×
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT

N deal: Freedom to decide right of recourse

Last Updated 13 May 2015, 18:24 IST

There appears to be a welcome change in the government functioning. The Ministry of External Affairs (MEA) has come out with answers for apparently self-generated “Frequently Asked Questions” (FAQ) relating to the Civil Liability for Nuclear Damage Act (CLNDA). Among the 19 FAQs that have been answered by MEA, what is of interest and which caused concern pertain to Clause 17 (Right of Recourse), specifically 17(b) and Clause 46.

Clause 17 (b) relates to conditions that would lead to suppliers’ liability in case it is proven that the incident 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 substandard services’. International conventions, including the Convention on Supplementary Compensation (CSC), which has been signed but not ratified by India, does not contain this clause. However, clauses 17(a) and 17(c) of CLNDA are part of all international conventions. Nuclear suppliers have not been willing to accept this clause which resulted in a stalemate for nearly four years. This is said to have been resolved during President Obama’s recent visit to India.

What is the interpretation given by MEA to Clause 17, which resulted in the quick fix? This clause, as per MEA, is an enabling clause, not mandatory and can be enforced only if the operator Nuclear Power Corporation of India Limited (NPCIL) opts for right of recourse in its contract with suppliers.

In an earlier instance, when reference was made on this issue to the then Attorney General G E Vahnavati, he had opined, “The views of the MEA cannot be said to be legally unsustainable, but a question may arise about advisability of such a waiver, particularly when NPCIL is a PSU. The failure to provide for and have recourse against the supplier would ultimately impact public funds.

One of the grounds which has been taken in the proceedings (pending in the Supreme Court), is that no recourse or limited recourse ultimately will entail a burden on the tax payer, particularly when the nuclear programme is being implemented through a PSU and having regard to the provisions of section 7, where the ultimate liability is that of the Central government. In my opinion, this raises serious policy issues and that policy is ordinarily a matter for the government to decide.” Hence, it is clear that though NPCIL has the freedom to decide on the right of recourse, it is still deemed as a policy issue.

How will NPCIL decide when to opt and when not to opt for right to recourse? One possible solution could be to opt for recourse uniformly on all suppliers of all safety related equipment and systems. This will also help in deciding the insurance premium, which as per the government, will be jointly decided by the operator, supplier and insurer. The second issue relates to a commitment made by the Centre to set up an insurance pool led by General Insurance Company (GIC) to enable the operator and suppliers to insure their products by paying a premium.

International pool of insurers

In order to spread the risk and cost, normally the liability is covered by insurance through a consortium of nuclear insurers. It is not clear whether enough thought has been given to and whether Indian companies alone can bear the liability in case of a major accident. India should explore the possibility of becoming a member of an international pool of insurers. It is stated by MEA that in case of an accident, India can access the international funds of CSC thereby implying availability of additional funds.

With regards to Clause 46 of the Act, which does not conform to CSC, the MEA has clarified that it applies only to operators. This clause states that ‘The provisions of this Act (CLNDA) shall be in addition to, and not in derogation of any other law’. The clause has been interpreted as an indirect approach to apply TORT (common law) which enables victims to sue suppliers, something similar to what exists in the US, wherein victims are allowed to directly sue designers and suppliers. The US is also a member of CSC. The MEA has now clarified that this option is provided to victims only with reference to the operator; victims cannot sue suppliers in foreign courts.

It is understood that suppliers are satisfied with the clarifications provided by India, and this is expected to result in commercial negotiations moving forward. However, this may not be easy due to the large escalation in capital cost (in terms of $ per installed Mwe) as compared to that of the indigenous Pressurised Heavy Water Reactors. The need for clean energy is crucial and it is not clear what strategy the government has to cross the second hurdle of cost and to bridge  the gap of four years lost since 2010 (CLNDA).

In conclusion, the entire liability, including those of suppliers in case the operator opts for right of recourse in the contract, will be that of the Indian Insurance Pool set up by the Indian government. Any spill-over beyond the Pool’s capability will have to be borne by the Government of India. Since all the liability is picked up by government entities, the present solution, albeit found through a different route, appears to be the same as what was in vogue earlier of government indemnifying suppliers against all risks.

With India having already signed CSC and Japan signing recently, the convention will come into force by April 2015. With this, another major hurdle has been crossed. Does India have a road map for completing commercial negotiations soon enough to accelerate the process of capacity addition?

(The writers are with the Centre for Study of Science, Technology and Policy, Bengaluru)

ADVERTISEMENT
(Published 13 May 2015, 18:24 IST)

Follow us on

ADVERTISEMENT
ADVERTISEMENT