The loopholes in the Nuclear Liability Bill

In the second part of a three-part series, Manoj Kumar and Lydia Powell, in an Observer Research Foundation study, discuss at length the various loopholes in the Nuclear Liability Bill, whose amended version was recently passed in the Lok Sabha.

Read Part 1: Why a nuclear liability bill is essential

Read Part 3: How the world perceives nuclear liability

The government introduced the Civil Liability for Nuclear damages Bill, 2010  in the Lok Sabha on 15th of March, 2010, to enable the initiation of a Nuclear power era in India.

The bill defines certain words and expressions including 'nuclear damage', 'nuclear incident', 'nuclear installation', 'nuclear material', 'nuclear reactor', 'operator', etc.

It proposes that the Atomic Energy Regulatory Board, constituted under the Atomic Energy Act 1962, shall notify nuclear incidents within a period of 15 days from the date of its occurrence.

It further provides that the maximum amount of liability in respect of each nuclear incident shall be the Rupee equivalent of SDR 300 million (Rs 2000 crores).

The bill provides for the liability of the operator and Central government in case of a nuclear damage. The liability of the operator, whether public or private, is capped at Rs 500 crores.

The Central government can, by notification, increase or decrease the liability of the operator. The Central government shall be liable for nuclear damage beyond Rs 500 crores subject to maximum of Rupee equivalent of 300 million SDRs.

In its current form, the bill has been drawn flak for being a sell-out to foreign and domestic commercial interests that want to enter into the lucrative nuclear supplies market in India without taking on any responsibility for safety and compensation issues and also for accepting the principle that the value of human lives in India as well as property is not only different from but inferior to the value ascribed in developed countries.

The bill is inadequate even if it was drafted primarily to address the concerns of the 'operator' of a nuclear power plant as there are enough loop holes in the bill that can entrap the operator into unlimited liabilities.

The bill essentially seeks to legally channel the liability for accidents to the operators, give operators an extremely limited right of recourse against suppliers in the event of an accident and also set aside ordinary tort law so as to disallow fault-based claims by victims against operator or supplier.

If the government wants to signal interest in the victim rather than interest in the nuclear industry, it is necessary that the bill is reworked meticulously to reflect economic channelling of liability rather than mere legal channelling of liability.

Key Outstanding Issues : Operator liability

In Section 6 (2) of the bill, the liability of the operator has been limited to Rs 500 crore. The Vienna Convention does not limit operator liability in any way. As far as the Paris Convention is concerned, it is restricted to members of OECD.

India is not bound by either convention as such to restrict operator liability at any particular level. Therefore, Section 6(2) can be modified, in theory, to include any level of liability or even unlimited liability.

In order to determine the maximum liability, section 6(1) will have to be adjusted according to the level set in Section 6(2), keeping in mind that the maximum liability cannot be less than that of the operator's liability.

The issue here is that making the liability unlimited and seeking insurance cover for the same would make any project unviable as the operator will never be able to secure either the insurance or the required finance for the project.

There has to be a limit on liability but whether Rs 500 crore is a satisfactory limit for the operator's liability is rightly being challenged by the Members of the Parliament.

Simplistic arguments that list countries which have lower liability limits only convey the message that the liability limit was arbitrarily chosen. It is a welcome development that the limit is likely to be increased threefold or more in the revised version of the bill.

An upward revision of the operator's liability will strike the right balance between making the legal and regulatory regime attractive enough for potential private investors in the nuclear sector while also ensuring that human life in India is neither under-valued nor the constitutional right to life compromised.

Though the financial consequences of lost earnings are relatively low in India as compared to the industrialised world, the high density of population in India and the fact that the tort law in India has not evolved to the extent it has in industrialised countries make it necessary that the limits to operator liability in the bill are revised upwards.

Compensation under tort law emanates out of judicial discretion and not necessarily codified in law. As the Indian society evolves there will be greater realisation that the precautionary principle and 'polluter pays' principle have to be implemented with punitive costs.

Moreover given that inflation has wiped out substantial value out of the meagre compensation awarded to the victims of the Bhopal tragedy, a clause for linking the maximum liability of the operator to the inflation index is necessary.

Traditional insurance solutions are absent in the nuclear industry as the catastrophic nature of the potential damages move it beyond the capacity of commercial insurers to cover it under their own capacity.

National risk insurance pools have emerged in nations with nuclear plants and these national pools in turn, reinsure other pools in order to spread risk to the extent possible.

If the idea of a nuclear risk insurance pool was put forward at this stage, it would have conveyed the serious intent of the Centre to have in place a comprehensive mechanism to deal with all the issues relating to nuclear damage.

The pooling mechanism for risk sharing will entail risk inspections and sharing of expertise by other nuclear insurance pools. This will benefit the Indian nuclear industry which lacks experience in Light Water Reactors which may be imported in the future.

It will bring best practices in risk management into the industry and serve to make our nuclear facilities safer to operate.

The bill provides only 'liability' and not 'absolute liability' betraying a built-in escape option provided for both the operator and the government. The CSC provides that the liability of the operator is absolute, i.e., the operator is held liable irrespective of fault.

The exclusion of absolute liability creates ambiguity on what the government's real objective is in promoting the bill. Absolute liability cannot be calculated immediately after an accident but the bill must ensure that absolute liability is provided for and the responsibility jointly shared between the operator and the government.

The bill further excludes the liability of operator for any nuclear damage:

· Caused to a person on account of his own negligence
· Caused to a nuclear installation itself, on the site where installation is located or to any property or any means or transport.

Section 2(h) of the act defines nuclear incident to mean any occurrences or series of occurrences having the same origin which causes nuclear damage but only with respect to preventive measures creates a grave and imminent threat of causing such damage.

There is no specification as to the point at which a person or a private operator may determine the likelihood of grave and imminent threat of nuclear damage.

The identifying signs for the operator situated in the area to realise the likelihood of grave and imminent threat of nuclear damage are not specified.

Similarly, Sections 2(l) defines the 'operator'. The definition of operator as in relation to a nuclear installation means the person designated by the Central government as the operator of the installation.

The definition does not specify whether or not private entities can be appointed as operators of nuclear installation. There are no guidelines or methods specified by the Central government to designate an operator.

The role, duty and functions of the operator are not specified. The ambiguity in defining an operator may be deliberate so as to keep options open for the entry of the private sector but the unrestricted and absolute power of the Central government in this regard may leave scope for abuse of power.

Section 2(n) defines preventive measures which means any reasonable measures taken by a person after a nuclear incident has occurred to prevent minimize damage referred to in sub-clauses (i), (v), (vii) of Clause (f) subject to the approval of the Central government.

The phrase 'reasonable measures' used in the definition is vague as to what is considered to be reasonable and what is not.

Section 4(2) states that where more than one operator is liable for nuclear damage the liability of the operators so involved shall be in so far as the damage attributable to each operator is not separable be joint and several provided that the total liability of such operator shall not exceed the extent of liability specified under sub-Section (2) of Section 6.

In this regard, specification as to whether this clause pertains to one nuclear installation is required.

Section 8 provides that the operator must take an insurance of Rs 500 crore covering his liability. The lacuna lies in proviso to Subsection (2) of Section 4 which states that, when nuclear damage is caused by more than one operator the total liability of both the operators shall not exceed Rs 500 crore.

Similarly, Section 5 (l)(i) states that an operator shall not be liable for any nuclear damage where such damage is caused by a nuclear incident directly due to (i) a grave natural disaster of an exceptional character.

The lacuna here is that the said clause (i) of 5(i) is ambiguous which may enable an operator to take this ground to escape a liability.

Other unacceptable exceptions to liability include section 5(ii) which states that the operator shall not be liable for on site nuclear damage caused to the nuclear installation under construction or to any property in the nuclear site or damage caused to any means of transport.

Precisely at what stage of the plants life the liability would the Bill become operational has not been made explicit. Would it be applicable for incidents that occur during the construction, storage and transportation stages?

Section 18 of the bill specifies a period of 10 years for extinction of the right to claim. Although international conventions also provide for a 10 year limitation, whether 10 years is practical in the Indian context where legal process move at glacial pace is rightly being challenged.

Though an increase from 10 to 20 years would be a step in the right direction the constraint would be whether the anticipated insurance mechanism too can be extended beyond 10 years.

Liability of the Central government

Section 7 of the bill states that the Central government shall be liable to pay only in the following circumstances -- where the liability exceeds the amount of liability of an operator specified under sub-Section (ii)(6), to the extent such liability exceeds such liability of the operator, occurring in a nuclear installation owned by it occurring in account of causes specified in clause (i) and (ii) of sub-section one.

This clause creates a distinction between the operator and the government when both are the same in the Indian context.

Another ambiguity is whether no liability arises on a Public Sector operator and whether the Public Sector operator does not even have to opt for insurance cover as the government is liable for nuclear installations it owns.

Section 5 states that the operator is not liable for nuclear damage caused by armed conflict, hostility, civil war and terrorism. If the state is not capable of underwriting the physical security of a nuclear plant in the event of external threats, the question arises as to whether the state should own and operate nuclear plants in the first place?

Supplier Liability

Section 17 of the bill provides the operator of a nuclear installation the right of resource when the right is expressly provided for in a contract in writing or when the incident has resulted from the wilful act or gross negligence on the part of the supplier or due to the commission or omission of a person.

It is not clear whether the Atomic Energy Regulatory Board would review foreign supplier designs or it will only review domestic designs? Again it is not clear whether foreign suppliers will permit the AERB to review its designs and even if they do, whether the AERB would have the necessary competence to carry out such a review.

This becomes important from the light of the fact that the indigenous competence is primarily is with regard to Pressurised Heavy Water Reactors and not Light Water Reactors that are likely to be imported.

If the reactor is intrinsically flawed in design, engineering, construction, materials of construction etc, then even the most well equipped and well trained operator cannot prevent an accident.

One of the key objectives of having a liability Bill is to fix the responsibility on a single entity, whom in this case is the operator, so that the aggrieved has a single point for remedy.

However this should not mean that the overseas supplier has no liability. Vicarious liability of the supplier must be in the form contractual liability between the operator and the supplier.

Beyond this contractual liability, statutory liability is also necessary as contractual responsibilities tend to be skewed in favour technology owners.

Moreover contractual liabilities between two commercial entities cannot be mediated by the government which holds the ultimate responsibility to protect its citizens.

Statutory liability for the supplier would necessarily mean the involvement of international insurance agencies as well as third party certification agencies and auditors which would be in the best interest of India's nuclear power industry.

The suggestion to rework Section 7 so as to ensure that suppliers can be held responsible by the operator for 'patent' or latent' defects in the equipment must be pursued with diligence.

If our legal history has taught us anything, it is that the lack of foresight over future disputes and contradictions arising from ambiguities and vagueness may defeat the whole purpose of legislation.

The reason and intent behind the bill is not only to deter the operators from being negligent with such perilous operations but to ensure that justice is delivered as swiftly as possible in the event of an accident.

This Observer Research Foundation brief has been prepared by eminent lawyer and corporate counsel Manoj Kumar and energy sector expert and senior fellow at the ORF, Lydia Powell

Stay tuned for the third and final part of the series which highlights some other national nuclear liability frameworks