All you need to know about agreement reached by India and US on nuclear liability issue

 Making public details of the understanding, reached out with the United States, on nuclear liability issues, during the visit of President Barack Obama, the central government on Sunday made it clear that foreign suppliers of atomic reactors will not be sued for the damages by victims of a nuclear accident. But they can be held liable by the operator who has the right of recourse. India on Friday has also given a Memorandum to the US assuring that the Section 46 of the CLND Act does not provide a basis for bringing claims for compensation for nuclear damage under other laws, as feared by foreign suppliers.

In a seven-page clarification, dealing with contentious issues including liability, compensation and right of recourse in case of nuclear mishap, the External Affairs Ministry said the understanding on the policy hurdles were reached after three rounds of discussions between the Indo-US Nuclear Contact Group, which met last in London, just three days before President Barack Obama arrived here on January 25.  "Based on these discussions, an understanding was reached with the US on the two outstanding issues on civil nuclear cooperation, which was confirmed by the leaders (Prime Minister Narendra Modi and Obama) on January 25, 2015," the ministry said. The government also refuted that there was any proposal to amend the Civil Liability for Nuclear Damage (CLND) Act or the Rules.

 
What is the understanding reached with the United States on January 25, 2015 during the visit of President Obama to India?

Ans. India and the United States have reached an understanding on the issues related to civil nuclear liability and finalized the text of the Administrative Arrangement to implement the September 2008 bilateral 123 Agreement. This will allow to move towards commercial negotiations on setting up reactors with international collaboration in India . The understanding was reached at the meetings of contact group setup in September 2014 during the visit of Prime Minister Narendra Modi to the US. The Group, comprising representatives from Ministry of External Affairs, Department of Atomic Energy, Nuclear Power Corporation of India Ltd (NPCIL), Ministry of Finance, Ministry of Law & Justice, in addition to the representatives from U.S. Government, also had an interface with the companies – NPCIL on the Indian side and Westinghouse and General Electric on the U.S. side. It met three times in New Delhi (16-17 December 2014), Vienna (6-7 January 2015) and London (January 21-22, 2015). Based on these discussions, an understanding was reached with the U.S. on the two outstanding issues on civil nuclear cooperation, which was confirmed by the leaders on January 25, 2015.

Q:  How have U.S. concerns over the CLND Act then been resolved? 

Ans. During the course of the discussions in the Contact Group, using case law and legislative history, the Indian side presented its position concerning the compatibility of the Civil Liability for Nuclear Damage (CLND) Act and the Convention on Supplementary Compensation for Nuclear Damage (CSC). The idea of the India Nuclear Insurance Pool as a part of the overall risk-management scheme for liability was also presented to the U.S. side. Based on the presentations by the Indian side, and the discussion thereon, there is a general understanding that India’s CLND law is compatible with the CSC, which India has signed and intends to ratify.

Q. What is the CSC?

Ans. The objective of the 1997 Convention on Supplementary Compensation for Nuclear Damage (CSC) is to establish a worldwide liability regime and to increase the amount of compensation available to the victims of nuclear accidents. A State which is a party to either the 1963 Vienna Convention or the 1960 Paris Convention could become a party to the CSC. The provisions of the CLND Act are broadly in conformity with the CSC and its Annex in terms of channeling the strict/absolute legal liability to the operator, the limitations of the liability in amount and time, liability cover by insurance or financial security, definitions of nuclear installation, damage, etc.

Q. What about Section 17 and the right of recourse against the supplier in Section 17(b)? Are they not going beyond the Annex to the Convention?

Ans. Section 17 of the Act provides that the operator of the nuclear installation, after paying the compensation for nuclear damage in accordance with section 6, shall have the right to 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.
Q. Who is the ‘supplier’? Is the supplier always a foreign company?

Ans. Rule 24 of the CLND Rules explains that ‘supplier’ shall include a person who:

(i) manufactures and supplies, either directly or through an agent, a system, equipment or component or builds a structure on the basis of functional specification; or
(ii) provides build to print or detailed design specifications to a vendor for manufacturing a system, equipment or component or building a structure and is responsible to the operator for design and quality assurance; or
(iii) provides quality assurance or design services.

The supplier may not always be a foreign company; there may be domestic suppliers who fulfill the above criteria and in some cases the operator (NPCIL) itself may be a supplier as it provides build to print or detailed design specifications to a vendor.

Q. How will the proposed insurance pool operate for operators and suppliers?

Ans. The India Nuclear Insurance Pool is a risk transfer mechanism formed by GIC Re and 4 other PSUs who will together contribute a capacity of Rs 750 crores out of a total of Rs 1500 crores. The balance capacity will be contributed by the Government on a tapering basis. The pool will cover the risks of the liability of the nuclear operator under Section 6(2) of the CLND Act and of the suppliers under Section 17 of the Act. The Pool envisages three types of policies, including a special suppliers’ contingency policy for suppliers other than turn key suppliers. The Pool covers risks pertaining to the liability of the nuclear operator under Section 6(2) of the CLND Act as well as the liability of the suppliers under Section 17. Three types of policies are envisaged: a Tier 1 policy for operators; a Tier 2 policy for turn key suppliers and a Tier 3 policy for suppliers other than turn key suppliers.
Q. Wouldn’t this burden the taxpayer and raise costs of nuclear power?

Ans. Currently, NPCIL takes out a bank guarantee for this amount against which it pays an annual fee. The NPCIL will take out insurance under the Pool for the same amount and just as it pays an annual fee now it will pay an annual insurance premium to the Pool. The Government will indeed make available Rs 750 crores to the Insurance Pool for the first few years till the insurance companies are able to maintain it on their own. However, the Government will earn a proportionate share of the premium on this sum, which will be utilized only in case of a nuclear accident.

Q. How much compensation is payable under the CLND Act?

Ans. Section 6(1) of the CLND Act presently prescribes that the maximum amount of liability in respect of each nuclear incident shall be the rupee equivalent of three hundred million Special Drawing Rights (SDRs). As the current value of 1 SDR is about Rs 87, three hundred million SDRs are equivalent to about Rs 2610 crores. Section 6(2) of the Act lays down that the operator’s maximum liability shall be Rs 1500 crore. In case the total liability exceeds Rs 1500 crores, as per Section 7 (1) (a) of the CLND Act, this gap of Rs 1110 crores will be bridged by the Central Government. Beyond Rs 2610 crores, India will be able to access international funds under the CSC once it is a party to that Convention.

Q. What are the next steps?

Ans. It will be now up to the companies to follow up with their own negotiations and come up with viable techno-commercial offers and contracts consistent with our law and our practice so that reactors built with international collaboration can start contributing to strengthening India’s energy security and India’s clean energy options.