October 14, 2012

A liability for our nuclear plans

M. R. Srinivasan

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.
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.

(M.R. Srinivasan is a member of the Atomic Energy Commission and a former chairman of the Atomic Energy Commission)

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