in favour of foreign suppliers? Parliament indeed should seize the opportunity offered by the liability bill to scrutinise the nuclear deal in its entirety.